hina february 2011 newsletter -...

For more information on any of our clients, please contact us at [email protected] or call 212-301-7130

CHINA February 2011 Newsletter

Inside this issue:

Pulling the Rabbit Out of the Hat 1

HCI Calendar 4

HC International China Clients

by Industry Sector: 6

CLEANTECH/CLEAN ENERGY:

China Hydroelectric Corporation (NYSE: CHC) 6

China Integrated Energy (NASDAQ: CBEH) 6

China New Energy Group Co. (OTCQB: CNER) 6

Sino Clean Energy Inc. (NASDAQ: SCEI) 6

CONSUMER & BUSINESS SERVICES: China Internet Café Holdings (OTCQB: CICC) 7 China Linen Textile Industry Inc. (OTCQB: CTXIF) 7 ChinaCast Education Corporation (NASDAQ: CAST) 7

ChinaNet Online Holdings, Inc. (NASDAQ: CNET) 7

CONSUMER - FOOD/RETAIL:

China Marine Food Group Limited (AMEX: CMFO) 8

Emerald Dairy, Inc. (OTCQB: EMDY) 8

SkyPeople Fruit Juice, Inc. (NASDAQ: SPU) 8

Tianli Agritech (NASDAQ: OINK) 8

CONSUMER - OTHER:

China Redstone Group (OTCQB: CGPI) 9

ENERGY:

China Energy Corporation (OTCQB: CHGY) 9

LianDi Clean Technology Ltd. (OCTQB: LNDT) 9

Keyuan Petrochemicals, Inc. (NASDAQ KEYP) 10

US China Mining Group, Inc. (OTCQB: SGZH) 10

HEALTHCARE/PHARMACEUTICAL:

Biostar Pharmaceuticals, Inc. (NASDAQ: BSPM) 10

Winner Medical (NASDAQ: WWIN) 11

INDUSTRIAL:

China Armco Metals (AMEX: CNAM) 11

China Rutai International (OTCQB: CRUI) 11

China TMK Battery Systems, Inc. (OTCQB : DFEL) 11

New Energy Systems Group (AMEX: NEWN) 12

Ossen Innovation Col, Ltd. (NASDAQ: OSN) 12

Wowjoint Holdings (NASDAQ: BWOW) 12

TELECOMMUNICATIONS /WIRELESS/

ELECTRONICS:

SinoHub, Inc. (AMEX: SIHI) 12

HCI China Index Update 13


Continued, next page

Pulling the Rabbit Out of the Hat

Happy New Year – the year of “Pulling the rabbit out of the hat”. Ironically, in a year that honors a gentle, calm and thoughtful animal, 2011 has started out as anything but for investors in the China-based, U.S.-listed small cap sector. In stark contrast to the broad indices, which have con-tinued to scale a wall of worry with relative ease while breaking to new highs, U.S.-listed China stocks have lagged badly, prompting many investors to wonder if it is time to capitulate. If count-less calls with U.S. funds who say “we own no China” can be a contrarian indicator, we firmly be-lieve the answer is “no”. Are We There Yet? As with any objective investment analysis, it is critical to take a step back and assess how we got here. An astute student of capital markets understands that prior bull and bear market cycles share many similarities, but also a few distinct differences. Currently, out of approximately 600 China based companies listed in the U.S., approximately 250 have graduated to the NYSE or Nasdaq, and nearly all of these have come public since 2005. At the initial time of listing, the vast majority of those were companies with annual sales of under $50 million, run by entrepreneurial and motivated management teams that were determined to leverage the US capital markets as a springboard to future prosperity. Attracted by the appetizing 30%-40% annual revenue growth and 15%-25% net margin, investors gobbled up U.S.-listed, Chi-na-based companies while these stocks posted impressive average annual returns, far outpacing all U.S. indices. The gold rush was in full swing and hundreds of companies lined up for their slice of the pie. When the global financial crisis hit in Fall of 2008, investors unloaded U.S.-listed China stocks even more quickly than they had bought them, driving these stocks down approximately 51.0% from September 2008 to the trough in March 2009. This proved to be a golden opportunity for

Similarities Differences

Too many bad deals prematurely brought to market with immature companies led by unsophisticated management teams.

Companies are profitable and valuations are at significant discounts relative to liquidity and ROIC.

Investors took short cuts during due diligence process to chase returns.

The pool of sophisticated investors willing to properly capitalize on market fears is still not large enough.

Inflation fears driving investors out of higher risk asset classes.

Long-only investors avoiding headline risk and throwing the baby out with the bathwater.

Regulators are consistently one step behind the curve in protecting shareholders.

Anyone (including those with no investment track record) can create doubt in a stock by making allega-tions through an online posting or blog without stating conflicts of interest or having tangible evidence.



investors as most Chinese companies remained profitable and had minimal capital constraints through the crisis. With companies around the world retrenching, Chinese companies continued to expand and invest, with the help of the PRC government’s $586 billion stimulus and a reopening of U.S. capital markets by late 2009. As a result, earnings rebounded swiftly in 2009-2010.

