China Precision Steel an attractive niche play

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To keep up with its impressive growth story, China is devouring more raw materials than any other nation. Its use of commodities is remarkable: China consumes nearly 30% of the global aluminum and zinc supply, a quarter of its copper and it produces and consumes one-third of the world's steel.

Steel is as valuable as gold to the Chinese, who require huge amounts of the material to feed booming demand from its unprecedented infrastructure build-out and manufacturing, automotive and shipbuilding sectors. Steelmakers and steel product producers in China have aggressively expanded their operations and stepped up production in recent years to meet these needs.

One company cashing in on this ever-growing demand is China Precision Steel, Inc. (Nasdaq:CPSL), formerly OraLabs Holding Corp, a value-added steel processing company that manufactures and sells high-precision, cold-rolled steel products. Its roughly 40 specialty products are mainly used in the manufacture of automobile parts and components, appliances, kitchen tools, microelectronics, saw blades, textile needles, and food packing and containers. It also provides the heat treatment and cutting of medium- and high-carbon hot-rolled steel strips. Though the company primarily does business in mainland China through its wholly owned subsidiary, Shanghai Chengtong Precision Strip Co., Ltd., last year CPSL began exporting products to Thailand, Indonesia, the Philippines and Nigeria.

The company had a solid third quarter for the period ended March 31. Revenue grew 61% year over year to $18.7 million. Net income came in at $4.6 million, or $0.10 per diluted share, a 231% increase over the year-ago quarter. Gross profit rose 58% to $5.3 million. Exports accounted for 19% of revenue a 2.3% increase from the previous year. In a move to secure a stable supply of raw material, the company advanced suppliers $26.8 million during the quarter, reducing its amount of cash on hand to $14.3 million. With investment and new construction expenditures expected to reach $20 million, CPSL may need to access capital markets (the company plans to invest in a new production line for high-quality stainless steel and a new cold roll . . .

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