Investors don’t appear to be looking kindly on SkyPeople Fruit Juice (SPU.NASDAQ). Given the company’s strong market position and undervalued share price, perhaps they should reconsider.
SkyPeople is a fruit juice manufacturer with exposure to a profitable niche market. While most of its competitors make apple juice concentrates – China produces 60% of the world’s supply – SkyPeople turns higher margins by producing apple, kiwi and pear juice.
The company makes roughly equivalent amounts of each juice, but generates a markedly different revenue yield on each. In 2009, kiwi juice accounted for the largest share of company revenue, 36%, followed by pear and then apple. And kiwi juice was far more profitable: In the first three quarters of 2010, it generated a gross margin of 61%, compared with 18% for apple juice concentrate.
Annual fruit beverage consumption per capita in China is only 10% of the average world level and 2.5% of the level in most developed countries. That implies upside potential, especially given high expectation of rising disposable incomes.
In addition, the company’s price-to-book ratio is the lowest of its competitors. Although it has experienced a few minor accounting irregularities, SkyPeople outperformed most of its domestic competitors in terms of revenue growth, gross margin and profit margin in 2009.