Rino International Corporation (OTC:RINO)

WEB NEWS

Friday, December 31, 2010

Analyst Reports

Rodman & Renshaw on RINO                               12/31/2010

RINO: Terminating Coverage 

Termination of Coverage: Effective immediately, we are discontinuing research coverage of RINO to better allocate resources within our coverage universe. Effective upon the termination of coverage any of our prior financial projections on this stock should not be relied upon. Our last rating on RINO was Under Review.

Company Description

RINO International Corporation is a Chinese company engaged in designing, manufacturing, installing and operating wastewater treatment and flue gas desulphurization equipment for use in China’s iron and steel industry, and anti-oxidation products and equipment designed for use in the manufacture of hot rolled steel plate products. The Company currently has three principal product lines: (1) Lamella Inclined Tube Settler Waste Water Treatment System, (2) Circulating, Fluidized Bed, Flue Gas Desulphurization System and (3) High Temperature Anti-Oxidation System for Hot Rolled Steel. The Company's sole business activities are acting as a holding company of its direct and indirect subsidiaries, Innomind Group Limited, RINO Investment (Dalian) Co., Ltd. (RINO Investment), Dalian RINO Heavy Industries Co., Ltd. (RINO Heavy Industries) and Dalian Innomind Environment Engineering Co., Ltd. (Dalian Innomind).

Recent Financial Updates 

According to RINO’s most recent filings with SEC, the company’s financial statements (both annual and quarterly results) for the periods of FY08, FY09, and the first three quarters of FY10 should no longer be relied upon.

Delisting From NASDAQ 

On November 29, 2010, RINO’s common stock was delisted from NASDAQ Stock Market due to the company’s failure to respond to NASDAQ staff’s request for additional information regarding the allegations by a research report. The company admitted that it had not actually entered into two contracts it previously claimed it had. RINO has been notified by SEC that it is conducting a formal investigation regarding the company’s financial statements and its compliance with Foreign Corrupt Practices Act for the period of January 1, 2008 ~ present.

Valuation 

On November 16, 2010, we put our rating on RINO under review due to management’s inability to respond to various negative allegations that had surfaced. We also removed our financial projections for 2010 and 2011.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.


Friday, December 3, 2010

Investor Alert

On November 29, 2010 RINO International Corporation (the “Company”) received a letter from The NASDAQ Stock Market (“NASDAQ”) stating that based upon its review of the Company and pursuant to NASDAQ Listing Rules 5101, 5250(a)(1) and 5250(c)(1), the staff of NASDAQ believes that the continued listing of the Company’s securities on NASDAQ is no longer warranted (the “NASDAQ Letter”). NASDAQ stated that its staff’s determination was based upon the following:

1. The Company’s announcement that its previously filed financial reports for fiscal 2008, 2009 and year-to-date 2010 could no longer be relied upon;

2. The Company’s admission that it had not entered into certain previously disclosed contracts; and

3. The Company’s failure to respond to the NASDAQ staff’s request for additional information regarding allegations raised by the Muddy Waters, LLC report. 1. The Company’s announcement that its previously filed financial reports for fiscal 2008, 2009 and year-to-date 2010 could no longer be relied upon; 2. The Company’s admission that it had not entered into certain previously disclosed contracts; and 3. The Company’s failure to respond to the NASDAQ staff’s request for additional information regarding allegations raised by the Muddy Waters, LLC report.


Friday, November 19, 2010

Investor Alert

On November 17, 2010 Frazer Frost, LLP, the independent auditors of RINO International Corporation (the “Registrant”), delivered a letter (the “Auditor’s Letter”) to the Registrant and each of its directors. The Auditor’s Letter states in part:

“In a telephone conversation on November 16, 2010, Mr. Zou Dejun, the Chief Executive Officer of the Company, informed Ms. Susan Woo of our firm, in substance, that as to the six RINO customer contracts discussed in the recent report of Muddy Waters LLC, the Company did not in fact enter into two of the six purported contracts, and a third contract among the six was explainable. When Ms. Woo inquired about the Company’s other contracts, Mr. Zou said he was not sure, but there might be problems with 20 - 40% of them. Assuming that these statements were reasonably accurate, it appears that our reports would have been affected if this information had been known to us at the date of our reports, although the effect on the financial statements is currently unknown and cannot be quantified without a thorough investigation. We further note that in a conversation the following day, November 17, 2010, involving Ms. Woo, several directors of the Company, Company counsel, and Mr. Zou, Mr. Zou stated that he was not sure the day before and went back to look into some things, and found that apart from the two problematic contracts, all other contracts are legitimate and can be verified.

