Measured Approach

FUQI INTERNATIONAL (NASDAQ: FUQI) Data as of: 01/15/2010

Industry: Jewelry & Silverware

Current Data
Current Price $20.73 PEG 0.2
Market Cap ($M) $572.7 EPS TTM ($) $2.09
Shares Outstanding (M) 24.9 P/E TTM 9.9X
Institutional Holdings % 46.0% EPS Estimated 2009 ($) $2.23
Insider Holdings % 43.0% P/Estimated EPS 9.3X
Beta NA MA Value ($) $24.5
0
Latest Quarter Reported 09/30/200 Dividend Yield % $0.00
9

The “Middle Kingdom”, China, is undergoing another, unspoken

revolution. There is small, yet growing middle class that is demanding
more consumer goods. As China’s economy continues to grow, this
population longs for luxury goods.

Fuqi International, Inc. (FUQI) is a designer of precious metal jewelry in

China, developing, promoting, and selling a range of products in the
Chinese luxury goods market. The Company’s products consist of a
range of styles and designs made from gold and other precious metals,
such as platinum and Karat gold. FUQI also produces jewelry items that
contain diamonds and other precious stones on a custom-order basis.
Its design database contains over 30,000 products. The Company
operates through wholly owned subsidiary Fuqi International Holdings
Co., Ltd. As its wholly owned subsidiary Shenzhen Fuqi Jewelry Co. Ltd.
The Company has about 70 jewelry retail outlets and stores in China.

“Fuqi International, Inc. raised its fiscal 2009 outlook and expects
revenue of approximately $519.4-$528.4 million. These estimates
include both wholesale and retail revenues and exclude the impact
from any potential acquisitions and net income of approximately
$53.5-$54.9 million, or diluted earnings per share (EPS) of $2.21-$2.27.
For fourth quarter of 2009, it expects total revenue between
approximately $182.0-$191.0 million, which includes wholesale and
retail revenues and net income to be in the range of $15.2-$16.6
million, or $0.55-$0.60 per diluted share. According to Reuters
Estimates, analysts were expecting the Company to report revenues of
$184.6 million, net profit of $16.3 million and EPS of $0.59 for fourth
quarter of 2009 and revenues of $525.4 million, net profit of $47.2
million and EPS of $1.94 for fiscal 2009.”
In a recent press release, the Company reported the following:

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© Copyright 2009 Ronald Sommer. All Rights Reserved.
 FUQI to Exclusively Commercialize, Manufacture, Distribute and Market
Popular Chinese Animated Cartoon Jewelry Products
9:01a ET January 8, 2010 (PR NewsWire)
FUQI International, Inc. (Nasdaq: FUQI) today is pleased to
announce that the Company has recently launched a new
product campaign promoting a series of gold jewelry
products based on the popular Chinese animated cartoon
figures, "Pleasant Goat and Big Big Wolf." FUQI is the first
jewelry company in China to obtain the exclusive rights to
commercialize, manufacture, distribute, market and sell
"Pleasant Goat and Big Big Wolf" jewelry products in
mainland China.
The Company signed an exclusive two year partnership
agreement with a subsidiary of Infoport Management,
which owns the licensing distribution rights to the
"Pleasant Goat and Big Big Wolf" animated series. Under
the agreement terms which expire at end of January 2012,
FUQI will exclusively manufacture, distribute, market and
sell in mainland China new jewelry products such as
precious metal coins, bracelets, pendants and rings based
on these animated cartoon characters.
By The Numbers
• FUQI has a Price/Earnings ratio of about 10X based on trailing
twelve month earnings and an EPS growth rate of 47%. The PEG
ratio is a favorable 0.2X.
• The inventory to sales ratio is decreasing.
• The long-term EPS growth rate is 47%.
• The Company’s balance sheet is clean with no long-term debt
and a current ratio of 4.3X.
• The net profit margin is a healthy 10.3%; substantially better
than the industry median.
On the negative side:
• FUQI has negative free cash flow. The Company cannot finance
growth without raising more capital.
• The Price/Book ratio is high at 1.8X.
• Earnings growth weakened in the past year though there are
signs of acceleration in the most recent reported quarter and for
the quarter ending December 2009.

Please visit http://measuredapproach.wordpress.com for important disclosures.

© Copyright 2009 Ronald Sommer. All Rights Reserved.
Conclusions:
We have a short-term price target of $24.50. Longer term, we would
insist on positive and growing free cash flow to support expansion and
growth.
DISCLOSURE: The author has a long position on FUQI.

Please visit http://measuredapproach.wordpress.com for important disclosures.

© Copyright 2009 Ronald Sommer. All Rights Reserved.