2010 06 08 LIWA Initiation

Global Hunter Securities, LLC June 8, 2010
Houston w Los Angeles w New York Initiation of Coverage

Newport Beach w New Orleans w San Francisco China
Institutional Sales & Trading: (949) 274-8050
Dmitriy Shapiro
Research: (949) 274-8052
dshapiro@ghsecurities.com
www.ghsecurities.com (917) 239-0826
Joe Giamichael
jgiamichael@ghsecurities.com
(212) 644-8916
Rating: Buy Lihua International, Inc.

Price Target: $16.00 (Nasdaq: LIWA)
Pri ce Target M etri cs: 13.2x FY2010 and 8x Event: Initiating coverage with a Buy rating and $16.00 price target. Vertically
FY2011 on a P/E basis and 8.3x FY 2010 integrated manufacturer of copper alternative products.
and 4.9x FY2011 EV/EBITDA ba si s.
Investment Considerations
Current Price: $7.85
Diluted Shares: 30.6MM Lihua is a small cap investment vehicle targeted at those looking for value and growth oriented
Float: 12.9MM exposure in the Chinese market. Lihua is an opportunity for investors to benefit from the secular
demand growth from increased copper consumption, with minimal commodity price risk that is typically
Short Interest: 1.0MM
associated with the sector. The company is involved in the copper supply chain from the
Average Daily Volume: 418k recovery/recycling aspect through smelting and the production of copper rod, wire, magnetized wire and
52-w eek Range: $4.6 - $12.69 copper clad aluminum (CCA) wire. Lihua has developed proprietary, patented CCA drawing capability and
unique pre-treatment and refining process for recycled copper, positioning them as a leader in the pure
Market Cap: $240MM copper alternatives market. CCA technology offers users the equivalent levels of electrical conductivity as
Cash & Investments: $79MM solid copper wires, while incorporating only 40% as much copper, making this a low cost alternative to the
Debt: $2MM traditional methodology. The process is past proof of concept and initial commercialization and Lihua has
Enterprise Value: $164MM essentially sold out its existing CCA manufacturing capacity to several consumer electronics
Net Cash/Sh: $2.50 manufacturers. On the refined copper side, LIWA is able to produce refined copper rod and wire with
99.96% purity, above the government and industry standards for pure copper of 99.95%, which offers the
Tangible Book Value/Sh: $2.73
company a substantial cost advantage over other suppliers of pure copper products who require newly-
PR I C E C HA R T mined or imported copper.
1 4.00 4 .0 Lihua’s near term growth is driven almost exclusively on an organic basis, as a result of capacity
1 2.00 3 .5 expansion; the company has added and will continue to add production capacity across its
1 0.00 3 .0 product lines, eventually internalizing the entirety of its commodity rod production; which should
8.00
2 .5
2 .0
lead to both margin expansion and earnings growth. Utilizing the funds from the recent equity offering,
6.00
1 .5 the company is planning to quadruple its refining capacity by year-end 2011, while at the same time
4.00 1 .0 increasing its copper and CCA wire production capacity by 150% and 100% respectively. As CCA and
2.00 0 .5 copper magnet wire are increasingly being accepted as alternatives to pure copper wire in the industry,
0.00 0 .0
we believe that the company is in the earliest stages of revenue and earnings growth as it continues to
12/7/2009
1/19/2010
5/19/2010
10/27/2009
9/4/2009
4/9/2010
3/1/2010
capture share in the $30 billion solid copper wire and cable industry in China.
The company has a solid balance sheet with over $75MM in net cash (on a post-raise basis) and
has a $20MM credit line from local banks, of which only $2.2MM is currently drawn down. Based on
EST I M A T ES - U S $ ( M M s excep t mul t i p l es & EPS) our assumptions, Lihua should be able to finance its future capacity expansion plans using existing cash
2009 2 0 10 2 0 11 on hand, without having to tap capital markets in the near-term. LIWA has also been able to consistently
generate substantial cash from operations and free cash flow, even though the company is currently in the
R evenues early growth phase. The company generated $15.8MM and $8.4MM in operating cash flows in FY08 and
Q1 M ar $20.6 A $63.2 A N/ A E FY09 and $11MM and $3.3MM in free cash flow, respectively. As a result of LIWA’s tolling based sales
Q2 Jun $48.8 A $68.8 E N/ A E structure, the company holds very little inventory; in addition, most of LIWA’s customers have to pay at
Q3 Sep $40.9 A $60.5 E N/ A E delivery (with few customers receiving 30 – 60 day terms), which allows the company to enjoy a quick
Q4 Dec $51.3 A $74.7 E N/ A E cash conversion cycle of only 29 days.
FY $161.5 A $267.2 E $597.9 E
As a result of the recent capital raise, difficult market conditions and negative sentiment generated
EV / Sal es 1. 0 x 0 .6 x 0 .3 x
by a series of short reports, shares are currently trading at depressed levels and represent one of
the most attractive valuations among the US listed China universe. The company’s shares currently
Pr o F o r ma EPS* trade at 6.5x P/E and 3.3x EV/EBITDA our FY10 estimates, significantly below the peer group’s averages.
Q1 M ar 0.19 A 0.28 A N/ A E
On the FY 2011 basis, after the planned capacity expansion is completed, the current valuation translates
Q2 Jun 0.32 A 0.32 E N/ A E
to approximately 4x P/E and 2x EV/EBITDA. Based on the current valuation and what we view as low risk
Q3 Sep 0.39 A 0.27 E N/ A E
growth assumptions, LIWA is a top pick in the US China universe; offering limited downside risk given the
Q4 Dec 0.30 A 0.35 E N/ A E current capitalization and near term earnings power that should provide significant upside.
FY 1.34 A 1.21 E 1.99 E
We are initiating coverage of Lihua International with a Buy rating and a 12-18 month price target
P/ E 5. 9 x 6 . 5x 3 .9 x
of $16. Our $16 price target is predicated on 8x FY11 P/E and 4.9x EV/EBITDA multiples, in line with the
other Chinese industrial companies. In our opinion a target price of $16 is easily justified by Lihua’s
EB I T D A ( A d j ust ed ; see mo d el )
impressive margins and profitability, robust capital expenditure plans that are expected to quadruple
Q1 M ar $5.2 A $10.6 A N/ A E
capacity by the end of 2011 and significant historical and forecasted growth opportunities in the domestic
Q2 Jun $8.4 A $13.3 E N/ A E
small diameter wire market. Lihua also has a solid balance sheet with a net cash level of over $75MM (on
Q3 Sep $8.5 A $11.3 E N/ A E
the post-raise basis), a current ratio of 6.5x, a cash conversion cycle of only 29 days and an interest
Q4 Dec $9.9 A $14.6 E N/ A E
coverage ratio of 141x. In our view this is a compelling stock on both an absolute and relative value basis
FY $32.0 A $49.7 E $83.8 E
and should be a top pick with US listed China investors or more broadly with small cap investors in
EV / EB I T D A 5.1x 3 .3 x 2 .0 x general.
*P r o f or ma ex c l udes amor t i z ati on of ac qui s i ti on-r el at ed i nt angi bl es , r es t r uc tur i ng
c har ges & s t oc k opt i ons ex pens e
Company Description: Lihua International, Inc., manufactures and sells bimetallic composite conductor
cable and wire products, and refined copper products in the PRC.
SEE ANALYST CERTIFICATION AND OTHER IMPORTANT DISCLOSURES AT THE END OF THIS REPORT
Lihua International, Inc. (LIWA) Initiation of Coverage June 8, 2010
Company Description
Lihua International, Inc. (Lihua) is one of the first China-based vertically integrated companies to produce low cost, high quality
alternatives to pure copper magnet wire and pure copper alternative products. Pure copper magnet wire possesses very high
conductivity and hence serves as a fundamental building block in many components in a wide variety of motorized and electrical
appliances such as dishwashers, microwaves and automobiles. Lihua's products include bimetallic copper-clad aluminum wire (CCA)
and pure copper products including copper wire and copper rod, which are produced from recycled scrap copper. Lihua’s CCA and
pure copper products are great and less costly substitutes for pure copper magnet wire.
On the CCA side, LIWA purchases its wire raw material supplies from producers which focus on cladding of copper and aluminum (i.e.
Fushi Copperweld (FSIN, Not Rated)) and uses its patented processes and machines to draw the wire to fine and superfine diameters
ranging from 0.025 millimeter to 0.18 millimeter. Lihua utilizes its proprietary technology to put the CCA wires into drawing, annealing
and coating processes and produce fine and super fine CCA magnet and tin plated wires. Tin plated wire is primarily used for the
purpose of transmission of audio and visual signals in different applications, while magnet wire is used in a range of motorized
appliances because of its high electrical conductivity. At the end of Q1 FY2009, the company began utilizing its proprietary recycling
and cleaning technology to recycle scrap copper to manufacture and sell low content oxygen copper cable and copper magnet wires to
its existing customers. Since then, refined copper products have evolved to become the company’s primary business focus and growth
driver going forward. Lihua’s annual production capacity stood at 7,500 metric tons, 25,000 metric tons and 20,000 metric tons for CCA
wire, copper smelting and copper wire at the end of Q1 FY2010.
The company sells its products directly to manufacturers in the consumer electronics, white goods, automotive, utility,
telecommunications and specialty cable industries, as well as to the distributors in the wire and cable industries and currently has
approximately 330 customers. Sometimes Lihua also sells raw wire to smaller wire manufacturers for further processing. The company
is headquartered in Danyang, Jiangsu province, the heart of China’s copper manufacturing industry, with satellite offices in Shandong,
Anhui, Zhejiang, Fujian and Guangdong. As of the end of Q1 FY2010, Lihua employed just over 300 full-time employees. Lihua’s
shares trade on the NASDAQ Exchange under the ticker LIWA.
Source: LIWA, GHS Research
Company Background
Plastron Acquisition Corp., which changed its name to Lihua International, Inc. in September 2008, was incorporated on January 24,
2006, as a “blank check” company for the purpose of raising capital for merger, acquisition, or entering into a business combination with
an operating business. Plastron’s wholly owned subsidiary, Ally Profit Investments Limited, was incorporated in the British Virgin Islands
on March 12, 2008. In June 2008, Ally Profit became the parent holding company of Lihua Holdings Limited, which is a company
organized under the laws of Hong Kong and is the 100% shareholder of both Lihua Electron and Lihua Copper. Lihua Electron and
Lihua Copper are both limited liability companies organized under the laws of the PRC and incorporated on December 30, 1999 and
August 31, 2007, respectively. Since inception, Lihua Electron and Lihua Copper have been under the common management, operated
on an integrated basis and controlled by Mr. Jianhua Zhu.
Global Hunter Securities, LLC Equity Research Page 2

