liwa global hunter jan 31 2011 report

Global Hunter Securities, LLCDallas/Fort Worth ♦ Houston ♦ New York

Newport Beach ♦ New Orleans ♦ San FranciscoNew York Sales & Trading: (212) 415-4721

Newport Beach Sales & Trading: (949) 274-8050Research: (949) 274-8052

www.ghsecurities.com

January 31, 2011Company Update

China

Dmitriy [email protected]

(646) 264-5606

Rating: BuyPrice Target: $17.00

Price Target Metrics: 8.8x FY2011 P/E and 5.2xEV/EBITDA

Current Price: $10.66Float: 13.0MM

Diluted Shares: 30.0MM

Short Interest: 2.1MM

Average Daily Volume: 246k

52 Week Range: $7.25 - $13.05

Market Cap: $319MMCash and Investments: $93MM

Debt: $2MM

Enterprise Value: $229MM

Net Cash/Sh: $3.03

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ESTIMATES $ (MMs except multiples & EPS)2009 2010 2011

RevenueQ1 (Mar) $20.6A $63.2A $106.1E

Q2 (Jun) $48.8A $75.5A $117.6E

Q3 (Sep) $40.9A $96.3A $110.8E

Q4 (Dec) $51.3A $117.6E $202.7E

FY $161.5A $352.7E $537.2E

EV/Sales 1.4x 0.6x 0.4x

EPS (ProForma)Q1 (Mar) $0.19A $0.28A $0.41E

Q2 (Jun) $0.32A $0.32A $0.44E

Q3 (Sep) $0.39A $0.33A $0.41E

Q4 (Dec) $0.30A $0.43E $0.68E

FY $1.34A $1.36E $1.93E

P/E 8.0x 7.8x 5.5x

EBITDASQ1 (Mar) $5.2A $10.6A $16.9E

Q2 (Jun) $8.4A $13.0A $18.0E

Q3 (Sep) $8.5A $14.2A $17.2E

Q4 (Dec) $9.9A $17.7E $27.8E

FY $32.0A $55.4E $79.9E

EV/EBITDAS 7.1x 4.1x 2.9x

Lihua International, Inc.(Nasdaq: LIWA)

Extensive diligence summary addressing short concerns; Reiterate BuySummary:The US-listed China universe has been under a tremendous amount of deserved scrutiny overthe past 12 months. Valuations across the space have reverted to mid-single digit multiples ofearnings; creating an environment in which companies that are vastly different, in regard toindustry exposure, growth characteristics, capital structure, quality and depth of management,have all begun to trade in tandem. It is our opinion that this scenario is the result of a completeand utter lack of confidence in both the underlying fundamentals of these companies and theindividuals that support them in the capital markets. This creates an incredibly challengingsituation for both investors and sell-side analysts. Having suffered through a year of thisfrustration we continue to believe that equity markets will trend towards relative efficiency.Markets typically thrive on investor confidence; given the amount of deceit and fraud that hasbeen perpetrated upon investors over the past several years we are not naively optimisticenough to believe that the tides will turn tomorrow for this space as a whole, but we feel thatit is our fiduciary responsibility to present our top picks in as thorough a manner as possible.The creation of a more knowledgeable investor base should increase confidence in holdingsand minimize the ability for stocks to be materially impacted through rumor and blog postings;this should reduce the overall volatility for the space and over time lead to a broader followingand eventual multiple expansion. To be clear, we do not expect the majority of companies in thisexisting universe to thrive in an environment of increased scrutiny and to successfully grow intofeasible institutional investment vehicles. Our goal is to highlight the companies for which wehave done extensive due diligence and feel that the business strategy, management competencyand the earnings power should allow the company to grow, with institutional sponsorship, intosuccessful public companies.

Having reviewed and conducted site diligence on over 100 of the existing US listed Chinesecompanies, we feel that LIWA presents one of, if not the most, compelling investmentopportunity in this entire universe of companies. The company has ~$100MM in cash, $42MMin current year net income, growing to $60MM in 2011, practically $0 debt and currently tradeswith a fully diluted market cap of only $290MM. Our view is that this valuation is the result of acombination of factors: a limited public company reporting history, minimal sell-side coverage,minimal institutional sponsorship, a lack of understanding or belief in the current earningspower of the company and the growth projections which are largely predicated on in process,fully funded, capex projects. The intention of this piece is to present the company objectively, ina way that both focuses on the underlying fundamentals of the company and also addresses andintends to disarm the assertions that have been leveled against the company. We have publishedextensively on the company over the past nine months. As such we will not reiterate the entiretyof our previous reports; rather we will highlight the recent diligence efforts and channel checksas well as to directly address the two principle arguments that shorts have presented: first, thatthe SAIC/SAT documents the company has made publicly available on its website are not validand, second, the gross margins of the business are "too high" to be real. We have maintainedour Buy rating on LIWA over the past nine months, during which time we have watched thestock achieve minimal gains while revenues have doubled and earnings have outgrown the Y/Y dilution from the capital raise that has positioned the company for 50% 2011 EPS growth. Webelieve there are several meaningful catalysts in the near term that should lead to LIWA being atop performing stock during calendar 2011 and our top pick in the US listed China universe.

Company Description: Lihua International, Inc., designs, manufactures and sells low cost / high quality alternatives to purecopper products, including refined copper products like superfine and magnet wire, rod and anode, aswell bimetallic copper clad aluminum wire in the PRC.

SEE ANALYST CERTIFICATION AND OTHER IMPORTANT DISCLOSURES AT THE END OF THIS REPORT

Most recent site visit – truing up capacity

We recently visited the Danyang facilities to monitor the progress of the incremental capacity additions. The existing facility occupies 100Mu of land (66,700 m

2) and utilizes two smelters with 25,000 tons of copper smelting capacity each (please see pictures below from our facility visit).

Both smelters operate 24 hours a day with three shifts, with production halted only for maintenance periods, holidays and some periods during the summer when temperatures make it too difficult to operate the smelter. We also viewed three draw benches, which are used to draw copper rod into wire, two smaller benches with 20MT daily capacity and one with 50MT daily capacity. After being pulled through the draw benches, the wire can then be processed further using the drawing machines, both vertical (LIWA currently has four at its existing facilities) and horizontal. The drawing and coating process is fully automated. We saw lines of machines operating in the workshops consistently with very little human interaction, with the exception of spooling and doffing.

