betting on mes avoiding the landmines

As per my previous posts on this little china-based co, I think the results were fairly decent and expected. Interesting to see they will fund phase 4 from profits/more debt. This is most probably a signal that 2011 is likely to be another growth year for MES. EV/EBITDA sitting around 5x which really is NOT expensive if they dont hit any landmines. And with regard to landmines, there could be MANY! Rising chinese interest rates are a bit of a worry, but interest cover is around 2.5-3 times so not major concern. Also note that increases in caprolactum prices increases profit/equity quite significantly, which makes me think they bought alot of raw materials when prices were lower. With oil prices now rising hard, this might show good short term returns, but is not good long term if sustained. I still think this is a really crappy business though and its really commoditised, competitive etc however the returns on equity are fairly high due to the high leverage that is allowed in China. Also as the equity is trading well below tangible book, returns on equity are actually much higher, but that being said, you aren't likely to see any dividends soon with phase 4 on the agenda. My main concerns still relate to the fact that they are relying significantly on 1 or 2 top customers, an export market that is less appealing due to rising RMB and significant cross guarantees of related party companies that shareholders simply know nothing about. That being said, with all these potential landmines, its hard for me to sell when you see such sort of top line growth and it still trades at a discount to its true valuation.
Looking forward to a good update in May at AGM.