Lihua Electron was primarily engaged in the production and sales of audio, video and computer plugs and sockets prior to October 30,
2006, when it changed its business and began manufacturing and selling composite conductor wire, including CCA fine wire, CCA
magnet wire and CCA tin plated wire. Lihua Copper was primarily focused on the development of copper scrap recycling technology;
however, beginning in March 2009 it began manufacturing and selling low oxygen content copper cable and copper magnet wire to
Lihua Electron’s existing customers by utilizing and recycling scrap copper.
In June 2008, Magnify Wealth Enterprise Limited, a British Virgin Islands holding company and parent company and sole shareholder of
Ally Profit, which was 100% owned by Mr. Chu, developed a two-phase restructuring plan. The first phase was for Lihua Holdings to
acquire 100% equity in both Lihua Electron and Lihua Copper, which at the time were owned by companies controlled by Mr. Zhu (the
current CEO) and minority shareholders (Mr. Chu and Europe EDC). The second phase was for Magnify Wealth to merge into a U.S.
public reporting company, under which it acquired Ally Profit, Lihua Holdings and both PRC operating companies.
The current organizational structure of LIWA is as follows:
On October 31, 2008, the company entered into Private Placement purchase agreement (PIPE) with accredited investors for the
issuance and sale of approximately 6.8MM shares of Series A Convertible Preferred Stock and Series A Warrants to purchase
additional 1.5MM shares, for aggregate gross proceeds of approximately $15MM. Concurrently, LIWA entered into a make good
agreement with the investors, where Magnify Wealth placed 6.8MM shares into an escrow account to guarantee the achievement of
performance thresholds of $12MM in net income and $0.50 in EPS for FY 2008 and of $18MM in GAAP net income and $0.76 in EPS
for FY 2009 (the calculation of EPS of $0.76 shall exclude up to $5MM in shares of stock issued through a public offering). The
company earned $11.7MM in net income in FY 2008, which amounted to 95% of the 2008 performance threshold. For that reason, the
escrow shares were continued to be held in escrow pending the 2009 results. In FY 2009, Lihua reported results substantially above
the required thresholds and hence, escrow shares were returned to Magnify Wealth.
On September 4, 2009, Lihua International announced the pricing of a public stock offering of 2.6MM shares (including the 300K shares
offered in an over-allotment option to the underwriters) at $4.00 per share. This public offering closed successfully on September 10,
2009, with all of over-allotment options being exercised. Concurrently with the public offering, Lihua International commenced trading
on the NASDAQ Capital Market under the symbol LIWA. This IPO was later ranked among top performing IPOs in 2009.
On April 14, 2010, LIWA closed a public offering of 4.3MM shares (including the 559K shares offered in an over-allotment option to the
underwriters) at $8.05 per share, resulting in net proceeds of about $32.5MM. The company plans to use the net proceeds from this
offering for the construction of a new smelting facility, which should accelerate the production of refined copper products by quadrupling
LIWA’s annual refined copper smelting capacity. Construction of this new facility is expected to begin in Q4 FY 2010.