Copper Rod Smelter & Drawing Line Copper Anode Smelter

Source: GHS Research

Details on LIWA’s smelters

Lihua has internally designed and constructed its smelters. Each 25,000 ton smelter costs approximately $7MM-$8MM and requires approximately three months from assembly to production. These smelters have 100 ton/day smelting capacity and the process takes about 21 hours to complete: seven hours to load scrap copper into the smelter, seven hours to smelt (or heat to liquification) the scrap copper and another seven hours to extract the melted copper into either rod or anode form. This is consistent with any industry comparable and we observed this in operation during our latest facility visit. Existing and planned PP&E investment

There have been arguments made asserting that LIWA’s existing PP&E appears too small to support the tonnage quantities and revenues that the company has reported, with the primary comparison being made to US companies in similar businesses. We believe that this is an inaccurate means of comparison; it is important to note that LIWA, like other Chinese companies, does not own its land, rather the company purchases long-term land leases and books its land as an intangible asset classified under “Prepaid land use rights”, which accounts for $8.2MM. In addition, LIWA has recorded ~$5MM in accumulated depreciation over the years; which, combined with its land use rights, bring the total original investment in land and infrastructure build out to ~$31.5MM. The planned capacity expansion, which should add another two smelters, doubling the total smelting capacity to 100,000 tons annually, is expected to cost ~$40MM (including land use rights), which is relatively in line with the original investment. Including the current capex plan, this will bring the embedded value of physical assets to ~$71.5MM. Conservative, fully funded capex plans double production in 2010 and will do so again in 2011

Lihua’s recently acquired land is adjacent to the existing facilities; this plot is nearly double the size (180Mu) of the existing plot of land (100Mu). While we were on site we discussed with management the potential blueprint for the expanded construction and facility layout. The company anticipates the new plant to be operational and contributing to revenues in the second half of FY 2011. Judging by the size of the new plot of land, we believe the company will be able to install more than two smelters there (our estimates are that it could easily fit six smelters if that were the primary expansion vertical going forward). As a result, we believe that the company’s current guidance, which has it doub ling smelting capacity to 100,000 tons Y/Y appears conservative and likely to be ratcheted up over the balance of the first half of 2011. Lihua will also be creating an R&D center in the new facility to investigate potential expansion into other, related products. Commodity risk – the ability to pass through raw material costs shields LIWA from commodity fluctuations

It is important to note that LIWA sells its products on a tolling (or cost plus) basis. As a result, the company has been protected from volatile movements in commodity copper prices. This also results in rapid inventory turns and thus very little working capital requirements for inventory. The company only purchases copper (or CCA rods) after receiving an order from the client. Additionally, LIWA charges mark up on a dollar basis, rather than a percentage mark-up, for processing across all of its products; this accounts for the stable historic growth in gross profit dollars in both a rising and falling copper price environment. This structure is the rationale behind management's typical guidance format in which it provides gross profit guidance, based on anticipated tonnage processing, rather than revenue guidance; this allows investors to benefit from higher levels of profit visibility and EPS growth.

Lihua International, Inc. (LIWA) Company Update January 31, 2011

Global Hunter Securities, LLC Equity Research

Relative margin explanation

Investors have raised questions regarding the historic margin reported by LIWA relative to its closest public comparable in the copper clad aluminum space, Fushi Copperweld (FSIN; Buy). Prior to FY2009, Lihua’s primary business included the drawing down of CCA rods purchased

from suppliers such as Fushi Copperweld into fine and superfine diameter wire (ranging from 0.025 millimeter to 0.18 millimeter in diameter) as well as utilizing annealing and coating processes to produce magnet and tin plated wires. During those three years (from 2006 through 2008), LIWA’s margins were in line with margins generated by companies in similar businesses, namely FSIN. (Please see the table below for comparison.) The fact that LIWA’s margins actually increased in 2008 while FSIN’s margins declined as a result of significant drop in copper price and demand is explained by LIWA’s tolling based pricing structure which did not put inventory value at risk, as well as production volume growth and relatively low fixed and overhead expenses. Fushi has an operating model with significantly higher levels of fixed costs and overhead given the scale of the cladding facilities in Dalian, the manufacturing plant in the US and offices in the UK.

Source: Company data, GHS Research

Following Lihua’s entry into the refined copper industry and its expansion of product lines into more commodity-like products (copper rod and copper anode), Lihua’s margins have actually decreased. We believe that management has done a more than adequate job with disclosure in presenting its revenue and margin opportunities on a product by product basis. When you rebuild the revenue and gross profit margins on a product basis one can see that margins for copper rod have remained in the 8%-10.5% range; refined copper wire in the 14%-28% range (significant fluctuation comes from varying wire thickness requested by customers); CCA wire in the 28%-40% range (again, depending on the thickness of the wire per each order); and copper anode with an ~8% margin in Q3, which is expected to increase to the low teens beginning in Q4 2010 as the company ramps utilization to full capacity (please see the table below for more details). Management has made a commitment to expanding its capacity in these lower margin businesses because of the demand stability provided by the large addressable market and the cash flow opportunity arising from materially shorter inventory turn. Lihua's recycled copper products can be substituted for virgin copper across the majority of copper usage and the ~20%-30% discount that recycled copper is sold for relative to virgin copper positions it as a value proposition to manufacturers, which has supported demand in periods of both declining and rising copper prices.


Comfort in cash flows - strong cash flow generation as a result of quick turnover and favorable payment terms

As a result of rapid sell through and relatively low working capital requirements, Lihua has been able to generate positive operating cash flows every year since 2006. LIWA generated $5.6MM in operating cash flow in 2006, $3MM in 2007, $15.8MM in 2008, $8.4MM in 2009 and $27.3MM in the first nine months of 2010. For its commodity products (copper anode and rod), the company can process and complete each order in approximately seven to ten days after receiving the order, while copper and CCA wire contract turnaround can range from 15 to 45 days to complete. Additionally, the majority of customers pay in full upon delivery of copper rod and anode products, while Lihua sometimes extends credit terms of 15 to 30 days for its CCA and copper wire products. As a result, the company’s DSO’s have averaged approximately 30 days (actually declining since 2009 following the introduction of commodity copper products), while its cash conversion cycle has ranged from 30 to 40 days. There was a slight increase in accounts receivable in Q3 2010, attributable to the new anode product introduced in that quarter and slight delay in payments as a result of additional quality testing performed by customers of anodes. We expect to see accounts receivable and DSO return to historic levels in Q4 and should continue to trend down going forward as a larger percentage of revenues will come from copper anode products.

