Noah Educational Holdings, (NYSE-NED) BUY Recommendation

Closing price October 3, 2008-$3.00

Noah is a Chinese company. Despite that, we are taking a flyer here. Noah is now trading significantly below cash value. All amounts are converted at RMB to $ of 6.9/1.

All Chinese stocks (and just about every other stock too) have taken it on the chin is 2008. Noah is no exception.

Cash at June 30, 2008 was approximately $145 million or $3.62 per share. So it is trading at 83% of cash on-hand. Our valuation based on annual sales of $85 million and 50% gross margins is $7.18 per share. Noah is trading at 42% of our valuation.

We take some comfort that Noah trades on the NYSE where the listing and governance standards are higher (certainly higher than the Bulletin Board!). They have a Big 4 audit firm also.

Actual sales, gross margin and net income for the year ended June 30, 2008 were: $94 million, 51% and $21 million (about $.53 per share).

On September 25th Noah warned that they would not meet their guidance of sales of $36 million and net income of $7 million ($.18 per share). Instead they forecast sales of $29 million and net income of about $3 million ($.08 per share). While this is a big drop in net income forecast, the stock is trading as if it was hemorrhaging losses.

Noah went public in late 2007. Its 52 week trading range is $3.00 to $23.70.

So at 83% of actual cash, 42% of our valuation, 50% margins, NYSE listed, audited by a Big 4 firm—we are taking a “flyer” here. At any other time we would think we found a goldmine. But today, with how the markets are in such turmoil—everything is a risk!

NED trades over 100,000 shares a day, so liquidity is not an issue here.

There are about 40 million fully diluted shares outstanding.

About Noah:
Noah Education Holdings Limited (“Noah”) is a leading provider of supplementary education content to China’s elementary and middle school students. Noah develops and markets interactive educational content, software and delivery platforms that combine traditional education content with digital and multi-media technologies to cater to students’ interests and enhance academic efficiency and performance. Noah employs a nationwide sales network, powerful brand image, and accessible and diversified delivery platforms to attract students to its innovative content. Noah delivers its education content via Noah electronic educational products, Noah’s online website and after-school tutoring centers. The interactive and comprehensive structure of Noah’s offerings encourages students and teachers to form knowledge-sharing communities around the Noah brand. Noah was founded in 2004 and is listed on the New York Stock Exchange under the ticker symbol NED.


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