Thursday, June 25, 2009

DGW (Duoyuan Global Water Inc.) - my call from this morning ripping into the close

Can you say gap up tomorrow - I can at least say it!

Good for over a 15% gain from the lows this morning (i didn't buy at the exact lows though). This one has momo written all over it. This is why if you want to follow my calls you must check the site regularly throughout the day. I mean why not - the site is free?

Let me know if you like or dislike the small cap discussion on this more macro blog.

Here is a DGW summary from
Chinese water treatment equipment supplier Duoyuan Global Water (DGW) prices its IPO at $16 per ADS, above the high end of its expected $13-15 range. Each ADS represents two ordinary shares. Its products focus on addressing the key steps in the water treatment process, such as filtration, water softening, water-sediment separation, aeration, disinfection and reverse osmosis. Co believes its nationwide distribution network is one of the largest among water treatment equipment suppliers in China. This extensive network allows it to be closer to its end-user customers and more responsive to local market demand than many of its competitors. Customers include wastewater treatment plants, water works facilities, manufacturing plants, commercial businesses, residential communities and individual customers. The co continually broadens its market reach by introducing new products that help it diversify its revenue base... Due to urbanization and industrialization in China, China faces severe water shortage and natural water resource pollution. To address those issues, the Chinese govt has enacted stricter environmental standards and invested significantly in water treatment projects. Accordingly, the demand for water treatment equipment has been experiencing rapid growth... The company is profitable and growing quickly with 2008 revenue of US$86.7 mln, up 40%, and Q1 revenue rose 39% yr/yr to US$17.7 mln. The co is high profitable with Q1 operating margin of about 33%... Briefing Note: Just like CPC earlier today, DGW is the latest in a string of Chinese IPO's that have priced well, including CYOU on Apr 2. Water contamination is a big problem in China and DGW looks like an interesting small cap, highly profitable play on the trend to improve environmental conditions in China and it's a play on the burgeoning middle class in China. It seems Chinese IPO's are becoming higher quality as underwriters understand that investors are being more selective in bidding up new issues. This is a 5 mln ADS deal, led by Piper, OpCo and Janney Montgomery.

As I look at it further it certainly isn't priced cheap at these levels, but if you assume higher growth rates you can justify it. That said, the 5 million float and sexiness of China / Water treatment could get the momo sharks circling this IPO for a bid up to $30. Also, Jim Rogers has been hammering that he thinks Chinese water treatment companies are a great place to invest. This is not like my other macro picks which are fundamentally based this is more of momentum (momo) play. So therein lies extra risk. Personally, I have moved the stop on all my shares up to my entry so I can't lose money on this trade ($21.65 is my average entry).


  1. CLWT is another Chinese water treatment co whose stock can rocket higher, been acting very good lately

  2. How about RINO? Huge profits and trading at a p/e of about 5.


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