LIWA’s Turnover and Margin by Segment


FY 2006 FY 2007 FY 2008 FY 2009 9M FY 2010

LIWA Gross Margin 32.4% 29.9% 33.6% 22.4% 17.6%

FSIN Gross Margin 36.7% 33.1% 25.9% 30.0% 29.3%

LIWA EBITDA Margin 30.9% 28.8% 30.0% 19.8% 16.1%

FSIN EBITDA Margin 33.8% 26.5% 19.9% 25.8% 26.3%

Margin Comparison: LIWA vs. FSIN

Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010

CCA Wire 37.2% 37.0% 37.5% 32.9% 38.8% 40.4% 41.7%

Copper Wire 26.4% 25.0% 28.0% 22.1% 17.5% 14.4% 14.3%

Copper Rod 9.2% 8.2% 10.5% 10.6% 8.5% 9.7% -

Copper Anode 8.1%*all of the copper rod in Q3 2010 was utilized internally for copper wire production

LIWA's Gross Margins by Product

CCA Wire Copper Wire Copper Rod Copper Anode

Gross Margin High Medium Low Low

Turnover 30 - 45 days 15 - 30 days 7 - 10 days 7 - 10 days

Payment terms 15 - 30 days credit 15 - 30 days credit On delivery On delivery

ROIC Slower Slower Fast Fast

Market Size Small but growing Very large Very large Very large

Commodity Risk No No No No



No dilutive equity offerings - solid balance sheet and cash generation mitigates dilution risk

As of the end of Q3 FY2010, Lihua had $93MM in cash and only $2.2MM of short-term debt, which translates to ~$3.00 per share in net cash. The company’s announced capex plans are expected to cost ~$40MM, which leaves more than $50MM for working capital requirements and other potential expansion projects. In addition, at current capacity the company generates approximately $9MM in operating cash flow per quarter. As a result, we do not expect the company to require additional financing in any foreseeable future. Given the skeptical environment that we are currently operating in and accusations we have heard that call the validity of the cash balances into question; we have independently verified LIWA’s cash on hand with its commercial banks, including ICBC Bank, Agriculture Bank, Construction Bank and others (please see LIWA’s bank statements below as Exhibit 1). Finally, Lihua has a very clean balance sheet, with minimal accounts receivables and inventories and no “paper assets” (in the form of uncompleted contracts or unbilled revenues), which tend to reduce operating transparency and could present an opportunity for a company to manipulate or misrepresent its operating results. Explanation for the low interest income levels

The basis for doubting the validity of the cash balance stems in part from the de minims interest income the company has reported. This is an understandable concern and as such we felt that a thorough explanation be provided; the company's cash balance (see LIWA’s bank statements) is kept in current deposit accounts rather than time deposit accounts with a number of banks, carrying an annual interest rate of 0.36%, similar to many other companies in China. The rationale behind maintaining the cash in a low yielding current deposit account is that it provides the company with immediate access to the cash. According to ICBC, corporate current deposit is one kind of deposit that can be saved and withdrawn at any time, with its interest counted on interest settlement term. In comparison, a time deposit account is similar to a CD; in this form the depositor and financial institution agree on the terms and interest rates prior to the deposit, and the account is structured to allow the withdrawal of principal and interest at the due date, which tends to vary from three months, six months, one year, etc. In 2009, the company had interest income of $174K, with an average cash balance throughout the year of approximately $30MM. Investors should keep in mind that the company is currently awaiting the approval of a copper import license (to be discussed in more detail below) which would increase working capital needs as they begin to source directly and eliminate importers margin. Approval is anticipated in the immediate future and as such the company needs to access its cash reserves to source scrap directly, which will drive margin expansion and generate material incremental earnings power. Robust demand due to the commodity nature of the products

We believe that demand for Lihua’s products remains very strong. The commodity like nature of its products allows the company to sell across a number of different industries, including infrastructure, auto, white goods, electronics, etc. It is our view that as long as the company is able to process scrap copper to purity levels of high enough quality to compete with virgin copper products, they are unlikely to see a lag in demand as the value proposition remains intact. Additionally, the demand for copper is expected to exceed supply in 2011, according to Bloomberg estimates, while copper price is expected to average around $11,000 per ton in 2011 (vs. ~$9,500/ton currently). 100% organic growth - dodging one of the potential landmines

All of LIWA’s historic growth has been achieved organically; the company has not and does not intend to seek acquisitions. Th is eliminates one of the single largest risks to investors and potential mediums for corporate malfeasance. We have witnessed questionable acquisitions and real estate purchases by other companies in China that were likely self-enriching, undisclosed third party transactions. Lihua is different from many of its comparables in the sense that capex plans are clearly communicated, in our opinion. No outside business interests

Mr. Zhu, Lihua’s Chairman and CEO, together with his wife, Ms.Wang Yaying, have been involved in the copper industry for over 20 years. According to IPXEL, an Intellectual Property Database, Lihua Copper and Lihua Electron have two patents filed with the State Intellectual Property Office of PRC (SIPO) each, all of which list Ms. Wang as one of the two inventors. LIWA is the couple’s primary business focus and their equity accounts for the majority of their net worth, they have no outside business interest and are completely dedicated to this company and the creation of value for its shareholders. As an aside, during our previous visits we have noted a room in the back of the factory where the couple stays overnight for at least six months of the year to oversee the around the clock operations. No insider selling

Since the company’s IPO in September 2009, Mr. Zhu has not sold any of his shares, even though his lock-up period has already expired. Mr. Zhu currently owns 13.75MM shares, or 55.3% of the company, down marginally from 13.86MM shares as of December 2008, when the company filed its S-1. These 112.5K shares were transferred to Roy Yu (the company’s CFO) as part of his contractual arrangement in which Mr. Yu’s equity compensation is derived from the Chairman's holdings rather than newly issued shares. Mr. Zhu owns all of his shares through Magnify Wealth, of which he is a sole shareholder.

Source # of Common Shares % of Common Shares

S1 filed on 12/15, 2008 13,862,500 92.40%

FY2009 10K filed on 3/31, 2010 13,750,000 55.30%

Magnify Wealth Shares Counts

2.Mr.Zhu Jianhua entered into a share transfer agreement with Mr.Fo Ho Chu, original owner of Magnify Wealth in 2008.

1.Mr.Zhu Jianhua, CEO of the company, is the sole shareholder of Magnify Wealth.



