Model Portfolio mkoza:TGF

An investor conference call was held Wednesday to answer numerous questions that had been submitted as a result of allegations by short sellers. All questions were answered and backed up with facts in the positive.

UTA has a thriving online business, trips are 99% booked by Chinese living within China;
thus an English-speaking outsider may see problems where there are none in terms of customer usage of the website. Hotel website is no longer used much; web traffic has been diverted to main (cnutg.com) website. Alexa web traffic statistics back this up; China Rank data is not relevant for specified reasons. UTA utilizes E-ticketing, which eliminates the need for a physical ticket.

All this being said, UTA's online business only accounts for about 70-80% of airline and
hotel booking revenues - most biz is conducted through call centers or done through
wholesale or franchisee channels.

Employee compensation and staffing levels were discussed in detail. Most employees were hired in the 4th quarter of 2009 and are paid mostly on commission, hence the low salary component of cost of sales for the year.

Why is interest income so low? Low interest paid on cash balances was explained: 19MM secondary offering proceeds not earning interest, 25MM bank deposits in HK and US, money market interest rates there are effectively zero. I have seen that some Chinese companies are earning 1% interest, but this is for term deposits (cash not targeted for near-term uses). UTA has acquisition plans for its cash.

According to the company, the former CFO left because his contract was up and he wanted to leave Shenzhen. This may be true, but I also think he just wasn't skilled enough for the position, so he wasn't invited to stick around. I am optimistic that UTA will soon find a better CFO. The new auditor is a step up that had been planned ever since the company moved up to the NYSE.

Financial guidance of $1.35 - $1.40 EPS for the year was reiterated. Cash balance was $2.20 per share as of June 30 and could balloon to $3.50/share by yearend as a result of strong operating cash flows, sale/leaseback of kiosks, and return of acquisition advances.

UTA's annual shareholders meeting is coming up on October 11, and a three-tier staggered board has been proposed. This proposal is probably in reaction to the possibility of takeover attempts. A staggered board is not beneficial to shareholders and must be voted down, in my opinion.

Gencorp (GY)

Gencorp is an aerospace/defense company based here in Sacramento. Gencorp and I go back a long way. My dad worked there in the 50's and 60's. My brother, who currently works there as an electrical engineer, says business is picking up, and he is being assigned a lot of overtime. In addition, a cost cutting program is ongoing. EBITDA is at a $120MM annual run rate, before pension charges. Net debt is about $200MM, and market cap is about $300MM, for a 4x EBITDA multiple. EPS is currently being suppressed by nonrecurring pension charges, which have at least one more quarter to go, based on guidance. The business requires very little capex, maybe 10% of EBITDA. I feel that this business deserves an EBITDA multiple of at least 6 or 7, which would result in an enterprise value of $800MM and a doubling of the
share price.

But Gencorp also has a real estate division, which is in charge of monetizing Gencorp's 12,000 acres of land within a growing residential corridor. Some of this land is already zoned for residential construction. Recent deals in nearby Roseville went off at about $27K per acre. Using this figure, we can value Gencorp's land at $320MM. Thus, Gencorp may be worth as much as $1.1 billion or more, and the share price could triple. In the next decade, the value of this land could increase substantially - during the recent bubble, raw land zoned for development sold for as much as $250K per acre for small parcels, and much more for choice larger parcels. Gencorp sold for $20 a share in 2006, and I think it could get there again.