The auditing standards of the Public Company Accounting Oversight Board provide procedures to be followed by an auditor to prevent continued reliance on audit reports in such circumstances. In view of the information provided by Mr. Zou Dejun, we hereby advise the Company to promptly notify any person or entity that is known to be relying upon or is likely to rely upon our audit report(s) for the periods ended December 31, 2008 and December 31, 2009 and reviewed quarterly financial statements for periods between March 31, 2008 to September 30, 2010 that they should no longer be relied upon, and that revised financial statements and revised auditor's report(s) will be issued upon completion of an investigation.”

On November 17, 2010 certain members of the Board of Directors, including Kennith Johnson, the Chairman of the Audit Committee, Jianping Qiu, the Chairman of the Board of Directors, and Mr. Zou Dejun participated in a conference call with Ms. Susan Woo, a partner of Frazer Frost, LLP in which the foregoing statements were discussed. The two other members of the Board were not available because they were traveling and therefore the Board of Directors could not take any formal action regarding the matters discussed in the Auditor’s Letter. The Registrant intends to have a telephonic meeting of the Board of Directors to further discuss such matters and related matters as soon as all of the members of the Board of Directors are available.


Thursday, November 18, 2010

Comments & Business Outlook

Third Quarter Highlights

  • Total revenues in the third quarter of 2010 were $52.7 million, a 16.7% decrease from the corresponding period in 2009.
  • Operating profit in the third quarter of 2010 was $9.9 million, a 49.3% decrease from the corresponding period in 2009.
  • Net income in the third quarter of 2010 was $8.8 million, a 48.3% decrease from the corresponding period in 2009. Net income excluding change in fair value of warrants (non-GAAP) was $8.7 million, a 55.6% decrease from the corresponding period in 2009.
  • Diluted earnings per share (“EPS”) for the third quarter of 2010 was $0.31. Diluted EPS excluding change in fair value of warrants (non-GAAP) was $0.31, a 60.8% decrease from $0.78 for the corresponding period in 2009.

“Revenues in the third quarter were down due to recent reform in the steel industry which has caused a ‘wait and see’ approach toward capex including investment in clean technologies,” said Mr. Dejun Zou, director and chief executive officer of RINO. “We are also seeing our clients experiencing a tightening of cash flow which has led to an increase in accounts receivable. However we still have a full order book with several new contracts successfully negotiated as well as backlog from the third quarter which will generate revenues in the fourth quarter.”

“We believe that despite the temporary market downturn, the long-term industry environment remains very encouraging with increasing government pressure coming to bear on polluting industries and demand getting even stronger,” Mr. Zou continued. “We are racing to meet that demand by expanding capacity and investing in advanced technology to help us solidify our leading position. At the same time we are continuing to look for opportunities to expand outside our traditional de-sox and wastewater treatment segments to capture market share in new high growth areas.”

“After a weaker than expected third quarter we are revising our full year guidance to reflect the disruption caused by industry consolidation. However we remain confident in our long-run prospects and are moving ahead with several projects to drive revenues in the future. We are continuing to work to improve internal controls and we remain focused on fulfilling Sarbanes-Oxley requirements according to schedule,” Mr. Zou concluded.

Outlook for Fiscal Year 2010

Affected by reform and contracting cash flows in the iron & steel industry in China, the company is expecting softer demand for its services in the immediate future. Based on analysis of current market demand, the company estimates its total revenue for fiscal year 2010 to range from $203.0 million to $211.0 million, down from the previously estimated range of $221.0 to $229.0 million, representing a year over year increase of 5.4% to 9.6%.


Liquidity Requirements
We have historically funded our working capital needs from operations, advance payments from customers, bank borrowings, and capital from shareholders. Our working capital requirements are influenced by the level of our operations, the numerical and dollar volume of our project contracts, the progress of our contract execution, and the timing of accounts receivable collections. We believe that our cash position is adequate to meet future short-term and mid-term liquidity requirements, as well as our obligation to satisfy the PRC’s statutory reserves requirement.

Tuesday, November 2, 2010

Analyst Reports

Global Hunter on RINO

We are lowering our FY2010 and FY2011 revenue estimates and margin assumptions due to the increasing competition in the FGD market and recent power shortages experienced by the steel mills in China. We now expect RINO to report FY2010 revenues and non-GAAP EPS of $215MM and $1.49, compared to our prior estimates of $226.8MM and $1.77, respectively. We have also lowered our FY2011 estimates to $241.4MM in revenue and $1.66 in EPS. We believe that future growth for the company will be largely predicated on diversifying into other high growth environmental industries in China – sludge and DeNOx, but do not expect to see significant top line growth or margin expansion until the new Changxing Island facility becomes operational in 2H 2011. Shares have appreciated by ~50% since our initiation; given the likelihood of lower than expected top line growth and margin contraction, we feel this is an appropriate time to reduce our rating from Buy to Neutral

Increasing competition in the FGD segment. Following our discussions with the company and a number of steel mills, we believe that the longer term demand in the FGD market remains strong; however, following the recent mandates issued by the central government requiring coal-fired sinters and other similar facilities to install desulphurization equipment and limit CO2 emissions, the competition in this industry have increased significantly. There have been a number of new players emerging in the last few years and their product offerings have been expanding and maturing as well, which ultimately leads to increased competition and lower profit margins for all the players in the industry, including RINO.