Improving corporate governance Auditor upgrade – In July 2010, the company announced the appointment of Crowe Horwath (HK) CPA Limited as its new independent public accountant to replace AGCA. Crowe Horwath is a Tier 2 accounting firm and ranks among the top 10 public accounting firms in the world according to PCAOB rankings. The decision to change accounting firms was in no way due to any disputes or disagreements between the company and its previous auditor, AGCA, but rather in an effort to improve its corporate governance, increase transparency and alleviate investors' concerns regarding the quality of its earnings. SOX404 internal control audit – In Q3 FY2009, LIWA appointed Deloitte & Touche as a SOX404 consultant in order to improve its internal controls and corporate governance. The audit is currently in the final testing phase and the company believes that it should be completed relatively soon. Expect the company to upgrade to a Big 4 auditor in 2011 – We have spoken positively regarding LIWA's decision to upgrade its auditor to Crowe Horwath in 2010; given the increasing skeptical investment environment we would like to see the company upgrade to a Tier 1 auditor (big 4). We believe that our encouragement and management's frustration with its current valuation will very likely result in the company upgrading to a Big 4 auditor soon after filing their 2010 10-K, with the intention of having the auditor engaged and able to sign off on Q1 or Q2 results. Update on copper import license The company has received the Certification of Import License for Solid Waste to be used as raw materials (please see Exhibit 2). This implies that the company has already received local and provincial government approval and has already passed the central government’s factory inspection. The next and final step to being awarded the official license for a 100K MT scrap copper import quota would be to receive the approval from the Ministry of Environmental Protection, which we expect to happen in Q2 FY2011. In addition, management stated that they have already identified and secured scrap copper suppliers and can begin importing as soon as they receive approval. It is important to note that no benefit from this has been built into our projections and that the ability to import copper will admittedly tie up additional, but available working capital and create some potential commodity price risk if customers were to back away from deliveries. However, the positive impact would be an increase of approximately $150 per ton in gross profit as the distributor margins are internalized; which could contribute an additional $15MM per year in gross profit with little to no incremental cost, meaning that the EPS accretion could approach a fully taxed $0.35/share on an annual run rate basis. Lihua’s customer validation

Lihua recently announced that it received copper anode supply orders and volume demand indications for 2011 totaling 122K-134K tons. This was a product that had been in beta production during our previous visit and was in full production on our most recent visit. We had the opportunity to independently confirm these contracts with the new customers, the largest of which produces close to 1MM tons of copper cathodes, making them one of the largest copper players globally. We spoke with the head of procurement and trading of copper anodes and other copper products, who has been with the company since 1987. When asked why they have chosen to work with LIWA, they stated that 1) LIWA’s copper products are of high quality, 2) LIWA is a public and well capitalized company and 3) LIWA’s facility is in close proximity to their facilities. Copper is a capital intensive business and the customer cannot take the risk of its supplier running out of working capital and thus not being able to deliver copper anodes on a timely and consistent basis. They had started sourcing copper anode from LIWA in Q3 FY2010 and at that time planned to purchase a total of 7,000 to 8,000 MT by year-end. Before they chose LIWA as a supplier, they asked LIWA to provide small batches and tested LIWA’s products; they were satisfied with the quality and decided to work with LIWA on an ongoing basis. They also stated that they are agnostic to virgin or scrap copper as long as the anode meets their standards of copper purity. Currently, the customer produces about 70% of the copper anodes internally, but going forward they stated that they want to source more from companies like LIWA in order to free up capital to increase their copper cathode production. In addition to that customer, we spoke to six other customers of LIWA, on both copper and CCA sides. All of them stated that they have done their own batch testing of the products to ensure copper purity is as good as advertised. All of the customers we spoke to were happy with the quality of Lihua’s products, as well as their services and timely delivery. The fact that LIWA is a public company was very important for most of the customers we talked to, as it provides additional credibility to the company and ensures that they will have enough capital on hand to meet their demands in a timely manner. We estimate that these customer surveys reached approximately 35%-45% of revenue and more importantly touches upon one of the largest potential avenues for growth in the anode space. Reconciliation of SAIC vs. SEC filings

In recent articles certain short sellers have presented what they claim to be SAIC and SAT documents for LIWA that show a significantly smaller business run rate relative to SEC reporting documents. We have publicly addressed these issues and LIWA has posted its documents on their website for the public to view. In order to put an end to the argument regarding which SAIC numbers are more accurate, the documents provided by the company or those presented by short sellers, we have contacted the Jiangsu Province SAIC Bureau (with the company’s permission) and have requested LIWA’s 2009 filings directly from them. The report that we received was identical to the one published by Lihua on its website and is attached to this note as Exhibit 3. In addition, we have contacted Lihua’s PRC auditors, Jiangsu Fuhua CPA Co., who audited the company’s 2009 financials submitted domestically; they also verified the accuracy of the numbers presented by the company on its website. We also presented both versions of the disputed SAIC/SAT filings to both an audit partner with a big 4 based in Hong Kong as well as an independent PRC counsel in order for them to review and share their opinion. The unanimous opinion was that the SAIC documents presented by LIWA were genuine and that the SAT documents presented by short sellers were not valid. In our opinion, we have exhausted our resources to reach what seems to be a clear conclusion. The only public recourse left would be for LIWA to present the alleged documents generated by the short sellers to the Jiangsu SAIC in order to get an official opinion. This is an avenue we strongly suggest in order to close the chapter on this distraction.



$15MM share repurchase proves management’s dedication to creating shareholder value

A few days ago LIWA announced a $15MM share repurchase program. The company plans to utilize its cash on hand and operating cash flows to purchase up to $15MM of its common shares in the next 12 months. At the end of Q3 2010, LIWA had $93MM in cash on its balance and based on the current capacity can generate $9MM-$10MM per quarter in operating cash flows. We believe that the approval of the share buyback program shows that the company is committed to the creation and enhancement of shareholder value. We have seen a number of companies use share repurchase announcements as mere public relations attempts to boost their shares over a short time horizon; it is our position that this was a fundamentally based decision by management to utilize its capital structure to enhance shareholder value, knowing that its cash flows will support any future growth initiatives. Management is the single largest shareholder with ~50% of the fully diluted shares and our ongoing discussions with them reveal their frustration and dismay with the current valuation of the company and the baseless short attacks they have faced. Significant top and bottom line growth

We expect the company to report $60.3MM in gross profit and $1.36 in EPS in FY2010. For 2011, we expect to see 40%-45% growth in both gross and net profits as a result of the organic capacity expansion. We expect the company to report gross profit of $86.4MM and EPS of $1.94 in FY2011. It is important to point out that our current estimates do not include potential benefits from the direct copper import, which could add an incremental $15MM in gross profits and approximately $0.35 in EPS on an annual run rate basis or the benefit from any additional capex plans that the company may choose to undertake. We are hopeful that management will provide investors with an update on its 2011 capex plans as well earnings guidance either during its Q4 conference call or immediately following. Upcoming near-term catalysts

We anticipate a number of near-term positive catalysts:

We anticipate strong Q4 results to be announced in early March.