Stock market cycles are driven simply by 2 things: fear and greed. The recent downturn in Chinese microcaps has been driven by prolific fear while US investors have focused their greed on owning domestic equities, something which does not require a 14 hour flight and interpreter. As a general rule, contrarian investors who sell stocks short is healthy because it makes markets and individual stocks more efficient. Profes-sional investors, including hedge funds, have successfully exposed a small subset of incompetent or dishonest public companies and manage-ment teams through thorough, objective and thoughtful analysis. Bogus allegations made by misinformed parties were either ignored or cor-rected by market forces, as savvy investors bought shares at a discount to intrinsic value. The vast majority of the recent flurry of short attacks by “independent” analysts and anonymous online blogs has been the opposite of objective, thoughtful or factually accurate. Instead, these largely unregulated and unlicensed parties, many of whom have questionable backgrounds or have been paid to be a mouthpiece by short sellers used fear and uncertainty to deliberately drive down the stock price of several China microcaps to make a profit. Instead of edu-cating investors at large about the nuances of accounting, how many transactions in China are structured using offshore holding companies and subsidiaries, and differing cultural and regulatory practices between China and the U.S., the bulk of these short attackers simply stated the existence of these differences and presented them as evidence of wrongdoing. Why has this worked in so many instances for so long? One reason – because shareholders, regulators and companies let them get away with it. Investors do not have the patience to do additional due diligence to validate or refute the allegations. Regulators wait for the markets to “fix itself” since they have neither the resources nor the political will to carry out their responsibilities. All but the most proactive and sophisticated management teams have the understanding or resolve to manage through these types of crisis. Given that short sellers have been murdered in the US equity markets during the past eighteen months they have found this group of stocks as easy pickings, much like a school of hungry sharks circling a meal. Making money in shorting China small-cap has been akin to “shooting fish in a barrel”. We believe we are at a tipping point when the responsible, honest, and informed investors and companies take back control of the market from irresponsible market manipulators. The upside will be granted to patient and savvy stock pickers . Lastly, as we wrote extensively in our last newsletter, accelerating inflation in China and other emerging markets represents a clear and present danger for consumers, economies and stock markets. Since then, many commodities such as cotton and sugar have continued to rise rapidly, reaching multi-decade highs due to natural disasters in Australia, India, Rus-sia, the United States and other countries, while pro-fessional speculators continue to allocate dollars to this trade. Various governments have taken an isolat-ed approach, ranging from price controls to export bans to lending restrictions. So far the results have

Chinese Vs. U.S. Inflation

Three Year Returns

● Halter Index

● S&P 500

● Russell 2000



been mixed. China’s inflation rate moderated slightly from the 28-month high of 5.1% in November to 4.9% in January. However, food infla-tion, which affects 100% of the population and represents almost 40% of China’s consumer price index, continued to advance at an alarming rate of 10.3% year-over-year. Meanwhile, inflation in the U.S. remained subdued, with overall inflation up merely 1.6% and food inflation rising by 1.8% in January 2011. Based on U.S. equity returns from 1946 to 2009, equity markets generated the highest returns when inflation is between 2%-5%. Brighter Days Ahead? With that grim picture as a backdrop, should we just liquidate our portfolios and move to Canada? All kidding aside, we believe three major drivers will propel U.S.-listed, China-based stocks higher in 2011 and while no one can accurately predict exactly when it does, we believe that like most small-cap moves, large gains will be generated in a short period of time.

One of the known but often overlooked facts is that China is only 40 years into liberalizing its economy. The speed, magnitude and progres-sion of improvements made in less than a generation of time has been nothing short of remarkable, especially in a country with a population four times that of the U.S. and a land mass of roughly the same size. Many of China’s structural advantages – a large current account and trade surplus, unified fiscal and monetary policies that lead to rapid decision-making, and a large base of low cost labor – will likely remain in place for the foreseeable future. In addition, the central government’s 12th 5-Year Plan, to be implemented through 2015, provides the framework and funding to create a more balanced and sustainable economy. The combinations of accelerated rural economic development, reallocation of funding from large state-owned enterprises to small and medium sized busi-nesses, and wage increases to low-income and middle class workers will shift China’s economy from one that relies heavily on exports and infrastructure in-vestments to one that unleashes the latent purchasing power of its 1.2 billion consumers. This is a multi-decade phenomenon that is inevitable, regardless of what short term impediments the global economy may encounter. An industry rationalization is healthy and inevitable. Just as a fraction of internet companies after the dot-com bubble burst survived and prospered, dozens of Chinese microcap companies will take advantage of the short-term market dislo-cations to become more resilient and competitive. Underneath the cloud of un-certainty, dozens of companies have made significant strides in corporate gov-ernance. These include providing a reconciliation of its SAIC and SEC filings; com-pleting SARBOX certification, and more specifically names like KEYP, CBEH, CAAS and WATG recently upgrading to a big 4 accounting firm; KEYP initiating a cash dividend with a current yield of 7%; and BSPM eliminating its VIE corporate

1. China’s Economic Growth is Sustainable

PRC government’s 12th 5-year Plan will help rebalance China’s economy from an infrastructure and export-driven economy to a more

balanced and sustainable consumer-driven economy.

2. Good Companies Will Rise Above the Noise

Chinese companies and management teams will continue to improve their corporate governance by improving their transparency and

accountability. Many have balance sheets which will provide flexibility to grow without raising capital, pursue buybacks or begin to in-

stitute dividends.

3. Fundamentals and Valuations Will Matter Again

The valuation gap between Chinese and U.S. microcaps will normalize once investors recognize they can buy Chinese companies with

real assets, cash flows and management teams at a 50%-70% discount to comparable U.S. companies.

4. The Shorts Enjoy the Day Of Reckoning

The SEC correctly identifies and severely penalizes multiple parties (including registered analysts and brokers) who are participating in illegal shorting activities, including collusion, slander, creation and dissemination of false information, and front running reports. This wake up call will be a game changer from a psychological perspective and is probably one of the biggest reasons institutions are avoid-ing the allocation they desire.

Current Reading The Big Short: Inside the Doomsday Machine By Michael Lewis

While we get a small glimpse into the crooked side of Wall Street with short attacks, criminal management teams and deal guys, this book will show you crooked in a whole new light and on a scale so large its inconceiva-ble to most. What learned through the sub-prime hous-ing debacle is that the only difference between many of these “Financial Professionals” and bank robbers is that bank robbers risk their lives, make far less money, take on much more risk and can go to jail.