Power cuts in China may reduce demand for FGD systems in the near term. In order to reach efficiency targets outlined in the 11th Five Year Plan, a number of local governments have been restricting power supply to steel mills since September. Limited power supply forces some steel makers to shut down furnaces which, coupled with the closures of obsolete plants, may reduce the number of new FGD projects in the near term, forcing environmental remediation companies like Rino to compete more fiercely for the existing projects.

Lowering revenue and profitability assumptions due to increasing competition. As a result of increased competition in the FGD market, we believe that RINO might be unable to achieve its full year revenue guidance of $221MM to $229MM. In addition, heavy competition forces the company to accept projects with lower margin characteristics and targeted returns. We have lowered our revenue estimates for Q3 and full year 2010 from $60.4MM and $226.8MM to $51.7MM and $215MM, respectively. We have also lowered our gross margin assumptions for FGD projects to low 30’s compared to the historical range of 35% - 40%. This translates to Q3 and full year 2010 non-GAAP EPS estimates of $0.31 and $1.49, compared to our previous estimates of $0.48 and $1.77, respectively. In addition, we do not expect the competitive situation in this segment to improve significantly for RINO in 2011, at least not before the new facility is operational and the company is able to offer more ammonia-based DXT systems, which is a newer technology compared to the traditional desulphurization technology and is usually priced about 30%-50% higher. As a result, we are lowering our 2011 revenue and non-GAAP EPS estimates to $241.4MM and $1.66 compared to our prior estimates of $284.9MM and $2.42, respectively.

 
Capacity expansion is on track. In March 2010, RINO acquired 50-year land use rights for a piece of land located at Enterprise District, Lingang Industrial District, Changxing Island, Dalian, from Dalian Municipal Government for capacity expansion purposes. The Changxing Island Project is intended for plant expansion and is expected to increase the company’s manufacturing capacity by approximately 300%, bringing the overall annual production capacity to RMB 5 billion (~$733MM). The company estimates that the whole project should cost about $107MM and it is on track to be completed by September 2011. RINO is currently in the process of preparing the foundation for the manufacturing facilities, as well as constructing administration buildings. Once completed, we expect it would take the company about four years to ramp up the new facility to full capacity, bringing about 25% of new capacity on line every year.


Monday, October 18, 2010

Analyst Reports

Rodman & Renshaw on RINO

RINO Visit: We visited RINO’s facilities in Dalian on Oct 18, 2010. We met with Mr. Ben Wang, CFO; Mr. Li, Financial Controller; and Ms. Wang IR Manager (internal). Mr. Zou, CEO, was away on business to meet with Shougang Jingtang Steel. We spent the initial part of the day in the company’s current facilities. Work was being carried out on some heavy machinery that basically occupied majority of the factory floor. There was a lot of raw material inventory that occupied the open spaces outside the factory buildings. Some of this raw material, primarily iron and steel, was designated for use in the construction of the new facility coming up in Changxing Island. Please see page 3 for pictures. 

The drive to the Changxing Island facility is about an hour and a half from RINO’s current factory. We were impressed by the size of the new facility coming up. The land owned by RINO here is approximately 233,000 sq. mt. and the manufacturing facility is expected to occupy 110,000 sq. ft. External construction was almost complete on the new office and dormitory buildings. The factory buildings require substantially fortified foundations to support all the heavy equipment and related work was being carried out. Management indicated that they are on track to complete the facility by mid 2011. However, weather may be the wild card here. It is already getting cold and we would be surprised if the same level of construction activity can take place during peak winter. Once this facility is complete, we believe the company should have capacity to sustain growth for the next five years. Overall, we were satisfied with the progress being made on the new facility despite some weather related delays earlier in the year.

Internal Controls Team Growing: We were pleased to see the company continue to remain pro-active on improving their internal controls. We met Mr. Alex Li, RINO’s new Financial Controller who previously worked with PWC for five years. The company has also hired an internal auditor who was previously working with Deloitte (will begin shortly). The company is making a serious effort on their internal controls to meet the streets expectations on this front. We believe these are the initial steps towards potentially moving to a larger auditor. 

3Q10 Expectations: We are maintaining our 3Q10 revenue and Non-GAAP EPS expectations for RINO at $52.0 MM and $0.42. Management expects to report results by mid November. 