A conclusion to the internal control implementation and review for which management contracted Deloitte to conduct.

Awarding of the license for import of 100K MT of scrap copper in early Q2 2011.

Auditor upgrade to a Big 4 firm soon after filing their 10-K.

Additional sell-side coverage. Third party validation points on LIWA

Jiangsu Provincial SAT put out a press release about Lihua’s Nasdaq listing. The press release published by SAT stated that Liwa was founded in 1999 and that it is now listed as one of the top companies by Zhengjiang City. http://www.js-n-tax.gov.cn/html/2009/10/14/171890.shtml CMHJ (CMHJ is one of the top 50 Venture Capital Funds in China; it was founded in 1999 in HK by China Merchant Group) talks about LIWA being one of its investments and gives a brief background and overview of the company. As of April 2010, they held approximately 7.6% of all outstanding shares of LIWA. http://www.cmtech.net/?key=news&chk=0&id=42 http://www.cmhjpartners.com/capital2.html This press release is from the Zhenjiang government, stating that LIWA is one of the top twelve important companies in Zhenjiang City. The local government plans to support these companies to help them achieve sales target of RMB10 billion, which, according to the government’s estimates, should happen within the next few years in Lihua’s case. The press release also mentions Lihua’s efforts in building an R&D team and recruiting talent. http://hrss.zhenjiang.gov.cn/xxgk/dcyj/201003/t20100326_295003.htm Danyang local government provided an update on the top 100 industrial companies in the city. The press release mentioned that Lihua is one of the top companies in the region and was one of the six companies responsible for Danyang municipal’s growth. http://www.jiangsu.gov.cn/shouye/rdgz/jjrd/201007/t20100730_479973.html Shang’hang local government (Shang’hang is located in Fujian, a large copper production area) posted a press release about the copper anode orders. The press release stated that Lihua signed a new order with a large copper company to deliver 1,000-2,000MT of copper anode monthly. According to the press release, by year-end 2010, Lihua sold 11,000MT of copper anode, while the 2011 contract totaled 122K-134K MT copper anode. http://shanghang.gov.cn/dzsw/tcy/tcyfxyc/201012/t20101215_75712.htm Reiterate Buy rating and $17 price target

At Friday’s closing price of $10.66 the stock is trading at 7.8x FY10 and 5.5x FY11 on a P/E basis, significantly below the peer group averages of 10.8x and 9.4x, respectively. Adjusting for net cash brings down 2010 and 2011 P/E estimates to 5.6x and 4.0x, respectively, indicating a substantial value opportunity based on current valuation. On an EV/EBITDA basis, Lihua is trading at 4.1x and 2.9x for FY10 and FY11, based on our estimates, which represents a significant discount to peer group multiples of 6.6x and 5.3x. Our peer group consists of profitable Chinese companies operating in the industrial sector, as well as US and international companies operating in copper smelting and wire businesses (excluding some outliers from the peer group average calculation).



http://www.js-n-tax.gov.cn/html/2009/10/14/171890.shtml

http://www.cmtech.net/?key=news&chk=0&id=42

http://www.cmhjpartners.com/capital2.html

http://hrss.zhenjiang.gov.cn/xxgk/dcyj/201003/t20100326_295003.htm

http://www.jiangsu.gov.cn/shouye/rdgz/jjrd/201007/t20100730_479973.html

http://shanghang.gov.cn/dzsw/tcy/tcyfxyc/201012/t20101215_75712.htm

Our $17 price target is predicated on 8.8x FY2011 P/E and 5.2x EV/EBITDA multiples. In our opinion a target price of $17 is justified by Lihua’s impressive margins and profitability, strong operating cash flows, positive demand trends for copper consumption and pricing and the robust capital expenditure plans that are expected to double existing capacity by the end of 2011 Lihua also has a solid balance sheet with a net cash level of over $90MM, a current ratio of 4.4x, a cash conversion cycle of only 30 days and has generated ttm ROE and ROA of 32.6% and 25.7%

Peer Valuation Analysis

Name Ticker Rating Price Market Value EV Net Debt/Total Cap P/E P/E P/E PEG EV/EBITDA EV/EBITDA EV/EBITDA

2009 2010 2011 '08 - '11 2009 2010 2011SmartHeat Inc. HEAT Not Rated $4.91 $185.7 $176.5 -4.8% 7.6 7.3 6.5 0.5 8.4 5.9 4.6

Suntech Pow er Holdings Co. Ltd. STP Not Rated $8.30 $1,487.7 $2,268.9 24.3% 25.0 20.1 7.1 0.5 11.3 7.3 5.1

Yingli Green Energy Holding Co. Ltd. YGE Not Rated $11.27 $1,753.9 $2,331.7 19.5% NA 8.7 7.7 0.6 14.9 5.3 4.7

Trina Solar Ltd. TSL Not Rated $25.73 $2,031.3 $1,923.9 -4.0% 18.0 7.6 7.2 0.5 12.2 4.6 4.4

Duoyuan Global Water Inc. DGW Not Rated $10.81 $266.0 $113.5 -57.3% 6.4 7.2 6.5 1.0 2.6 2.2 1.9

JA Solar Holdings Co., Ltd. JASO Not Rated $6.81 $1,107.8 $1,198.8 6.0% NA 4.8 5.2 0.4 29.0 3.5 3.3

Highpow er International, Inc. HPJ Not Rated $3.48 $47.3 $63.6 23.7% 9.4 7.9 5.7 0.3 8.4 7.8 5.4

China Fire & Security Group, Inc. CFSG Not Rated $6.06 $167.2 $137.6 -17.7% 6.9 7.2 4.1 NA 4.8 4.8 4.1

Harbin Electric, Inc. HRBN Buy $18.83 $588.5 $589.8 0.2% 12.3 7.1 6.5 0.3 9.8 5.1 4.7

A-Pow er Energy Generation Systems, Ltd.APWR Not Rated $5.95 $275.9 $172.6 -30.3% 10.4 5.6 9.5 1.2 5.6 7.2 3.0

Solarfun Pow er Holdings Co. Ltd. SOLF Not Rated $8.54 $715.7 $853.9 13.2% NA 4.6 4.9 NA 23.4 4.2 3.2

China XD Plastics Company Ltd. CXDC Not Rated $6.59 $313.9 $319.3 1.6% 14.6 7.7 6.5 NA 13.9 7.1 5.1

