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    Hot OTCBB Alert – Despite 35% Growth, Energroup Stock still Looks Cheap

    Energroup Holdings Corp. (OTC BB: ENHD) increased 35% since October 8 and reached $2.31 on October 14. The stock price growth was accompanied by record trading activity, which topped at 336,800 on October 13, compared to the average of 29,000 per day over the last three months. The company’s strong second quarter 2010, anticipations of upcoming strong third quarter, and speculations that it might consider uplisting to NASDAQ are responsible for recent price recovery.

    Energroup is a meat processing company primarily involved in the slaughtering, processing, packaging and distribution of pork and pork products to urban consumers in China. The company is the first pork producer in China to receive “Green Food” certification from China’s Ministry of Agriculture. Green Food is an innovative certification program unique to China that is awarded to food processors who produce using environmentally sustainable methods and meet certain high technical standards of quality control, safety, and product quality and generate low levels of pollution.

    Energroup also processes and sells seafood, such as minced fillet products, which accounted for approximately 5.7% of its revenue in the first six months of 2010. Currently the company has a wholesale and retail distribution network and sells either directly or indirectly across northeast China, including supermarkets and hypermarkets.

    During the second quarter ended June 30, 2010, the company had sales of $54.3 million, as compared to the sales of $48.3 million for the second quarter ended June 30, 2009, an increase of approximately 12.44%.  For the first six months of 2010 the company reported revenue of 109.8 million, up 23% from the same period of 2009.

    Energroup’s net income for the three months ended June 30, 2010, increased 1089% to $6.6 million as compared to $0.6 million ($0.03 per share) for the same period in 2009.  Net income for the first six months of 2010 was $13.1 million ($0.62 per share). The increase in net income is attributable to the 2009 compensatory expense, which is not present in 2010, as well as the 2010 increase in the sales volume of fresh pork and processed food products.

    Energroup regards the sales growth to the increase in overall number of sales agents, and expansion of the geographic coverage of its sales agent network. In addition, there has been continuing strength in consumer demand for fresh pork products in the periods presented. Pork is widely regarded as China’s most important source of meat and is consumed at a much higher rate than other categories of meat. Therefore, the increasing levels of pork consumption in China could be linked to the rapid development of the Chinese economy, urbanization and strong income growth.

    A number of other trends in pork consumption were beneficial to the company.  The first is that per capita pork is consumed at higher rates in the urban areas of China (Energroup’s core market) as opposed to rural areas. The second is that consumers’ consumption preferences appear to have shifted from frozen meat to fresh meat and from fat meat to lean meat, with a tendency toward high quality cuts.

    The company is currently traded in the range of $50 million ($2.31 per share), which is incredibly cheap compared to reported results. The trailing 12-months revenue and EPS are in the range of $235 million and $0.86, respectively, representing a P/S of 0.21 and P/E of 2.68. Considering the strong growth in the first half of 2010 as well as the optimistic management outlook, Energroup expects 2010 revenue and EPS to range around $260 million and $1.35, respectively, both indicating to a huge potential for further appreciation of the company’s stock.

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