Segment Description - LIWA Offers Various Pure Copper Alternatives
Lihua International is one of the first vertically integrated companies in China to develop, design, manufacture, market and sell low
cost/high quality alternatives to pure copper magnet wire, including CCA wire and recycled scrap copper wire. Copper is one of the
most widely used metals in the world and copper wire is one of the primary building blocks of many components in a wide variety of
motorized and electrical appliances such as dishwashers, microwaves and automobiles, due to its chemical, physical and aesthetic
properties. Lihua specializes in the production of small diameter wire, ranging from 0.025 millimeter to 0.18 millimeter. Lihua is well
known throughout China for the superior quality of its products and has a diverse customer base (currently about 330 customers across
China) with no customer accounting for more than 10% of the net revenues. Lihua generates approximately 98% of its total revenue
from Chinese market, while the remaining 2% come from exports to approximately 20 countries through distributors.
Lihua International currently operates through two PRC subsidiaries, Lihua Electron and Lihua Copper. Prior to 2009, the company was
primarily focused on CCA wire products through Lihua Electron, whereby it would acquire CCA wire with a 2.05mm diameter as a raw
material from its suppliers and process it to reduce the diameter to a range of 0.025mm to 0.18mm, depending on customer
specifications. It is important to point out that LIWA is not involved in CCA cladding; instead, it buys CCA products from Fushi
Copperweld and other suppliers, whose primary focus is on the cladding of copper and aluminum and copper and steel. The process of
reducing the diameter of the CCA wire is very complex, since the wire must maintain its 10% copper outside / 90% aluminum inside
composition even at diameters close to the size of a human hair and hence, it involves many proprietary technologies and trade
secrets, including specific temperatures, oils and molding requirements. Lihua designs its own machines, which the company’s
management believes to be the most efficient and fastest in the current marketplace. In order to meet customer demand, Lihua
expanded CCA capacity from 2,200 tons per year in 2006 to 7,500 tons per year as of the end of 2009. During the past four years,
Lihua’s sales of CCA wire were 2,009 tons (FY06), 4,065 tons (FY07), 5,966 tons (FY08) and 6,081 tons (FY09). So far, during the first
quarter of FY10, LIWA sold 1,452 tons of CCA wire. The company is in the process of expanding its CCA operating capacity further to
10,000 tons per year by the year end 2010 by adding four new production lines, of which 6,000 tons will be CCA magnet wire and 4,000
tons will be CCA fine wire and further to 15,000 by the year end 2011. Currently, Lihua Electron is one of the leading manufacturers of
small diameter bimetallic composite conductor wire and its products include CCA fine wire, CCA magnet wire and CCA tin plated wire.
Lihua Electron sells its products directly to the distributors in the wire and cable industries, as well as to the manufacturers in the
consumer electronics, white goods, automotive, utility, telecommunications and specialty cable industries.
In 1Q FY09, Lihua launched production in its new plant, which occupies about 66,000 sq. meters and is 6x bigger than the old plant,
and began manufacturing copper rod from recycled scrap copper through its other operational subsidiary, Lihua Copper. Lihua Copper
processes refined copper rods into copper wires, including copper fine and super fine wire, copper magnet wire and copper tin plated
wire, and sells it directly to end customers. The pure copper market, which CCA is trying to cannibalize, is much larger and proven than
the CCA market and therefore, as of Q1 FY10, 79% of Lihua’s revenues come from the pure copper after it was recycled using Lihua’s
proprietary cleaning process. However, Lihua’s copper wire production capacity is currently limited as compared to the copper rod
output; the company sells the excess rod to smaller copper wire manufacturers for further processing. The company realizes
significantly higher margins from copper wire as compared to copper rod and hence, Lihua is currently in the process of expanding its
copper wire production capacity. As of March 31, 2010, the company had a total copper scrap refining capacity of 25,000 tons and
copper wire capacity of 20,000 tons per year. During FY09, Lihua sold 9,272 tons of copper wire and 9,630 tons of copper rod, while
during the first quarter of FY10 the company sold 3,196 tons of copper wire and 2,997 tons of copper rod. Lihua plans to raise its
copper wire capacity to 25,000 tons by the end of 2Q FY10 by adding four new production lines, in line with its existing copper refinery
capacity, to benefit from selling more higher-margin products. Of that capacity, 15,000 tons will be copper magnet wire and the
remaining 10,000 tons will be copper fine wire.
Revenue Breakup FY2009 Total Tons Sold in FY2009
Refined
copper Copper rod,
wire, 9,630 tons
$68.3 Refined
Copper copper wire,
rods, 9,272 tons
$52.1
CCA wire ,
CCA wire , 6,081 tons
$41.1

Going forward, refined copper is expected to become the company’s primary focus. LIWA plans to use the net proceeds from the recent
equity raise to complete a land purchase for the construction of a new smelting facility in Q4 FY10. The facility is expected to come on
line by year end 2011 and should add 75,000 tons of annual smelting capacity, bringing the total to 100,000 tons. The company also
plans to further increase its copper wire production capacity to 50,000 tons by year end 2011 and to work on broadening its product
portfolio.
LIWA’s Manufacturing Process
Lihua’s copper recycling process is divided into several phases. The first phase is pre-treatment, which utilizes Lihua’s proprietary
cleaning technology, for which the company has filed for an invention patent. The process involves sorting, stripping, shredding and
magnetically separating the scrap copper, which is then compacted and pre-treated with a number of chemicals. During the next phase,
the metal is smelted and fire refined in a furnace, which involves loading the furnace with the pre-treated metal, smelting it, and then
refining and reducing it. The molten copper is then continually belt cast and treated further. Finally, the copper rod is wound into
bundles for further processing or sale.
The next step involves wire drawing into a fine and superfine wire. This process utilizes either recycled copper rod or CCA and entails
drawing the wire to the desired final diameter. The drawing process occurs in multiple steps, including heat treating, annealing, baking,
cooling, quenching and spooling to achieve the desired wire diameter according to customer specifications. The process is similar for
both, recycled copper rod and CCA; however, the CCA drawing process is somewhat more complex and employs Lihua’s proprietary
trade secrets to ensure that the wire maintains the original bimetallic bond from the raw material. The fine or superfine wire is then
either sold to end customers or is coated and further processed to become magnet wire or plated to become tin plated wire.
LIWA’s Products
Lihua is positioned to capitalize on the fact that CCA wire and copper magnet wire are low cost / high quality alternatives to pure copper
wire which exhibit the same properties as pure copper wire. The company’s products include:
Copper Clad Aluminum (CCA)
Copper clad aluminum wire is an electrical conductor consisting of an outer sleeve of copper that is metallurgically bonded to a solid
aluminum core and can be used in various electrical applications as a low cost alternative to pure copper wire. Bimetallic materials have
been in existence for a long time, but until recently they were not widely used because of higher production costs (CCA wire has a high
fabrication cost because the cladding process is more complex compared to conventional wire-drawing) and historically low copper
prices. However, as a result of the copper price increasing in recent years, companies have started to use CCA bimetallic materials as
an alternative to pure copper. Raw materials for CCA wire are usually 35% - 40% cheaper per ton vs. solid copper wire. Raw materials
for CCA wire, as well as pure copper, are purchased based on weight and since aluminum, which is a cheaper metal, contributes
approximately 85% to overall volume of CCA wire, each ton of CCA wire can yield approximately 2.7x the length of each ton of pure
copper wire. In addition to lower cost, CCA has other advantages vs. pure copper and pure aluminum: it is lighter than pure copper