Jinpan International Ltd. JST Not Rated $10.10 $165.9 $159.0 -3.9% 5.8 5.4 4.8 0.4 4.6 8.7 5.7

China BAK Battery, Inc. CBAK Not Rated $2.01 $127.9 $281.0 50.1% NA NA NA NA NA 395.7 12.3

Fushi Copperw eld, Inc. FSIN Buy $9.72 $367.4 $271.2 -24.7% 10.6 7.6 6.6 0.8 4.8 3.8 3.1

China Valves Technology, Inc. CVVT Buy $7.32 $253.6 $247.4 -2.4% 9.6 5.4 4.7 NA 8.6 3.9 3.2

China Wind Systems, Inc. CWS Not Rated $3.92 $72.7 $72.3 -0.6% 12.3 7.8 NA 0.4 5.8 3.7 NA

China Sunergy Co. Ltd. CSUN Not Rated $4.37 $194.7 $196.0 0.4% NA 3.7 6.0 NA NA 2.4 3.2

China Ritar Pow er Corp. CRTP Buy $2.53 $55.3 $49.2 -10.1% 6.7 5.7 5.6 0.3 4.1 4.0 3.2

China Average $535.7 $601.4 -0.9% 11.1 7.3 6.2 0.6 10.1 5.1 4.5

Coleman Cable, Inc. CCIX Not Rated $6.30 $109.3 $372.5 69.1% NA 9.6 7.2 NA 7.9 5.7 5.2

Encore Wire Corp. WIRE Not Rated $22.40 $519.9 $429.5 -17.4% 75.9 32.2 19.5 NA 17.4 11.4 7.2

General Cable Corp. BGC Not Rated $36.84 $1,919.8 $2,529.5 20.9% 13.0 18.3 13.6 NA 6.9 7.9 6.4

Metalico Inc. MEA Not Rated $5.37 $249.4 $371.3 32.4% 1074.0 15.1 10.3 NA 12.8 7.6 6.0

US and International AVERAGE $699.6 $925.7 26.3% 13.0 14.3 12.7 0.6 11.3 8.2 6.2

Combined AVERAGE $617.7 $763.5 12.7% 12.0 10.8 9.4 0.6 10.7 6.6 5.3

Lihua International, Inc. LIWA Buy $10.66 $319.5 $228.7 -28.2% 8.0 7.8 5.5 0.4 7.1 4.1 2.9

Multiples with Price Target $17.00 509.5 418.7 12.7 12.5 8.8 0.6 13.1 7.6 5.2



Income Statement

Lihua International Inc (LIWA)Income Statement 340.04

All Figures $MM, except per share FY 2006a FY 2007a FY 2008a Q1 3/09a Q2 6/09a Q3 9/09a Q4 12/09a FY 2009a Q1 3/10a Q2 6/10a Q3 9/10a Q4 12/10 FY 2010E Q1 3/11 Q2 6/11 Q3 9/11 Q4 12/11 FY 2011E

15.7 32.7 50.0 20.6 48.8 40.9 51.3 161.5 63.2 75.5 96.3 116.5 351.6 105.0 116.4 109.6 201.4 532.4 % growth year-to-year NA 107.5% 53.0% 109.4% 224.7% 185.9% 372.7% 223.0% 207.6% 54.6% 135.5% 127.4% 117.7% 66.1% 54.1% 13.8% 72.8% 51.4%

10.6 22.9 33.2 14.9 39.1 31.2 40.4 125.3 51.4 61.0 81.2 97.7 291.3 86.6 96.7 90.8 171.8 445.9 67.6% 70.1% 66.4% 72.3% 80.1% 76.1% 78.8% 77.6% 81.3% 80.8% 84.3% 83.8% 82.9% 82.5% 83.1% 82.8% 85.3% 83.8%

NA 115.1% 44.9% 119.7% 278.5% 241.2% 478.2% 277.4% 246.1% 56.0% 160.7% 142.0% 132.5% 68.5% 58.6% 11.8% 75.8% 53.1%5.1 9.8 16.8 5.7 9.7 9.8 10.9 36.2 11.8 14.5 15.1 18.8 60.3 18.4 19.6 18.8 29.6 86.4

32.4% 29.9% 33.6% 27.7% 19.9% 23.9% 21.2% 22.4% 18.7% 19.2% 15.7% 16.2% 17.1% 17.5% 16.9% 17.2% 14.7% 16.2%NA 91.5% 72.1% 86.6% 106.6% 88.4% 181.8% 115.6% 107.4% 49.0% 55.0% 73.1% 66.3% 55.6% 35.4% 24.3% 57.3% 43.4%0.2 0.4 0.7 0.2 0.6 0.5 0.5 1.7 0.5 0.6 0.4 0.6 2.0 0.6 0.7 0.7 0.8 2.8

1.5% 1.3% 1.4% 1.0% 1.2% 1.1% 0.9% 1.1% 0.7% 0.8% 0.4% 0.5% 0.6% 0.6% 0.6% 0.6% 0.4% 0.5%NA 81.7% 67.7% 134.1% 241.2% 44.5% 273.4% 146.0% 121.8% -2.9% -6.5% 21.4% 17.7% 39.7% 22.4% 55.8% 38.2% 37.8%0.3 0.5 1.9 0.5 1.1 1.2 1.2 4.0 1.3 1.5 1.2 1.3 5.3 1.6 1.6 1.6 1.7 6.5

2.1% 1.4% 3.8% 2.6% 2.2% 2.9% 2.3% 2.5% 2.0% 2.0% 1.2% 1.1% 1.5% 1.5% 1.4% 1.5% 0.9% 1.2%NA 35.4% 319.2% 177.9% 171.1% 261.5% 19.4% 109.3% 138.6% 35.8% 0.6% 9.4% 31.6% 21.7% 5.8% 37.9% 33.5% 23.8%4.5 8.9 14.2 5.0 8.1 8.1 9.2 30.5 10.1 12.4 13.5 17.0 53.0 16.2 17.4 16.5 27.1 77.1

% of Revenue 28.8% 27.2% 28.4% 24.1% 16.5% 19.9% 18.0% 18.9% 15.9% 16.5% 14.0% 14.6% 15.1% 15.4% 14.9% 15.1% 13.5% 14.5%NA 96.1% 59.6% 78.7% 94.7% 78.9% 2.0% 115.0% 103.4% 54.6% 66.3% 2.0% 73.6% 60.7% 39.5% 22.2% 2.0% 45.6%

