The Next Chinese IPO – GU

We’ve had a very successful year here on with Chinese stocks, specifically Chinese IPO stocks.

Of the five Chinese stocks I have owned, JASO has been the top performer in my portfolio from start to finish. BIDU is a close second and would have been first by a long shot if I had held the entire time. The others are MR, PTR and EDU.

The Next Chinese IPO:
Now it’s time to jump on the next IPO that’s about to debut on New York Stock Exchange under the symbol “GU”. Chinese biodiesel fuel producer Gushan Environmental Energy Ltd. (GU) said it plans to raise about $171.6 million in an initial public offering of American Depositary Shares (ADS).


According to an SEC filing, Gushan is selling 15 million ADS, and a group of selling shareholders is offering 3 million ADS. Each ADS represents two ordinary shares. Gushan expects the offering to price between $11.50 and $13.50 per ADS (assume $12.50 per share to equal the $171.6 million mentioned above).

The company plans to use a majority of the IPO proceeds to expand its production capacity by buying manufacturing equipment and constructing additional facilities. Remaining proceeds will be used for research and development efforts and for other general corporate purposes.

According to an Associated Press article, Gushan is the largest biodiesel producer in China in terms of annual production capacity in 2006. The company produced and sold 136,587 tons of biodiesel in the first nine months of 2007, and aims to increase annual production capacity to 400,000 tons by the end of 2008. An increase of almost 200% (something that peaks my interest).

What is Biodiesel?

Biodiesel is a renewable, clean-burning and biodegradable fuel produced from feedstocks such as vegetable oil, animal fat and recycled cooking oil. Typically blended with diesel fuel, biodiesel is used in the diesel engines of trucks, mass transit vehicles, ships and generators. Additionally, the byproducts of biodiesel production have numerous commercial applications in the food, pharmaceutical and manufacturing industries.


For the nine months ended Sept. 30, the company reported income of $33.4 million, compared with $36 million in the prior-year period. Revenue for the period rose to $98.3 million from $81.5 million in the first nine months of 2006.

Merrill Lynch & Co. is serving as lead underwriter of the offering. CIBC World Markets and Piper Jaffray are also underwriting the IPO. The selling shareholders have given the underwriters the option to buy up to 2.7 million additional ADS at the offering price to cover any overallotments.


  • China Biodiesel International Holdings
  • East River Energy Resources
  • PetroChina

Tuesday Update (I wrote this piece over the weekend):
Chinese biodiesel producer Gushan Environmental Energy Ltd on Tuesday raised about $173 million with an initial public offering that priced below expectations. (Not Good – this sector is getting hit over the past week)

The 18 million offering of American depositary shares sold for $9.60 apiece, compared with a forecast range of $11.50 to $13.50, according to an underwriter.

My View on Chinese Stocks in General (12/19/07):
I understand that the Chinese market is currently in the middle of a bubble type run but who is to say when that bubble will end. Bubbles can last a lot longer than many believe. You can try to predict when it will end but I will continue to trade it until is really ends! I’ll let you know where I get in and how the trade sets up. I am five for five with Chinese stocks in 2007 so why not jump in and grab another. I had people tell me I was crazy ten months ago when I was buying stocks like EDU and MR (bought JASO and BIDU a few months later).

The stock may or may not work but I trade opportunities, not predictions! What do you trade?


  1. Dear sir:

    Do you think Gushan (GU) is a good buy currently?

    I personally think alternative energy market is a good opportunity.

  2. just wondering if this means that you bought into the ipo today? Just curious. thanks for your awesome website!

  3. There are a few companies doing similar products in China. The issue here those kind of products have high cost. Vendors mainly rely on government support to “make money”. Not a good investment choice.

  4. Just wanted to wish you and yours a very Happy Holiday and thank you for all the valuable insight you share through out the year.

  5. Jacob,
    I did not buy the IPO this week. I will wait until after the holidays to put on any new positions. Go back and take a look or study the others (Chinese IPOs); they take a few weeks to get off the ground – JASO, EDU, MR, etc.

  6. JW,
    maybe so but you can’t pick and choose trades you like and dislike. You take them all and if thye work, great, if not, you cut it. It’s all about an expectancy. I am not worried about my opinion if it is a “good investment”. Will it be a good trade? We’ll see and I still anticipate I will jump in after the New Year and will update when I do as mentioned in the post.

    Remember, I had people write comments and e-mails telling me it wasn’t a good idea to trade the “China Bubble” last spring (JASO, EDU, MR, PTR, BIDU). They turned out to be my best trades this year.

  7. Chris,

    Food for thought…I believe you will be more successful (in any Chinese stock for that matter) opening a successful position just prior to the week the Chinese celebrate Chinese New Year. They have the entire week off and their is closed for the holiday. Many Chinese will want to rest their minds and pull their hard earned money from the market. I will be selling my FXP and buying GU at that time.

    Thanks for your excellent blog Chris and happy holidays!

  8. You have a very insightful site going here, thanks for all the tips. I bought into Gushan’s IPO; got in at $9.86. It seems to be on a steady decline to below $9.00. However I have some faith in their numbers and believe it will rise, once news hits. What do you think? Where do you see this price/share in a month or two?

    Thank you.


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