wire, has higher conductivity and strength than pure aluminum wire, has better solderability, due to the lack of an oxide layer, and
superior corrosion resistance than aluminum. In light of these advantages, CCA has become a popular alternative to pure copper wire
over the past five years in the PRC.
CCA Wire Illustration
Lihua manufactures CCA wire with the line diameter ranging from 0.025 mm to 0.18 mm, as per customer specifications, and can vary
based on both, the thickness of copper layer on the aluminum core and the diameter of the CCA wire. The company is primarily
involved in production of:
· Raw wire – raw material for CCA magnet wire and CCA tin plated wire; sold to small manufacturers for further processing
· Magnet wire – basic building block of motorized appliances mainly used for its electrical conductivity; can be both fine and
super fine
· Tin plated wire – mainly used for the transmission of audio and visual signals
Copper Rod and Cable
In March 2009, Lihua began manufacturing copper rod using its recently acquired continuous production system for fire refining, melting
and rod casting. The Company buys scrap copper and uses it as the raw material to manufacture and sell copper rods. In addition,
Lihua uses copper rods to produce cable and copper magnet wire. Copper cable is used for telephone drop wire and conductors;
electric utilities, transmission lines, grid wire, fence and structured grounds; industrial drop wire, magnet wire, battery cables,
automotive wiring harnesses; and for radio frequency shielding in electronics.
Magnet Wire
Magnet wire is an insulated copper or aluminum electrical conductor used in motors, transformers and other electromagnetic equipment
and is considered a sub category in the cable and wire industry. When wound into a coil and energized, magnet wire creates an
electromagnetic field, which is used for energy generation and transformation. As a result of these properties, magnet wire is
considered a basic building block of a number of motorized appliances, including electronic motors, transformers, water pumps and
automobile meters. It is used in many different industries, including automobiles, industrial machinery, residential and commercial
heating, ventilating, air conditioning and refrigeration (HVACR), computers, phones and other industrial, commercial, and residential
industries

Market / Industry Overview
Global Cable and Wire Market
China is the world’s largest cable and wire producer and it has held this industry leading position since 2003, according to the
International Cablemakers Federation.
'000 tons
4000 China cable production 30%
3500
25%
3000
20%
2500
2000 15%
1500
10%
1000
5%
500
0 0%
2003 2004 2005 2006 2007
China copper wire output Global market share
Source: International Cablemakers’ Federation, 2009
China Magnet Wire Market
Magnet wire is an insulated copper or aluminum electrical conductor and it is considered a sub-category of the overall cable and wire
industry. Magnet wire is used in motors, transformers and other electromagnetic equipment for a number of purposes, including energy
generation and transformation. When magnet wire is wound into a coil and energized, it creates an electromagnetic field, due to which
magnet wire has become a basic building block of many motorized appliances, including automobiles, industrial machinery, residential
and commercial HVACR systems, computers, cell phones and other white goods.
Global consumption of magnet wire stood above $10Bil in 2006, with China having the largest demand for magnet wire in the world,
according to Gobi International. The growth in China’s magnet wire market has significantly outpaced the global market, with China’s
demand for magnet wire growing at a 17% CAGR from 2000 to 2005, compared to only a 3% CAGR of global demand, according to
Beijing Kaiboxin Enterprise Consulting Company. In 2005, China accounted for about 29% of the global market, which is expected to
increase to 48% of the global market share by 2015, primarily due to strong expected growth in the IT sector. Please see the charts
below for the breakdown of China’s total magnet wire demand by sector in 2005 (left) and historical and projected growth by sector
(right).
Segment demand in 2005 30% Historical and projected sub-sector demand growth
Home
appliance, 25%
18%
20%
15%
10%
Electric 5%
motor,
53% IT, 29% 0%
Information Electric motor Home appliances Total
technology 2000-2005 2005-2015
Source: Kaiboxin, 2007

Copper Consumption and Production -- Industry Overview
Copper is the third mostly consumed metal in the world, following iron and aluminum, primarily due to its specific chemical, physical and
aesthetic properties, which makes it very useful for numerous applications including electronics, communications, construction,
transportation and industrial equipment. Copper’s main commercial use stems from its electrical conductivity, which is second only to
silver, with almost 75% of copper’s total consumption being employed for electrical uses, including power transmission and generation,
building wiring, telecommunication, and electrical and electronic products. Building construction is the largest market for copper,
followed by electronics and electronic products, transportation, industrial machinery, and consumer and general products, according to
the company estimates.
Copper is well known as the red metal and equally well accepted as a green metal. The “green” nature of copper is explained by its
durability and ease of re-melting and re-refining. Copper maintains its electrical conductivity and generally does not deteriorate or
corrode over time, which is why it is often used in products designed to last a lifetime, or longer. Moreover, the durability of copper is
higher than most other metals, such as steel and aluminum, which translates into lower scrap recycling rate (the ratio of old scrap
consumption to total consumption) of copper as compared to steel, aluminum and plastics. The main reason for the higher scrap
recycling ratio of steel, aluminum and plastic is that those materials are often used as packaging products and therefore, have a
lifecycle of only a few weeks and may be recycled several times a year; while copper-based products have very long usable lives. This
limits the supply of copper scrap to be used for recycling, leading to a severe supply crunch.
Worldwide copper consumption grew by a CAGR of 3.7%, from 14.9MM tons in 2001 to 18.5MM tons in 2007, according to
International Copper Study Group (ICSG), with China accounting for the highest copper consumption. In 2006, China was responsible
for 22% of worldwide copper consumption for that year, followed by US with 14% and Germany and Japan with 7% each. In 2008,
China consumed approximately 7.9MM metric tons of copper, or about $56Bil based on recent copper pricing. Although China is one of
the largest countries in terms of production as well as proven copper reserves, it has to import substantial quantities of copper to satisfy
domestic demand. The last year’s strong copper demand in China was one of the prime reasons cited for the rally in copper prices.
China consumed 627K more tons of refined copper than it produced from primary sources in 2006, according to ICSG; with the shortfall
being filled by recycled scrap copper and copper imports (imports are substantially more expensive due to freight costs). As the
Chinese economy is expected to continue to grow at a healthy pace over the foreseeable future, partially due to China’s RMB 4Tril
stimulus package and the ongoing urbanization process, demand for copper is likely to remain strong.
Countryw ise copper production and reserve (In % of

global production and reserve)
'000 tons w orldw ide copper consumption Other Countries
20000 Mexico
18000 Kazakhstan
Poland
16000 Zambia Proven reserves
14000 Canada
12000 Russia Production
10000 Indonesia
8000 Australia
China
6000 United States
4000 Peru
2000 Chile
0
0.0% 10.0% 20.0% 30.0% 40.0% 50.0%
2001 2002 2003 2004 2005 2006 2007
Source: Copper Development Association Inc., 2008 and KGS research
Copper Price Volatility
The last year’s rally in copper prices has been fueled by higher growth in demand from China, limited stocks and supply problems,
while investors seeking short-term gains have further added to price volatility. Although copper prices started declining from September
2008, copper prices during the first 3 quarters of 2008 remained at or near record high levels. Copper prices at London Metal Exchange
Ltd. (LME) reached an all time high of $4.08 per pound in April 2008 and averaged $3.61 per pound for the 9M 2008. Global commodity
exchange inventories, which were at the low levels in beginning of 2008, experienced a further slump over the next 3 quarters of 2008.
Despite various expansion initiatives in mine capacity by copper miners, global copper mine production for the 2008 was slightly lower
than the 2007 production figures. This was attributable to several factors, including labor unrest, lower ore grades, rapidly escalating
production costs, technical problems and utility and equipment shortages. From October 2008 onwards, copper prices have started
declining, primarily due to the onset of the global financial crisis, with copper prices on the LME plummeting below $1.50 per pound.
The demand for copper began picking up in 2009 and continued to grow in the 1H 2010, significantly driven by the surge of demand

