Company Description

FUQI International is a Chinese-based designer of high quality precious metal jewelry in China. The company's products are made from platinum, gold and Karat gold (K-gold), diamonds and other gemstones. FUQI adds 300 new designs every month. The company markets its products through 30 provincial distributors and 700 direct sales agents in China.

Third Quarter Revenue Jumps 159%

On Nov 14, FUQI reported third quarter results that beat Wall Street estimates by 14.81%, or 4 cents. Net income rose 141% to $6.5 million, or 31 cents per share, from $2.7 million, or 21 cents, in the year ago period. Analysts expected 27 cents.

Net margin fell to 7.0% from 7.5% in the same period in 2007.

Revenues soared 159% to $93.7 million from $36.2 million in the year ago period primarily due to higher sales and selling prices in the wholesale business. The wholesale segment grew 152% year over year and accounted for $90.5 million of total revenue, which beat the company's own expectations.

Retail revenue came in slightly under expectations due to slower sales in the Beijing and Shanghai regions during the Olympic Games. Retail revenue totaled $3.2 million, with $2.2 million coming from the Temix brand and $1 million from the Fuqi brand products.

Cash On Hand

FUQI had a nice cash cushion as of Sep 30, 2008 of $56.2 million. However, that amount was down from $63.3 million on Dec 31, 2007. During that period, the company invested in inventory to fill up retail counter and store show cases and to fulfill large orders generated from jewelry trade fairs.

Total inventory at of the end of the third quarter was $50.4 million, up from $35.1 million at the end of the second quarter 2008.

2008 Guidance Raised

Given the bullish third-quarter results, FUQI raised its 2008 revenue, net income and EPS guidance. Revenue is forecast in the range of $345 to $350 million up from the previous guidance of $325 to $333 million provided at the end of the second quarter. The wholesale segment is expected to contribute $337 to $341 million of that total.

Earnings per share are expected to be in the range of $1.17 to $1.20, up from the previous guidance range of $1.07 to $1.09.

Consensus Estimates Rise

Given the third quarter results, which far exceeded the company's expectations, covering analysts have been raising consensus estimates for full year 2008 and 2009.

2008 consensus estimates rose 11 cents to $1.22 in the last 60 days, which is above the company's current guidance range.

Analysts expect 29.51% earnings growth in 2009. Consensus estimates have risen to $1.58 from $1.51 per share in the last 2 months.

Value Fundamentals

FUQI International is a Zacks #1 Rank (strong buy) stock. It has surprised on estimates 4 consecutive quarters by an average of 12.71%.

It is trading at 4.6x forward earnings. Its price-to-book is 1.27. It also has a stellar 1-year return on equity (ROE) of 19.10%.