Other Takeaways: The street has been aware of management’s effort towards acquiring relevant technology to address emission control opportunities outside of desulfurization. We would not be surprised if such an acquisition is completed by year end. Such a move would allow the company to address opportunities outside of the iron and steel space. Management is also looking at the sludge treatment segment as a good revenue diversification strategy.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.


Tuesday, December 8, 2009

Comments & Business Outlook

"Our business continues to be driven by a number of factors centered around government mandates stipulating that iron and steel manufacturers be equipped with desulphurization systems. The Chinese Ministry of Industry and Information Technology showed its commitment to support this initiative by publishing a formal plan on July 31, 2009 which prioritizes steel FGD installations, sets specific desulphurization guidelines and targets, while offering priority funding by both the central and local governments and further support for domestic based technology. This is the single most important regulatory event since our Company was formed and clears a path toward doubling the number of sinters to be equipped with FGD systems annually through 2011. We expect that growth from our FGD system installations, in addition to the large Sludge Treatment System for the Dalian Government, will drive further growth during 2010."

Source: PR Newswire (November 13, 2009)


Tuesday, September 29, 2009

Special Situations
The GeoTeam is removing RINO ($19.77) from the GeoSpecial list. The Stock has had a nice run from our initial mention on June 4, 2009 at $6.70 and exceeded potential valuation scenarios.  We will continue to monitor the RINO story and revisit the company if warranted. 

Monday, August 10, 2009

Research

RINO International reported its 2009 second quarter financial results yesterday after the close.  Earnings per share were $0.39, exceeding analyst estimates by $0.01.  Regardless, the stock was down sharply in extended hours trading and continued into today's trading session.  The GeoTeam® is speculating that the street had hoped for a bigger earnings per share number, although the stock had been in a bullish up trend over the past several weeks, briefly surpassing the GeoTeam®  potential valuation scenarios on August 6, 2009. The company has reiterated its 2009 revenue guidance of $176.5 million.  A drop in RINO International shares may present a short-term trading opportunity


Tuesday, July 21, 2009

Research

Saturday, July 18, 2009

Potential Valuation Scenarios

Valuation Scenarios

Coded as a GeoSpecial on June 4, 2009. ($6.70)

Data Inputs:

Fiscal Year Ends in December

Date 07/20/09
Price $11.85
12 Months Trailing EPS a,c $1.17
Published 2009 Analyst EPS Estimates a,b,c $1.15
Future EPS Growth Rate Based on Estimates a,b,c 16.36%
Trailing P/E Ratio a,c 10.13
PEG Ratio (P/E divided by growth rate) a,c 0.62


a RINO is not paying a full U.S. tax rate.  Therefore, all EPS numbers have been adjusted by the GeoTeam® to reflect a U.S. tax rate of 36%.

b The GeoTeam® believes that analyst estimates may be conservative due to recent positive news regarding China's growth prospects and the fact that analyst revenue estimates are below the company's guidance of $76 million.

c EPS Figures are Non-GAAP.  They exclude certain non-operating gains and losses as well as certain non-cash items. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . For a more complete explanation of the company's definition of non-GAAP please refer to its financial press releases. The GeoTeam® non-GAAP figures may, from time to time,  differ from company supplied figures.
Short-Term Valuation Scenarios

Date 07/20/09
Price Based on P/E of 15 on Four Quarters Trailing EPS $17.55
Price Based on P/E of 10 on 2009 Analyst EPS Estimates $12.10

Peg Ratio Analysis - Common rule of thumb that PEG ratio should be less than 1.0

PEG Ratio Less than 1? YES

These scenarios are not investment advice, but are scenarios based on some commonly used investment guidelines.  They are provided to aid investors in making their own investment decisions.

Sunday, February 22, 2009

Comments & Business Outlook

Guidance Report:

Full Year Fiscal 2009 Guidance Ending December

  2009 Guidance 2008 Guidance Period Change
GAAP Revenue Greater than $176 million $ 130.5 to 132 million Greater than 34.87%

Source: PR Newswire (February 19, 2009)


Sunday, June 8, 2008

Financial Target Agreements
5,580,000 shares of Common Stock have been deposited in escrow t o secure the Company’s obligation to meet the net profit targets for 2007 and 2008.

Financial Targets:

1. 2007 net profit target : Not less than $16,000,000 (This translates into Earnings Per Share of $0.64 using 25 million shares outstanding).

2. 2008 net profit target : Not less than $28,000,000 (This translates into Earnings Per Share of $1.12 using 25 million shares outstanding).

The GeoTeam is attempting to determine the tax rate used in these targets.

Source: SEC form 10Q (March 31, 2008)

Share Structure
Outstanding Shares: 25,161,062

Source: SEC form 10Q (March 31, 2008)