Small Company Breaking into China

In today’s column, I have to mention one of my favorite small companies. It just reported excellent financial growth for the third quarter of 2006 and it forecast a great fourth quarter with a significant increase in profitability.

The company I’m talking about is LJ International (NASDAQ/JADE). This small company is a great China growth story. I first brought this company to your attention in this column back in July.

LJ considers itself one of the fastest growing jewelry companies in the world. Based in Hong Kong and the U.S., LJ distributes to fine jewelers, department stores, national jewelry chains, and specialty retailers throughout North America and Western Europe.

The company boasts a growing retail presence in China through its “ENZO” branded stores. The company’s ENZO retail division was founded just over 18 months ago and the company thinks it is now one of the largest foreign-branded retail jewelry chains in China.

According to the company, its revenues for the third quarter ended September 30, 2006 grew 25% to $33.23 million, up from revenues of $26.54 million generated in the third quarter of 2005. For the first nine months of 2006, the company reported that its revenues grew 32% to $83.33 million, up from revenues of $63.06 million generated in the first nine months of 2005.

Net income for the third quarter was a record $2.13 million, or $0.12 per diluted share, compared to net income $1.45 million, or $0.10 per diluted share, in the third quarter of 2005. For the first nine months of 2006, net income grew 21% to $3.08 million, or $0.17 per diluted share, up from net income of $2.00 million, or $0.14 per diluted share, in the first nine months of 2005.

Looking ahead, the company forecasts solid revenue and net income growth. It is full of cash and has virtually no liabilities.

Making money from a company like LJ International is all about timing, and the market’s perception of the company’s growth prospects. This stock is up from when I first wrote about it and I think it will continue to do well in 2007. LJ International is another example of a great small company that’s penetrating China’s massive consumer market.