structure. The most competent management teams are beginning to recognize that ongoing investments in internal controls, reporting trans-parency, and accountability are just as important as investments in marketing, R&D and capacity expansion. There is still a wide gap between the best-in-class and the laggards, and we firmly believe the gap will continue to widen. However, actions taken by an increasing number of Chinese companies signify an ability and willingness to improve. Use this time to prepare yourself for the upcoming 10-K season. Most China stocks are scheduled to file their annual reports by the end of March. Many have recently signed on a Big 4 auditor and securing a sign-off from a top tier firm will provide comfort to many investors. A stock picker’s market is emerging in the U.S.-listed, China microcap space. It’s a natural evolution for a sector that until recently has not largely been afforded significant premiums or discounts to the winners or losers. Fundamentals such as industry growth, barriers to entry, return on invested capital, intellectual property, and regulatory policies took a back seat to auditors, corporate structure, short interest, and business advisors. Regardless of the depth and duration of the negative sentiment pervading in this sector, investors need to assess the risk-reward based on each individual company’s business fundamentals, leadership, and valuation. In a $6 trillion economy growing at an 8%-10% CAGR, market opportunities that are valued in the billions can easily support hundreds of small and medium sized players. Diligent investors with the discipline and patience to conduct thorough and objective analysis will discover dozens of cash rich, high return businesses with a clean balance sheet and simple corporate structure trading at 3x-4x cash flows. The stock market can be very irrational and humbling in the short run, but also extremely rewarding to those who understand that fundamentals and valuations will win out and have the patience and staying power to back that bet. High-quality, low-valuation stocks that got the green light from a tier one auditor should see significant price appreciation this spring. This is where the big opportunity lies now. With these catalysts firmly in place, it will not take a magician pulling a rabbit out of a hat for U.S.-listed China stocks rally in 2011. The HCI

team is a firm believer in the Chinese proverb 冰冻三尺, 非一日之寒 - great things cannot be accomplished in a short period of time. We

look forward to helping clients and investors enjoy a calm, successful and prosperous year. HCI consistently has clients on the road in the U.S., Canada and Europe. If you would like to schedule a meeting during the next six months please contact Mark Flather, Director of Outreach, at [email protected]. If you are traveling to China and would l ike to visit a company please allow us to help you make arrangements. As always we welcome your feedback and support.

Regards,

Matthew Hayden

Feng Peng

Ted Haberfield

John Mattio

Scott Powell

Mark Flather

Johnny Lai

Mark Henshaw

Ling Zhang

Jennifer Heady

Debra Juhl

Pearl Peng

Sinohub management rings the closing bell at NYSE.



Upcoming Corporate Access Events— If you are interested in participating in any of the events below, please click on a city to request a meeting or contact Mark Flather, Director of Outreach at [email protected]

HCI Calendar

Roadshows

Please visit us online for our up-to-date Calendar

Thu, Mar 17 Fri, Mar 18 19 20 Mon, Mar 21 Tue, Mar 22 Wed, Mar 23 Thu, Mar 24

Orange County/ San Francisco Dallas Boston New York New York

Date Event / Company / Location / Meeting Request - - Click on City to Request a Meeting

Mar 17-23 NDR China Energy Corporation (CHGY : OTCQB)

Thu, Mar 17 Fri, Mar 18 19 20 Mon, Mar 21 Tue, Mar 22 Wed, Mar 23 Thu, Mar 24

Cities TBD - Request a Meeting in Your City

Mar 17-23 NDR China Integrated Energy, Inc. (CBEH: NASDAQ)

Thu, Mar 17 Fri, Mar 18 19 20 Mon, Mar 21 Tue, Mar 22 Wed, Mar 23 Thu, Mar 24 Fri, Mar 25

Portland/Seattle San Francisco Los Angeles Chicago/ Boston New York New York

Mar 17-25 NDR Keyuan Petrochemicals, Inc. (KEYP: NASDAQ)

Mon, Mar 28 Tue, Mar29 Wed, Mar 30 Thu, Mar 31 Fri, Apr 1

Grange St. Pauls,

London

Metropolitan Hotel,

London

Intercontinental Hotel,

Boston

Sofitel Hotel,

New York

Sofitel Hotel,

New York

Mar 28-Apr 1 ChinaCast Education (CAST: NASDAQ) - CLSA Corporate Access Mini-Conference

Date Conference / Location Clients in Attendance

Feb 23-24 Jefferies 11th Global Clean Technology Conference - New York CHC

Mar 7-9 Cowen 31st Annual Healthcare Conference - Boston WWIN

Mar 6-8 Rodman & Renshaw Annual China Investment Conference - Shanghai, China BSPM, CNAM, CHGY, CBEH, CTXIF, CMFO,

CGPI, CRUI, CAST, CNET, KEYP, LNDT, NEWN,

OSN, SCEI, SIHI, SPU, OINK, WWIN, BWOW

Mar 13-16 Roth Capital Annual OC Growth Stock Conference - Dana Point, CA CHC, CBEH, LNDT, CGPI, CAST, CNET, KEYP,

SIHI, SPU, WWIN

May 17 Piper Jaffray 8th Annual China Growth Conference - New York CAST

May 18-19 Oppenheimer 5th Annual China Dragon Call Conference - New York CBEH

Conferences

Other Events

Mar 5 China Redstone Group (CGPI: OTCQB) Investor Day - Chongqing, China Download an Invitation 9:00 AM - 2:00 PM

http://www.hcinternational.net/hci-calendar

mailto:[email protected]?subject=CHGY%20Meeting%20in%20Orange%20County/Los%20Angeles%20March%2017th

mailto:[email protected]?subject=CHGY%20Meeting%20Request%20in%20San%20Francisco,%20March%2018th

mailto:[email protected]?subject=CHGY%20Meeting%20Request%20in%20Dallas,%20March%2021st

mailto:[email protected]?subject=CHGY%20Meeting%20Request%20in%20Boston,%20March%2022nd

mailto:[email protected]?subject=CHGY%20Meeting%20Request%20in%20New%20York,%20March%2023rd

mailto:[email protected]?subject=CHGY%20Meeting%20Request%20in%20New%20York,%20March%2024th

mailto:[email protected]?subject=CBEH%20Meeting%20Request%20Mar%2017-24

mailto:[email protected]?subject=KEYP%20Meeting%20Request%20in%20Portland/Seattle,%20March%2017th

mailto:[email protected]?subject=KEYP%20Meeting%20Request%20in%20San%20Francisco,%20March%2018th

mailto:[email protected]?subject=KEYP%20Meeting%20Request%20in%20Los%20Angeles,%20March%2021st

