“Discover the Secret ‘Hidden Value’ of Chinese Companies”

Robert Hsu’s copywriters can tease your credit card out of your wallet as quick as just about anyone, but the clues I wanted to dig through today are from something that Robert Hsu wrote that poses as an actual “article” on his AsiaInsider site — this is all about one of his China stocks that he teases as having a couple of the key traits that often appeal to me, including insider buying and “hidden” real estate value, so I thought it might be worth unearthing the name of the stock for you (in the end the article is as much a tease as his florid email ads, of course, since he wants your subscription money before the name and ticker are revealed).

So what are we working with? First, his explanation of this “hidden value:”

“Now, the reason this value is such an unknown when it comes to many analysts following China stocks is because it isn’t readily evident when you look at a company’s balance sheet. And, far too often, that’s all these so-called “China analysts” look at.

“No surprise that many of these China pundits haven’t even actually visited China.

“As for me, I’d rather have every edge that I can get when it comes to investing in the world’s fastest-growing and most volatile emerging market. Which is why I make regular visits to China and employ a team of on-the-ground researchers and analysts on the Mainland in order to fully understand our opportunities and avoid pitfalls that will trap other investors.

“And one such edge comes from knowing the “hidden value” of the real estate owned by many Chinese companies.”

I’ve got no complaints about Hsu claiming that his “boots on the ground” visits to China and in-person research add value to his recommendations — lots of the big newsletter folks travel heavily to visit the companies they’re considering to get a “feel” for the business, though it’s also worth noting that I know some analysts and managers actively prefer not to visit with their clients because they prefer not to be lied to by overoptimistic CEOs (assuming, of course, that the person lies more than the SEC filings).

So what has his “edge” told him this time?

“… one of our top Asia Edge companies recently acquired a university sitting on a huge piece of prime downtown land — that is to say, valuable downtown land. If this land was rezoned, it could be worth as much as $300 million — and this company, the leader in China’s e-learning business — snatched the entire university up for about $66 million.

“There is so much wealth locked up in the value of this real estate that the company could theoretically sell some of its biggest properties to developers for a huge profit, and then just open up new campus locations on less expensive land….

” While the senior management told me that they aren’t precisely sure how the leveraging of their real estate holdings will play out, they do realize that they’re sitting on a huge pile of cash that can be used for even greater expansion — both internally and via acquisition.”

OK, so that’s the “hidden value” … how about the insider buying, and some more specific clues?

“I wasn’t surprised at all when the senior managers that I spoke with told me that they had very recently purchased a not-insignificant amount of common stock in the company on the open market. This is the kind of insider buying that speaks extremely well for the company, and it was a more than just a pleasant surprise to hear just how personally invested senior management are in the success of the company.

“Not to mention that the company recently reported excellent financial results for the first quarter of 2010 — with total revenues increasing 42% over the same quarter a year ago, and gross profits surging 30%. The company is rapidly expanding and saw particularly strong revenues from its recent acquisitions.

“In fact, nearly all the fiscal metrics for this leading company were positive — as was the company’s guidance for full-year 2010. The company is on target to achieve year-on-year revenue growth of more than 50% — hugely bullish for our trade.”

So we’ve got a Chinese education company, with a lot of valuable real estate, 42% revenue increase year over year, and some insider buying. Who is it?

Thinkolator sez: ChinaCast Education Corporation (CAST)

This has been a Hsu pick for a while, with a somewhat spotty record teaser-wise — he picked it about a year ago and promised it would double from $4 to $8 … which it did, briefly, though it seems unlikely that he sold it before it gave up half of those gains because back in January he promised it was a $7 stock that would double to $14 — he’s still got six months or so for that second promise to come true, but the shares have bounced around between $6.50-$8.50 for most of the last year, and right now they’re at the bottom of