coming from China, which translated to rising copper prices to over $3.50 per pound in April 2010. We believe that demand from China
will continue to be robust in the upcoming years, which may result in a continually high copper prices over the next couple of quarters.
Source: InfoMine.com, GHS research
The limited supply and growing Chinese demand for copper, as well as the recent copper price volatility, has contributed to the
continued search for cost effective alternatives to pure copper. Manufacturers in the cable and wire industry have begun adopting
alternative technologies, including the use of scrap copper, cheaper metal aluminum and bimetallic composite wires.
Scrap Copper
The secondary copper recovery process is comprised of pyro-metallurgical processes, which are divided into four separate operations:
scrap pre-treatment, smelting, alloying, and casting. Pre-treatment is the cleaning and consolidation of scrap in preparation for smelting;
smelting is the heating and treating the scrap for separation and purification of specific metals; alloying is the addition of other metals to
copper in order to obtain specific qualities; and casting is the pouring of molten metal into moulds of different shapes.
Secondary refined copper accounted for approximately 15.2% of refined copper production in 2007, according to ICSG, with a price
spread between them reflecting the profit for the recycling process. This spread fluctuates in relation to the movement of copper prices,
as well as scrap consumption, which is illustrated in the charts below, but has historically averaged at about $1,000 per ton.

China has significantly increased its refining capacity in recent years and in order to meet rising demand it has increased imports of raw
materials, including scrap copper. China’s import of scrap copper increased from 2.5MM tons in 2000 to 5.58MM tons in 2007,
according to China Metals Information Network. The import of scrap copper was also supported by the PRC’s government, which has
established industrial policies to encourage the use of scrap copper and has removed the import duty on scrap copper beginning in
2007.
Copper Replacement Market
In light of strong copper demand coupled with significant volatility in copper prices, Chinese companies realized the potential market
opportunity for the production of CCA wire as a replacement to pure copper wire. These companies have installed additional
manufacturing capacity for the production of CCA wire, which has made China the leading global supplier in the CCA market. Many
industry players in the PRC have also gotten involved in the secondary refining process, due to the copper price uncertainty in the
future. The copper replacement industry is still in a very early stage with a limited production capacity.
Based on data provided by the London Metal Exchange, the average annual price of copper has increased by over 300% between
2002 and 2007. During this same period, the price of aluminum has increased by less than 150%. CCA wire costs about half the price
of pure copper cables and can be a great alternative to the expensive pure copper. This price difference has made bimetallic wires,
especially CCA wires that contain an aluminum core, an inexpensive alternative. Moreover, bimetallic wires also offer greater value to
end-users compared to traditional copper wires by weighing less while retaining the corrosion resistance and electrical conductivity of
pure copper wires.
Chinese economy has grown at a CAGR of 11% from 1996 through 2007 and domestic demand for and consumption of copper and
CCA products has increased substantially as a result of this growth. We anticipate that Chinese economy will continue to show a
healthy growth in the upcoming years and hence, so should the copper and CCA markets. In addition, China’s four trillion RMB stimulus
package should continue to feed the rate of copper demand through ongoing and accelerating housing and infrastructure investments.
Government Regulation and Support
Cable and wire industries are heavily regulated by the government in the PRC. The government has established numerous laws and
regulations on the company’s manufacturing operations relating to human health, safety and the environment. These laws specifically
address matters like wastewater discharge, air quality and exhaust fumes, generation, handling, storage, treatment, disposal and
transportation of solid and hazardous wastes and releases of hazardous substances into the environment, as well as noise levels
generated by the manufacturing operation, among others. Companies operating in this industry have to implement a comprehensive set
of environmental protection measures and make periodic capital investments in order to keep those measures up to date.
Since China consumes more copper than it can produce, the government is a strong supporter of the import of scrap copper, which is
cheaper than pure copper. The government has established industrial policies to encourage the use of scrap copper and has removed
th
the import duty on scrap copper, which historically stood at 1.5%, beginning in 2007. China’s 11 Five-Year Plan also encourages the
use of scrap metals to help ease the shortfall in supplies and set the target consumption of secondary copper at 35% of total national
copper consumption.

Company Analysis
LIWA is Poised to Capture Additional Market Share
Copper prices have fluctuated significantly in recent years, growing to a high of $8,730 per ton in April 2008. In light of this fluctuation
and uncertainty in the copper price, many Chinese companies realized the need to search for replacement products in order to reduce
their dependence on copper wire. Additionally, many industry players in China have moved to get involved with the scrap copper and
secondary refining processes. China is anticipated to maintain its rapid growth in the upcoming years, which should continue to drive
the demand for copper consumption and hence, should contribute to the adoption of less costly alternatives to pure copper, such as
bimetallic composite conductor wire or copper products produced from recycled coppers. These trends have presented a unique market
opportunity to Lihua, since the company is one of the innovators in both movements and is well positioned to capture additional market
share in the magnet wire industry. CCA and recycled copper wire are increasingly being accepted as alternatives to pure copper wire.
In addition, China’s government policies support the development of copper replacement products due to China’s status as a net
importer of copper.
Lihua, with its current annual CCA fine and superfine wire production capacity of 7,500 tons (which is expected to increase to 10,000
tons by year end), is one of the leading CCA wire producers in China. The company was also one of the first to produce CCA superfine
wire on a commercial scale in China. This early-mover advantage, coupled with the reputation for high quality products, has allowed
Lihua to establish a broad customer base of about 330 customers across China, including large, publicly traded conglomerates, as well
as to establish strong supplier relationships.
The copper replacement industry is still in an early stage of development with a limited production capacity. As market awareness and
demand for copper replacement products grows, the demand for Lihua’s products should grow as well. Beginning in Q1 2009, LIWA
has entered the market as a low cost provider of pure copper products in order to capitalize on the large demand for copper in China. In
doing so, the company has expanded its product offering by launching production of wire and rod manufactured from refined scrap
copper and is currently in the process of developing a super-micro-fine wire production technology, as well as copper foil to be used in
the semi-conductor industry. Based on its proprietary recycling and refining technology, which allows the company to produce
sustainable materials with 99.96% purity (above the government and industry standards for pure copper of 99.95%), Lihua is able to
sustain a substantial cost advantage over other suppliers of pure copper products who require newly-mined or imported copper. We
believe that Lihua is well positioned to leverage its growing production capacity and innovative technologies to expand existing
customer base and product portfolio, in order to meet China’s growing demand for pure copper alternatives.
Shifting Product Mix Towards Refined Copper
During Q1 FY2009, Lihua decided to enter a much larger pure copper market and began manufacturing copper rod and wire from
recycled scrap copper. Since then, refined copper products have evolved to become the company’s primary business focus and growth
driver. Growth in FY2009 was primarily attributable to the contribution from the new recycled copper segment, which accounted for
almost 75% of revenues in 2009 and continued to grow to ~80% of both revenues and production volume in Q1 FY2010.