mailto:[email protected]?subject=KEYP%20Meeting%20Request%20in%20Chicago/Milwaukee,%20March%2022nd

mailto:[email protected]?subject=KEYP%20Meeting%20Request%20in%20Boston,%20March%2023rd

mailto:[email protected]?subject=KEYP%20Meeting%20Request%20in%20New%20York,%20March%2024th

mailto:[email protected]?subject=KEYP%20Meeting%20Request%20in%20New%20York,%20March%2025th

mailto:[email protected]?subject=CAST%20Meeting%20Request%20in%20London%20March%2028th

mailto:[email protected]?subject=CAST%20Meeting%20Request%20in%20London%20March%2028th

mailto:[email protected]?subject=CAST%20Meeting%20Request%20in%20London,%20March%2029th

mailto:[email protected]?subject=CAST%20Meeting%20Request%20in%20London,%20March%2029th

mailto:[email protected]?subject=CAST%20Meeting%20Request%20in%20Boston,%20March%2030th

mailto:[email protected]?subject=CAST%20Meeting%20Request%20in%20Boston,%20March%2030th

mailto:[email protected]?subject=CAST%20Meeting%20Request%20in%20New%20York,%20March%2031st

mailto:[email protected]?subject=CAST%20Meeting%20Request%20in%20New%20York,%20March%2031st

mailto:[email protected]?subject=CAST%20Meeting%20Request%20in%20New%20York,%20April%201st

mailto:[email protected]?subject=CAST%20Meeting%20Request%20in%20New%20York,%20April%201st

http://www.jefferies.com/cositemgr.pl/html/OurFirm/ConferencesEvents/index.shtml

http://www.cowen.com/UpcomingConferences_1032.htm

http://www.rodmanandrenshaw.com/conferences?id=61

http://www.roth.com/main/page.aspx?PageID=7236

http://www.piperjaffray.com

http://www.opco.com/Conferences/china11/index.html

http://content.stockpr.com/hcinternational/files/CGPI+Investor+Day+Invitation.pdf



HC International China Clients by Industry Sector

CLEANTECH/CLEAN ENERGY

China Hydroelectric Corporation (NYSE: CHC) A consolidator, developer, and operator of hydropower plants in China, led by a seasoned International management team.

Price (As of 2/21/11): $7.29 Fully Diluted Shares Outstanding: 51.1 Million Market Cap: $372.5 Million

Coverage “Buy” initiated by All-Star Water Analyst Michael Gaugler from Brean Murray with a $10 target. 11/10 - Announced definitive agreements to acquire 15 MW of Hydroelectric power projects in Yunnan Province and 55.4 MW

of hydroelectric power projects in Fujian Province.

China Integrated Energy, Inc. (NASDAQ: CBEH) An integrated biodiesel producer, wholesale distributor of finished and heavy oil products, and operator of retail gas stations.

Price (As of 2/21/11): $6.21 Diluted Shares Outstanding: 48.9 Million Market Cap: $303.9 Million

1/31/11 - Completed construction of a new 50,000-ton biodiesel production facility, adjacent to its existing 100,000-ton bio-diesel production facility in Tongchuan City, Shaanxi Province, bringing total production capacity to 200,000 tons per annum.

1/27/11—Announced expansion plans: expects to grow its new Hainan facility ultimately to 300,000 tons of biodiesel produc-tionl ; Enters Marine Distribution business through partnership in Chongqing; anticipates $45M in 2011 revenues

Guidance for 2010: Revenues = $435 million and net income of $53.5 million.

China New Energy Group Co. (OTCQB: CNER) Vertically integrated natural gas company engaged in the development of natural gas distribution networks in China.


9/21/10 - China New Energy Enters Into agreement to acquire 70% equity interest in Dadi Gas for RMB 270 Million. Dadi Gas operates 15 gas supply projects located in 5 provincial areas and owns and operates two gas stations. As of Dec. 31st, Dadi Gas owned approximately 199 miles of main pipeline and sub pipeline, and 273 miles of household pipelines. The firm also served approximately 115,200 households, 488 commercial customers and sold approximately 92 million cubic meters of gas in 2010.

1/18/11 - Completed the first installment payment of $17.6 million for the acquisition Dadi Gas and assumed management control of Dadi Gas's operations.

Sino Clean Energy, Inc. (NASDAQ: SCEI) A producer and distributor of coal-water slurry fuel (“CWSF”) in China., which improves energy yield and decreases pollution.


1/26/11 - Commences production of new 300,000-ton capacity facility in Guangdong, expanding the Company's total annual

production capacity to 1,150,000 metric tons. Reaffirmed full year 2010 guidance with revenues of at least $105 million and adjusted net income of at least $25 million.



CONSUMER & BUSINESS SERVICES

China Internet Café Holdings Group, Inc. (OTCQB: CICC) - NEW CLIENT Leading internet cafe chain operator headquartered in Shenzhen, China


From October to December 2010, added five internet cafes in Shenzhen with a total capital investment of $1.5 million, bringing total internet cafes under operation to 48. Expects these stores to contribute an aggregate of approximately $2.4 million annu-ally in total. Currently, one of the internet cafes is ready for operation, while the remaining ones are in the process of construc-tion and expected to be completed by March 2011.

2/23/11 - Company closed a private placement financing with investors with gross proceeds of $6.35 million to fund the expan-sion of the Company's internet cafe portfolio.

For 2010, expects to achieve approximately $ 19 million in revenue.

China Linen Textile Industry Ltd. (OTCQB: CTXIF) A China-based producer of linen yarn fabric which is sold in China and Internationally.


12/22/10 - Commenced operations at new linen yarn dyeing facility, adding 600 tons of linen yarn dyeing capacity per year. Six-month 2010 revenues increased 26.9% to 17.6 million over the same period in 2009, six-month net income increased 50.3%

to $4.0 million with EPS of $0.20 vs. $0.13 during the same period in 2009.

ChinaCast Education Corporation (NASDAQ: CAST) A leading for-profit, post secondary and e-learning services provider in China.