Interest Expenses (0.0) (0.1) (0.5) (0.113) (0.1) (0.1) (0.1) (0.3) (0.0) (0.0) (0.0) (0.0) (0.1) (0.0) (0.0) (0.0) (0.0) (0.1) -0.3% -0.3% -1.0% -0.6% -0.2% -0.2% -0.1% -0.2% 0.0% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

NA 125.2% 433% 47.4% -0.6% -63.5% -66.4% -34.9% -74.2% -61.9% -52.1% -44.0% -61.3% 3.2% -25.3% 0.0% 0.0% -7.2%Interest Income 0.0 0.0 0.1 0.0 0.0 0.1 0.0 0.2 0.0 0.1 0.1 0.1 0.3 0.1 0.1 0.1 0.1 0.3

0.0% 0.0% 0.1% 0.1% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.0% 0.1%NA 288.9% 336.6% 797.6% 520.2% 267.1% -9.9% 154.3% 37.6% 29.4% 20.9% 123.0% 46.7% 140.7% 31.5% 0.0% 0.0% 25.9%

Change in fair value of warrants - - - (0.1) (0.2) (8.0) (3.5) (11.9) 1.3 0.9 (0.1) - 2.1 - - - - - 0.0% 0.0% 0.0% -0.6% -0.4% -19.6% exex -7.4% 2.1% 1.2% -0.1% 0.0% 0.6% 0.0% 0.0% 0.0% 0.0% 0.0%

NAOther Income, net 0.0 - (0.3) - 0.5 (0.0) 0.0 0.5 0.1 (0.1) (0.0) - 0.1 - - - - -

0.0% 0.0% -0.5% 0.0% 1.0% 0.0% 0.0% 0.3% 0.2% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%NA -8875.0% -100.1% -295.9% -113.7% 2080.0% -100.0% -88.5% -100.0%

Total Non-Operating Expenses (0.0) (0.1) (0.7) (0.2) 0.2 (8.0) (3.5) (11.5) 1.5 0.8 (0.1) 0.1 2.3 0.1 0.1 0.1 0.1 0.2 -0.2% -0.2% -1.4% -1.0% 0.5% -19.6% -6.9% -7.1% 2.3% 1.1% -0.1% 0.0% 0.7% 0.0% 0.0% 0.0% 0.0% 0.0%

NA 123.5% 768.1% 187.7% -316.7% 5122.9% NA 1543.5% -797.1% 271.8% -98.9% NA -119.8% -96.6% -94.0% -156.9% NA -91.2%Income Before Taxes 4.5 8.8 13.5 4.7 8.3 0.1 5.7 19.0 11.6 13.3 13.4 17.0 55.3 16.2 17.4 16.6 27.1 77.3

28.6% 27.0% 27.0% 23.1% 17.0% 0.2% 11.1% 11.7% 18.3% 17.6% 13.9% 14.6% 15.7% 15.5% 15.0% 15.1% 13.5% 14.5%NA 95.9% 53.1% 75.7% 105.4% -98.0% 139.7% 40.7% 143.9% 60.5% 14968.0% 198.0% 191.3% 40.5% 31.0% 23.3% 59.5% 39.9%

Income Tax Expense - 1.1 1.8 0.8 1.6 1.4 1.5 5.2 2.7 3.4 3.6 4.3 13.9 4.1 4.4 4.1 6.8 19.3 0.0% 12.4% 13.3% 16.1% 19.0% 1600.7% 26.0% 27.6% 23.4% 25.5% 26.6% 25.0% 25.2% 25.0% 25.0% 25.0% 25.0% 25.0%

Amortization of Preferred Shares discount - - 1.0 - - 4.5 7.7 10.7 4.0 6.7 (1.3) 4.2 13.7 8.9 9.9 9.9 12.8 41.4 12.2 13.1 12.4 20.4 58.0

28.6% 23.6% 21.4% 19.3% 13.7% -3.3% 8.2% 8.5% 14.0% 13.1% 10.2% 10.9% 11.8% 11.6% 11.2% 11.3% 10.1% 10.9%NA 71.7% 38.5% 68.8% 91.5% -134.8% 320.9% 28.3% 122.8% 47.6% -837.5% 202.1% 201.3% 37.5% 31.9% 26.0% 59.5% 40.2%

Earnings per share - fd 0.32 0.55 0.70 0.18 0.31 (0.08) 0.17 0.72 0.34 0.34 0.33 0.43 1.43 0.41 0.44 0.41 0.68 1.94 NA 71.7% 26.8% 8.5% 23.1% -128.6% 153.8% 2.8% 84.7% 9.8% 420.3% 156.3% 99.4% 20.8% 29.1% 26.0% 59.5% 35.2%

14.0 14.0 15.3 21.8 21.8 17.1 25.4 19.1 26.3 29.3 30.0 30.0 28.9 30.0 30.0 30.0 30.0 30.0

Non-GAAP Adjustments - - - 0.1 0.2 8.0 3.5 11.9 (1.5) (0.5) 0.1 - (1.9) - - - - -

4.5 7.7 10.7 4.1 6.9 6.7 7.7 25.6 7.4 9.4 10.0 12.8 39.5 12.2 13.1 12.4 20.4 58.0 28.6% 23.6% 21.4% 20.0% 14.2% 16.4% 15.1% 15.9% 11.7% 12.4% 10.4% 10.9% 11.2% 11.6% 11.2% 11.3% 10.1% 10.9%

71.7% 38.5% 74.1% 97.7% 74.5% 669.9% 139.4% 79.9% 35.1% 49.0% 65.2% 54.1% 65.2% 39.6% 24.3% 59.5% 686.5%EPS - fd - non-GAAP 0.32 0.55 0.70 0.19 0.32 0.39 0.30 1.34 0.28 0.32 0.33 0.43 1.36 0.41 0.44 0.41 0.68 1.94

71.7% 26.8% 11.9% 27.1% 43.3% 364.2% 91.8% 49.2% 0.5% -15.0% 40.1% 1.4% 45.0% 36.6% 24.3% 59.5% 42.5%

4.9 9.4 15.0 5.2 8.4 8.5 9.9 32.0 10.6 13.0 14.2 17.7 55.4 16.9 18.1 17.2 27.8 79.9

30.9% 28.8% 30.0% 25.4% 17.2% 20.7% 19.3% 19.8% 16.7% 17.2% 14.8% 15.2% 15.8% 16.1% 15.5% 15.7% 13.8% 15.0%

