China Arch. Announces Reverse Spilt - Analyst Blog

China Architectural Engineering Inc. (CAEI) announced a one-for-four (1-for-4) reverse split of its common stock in a bid to push up its trading price above the $1 benchmark to avoid delisting on the NASDAQ Stock Market.  

The reverse stock split, effective December 21, 2010, will reduce China Architectural Engineering's issued and outstanding shares of approximately 80.2 million to 20 million shares. China Architectural Engineering's board of directors has further approved a reduction in the number of the company's authorized common stock from 150 million shares to 100 million shares.  Fractional shares will be rounded and not be redeemed in cash.

This reverse stock split is the outcome of a notice received from NASDAQ on July 1, 2010, stating that China Architectural was not fulfilling the listing standards of NASDAQ as the trading price of its common stock fell below the minimum $1.00 bid price for 30 consecutive days. As per NASDAQ's regulation, continuation of such non compliance would result in delisting of China Architectural's common stock. China Architectural had last traded in the $1 range in May. Its shares have since then dipped below the $1 mark.

In response, China Architectural came up with the reverse stock split announcement, which will increase the per share bid price and thus meet the NASDAQ requirement of the minimum bid price of $1.00.

The company has been reporting losses since the third quarter of 2009, affected by fewer projects due to the global economic slowdown. In the recently reported third quarter, the company reported yet another loss of $8.7 million or 13 cents per share compared with a loss of $8.4 million or 16 cents per share in the year-ago quarter. A decline in contract revenue owing to fewer projects along with higher raw material and labor and administrative costs perpetrated the loss in the reported quarter.

Revenue plunged 83% on a year-over-year basis to $4.4 million in the reported quarter affected by dwindling projects, a derivative of declining global construction activity. The company's decision to abstain from international projects and instead focus on the domestic market has taken its toll on revenues during the past few quarters.    

On a promising note, even though the company reported a loss and decline in revenue in the quarter, the company signed $22.1 million worth of new contracts. The company will benefit from its corporate restructuring and its focus on online game developments and opportunities. In the Online Gaming segment, the company is all set for its first commercial launch. In the Architecture Construction and Engineering segment, the company plans to be more selective and focused on high-return and lower-risk projects. We maintain our long-term neutral rating on the stock.

Zhuhai, China-based China Architectural specializes in high-end curtain wall systems (including glass, stone and metal curtain walls), roofing systems, steel construction systems, energy saving building conservation systems and related products, for public works and commercial real estate projects. China Architectural competes with privately held Beijing Urban Construction Group Co. Ltd., China Railway Engineering Corporation and China State Construction Engineering Corporation.