2/1/11 - Signed academic exchange and cooperation agreement with University of North Carolina at Greensboro to cooperate

on academic transfer programs for undergraduate and graduate degree and non-degree programs, student and faculty ex-change and joint research activities and academic materials exchange .

Guidance for total net revenue between $78 million to $80 million (a YOY increase of 53% to 57%), adjusted net income ex-cluding share based compensation, amortization of intangibles, gain on disposal of property and equipment, and impairment expenses (non-GAAP), will be between $25 million to $27 million (a YOY increase of 34% to 44%).

ChinaNet Online Holdings (NASDAQ: CNET) A leading full-service media development, advertising and communications company for small and medium-sized enterprises

(SMEs) in China with an emphasis on franchise based organizations.


2/22/10—Ladenburg Thalmann initiates coverage with a “Buy” and $7 target. 2/1/10 - Cooperation marketing agreement with the Taiwanese Franchise Association to market 28.com to its 300 members. 2/10/11 - Purchased two privately held advertising agencies in Fujian which brings over 50 clients, including 10 recognized

brands to its customer base. Reaffirmed 2010 adjusted net income guidance of $14.1 million, representing 19.0% growth over 2009 adjusted net income.



CONSUMER - FOOD/RETAIL

China Marine Food Group (NYSE Amex: CMFO) Branded healthy seafood-based snack foods and High-Power” beverage sold in China.


1/18/11 - Retail locations for "Hi-Power", the Company's marine algae-based beverage, surpassed 13,000 retail points by the

close of FY 2010 with sales for FY 2010 of Hi-Power of approximately $26.0 million, exceeding 2010 revenue guidance on Hi-Power sales of $23.0 to $25.0 million. To date, all sales have emanated from Fujian province.

Expanded its retail footprint for seafood snack products by 100 sales points to 3,000 and sales grew 31.0% year over year. 2010 Guidance of $110 million in revenues and $21 million in net income. 11/2/10 Engages BDO China as the company's independent registered accountant.

Emerald Dairy, Inc. (OTCQB: EMDY) A producer and distributor of infant and children's branded power milk formula in Tier Two through Tier Four Cities in China.


1/25/11 - Announced a 2,000 store supplier agreement with a Guangdong-based pharmacy chain, Si Ming Yao Ye, for Emerald

Dairy's recently-launched Xinganling® "Organic" infant formula. Emerald Dairy has expanded it formula capacity by 10,000 tons (“Line B”) to 19,000 tons annually. Test production began in

September, with commercialization commencing in January. 2010 guidance: $60-65 million in revenues and $8.0 to $9.0 in non-GAAP adjusted net income.

SkyPeople Fruit Juice, Inc. (NASDAQ: SPU) A processor and manufacturer of concentrated and fresh kiwifruit, apple, pear and a line of consumer branded fruit ciders.


2/7/11 - Introduces four new labels for Hedetang Juice Beverages, with Walmart, Trust-Mart and La Cuisine Royale to stock

newly labeled juices beginning in February. 2/16/11 - Launches 'Qian Mei Duo(TM)' High-Fiber Fruit Juice Beverages Juices, targeting health conscious Chinese women.

Anticipates over $9.0 million in sales of Qian Mei Duo™ beverages in 2011, with average gross margins of approximately 30%. 2010 Revenues guidance of $92.0 to $102.0 million, adjusted net income of $21 to $23 million; adjusted EPS of $0.91 to $1.00.

Tianli Agritech Inc. (NASDAQ: OINK) Raises, breeds and sells hogs for breeding and pork production in China.


1/3/11 - Closes acquisition of 10th hog farm, a 20,000 head annual production capacity hog farm in Wuhan City. Expected rev-

enue of approximately $4.5 million at current market prices, with a targeted operating margin of approximately $1.8 million. 1/7/11 - Provide preliminary 2011 Guidance of $28.0-$29.5 million (+37%) revenues, $10.5-$11.5 million (+34%) in net income

and $1.04-$1.14 (+20%) EPS. FY2010 Guidance: Revenues of approximately $21 million, net income of $8.1 million to $8.3 million, and EPS of $0.90 to $0.92.



CONSUMER - OTHER

China Redstone Group Inc. (OTCQB: CGPI) The largest death care provider in Chongqing, the largest and most populous of China’s four

provincial level municipalities.


Sold 1,682 cemetery plots for its Q3 FY2011 (ending December 31st). Average Q3 selling price per plot was $7,249, up 39% from Q3 FY2010 and above $5,000 to $6,250 forecast for FY11.

Q3 FY 2011 revenues increased 6.0% to $12.1 million; non-GAAP adjusted net income increased 27.8% to $5.3 million with adjusted EPS of $0.42.

Q3 gross margin increased 1000 basis points to 63.2% due to higher sales of premium plots. FY 2011 (March 31st) Guidance: Revenue of $40.0 million and net income of $19.5 million with EPS of $1.45, and on track to

sell at least 7,000 plots in fiscal 2011.

ENERGY

China Energy Corporation (OTCQB: CHGY) An energy company engaged in the production and processing of raw coal in the PRC.

Price (As of 2/21/11): $1.40 Fully Diluted Shares Outstanding: 45.0 million Market Cap: $63.0 Million

For the nine months ended August 31, 2010, the Company reported revenue of $62.4 million, a 222% increase over revenue of

$19.4 million in the same period of fiscal year 2009, with net income of $12.7 million, or $0.28 per share. Company reaffirms full year guidance: net income of $17 to $18 million. With production capacity of 800,000 metric tons, the Company is operating near 100% utilization and is exploring potential

acquisition opportunities to leverage the rich coal resources in Inner Mongolia.

China LianDi Clean Technology Engineering Ltd. (OTCQB: LNDT) Provides equipment and engineering services to China’s petroleum/petrochemical giants. Introducing new CleanTech products.


1/20/11 - Signed an agreement with Ruhrpumpen, a leading manufacturer of pumps located in Witten, Germany, to become a distributor of Ruhrpumpen's products in China.