Lihua’s annual copper production capacity increased substantially from the segment’s inception. At the end of Q1 2010, annual
production capacity for copper refining and copper wire stood at 25,000 tons and 20,000 tons, respectively, up from 20,000 tons and
6,000 tons only a year ago. Going forward, refined copper products are expected to become an even bigger portion of total revenues
since the company plans to continue to expand its copper manufacturing capacity to address the growing demand. Lihua plans to raise
its copper wire capacity in line with its existing copper refinery capacity by the end of 2Q FY10. LIWA also plans to use the net
proceeds from the recent equity raise to build a new smelting facility, which should come on line by year end 2011 and should add
75,000 tons of annual smelting capacity, bringing the total to 100,000 tons. The company also plans to further increase its copper wire
production capacity to 50,000 tons by year end 2011.
Some of the main reasons why Lihua decided to focus its expansion plans on the refined copper instead of CCA include: a) much larger
overall end market, b) much faster return on capital and cash conversion cycle (which includes ordering raw materials, production and
credit terms) for copper products of about 20 days vs. 50 – 60 days for CCA products; c) dependence on specific CCA suppliers like
Fushi Copperweld for inventories, while scrap copper is readily available from multiple sources. Even though refined copper products
have a substantially lower gross margin compared to CCA products, we believe that this approach should allow LIWA to more rapidly
capture additional market share and grow its top and bottom lines.
CCA Refined Copper

Gross Margin High Lower
Cash Conversion Cycle 50 - 60 days ~20 days
ROIC Slower Fast
Market Size Small but growing Very large
Commodity Risk No No
Ability to Pass-Through Raw Material Costs Shields LIWA from Commodity Fluctuations
Lihua prices its end products, both copper and CCA wire, based on the underlying market price for raw materials plus a fixed mark-up
(tolling basis). This mark-up translates to a gross profit for the company, which effectively protects the company from the fluctuations in
the commodity pricing. The price of the primary raw materials fluctuates daily, in parallel with the copper prices. Copper trading prices
are published twice a day on the Shanghai Changjiang Commodity Market, one of the major metal trading markets in China, with prices
for Lihua’s raw materials and finished products mirroring these movements. Despite this movement in raw materials and finished goods
prices, the mark-up that Lihua charges has remained relatively unchanged in the absolute dollar terms in the past three years. To
protect itself from the copper commodity risk exposure, Lihua maintains minimal raw material inventory. The company places raw
material purchase order with suppliers only after it receives relevant sales order of final product from its customers. To accomplish this,
Lihua has tie-ups with multiple long-term and reliable suppliers, which ensures an uninterrupted raw material supply for the company’s
operations. As per the agreement, suppliers reserve relevant portion of their CCA and scrap copper inventories to meet Lihua’s
requirement. Over the years, Lihua has built a large network of reliable suppliers that deliver high quality raw materials.
Strong Emphasis on R&D Accelerates New Product Introduction
Lihua’s reputation for producing high quality products in large quantities was one of the major reasons for the company’s leading
industry position and expanding customer base. Lihua employs an in-house R&D team which is responsible for developing
technological improvements to the company’s manufacturing and production processes that have resulted in improved operational
efficiency and reduced production costs. Lihua has already received one utility model patent for its manufacturing process and has
three other patents related to its production processes pending. In addition, the company has entered into technology cooperation
agreements with the China Jiangsu University to develop new techniques and processes. Lihua’s trade secrets, combined with its
proprietary technologies in recycling, drawing and enameling processes, enabled the company to use the lower-cost recycled copper as
a raw material and to produce wire with a smaller line diameter. We believe that LIWA’s strong R&D team and emphasis on
technological innovations are some of the key reasons that the company was able to become one of the earliest and leading CCA and
refined copper manufacturers in China.
Lihua’s R&D team consists of over 30 professionals focusing on quality assurance, equipment maintenance, process maintenance and
improvement, and new product and process R&D. This team was responsible for developing Lihua’s superfine copper wire
manufacturing technology and is currently working on developing a super-micro-fine CCA wire with line diameter below 0.025
millimeters, which is used for cell phones, micro-electronic motors, micro-transformers, relays and audiphones and is currently in the
laboratory testing phase. Another new product that is currently in the R&D phase is a copper foil, which the company is going to use to
enter the semi-conductor industry once it is completed. Majority of the development technology related expenses get absorbed into
COGS and hence, the company reports very low R&D expenses. The actual amount of technology development related expenses
incurred by Lihua is greater than most of its China-based competitors, according to the company.

Rigorous Quality Control
In order to assure high quality of its products, Lihua imposes rigorous quality control standards at each stage of the production process.
Its CCA plant has been ISO9001:2000 certified since January 2007, while the company obtained a National Industrial Production
License for copper magnet wire in January 2009 and satisfied the UL certification standard in October 2008. Additionally, recycled
copper rod produced by Lihua satisfied the national standard for electrical copper wire, according to a test report by China’s Machinery
Industry Quality Supervision and Test Center for Electrical Material and Special Wire and Cable, a government inspection and testing
agency, dated April 17, 2008. The company was also the recipient of China High Quality Growth Enterprise Award in both 2008 and
2009. We believe that LIWA’s close attention to quality control provides the company with a competitive advantage over the majority of
domestic competitors and safeguards the company in case Chinese government decides to implement stricter quality standards in the
future.
Natural Barriers to Entry Provide Competitive Advantages
China’s bimetallic and refined copper magnet wire industry is still in the early phase of its life cycle and can be characterized by rapid
growth and a concentration of manufacturers. The industry, due to its significant capital and technology requirements, poses significant
barriers to entry for newcomers. We believe that Lihua now enjoys competitive advantages in the space due to its first-mover and
industry leader status. Lihua is an approved vendor for many of its clients, while qualifying as a reliable vendor could be difficult and
time consuming for new entrants. Additionally, Lihua’s experience and proprietary technology allow it to offer cost-effective products
that are superior to most of its competitors, which would not be easy to achieve for any new entrants. Specifically, it is difficult to
maintain high quality during the drawing, annealing and coating CCA wires, especially finer diameters, or to develop recycling
technology to produce copper magnet wire of a high enough quality to serve as a substitute to pure copper wire. Therefore, we believe
that Lihua was able to differentiate itself from its current competitors and potential new entrants by being an early mover in the industry,
offering superior product quality, competitive pricing and timely delivery.
Diversified Customer & Supplier Base
In light of its high quality and cost competitive products, Lihua was able to build a broad customer base of about 330 customers,
including some very large Chinese and multi-national companies, with no single customer accounting for more than 10% of sales. This
represents a 65% growth from 200 customers at the end of FY2008. Lihua sells its products in China directly to manufacturers in a wide
variety of industries, including consumer electronics, white goods, automotive, utility, telecommunications and specialty cable
industries, as well as through distributors in the wire and cable industries. In FY07, FY08 and FY09, Lihua’s largest customer accounted
for 3.0%, 6.6% and 1.6% of total sales, respectively, while five largest customers accounted for 14.5%, 20.2% and 6.9% of total sales.
Lihua usually collects cash payments on delivery and only extends credit from 30 to 60 days to very large and established customers
with good credit history. Lihua currently targets the coastal provinces of Guangdong, Fujian, Zhejiang, Jiangsu and Shanghai, while
maintaining 9 sales offices in China. The company also began exporting some of its products to Brazil, India, Pakistan and Vietnam
since 2008. International exports have contributed less than 5% to the company’s total sales so far. Going forward, Lihua intends to
strengthen existing relationships while expanding customer base by increasing sales personnel and using customer feedback to
improve its service quality. The company also plans to leverage its strong industry reputation and existing customer network to expand
geographically into other strategic locations across China.
Lihua maintains long-term relationships with its key suppliers, which offers the company a competitive advantage in China. Many of its
suppliers prefer to deal with Lihua over its competitors due to Lihua’s ability to purchase large quantities of raw materials, as well as its
established track record for prompt payments. Lihua’s largest supplier of CCA provides ~30% of CCA raw materials, but Lihua has
established a large network of reliable suppliers who have demonstrated sufficient quality control and reliability and therefore, does not
depend on any single supplier. For the scrap copper refinery, Lihua usually purchases raw materials from dealers and the scrap metal
market, and has recently established a scrap copper raw material warehouse. Lihua purchases scrap copper using cash-on-delivery
terms and believes that it has access to a sufficient supply of scrap copper due to the large number of dealers located in Guangdong
province. Lihua plans to broaden existing relationships and further diversify supplier network to accommodate anticipated growth in its
production facilities while leveraging its purchasing power to obtain favorable price and delivery terms.
Expanding Capacity to Meet Growing Customer Demand
To meet strong demand for its products, Lihua has increased its CCA production capacity from 2,200 tons in FY06 to 7,500 tons as of
the end of Q1 FY10. In addition to its CCA business, Lihua opened a new plant and began producing copper rod and copper wire from
recycled scrap copper beginning in Q1 FY09. As of the end of Q1 FY10, Lihua’s production capacity for copper rod and copper wire
stood at 25,000 tons and 20,000 tons, respectively. Please see the table below for the historical development of Lihua’s production
facilities up to now:

