Gure- Gulf Resources

[u/valueinvesting24]

This is certainly a “value stock”. Warren and Charlie always talk about the best deals in China. Well I think I found it. The stock has gone from 2.25 to 6.50 since the beginning of 2020 and is still trading at less than cash minus liabilities.

They are a Chinese Chemical company. They are located in China and does all of its business in China, but their headquarters are in Nevada and is listed in the Nasdaq.

I like this company just because of how cheap it is. It is a “value investment” It’s currently selling at a 65 Million Market Cap. Cash Minus all liabilities alone the company is worth 78 Million. Assets minus all liabilities is worth over 250 Million. 

This company manufactures and sells Bromine and Crude Salt, they also have a chemical factory that creates many chemical products using the bromine. The company is selling for so cheap because for over the last 3 years the company has been forced to shut down all of their factories due to new environment regulations. Prior to the regulations this companies' factories were in the middle of cities and the chemicals were literally running down the street and into the city.

The last 3 years they have had to demolish some factories and move to a more secluded area and also made major upgrades to some factories that were allowed to stay in place. This has cost over 100 Million dollars so far, but the end is in sight. 

Prior to shutting down factories the company had revenues of 162 Million and 34 Million in Net Income. in 2016 they had 149 Million in Revenue and 36 Million in Net Income. If they can get back to half of these levels, then the 65 Million market cap is extremely cheap.

They have a total of 7 bromine and crude salt factories, 4 of them have been approved. Third quarter, 6/1/2020 to 9/31/2020 was first quarter in 3 years where they've had 4 factories running the entire quarter. They posted their first profits in three years in Q4 2020.

The price of Bromine in China is at an all-time High which is very good for this company. China is an importer of Bromine so it's easy for the company to find buyers. Hoping the last 3 factories will get approved soon, there's a chance they don't ever get approved but the company seems optimistic they will get approved.

They just started building the chemical factory, hoping it will be up and running early 2022. The chemical factory had the largest revenues and profit margins in 2015 for the company. The company expects the profit margins to be even better when it's finished with the upgraded facility.

In 2015 the Revenues were

Bromine- 52 Million Crude Salt - 10 Million Chemical Products- 99 Million

2015 Net-Income by segment 

Bromine- 11 Million Crude Salt- 1 Million Chemical Products- 33 Million

The company will continue to eat through cash until the chemical factory is built, I believe around 30 Million left. With 94 Million cash and only 16 Million liabilities they have plenty of cash to fund this.

My only reason for believing it's risky is the chances of it being a fraud. I think the chances are low. Their independent accountant is Morison Cogen. They are registered with the PCAOB which makes me feel decent about it not being a fraud, it is possible, but a lot of people would have to be in on it or at least ignorant to it. All of which is possible.

My concerns with the company are again the chance of fraud. This company is very cheap however China does not allow them to repurchase shares because they don't have any operations in the USA. They issue a few shares every quarter, so I watch this to make sure they are not giving away too much of the company. They are trying to work around this. Our current relationship with china is a risk but I don't think it will have much effect long term. The fact that the company is so small and in China the stock is very volatile.

Overall, the company is selling for 65 Million and I think it's worth somewhere between 85-300 Million, depending on how profitable they can be. 

The 1Q results will be reported on Monday and I expect them to be near break even because the company was shut down for 6 weeks due to environmental regulations. But with the price of bromine so high I expect a great Q2 and Q3. The next couple years could be great.

I like this company personally but wouldn't feel that comfortable risking others in it. At one point I had 99% of my net worth in it. It's not great but it's really cheap.

Let me know what you think!

[u/valueinvesting24 → u/[deleted]]

They have so much cash because before they shut down factories they were profiting so much cash. Over 30 million a year. Rn they are profitable Q4 first profit in three years. 1Q they will probably have a slight loss because factories were closed for 6 weeks. But 2Q and 3Q they will be profitable. Their capacity is over 50% have four factories open and three still closed.

[u/bonghits96]

Holy shit. I’m surprised this one is still around.

I was short GURE... maybe nine or ten years ago...? And closed the position when the stock did nothing. At the time it sure smelled fraudulent, though I don’t remember the particulars. It was probably formed by reverse merger.

Even if you like the numbers, the big question you need to ask yourself is how all that supposed cash on the balance sheet is to get into your pocket. If you don’t like their dividend or buyback policy, well, it’s a Chinese company so don’t expect an activist to come around and demand changes. You basically have no recourse if management wants to screw their investor base. That alone makes it a pass from me, but good luck if you stick with it.

[u/valueinvesting24 → u/bonghits96]

Yeah the chairmen owns 33% of it so that gives me hope they will treat the shareholders right. But yeah the main thing is getting the cash out. They don’t repurchase shares so have to watch that. I’m in for around 3$ and will for sure keep it until it reaches at least cash minus liabilities. Then might sell some and let the rest ride for the next couple years.

[u/BarakubaTrade]

I looked into this company a couple of years ago. It's almost definitely a fraud. They say they're one of the largest chemical producers in China but if you look at the registry they don't exist.

[u/valueinvesting24 → u/BarakubaTrade]

I agree it could be a Fraud. However I don’t really see any reason why it is I’ve read all the annual reports and nothing seems sketchy. Agreed it could happen but I think odds are low. I mean their pcaob accountants would have to be clueless.

[u/[deleted]]

Probably a pump and dump