Q3 FY2011 revenue increased 186.0% to $48.1 million, led by a 132.2% rise in equipment sales, and Q3 adjusted net income increased 54.5% to $7.2 million; adjusted diluted EPS of $0.21.

Increasing fiscal 2011 guidance, revenues $130 million and net income is expected to be $25 million.



Keyuan Petrochemicals, Inc. (NASDAQ: KEYP) An Independent manufacturer and supplier of various petrochemical products in China.


1/18/11 - Announced it has engaged KPMG as its new auditor. 1/27/11 - Approved the distribution of an annual cash dividend of $0.36 per share for 2011 to be paid quarterly to its common

stock shareholders at the assigned dates of record. At current price yield > 7%. 2/1/11 - Signed an agreement with Ningbo Institute of Technology, an affiliate of Zhejiang University, to jointly develop com-

mercial applications for K-resin. This is one component of Keyuan's long-term strategy to invest in technology advancement. Expect revenues for 2010 of $550 million with net income of $36.3 million Expects revenues for 2011 of $660 million with production volume of approximately 740,000 metric tons.

US China Mining Group, Inc. (OTCQB: SGZH) Engaged in coal production and sales by exploring, assembling, assessing, permitting, developing and mining coal properties in China.

Price (As of 2/21/11): $4.50 Fully Diluted Shares Outstanding: 15.3 Million Market Cap: 68.9 Million

12/1/10 - 2010 Financial Guidance: Revenue of approximately $66.5 million and net income of approximately $14.1 million. 1/7/11 - Announced the closing of a private placement financing, resulting in gross proceeds of $15 million. In addition to $40

million in cash (as of 9-30-10) the company is well positioned to capitalize on growth and consolidation opportunities. Upon completion of mining upgrades at its Xing An mine will be able to maintain coal production year-round and will increase

coal production from 600,000 metric tons per year to 900,000 metric tons per year pending approval from local Government in 2012. Expects to be at the full production of 600,000 tons when all upgrades have been completed in May of 2011.

HEALTHCARE/PHARMACEUTICAL

Biostar Pharmaceuticals (NASDAQ: BSPM) Develops, produces and markets Chinese Pharmaceuticals. Flagship product is the #1 OTC sold Hepatitis-B medicine, named Xin-Aoxing.


1/20/11- Chairman and Chief Executive Officer, Mr. Ronghua Wang, is a Chinese Entrepreneur Representative on Chinese Pres-

ident Hu Jintao's delegation during the official visit to the United States in January 2011. Unaudited October and November 2010 combined revenues increased 68% to approximately $18.3 million; Sales of Xin Aoxing

increased 67% to $12.4 million Expanded its rural distribution network to 9,500 locations, on track to reach 10,000 by December 31, 2010. Sees significant

opportunities created by state-implemented New Rural Cooperative Medical System to expand its rural distribution network. 2010 guidance : $80.0 million revenues and $18.0 million net income.



Winner Medical (NASDAQ: WWIN) Leading domestic and international supplier of cotton based medical dressings and branded PurCotton retail products.


Q1 FY 2011 (ending December 31) results; Revenues were up 13.2% to $33.7 million and net income decreased by 15.1% to

$3.3 million driven by delayed acceptance of increased selling prices and lower high-margin protective products sales. FY2011 revenue guidance: $138-$150 million, up 20%-30% YOY PurCotton® sales increased 78.08% during the first quarter of 2011 to $4.5 million as a result of steady wholesale sales of jum-

bo roll to foreign customers and robust growth of domestic retail business. As of February, 29 stores have been opened in high traffic shopping malls in Beijing, Shanghai and Guangdong province.

INDUSTRIAL

China Armco Metals (AMEX: CNAM)


1/6/11 - Received confirmation that local government imposed power restrictions for energy intensive industries and steel producers would be lifted in January 2011, allowing the Company's scrap metal recycling business to return to full operations.

Expects to produce and sell approx. 25,500 tons of recycled steel with an aggregate value of approx. $12 million in Q4 2010. Net revenues for the YTD 2010 were $44.3 million compared to the $55.2 million YTD 2009. Gross margins for Q3 2010 im-

proved to 4.9% as compared to 3.8% in Q3 2009.

China RuiTai (OTCQB: CRUI) One of the largest manufactures of organic non-ionic cellulose ether products which are incorporated into many everyday products.


10/13/10 - Secured a 50 ton cellulose ether contract valued at $0.5 million from ThinFilm, pharmaceutical tablet coating co. Company added 506 new customers in first nine months of 2010 Total revenue for Q3 2010 was $11.2 million, up 9.8% from $10.2 million in the prior year's period, net income for Q3 2010

was up 5.2% to $1.9 million, with diluted EPS of $0.07. During 2nd half of 2010; Added 500 tons of capacity to its ethyl cellulose production line; expected to contribute $4.8 million

in revenues at approximately 45% gross margin once it operates at full capacity.

China TMK Battery Systems (OTCQB: DFEL) A Chinese manufacturer specializing in developing and product NiMH rechargeable batteries.


2/15/11 - Initial order from Alexis Power for 480 Nickel Metal Hydride (Ni-MH) battery packs to be used as backup power sup-

ply sources to be used in telecommunications infrastructure. Production has begun, shipments will commence in April 2011. 2/23/11 - Received and delivered an initial order from a Fortune 500 multinational electronics and defense manufacturer

based in the U.S. for 26,150 nickel metal hydride (NI-MH) battery packs to be used in water pump applications. Sales for Q3 2010 were $16.5 million, up 26.5% over the previous year, net income of $3.1 million, up 52.5% for Q3 2010 with

corresponding adjusted earnings per share of $0.08.



New Energy Systems Group (NYSE Amex: NEWN) Manufactures and distributes lithium ion batteries and components in China.


1/27/11 - Expanded product offering for China Unicom's retail kiosks to five models sold in 39 China Unicom locations in:

Beijing, Changchun, Guangzhou, Harbin, Hohhot, Hulunbeier, Jinzhong and Shenyang. After Q3, the Company revised 2010 guidance of $95 million of revenues, $18.0 million of non-GAAP adjusted net income, and

$1.40 of non-GAAP adjusted earnings per share, respectively, for the full year 2010.