LIWA's Production Facilities

Plant 1 Plant 2
Location Danyang, Jiangsu Danyang, Jiangsu
Began construction Mar-99 Mar-08
Began production Jan-06 Mar-09
Capacity as of March Copper refinery-25,000
CCA wire-7,500
31, 2009 (mt per year) Copper wire-20,000
Site area (square
11,000 66,000
meteres)
In light of the fact that Lihua’s production lines have been running at full capacity for several years and in order to increase its market
share in the alternatives to pure copper space, Lihua plans to continue to expand its production capacity in the future. The company is
in the process of increasing its CCA capacity further to 10,000 tons by the end of this fiscal year and expects to raise it to 15,000 tons
per year by the end of 2011. Lihua is also currently working to expand its copper wire production capacity in order to be able to convert
greater percentage of the copper rod it produces into the copper wire, which carries a significantly higher profit margin. The company
plans to increase its copper wire production to 25,000 tons by the end of Q2 FY10, in line with its existing copper refinery capacity. By
the end of FY11, the company plans to construct a new plant, which is expected to increase Lihua’s annual copper smelting capacity to
100,000 tons and copper wire capacity to 50,000 tons. Please see below for the details of the future capacity ramp up:
LIWA's CapEx Plans

FY 2009 FY 2010 FY 2011
Copper wire (MT) 18,000 25,000 50,000
CCA wire (MT) 7,500 10,000 15,000
Copper refinery (MT) 25,000 25,000 100,000
As Lihua accelerates its expansion, it plans to invest in maintaining existing machines, as well as adding manufacturing equipment in
the new facility. In addition, Lihua plans to concentrate on expanding its profit margins by enhancing equipment management,
optimizing processes and product structures, improving supplier systems and cutting production costs.
Significant Short Interest and a Flawed Short Argument
As of June 4th there were slightly more than 1MM shares of LIWA short, as reported by www.shortsqueeze.com. This accounts for
roughly 3.5% of the total outstanding shares, and backing out management and insiders’ ownership this is 8% of the approximate float.
We view this, on an aggregated basis, as a significant position and believe that the rationale behind it is two-fold: first, some of the
position could reflect positioning around the recent capital raise - shares were meaningfully impacted during the marketing process;
second, there have been a series of negative articles written by different authors, with disclosed short positions, which have been
posted on seekingalpha.com and whose content has been republished in Barons. While we do not intend to address the assertions on
a point by point basis we will say that the issues raised largely tie back, initially, to a factually incorrect thesis that did not account for the
incremental capacity additions and the impact from the build out of the recycling business. The secondary argument relates to
inconsistencies between LIWA's SEC filings and supposed 2009 filings with China State Administration for Industry and Commerce
(SAIC) which is a business registration bureau rather than a tax authority. This argument is supported by factually incorrect documents,
provided by a 3rd party, which were attained and the subsequent article published, prior to LIWA having filed its 2009 results with SAIC.
These documents in a vacuum would certainly raise questions, had they been verified as the actual filing and if the documents had not
stipulates clearly that the facts provided should not be relied upon. It is our opinion that both authors have raised valid questions, but
that these are questions that are raised on a superficial examination of the business and its filings and had either author more
aggressively sought the answers or been more objective in their approach - having pre-existing disclosed short positions, these articles
likely would not have been written or have contributed to created this overhang.
Strong Historical Growth
Lihua was able to demonstrate considerable growth in the last few years. The company’s top line has grown by a CAGR of 117.5%
from $15.7MM in FY06 to $161.5MM in FY09, while its bottom line grew by a CAGR of 78.5% from $4.5MM in FY06 to $25.6MM in
FY09. Fiscal year 2009 has marked an important period in the company’s operations, during which time Lihua expanded its product
portfolio by including copper rod and copper magnet wire to its offerings. In FY09, Lihua generated $161.5MM in sales, a 223%
improvement over FY08, and adjusted net income of $25.6MM, corresponding to a 140% Y/Y growth (adjusted net income excludes the
non-cash charge resulted from the change in the fair value of warrants). Growth in 2009 was driven by the continued strong demand in

the market for pure copper alternatives, as well as the contribution of the new copper recycling facility, which accounted for
approximately 75% of total sales.
Strong Historical Growth

