Yucheng Technologies Limited (YTEC)

Expect explosive growth of this company in the next five year at least. The only way this stock is not going to perform well is that the company executives steal the money and artificially make the net profit (meaning after all "expenses") lower than it should be, or keeps diluting the shares with greed (that's another way to steel from the shareholders). I'd like to believe (hope anyway) that this is not going to happen with Yucheng.
Now let me tell you why the stock fell 30% after the 1Q report. Its net profit was 33% lower than what expected by the analysts. If that's all you heard, you would be thinking about a company that's in some serious troubles. Nothing is further from the truth. The truth is that the company is doing incredibly well. Its real profit for 2008Q1 is actually 88% higher than that of 2007Q1. Dilution of shares was one cause for the not-so-high EPS, but of course that was taken into consideration by analysts already before the 1Q release. What caused the lower than expected profit was that the company decided to spend some of its gross income on a critically important business expanding opportunity, namely to install point-of-sale (POS) machines. POS is seeing explosive growth in China. At this point, it's at a "land grab" stage. Because of it's nature of a fixture within a banking-merchant system, once an early player got in, it’s difficult for the later comers to get in. For a company like Yucheng, POS is an investment opportunity of a life time. I would say it would be foolish if the company had decided to save the money to just impress its stockholders. So the company did what it should. One of course should not be surprised by a temporary penalty on it stock prices due to an EPS that's lower than expected.
What IS surprising is the magnitude of the drop, which seems to be a reflection of the "huge" drop of the net earnings. But this where many people are misunderstanding, largely because of the simple math misconception. To explain this, let me give you a simple hypothetical:
Suppose a company has a known earning pattern of Q1 = 1.5M, Q2 = 3M, Q3=7.5M, Q4 = 3M. If the company incurs a 0.5M one-time extra expense, what would be the impact on the earnings? The answer, which is quite simple, is that it depends on which quarter the expense happens. If it's Q1, the impact is 30%, if it's Q3, it would be 6.5%. Well, you see, that's Yucheng's Q1 story. We just happen to be looking at it Q1 results when the profit is known to be the lowest of the year. If you are seeing what I am saying, you would buy this stock and would not be surprised by the company's better than expected earnings in the next two quarters. Then, if you are a long term investor, you should buy this stock at the present price any way, whether or not you understanding the above math.