Ossen Innovation Co., Ltd (NASDAQ: OSN) - NEW CLIENT Manufactures and sells a wide variety of plain surface pre-stressed steel materials and rare earth coated and zinc coated pre- stressed steel materials. It’s products are mainly used in the construction of bridges, highways and infrastructure projects. Has two manufacturing facilities in Anhui and Jiangxi Provinces, with a combined annual production capacity of 140,000 tons per year. Price (As of 2/21/11): $4.49 Fully Diluted Shares Outstanding: 15.0 Million Market Cap: $67.4 Million

Global Hunter initiated with a “Buy” and $9 price target. 12/23/10 - raised $22.5 million in IPO. The capital will be utilized to add 30,000 tons of new capacity for the Company’s propri-

etary coated pre-stressed steel wire products.

Wowjoint Holdings Limited (NASDAQ: BWOW) Designs, engineers and manufactures customized heavy duty lifting and carrying machinery for large scale infrastructure projects including railway, highway and bridge construction.


Revenue for Q3 2010 exceed guidance with $8.7 million compared to $2.6 million in the Q3 2010, and $2.7 million in the three

month period ended September 30, 2009; Q3 2010 net income and earnings per share were $0.3 million with $0.04 in EPS. Received $1.5 million leasing contract for a 900-ton straddle carrier from CCCC First Harbor Engineering Company, and signed a

$1 million equipment sales contract with China Railway Fangshan Bridge Co. for two customized 160-ton special carriers. Dur-ing the fourth quarter, Wowjoint signed approximately $3 million in service contracts which will diversify its revenue base.

Current backlog as of November 15th, 2010 of signed contracts totals approximately $20 million, up from $17 million at the end of the second quarter of 2010, and management issued revenue guidance for Q4 2010 of approximately $9.2-$9.5 million.

TELECOMMUNICATIONS/WIRELESS/ELECTRONICS

SinoHub Inc. (NYSE Amex: SIHI) Electronic component supply chain management services company and producer of mobile phones for international distributors

and operators.


1/7/11 - Received an initial order to manufacture 20,000 3G mobile phones for China Unicom. The Company expects to ship the order in the first quarter of 2011.

1/31/11 - In order to align the name with its mobile phone manufacturing business, renamed its mobile phone manufacturing and sales business to "Integrated Contract Manufacturing” (ICM).

Company raised FY10 revenue forecast to $192 million, representing approximately 50% YOY growth. Company expects to sell over 3 million phones through the ICM platform in 2011.



The HCI CHINA INDEX

Client Date HCI

Representation Started Stock Price

Then Stock Price

February 21, 2011 % Change

Since Representation

BSPM 5/31/2009 $2.50 $2.51 0.4%

BWOW 3/2/2010 $7.00 $3.10 -55.7%

CAST 1/19/2009 $2.46 $7.02 185.4%

CBEH 2/5/2009 $3.60 $6.21 72.5%

CGPI 3/5/2010 $3.36 $2.85 -15.2%

CHC 1/28/2010 $14.80 $7.29 -50.7%

CHGY 3/2/2010 $1.40 $1.40 0.0%

CICC 2/17/2011 $0.85 $1.00 17.6%

CMFO 3/20/2008 $3.21 $3.75 16.8%

CNAM 11/19/2010 $3.04 $3.30 8.6%

CNER 1/3/2011 $0.17 $0.25 47.10%

CNET 7/16/2009 $2.50 $4.03 61.0%

CRUI 4/14/2010 $1.01 $0.73 -27.7%

CTXIF 5/16/2010 $1.20 $1.05 -12.5%

DFEL 2/20/2010 $1.25 $0.70 -44.0%

EMDY 4/6/2010 $1.30 $1.04 -20.0%

KEYP 4/25/2010 $3.25 $5.47 68.3%

LNDT 2/27/2010 $3.50 $3.37 -3.7%

NEWN 11/1/2010 $6.34 $6.04 -4.7%

OINK 10/19/2010 $5.32 $4.12 -22.6%

OSN 2/1/2011 $4.50 $4.49 -0.2%

SCEI 9/23/2009 $4.10 $7.48 82.4%

SGZH 1/18/2011 $5.20 $4.50 -13.4%

SIHI 2/1/2010 $3.10 $3.10 0.0%

SPU 12/9/2009 $3.17 $4.76 50.2%

WWIN 10/28/2009 $4.86 $4.83 -0.6%

Previous Clients (Performance Measured During Contractual Period Only)

ALN* 1/26/2010 $3.29 $2.87 -12.8%

AOB* 9/30/2005 $4.55 $10.54 131.6%

CABL* 9/1/2007 $5.70 $2.35 -58.8%

CAGM* 2/8/2010 $2.30 $1.01 -56.1%

CBAK* 3/1/2005 $3.50 $8.76 150.3%

CDS* 1/1/2006 $2.50 $7.50 200.0%

CFSG* 2/1/2007 $4.00 $6.95 73.8%

CGA* 3/24/2009 $3.35 $8.77 161.8%

CHBT* 5/1/2006 $6.25 $8.70 39.2%

CHLN* 1/1/2007 $2.40 $4.05 68.8%

CHME* 11/1/2006 $2.50 $4.00 60.0%

CIWT* 8/20/2008 $4.00 $1.68 -58.0%

COGO* 5/5/2005 $5.41 $16.24 200.2%

CSOL* 7/23/2007 $2.07 $1.95 -5.8%

CSR* 3/15/2006 $4.00 $14.25 256.3%

CXTI* 5/1/2006 $2.01 $1.05 -47.8%

D3W.SI* 8/10/2009 $0.32 $0.62 93.8%

F2X.SI* 11/1/2009 $0.19 $0.20 5.3%

FSIN* 5/1/2006 $4.65 $8.20 76.3%

GFRE* 3/26/2007 $1.02 $1.85 81.4%

GSI* 10/8/2007 $12.75 $4.00 -68.6%

HSYT* 3/1/2007 $3.99 $3.60 -9.8%

IDWK* 3/1/2004 $4.42 $6.55 48.2%

NOEC* 10/1/2006 $2.00 $5.02 151.0%

SBAY* 3/15/2010 $14.48 $7.11 -50.9%

SOPW* 1/1/2006 $1.00 $1.25 25.0%

TPI* 1/28/2008 $1.70 $4.20 147.1%

TSTC* 9/9/2009 $4.78 $10.95 129.1%

TXIC* 8/1/2008 $7.90 $4.77 -39.6%

VLOV* 2/10/2010 $3.75 $3.95 5.3%

*All Clients in the above table have a stock price on date services ended, which shows stock performance while HCI was engaged.