93.4% 59.5% 78.0% 94.2% 78.3% 230.9% 113.3% 102.7% 54.4% 67.6% 78.4% 73.2% 59.8% 39.3% 20.9% 57.2% 44.2%0.3 0.5 0.8 0.3 0.3 0.4 0.7 1.7 0.5 0.5 0.7 0.7 2.4 0.7 0.7 0.7 0.7 2.8

2.1% 1.6% 1.6% 1.3% 0.7% 0.9% 1.3% 1.0% 0.8% 0.7% 0.7% 0.6% 0.7% 0.7% 0.6% 0.6% 0.3% 0.5%

56.2% 56.5% 65.8% 81.5% 65.4% 179.7% 103.5% 88.8% 50.3% 95.4% 5.7% 48.1% 41.8% 35.8% -2.7% -2.7% 14.4%

% growth year-to-year


Depreciation & Amortization & Others

Weighted Avg. S/O (mil)-fd

% of Revenue

Net Income - non-GAAP


adjusted EBITDA

Operating Income




% of Revenue

% of Revenue


Net Income Available to Common Stock Holders

% of Revenue

% of Revenue% growth year-to-year

% of Revenue% growth year-to-year

% of Revenue

% growth year-to-year% of Revenue

% of Revenue

% of Revenue


General and administrative expenses

Selling expenses

% of Revenue


% growth year-to-year% of Revenue

Tax Rate %


% of Revenue


Net Sales

Cost of Goods Sold% of Revenue% growth year-to-year


Gross Profit



Exhibit 1: Lihua International’s Bank Statements

Lihua Copper Bank Statements

Balance as of September 30, 2010

Total: RMB 236,405,059 (~ USD $35.3MM)

Bank Statement 1 for Lihua Copper

Jiangsu Bank Danyang Branch

Balance: RMB 362,414.16




Bank of Communications Zhenjiang Danyang Branch

Balance: RMB 5,000,000




ICBC Bank Danyang Branch

Balance: RMB 7,179,439.02




Bank of Construction Danyang Branch

Balance: RMB 175,734,519.36




Danyang Rural Bank

Balance: RMB 5,681,142.78





Balance: RMB 22,520,558.40




Agriculture Bank Danyang Branch

Balance: 12,591,873.90




Bank of China Danyang Branch

Balance: 7,335,111.54



Exhibit 1 (Continued). Lihua International’s Bank Statement

Lihua Electron Bank Statements

Balance as of September 30, 2010

Total: RMB 383,873,473 (~ USD $57.3MM)

Bank Statement 9 for Lihua Electron


Balance: RMB 59,719,528.75



Bank Statement 10 for Lihua Eletron

ICBC Bank Danyang Branch

Balance: RMB 157,618,497.11




Bank of China Danyang Branch

Balance: RMB 26,484,295.33




Agriculture Bank Danyang Branch

Balance: RMB 100,699,162.52




Bank of Communications Danyang Branch

Balance: 3,725,759.49




Rural Bank Danyang Branch

Balance: 2,450,863.76




Bank of Construction Danyang Branch

Balance: RMB 33,129,366.51



Exhibit 3. Lihua’s 2009 SAIC Filings provided by Jiangsu Provincial SAIC Bureau

Jiangsu Provincial SAIC Bureau Enterprise Inquiry System

Jiangsu Fuhua CPA Report #: [2010]-[290]

To Shareholders of Danyang Lihua Electron:

We have audited Lihua Electron’s financial

statements, including Balance Sheet as of

12/31/2009, Income statement, Shareholder

Equity, Cash Flow statement, and notes for

FY2009.



Jiangsu Provincial SAIC Bureau Enterprise Inquiry System

Jiangsu Fuhua CPA Report #: [2010]-[276]

To Shareholders of Danyang Lihua Copper:

We have audited Lihua Copper’s financial

statements, including Balance Sheet as of

12/31/2009, Income statement, Shareholder

Equity, Cash Flow statement, and notes for

FY2009.



Lihua International, Inc. (LIWA) DisclosuresI, Dmitriy Shapiro, certify that the views expressed in this report accurately reflect my personal beliefs about this company and that I have not and will not receivecompensation directly or indirectly in connection with my specific recommendations or views contained in this report.As with all employees of GHS, a portion of our analysts’ compensation is based on investment banking revenues.Global Hunter Securities, LLC does and seeks to do business with the companies covered in this research report.

Risks & Considerationsa) Potential disruptions in the availability of raw materials; b) Fluctuating copper prices c) Customers honoring contracts in a volatile pricing environment d) Limitedpublic operating history; e) Geopolitical risk of operating in China; f) Currency exchange risk

Explanation of RatingsBuy - The stock should be purchased aggressively at current prices. The stock is expected to trade higher on an absolute basis and be a top performer relative topeer stocks over the next 12 months.Accumulate - The stock should be purchased at current prices. The stock has an attractive risk/reward and is expected to outperform peer stocks over the next12 months.Neutral - The stock has average risk/reward and is expected to perform in line with peer stocks over the next 12 months.Reduce - The stock should be sold at current prices. The risk/reward has become less attractive and is expected to underperform peer stocks over the next 12 months.Sell - The stock should be sold aggressively at current prices. The stock is expected to trade lower on an absolute basis and be a top underperformer relative topeer stocks over the next 12 months.

Ratings DistributionResearch Coverage Investment Banking Clients*

Rating Count % of Total Count % of Total % of Rating CategoryBuy 71 59.2% 10 55.6% 14.1%Accumulate 21 17.5% 1 5.6% 4.8%Neutral 28 23.3% 7 38.9% 25.0%Reduce 0 0.0% 0 0.0% 0.0%Sell 0 0% 0 0.0% 0.0%Total 120 100% 18 100% 15.0%

*Investment banking clients are companies from whom GHS or an affiliate received compensation from investment bankingservices provided in the last 12 months.Note: Ratings Distribution as of December 31, 2010

This material has been prepared by Global Hunter Securities, LLC ("Global Hunter") a registered broker-dealer, employing appropriate expertise, and in the belief that itis fair and not misleading. Information, opinions or recommendations contained in the reports and updates are submitted solely for advisory and information purposes.The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore except forany obligations under law, we do not guarantee its accuracy. Additional and supporting information is available upon request. This is not an offer or solicitation of anoffer to buy or sell any security or investment. Any opinion or estimates constitute our best judgment as of this date, and is subject to change without notice. GlobalHunter and our affiliates and their respective directors, officers and employees may buy or sell securities mentioned herein as agent or principal for their own account.Not all products and services are available outside of the US or in all US states. Copyright 2011.



liwa global hunter jan 31 2011 report

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