Giant Interactive Group (NYSE:GA)

on-line gambling...Nuff said.

The company will continue to produce great earnings.

dividend and value

Growth of westernization / middle class in China.

Company has anounced it will pay 0.42 per share div. around the end of May and that they intend to start paying semi-annual dividends. Thats a pretty good yield from a company with good growth prospects.

Has large portion of China game activity.

The Chinese gaming companies have several things in common:

- They operate in a market that is growing at a rapid rate which offers great potential to all of them.

- Their valuations are ridiculous. After substracting net cash from their market caps the results are p/e ratios of 6 or lower across the board.

- They are cash machines. They don't require a lot of assets and the running games are providing them with lots and lots of cash to pay (special) dividends and buy back shares.

This sounds very attractive to me. Now most people are hesitant when it comes to Chinese companies. First of all because there is the potential for fraud. However while you can manipulate earnings and books you cannot manipulate the hard cash that is being paid out to shareholders by these companies again and again. In my opinion this is enough evidence to prove that those are legitimate companies.
Secondly people worry about the competition. Gaming companies have to constantly reinvent themselves and bring out new games or they will be left behind. If they dont succeed in attracting new players they have a problem. That is why I would recommend buying more than one of them to get some diversification to protect your portfolio against the risk of failure of one single company. The risk of new companies taking market share is minor, because it takes time, brand recognition and money to get into this market and new promising firms are likely to be taken over by one of the established ones.

I think this is a huge opportunity for savy investors and if you know the Graham/Buffet definition of risk you know that these companies are all but risky, because the margin of safety is probably the biggest I have ever seen.

I'm long CYOU NTES and GA.

Technicals

cheap valuation to growth no debt lots of cash used to buy back shares paying real hard cash.
careful China has ways of bleeding companys

Beat earnings predicted for past three quarters, as well, has beat the s&p for past 2 years

Positive:
- Cheap valuation relative to growth
- No debt, lots of cash used to buy back shares
- They are paying real hard cash dividends (which is rather unusual for pure Chinese frauds -> they are for real)

Negative:
- China business with all the usual (sometimes smaller) fraud risks especially because insiders don't own much of the company and are involved with many other companies at the same time which in China is often used as a construction to drain cash from a successful companyy

Category: SMp

Conservative 5yr Graham valuation puts this at 351% gain.

http://www.fool.com/investing/general/2012/03/16/gaming-pays-off-in-this-country.aspx

Its statements are healthy and its price is reasonable.

Interactive Entertainment

Seems like a good pick at fair price, might think of adding this to real protfolio.

Lot's of cash, a good dividend...payout ratio of 36% so lots of room to increase dividend. Trading at a discount to book value. No debt.

Escapism is big money. Keeping the players happy.

Strong excess cash position (I show about 850m vs their 1,778m market cap)
Decent dividend (18 cents vs a $7.61 share price, 2.4%)
Cheap: Earning yield of about 12%
Good return on capital (I show on $22m of working capital after you pull out excess cash).
Good prospects/growth - new games in pipeline after a year of being a bit stagnant