Our organization works with top management to help them clearly and consistently articulate their business strategy, position in the market and value proposition, in order to attract and retain high quality institutional ownership through proactive introductions. All HC International team members share a deep understanding of our client’s businesses, products and financial results, which helps to shorten the due diligence process for prospective investors. This alleviating management from this necessary, but time intensive obligation and enables them to focus on executing their business plan. Our team has over 70 years of collective experience in investor relations, portfolio management and equity analysis, which allows us to provide clients with timely market insight, including a comprehensive analysis of current market perception and valuations. Armed with these resources, we assist our client companies to navigate the public markets and make the most out of their respective opportunities. Our advice is based on a rigorous understanding of the U.S. SEC regulations, macro economic trends and extensive experience covering multiple industry verticals.

Disclaimer Information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. This material is not an offer to sell or a solicitation of an offer to buy any securities. While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. COMMON STOCKS INVOLVE SUBSTANITAL RISK AND IT IS POSSIBLE TO LOSE YOUR ENTIRE INVESTMENT. IF YOU ARE NOT PREPARED TO SUSTAIN A SUBSTANTIAL LOSS THEN INVESTING IN INDIVIDUAL EQUITIES IS NOT ADVISEABLE FOR YOU. This information is not an endorsement of the Company by HC International (HCI). HCI is not responsible for any claims made by the Company. You should independently investigate and fully understand all risks before investing. Statements included in this email or fax may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks and uncertainties such as competitive factors, technological development, market demand and the Company's ability to obtain new contracts and accurately estimate net revenues due to variability in size, scope and duration of projects, and internal issues in the sponsoring client. Further information on potential factors that could affect the Company's financial results, can be found in the Company's Registration Statement and in its Reports on Forms 10-K and 10Q filed with the Securities and Exchange Commission (SEC).

HCI and its affiliates, officers, directors, subsidiaries and agents have been compensated by its clients to perform shareholder and investor relation services. Each contract varies in duration, services performed and compensation received. This newsletter should not be regarded as an independent publication. Hayden Communications International, its employees, consultants and affiliates may, from time to time, acquire positions in the companies that they cover. This could represent a conflict of interest. HCI and its consultants, employees and affiliates shall be under no obligation to inform readers about its trading activities. These parties and entities reserve the right to buy or sell shares in these companies. The following companies, featured in this newsletter, have compensated HCI (Hayden Communications International), which ranges from a consulting fee of four thousand to fourteen thousand dollars per month under contract periods that range from 6 months to 1 year. HCI also received the following equity from these clients: ALN issued a warrant to purchase 80,000 shares of stock at $3.00. BSPM issued a warrant to purchase 55,000 shares of common stock at strike price of $2.0 and will issue an additional warrant under new agreement to purchase 55,000 shares at VWAP January 1st if services continue. BWOW issued a warrant to purchase 60,000 shares with a strike price of $10.00. CAGM issued a warrant to purchase 350,000 shares at $.90. CAST issued a warrant to purchase 100,000 shares of stock at $2.58/share and a warrant to purchase 50,000 shares at $7.85 per share. CBEH issued a warrant to purchase 30,000 shares of common stock at $6.00 per share and a warrant to purchase 30,000 shares at $8.80 per share. CGPI issued 60,000 shares of restricted stock. CHGY issues 5,000 shares of 144 stock per month. CICC will issue HCI a warrant to purchase 125,000 shares at $1.35 per share. CMFO issued 50,000 shares of 144 stock covering 3 years of IR and will issue 20,000 shares for year four. CNAM one year agreement effective November 1, 2010 – payment begins January 1, 2011 – 3,600 shares of 144 restricted stock per month. CNET issued 80,000 shares of 144-common stock and is obligated to issue 60,000 shares of 144 stock. CRUI issued warrant to purchase 120,000 shares with a strike price equal to 10 day VWAP prior to contract signing date of April 14, 2010. CTXIF issued 80,000 shares of restricted stock – 48,000 within 30 days of contract date and 32,000 shares after performance targets are met. EMDY issued a warrant to purchase 160,000 shares with a strike price at $1.65. DFEL issued 125,000 shares of 144 stock. GCHT issued a warrant to purchase 260,000 shares at 10-day VWAP at the time the contract was signed on August 19, 2010. KEYP issued 88,000 shares of restricted stock. LNDT issued 89,000 shares of restricted stock. NEWN will issue a warrant to purchase 36,000 shares for each 6 months contract period with a price of $5.90. OINK issued 10,000 shares of restricted 144 stock for the initial 3 month period effective October 19, 2010 and will pay 34,000 shares for additional 9 months if they decided to continue. SCEI issued a warrant to purchase 40,000 shares at $4.00. SIHI issued a warrant to purchase 75,000 shares with a strike of $3.50. Southern China Livestock (Ticker TBD) will issue 2,000 shares of restricted stock per month, payable in installments of 6,000 shares at the beginning of each 3-month period. SPU will issue a warrant to purchase up to 175,000 shares at a price of $4.50. VLOV issued a warrant to purchase 50,000 shares at $3.43. WWIN issued 10,000 shares of 144 stock. SGZH will issue for each six months period, a warrant to purchase 20,000 shares with will carry a strike price equal to $6.00 per agreement effective January 18, 2011.

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