$175.0
$150.0
$125.0
$100.0
$75.0
$50.0
$25.0
$-
2006 2007 2008 2009
Revenue EBITDA Net Income (adjusted)
Recent Financial Results
In Q1 FY10 Lihua International continued to demonstrate robust growth. The company reported sales of $63.2MM, a 207.6% increase
from $20.3MM reported in the same period last year. Robust growth in the top line was primarily attributable to continued strong market
demand for LIWA’s copper rod and copper wire products from the scrap copper refinery business as well as for CCA wire products. In
Q1 FY10, sales of copper rod and copper wire attributed to ~79% of sales, compared to ~50% in the same quarter last year. Gross
profit has increased by 107.4% Y/Y to $11.8MM; however, gross margin has declined from 27.7% reported in 1Q FY09 to 18.7%, due
to the greater percentage of revenues coming from the lower margin copper products and the sharp increase in copper price (During
Q1 FY2010 the average copper price was $7,320 vs. $3,739 for Q1 FY2009).
SG&A expenses have increased from $0.7MM in Q1 FY09 to $1.7MM, as a result of significant business expansion as well as due to
higher administrative and professional fees associated with being a public company. However, as a percentage of sales, SG&A
expenses actually declined from 3.6% in Q1 FY09 to 2.8% in Q1 FY10. Lihua reported an operating income of $10.1MM, a 103.4% Y/Y
increase compared to the same quarter last year. Interest expense in Q1 FY10 has declined to ~$29K, from ~$113K for the same
period last year as a result of the repayment of short term bank loans by the company. Net income came in at $7.4MM, or $0.28 per
share, an 85.5% increase compared with the same quarter last year, and corresponded to an 11.7% net margin.
Financial Position
The company ended the quarter with $46.3MM in cash (not counting the $32.5MM in net proceeds received from the recent equity
raise) and only $2.2MM in total debt, which translates to a post-raise net cash position of $76.6MM, or ~$2.50 per fully-diluted share.
Lihua managed to earn $9.4MM in cash flow from operations and $8.7MM in free cash flow during the first quarter of FY10. During the
last two years the company was profitable on the cash flow basis as well, earning $15.8MM in operating cash flow in FY08 and $8.4MM
in FY09. As of March 31, 2010, Lihua had a current ratio of 6.5x, a total debt to book value of equity of only 2.4% and an interest
coverage ratio of over 140x. In addition, the company enjoys a cash conversion cycle of only 29 days and demonstrated a trailing
twelve months ROE and ROA of 31.2% and 24.1%.
Forward Looking Projections
Expect Revenue Growth to Continue
Going forward, we expect the company to benefit from continued strong market demand and greater adoption rates for its CCA and
copper wire products as alternatives to pure copper wire, as well as from its robust capital expansion plans that should quadruple
existing capacity by year-end 2011. We expect Lihua to report FY10 revenues of $268.2MM, which would correspond to 66% Y/Y
growth. In FY11, we believe that Lihua will continue to demonstrate its strong top-line growth and will report revenues of just about
$600MM. It is important to point out that our revenue growth assumptions are based on increased sale volumes, while we are modeling
pricing for both CCA and copper products to remain relatively unchanged from current levels.

Gross Margin Expected to Decline on Shifting Product Mix
We anticipate Lihua’s gross margin to continue to decline from historical low 30’s reported in FY08 and prior, due to the changes in the
product mix. The launch of the scrap copper refinery business in Q1 FY09 and the continually increasing revenue contribution from this
segment should continue to affect gross margin. Both copper magnet wire and copper rod have lower selling prices and lower mark-up
compared to CCA wire. Additionally, copper rod and CCA raw wire are semi-finished products are hence contribute lower margins than
fully finished products like CCA magnet wire, CCA tin plated wire and copper magnet wire. Until the company ramps up its wire
production facilities, in both CCA and copper segments, we expect the company-wide gross margin to remain at depressed levels. We
have modeled FY10 and FY11 gross margins at 20.5% and 15.5%, respectively. This translates to a gross profit of $54.9MM in FY10
(slightly above the company’s guidance of $48.9MM – 50.7MM) and $93.2MM in FY11. It is important to note that LIWA sells its
products on a tolling (or cost plus) basis and as a result is cushioned to movement in copper pricing, which is the reason
why the company offers gross profit guidance instead of the revenue guidance.
SG&A Expenses to Continue to Decline as % of Revenue
We anticipate that Lihua’s SG&A expenses will continue to decline as a percentage of revenue going forward. The company has done a
great job in controlling its SG&A expenses historically, even in the face of substantial growth of the company’s business, continued
upgrades to its information technology infrastructure, increase in the number of sales personnel, as well as expenses associated with
being a publicly listed company. However, SG&A expenses are expected to continue to grow somewhat in dollar terms. We have
modeled SG&A expenses at $7.1MM in FY10 and to $11.4MM in FY11, compared to $5.7MM reported in FY09.
Effective Tax Rate
The company-wide tax rate is expected to increase to 25% in 2010 and remain at that level going forward. According to China’s laws,
foreign invested enterprises created before January 1, 2008 were entitled to full exemption from income tax for two years, beginning
with the first year of profitability, and a 50% tax reduction for the following three years. Since Lihua Electron was converted into a sino-
foreign joint equity enterprise in 2005, it was entitled to the EIT exemption in 2005 and 2006, and received a 50% income tax reduction
from 2007 to 2009. It is important to point out that both of LIWA’s operating companies file separate tax returns.
LIWA's Effective Tax Rate

2007 2008 2009 2010 2011
Lihua Electron 12.0% 12.5% 12.5% 25.0% 25.0%
Lihua Copper 25.0% 25.0% 25.0% 25.0% 25.0%
Growing Bottom Line
We expect Lihua to report FY10 non-GAAP net income of $35.8MM in FY10, corresponding to an almost 40% Y/Y growth (in line with
the company’s guidance of $35.1MM – 36.3MM), which translates to $1.21 per fully diluted share. In FY11, we expect Lihua to report
net income of approximately $61MM, or $1.99 per share, which would translate to a 2008 – 2011 non-GAAP EPS CAGR of 41.8%. On
the EBITDA basis, we expect the company to report $49.7MM and $83.8MM in FY10 and FY11, respectively.
Capital Structure
As of the end of Q1 FY10, the company was financed through a mix of equity ($91.8MM) and short term debt ($2.2MM). The company
has a revolving credit facility of $20MM, of which only $2.2MM were drawn down as of the end of Q1 FY10. The company went through
an IPO in September 2009, raising approximately $7.9MM in net profits in the process, and has recently completed a secondary
offering of 4.3MM shares at $8.05 per share, raising $32.5MM in net profits. Following the raise, Lihua has 29.14MM basic shares
outstanding and as of June 5, 2010, had a market cap of ~$240MM. As of March 31, 2010, had 1.4MM warrants and 65K options
outstanding, which brings the fully diluted share count to 30.6MM.

Exercise Avg Remaining

Security Type # Shares
Price Life (years)
Basic Shares (March 31, 2010) 24,857,717
April 2010 Offering 4,285,715
Warrants Outstanding 1,396,100 $3.63 3.55
Options Outstanding 65,000 $4.06 9.2
Total 30,604,532
The impact of dilutive securities includes the following:

· Up to 65,000 of common stocks issuable upon exercise of options outstanding at March 31, 2010 with a weighted average price
of $4.06 per share.
· 1,258,100 shares of Common Stock issuable upon the exercise of Series A and Series B warrants outstanding at March 31,
2010 with a weighted average exercise price of 3.50 per share.
· 138,000 additional shares of Common Stock issuable upon the exercise of Series C warrants issued in conjunction with the
public offering and outstanding at March 31, 2010 with a weighted average exercise price of 4.80 per share
Lihua has a free float of 12.9MM, while about 50% of shares are controlled by Magnifying Wealth in which Mr. Jinhua Zhu, president
and CEO of the company, holds an 81.9% stake. Institutions hold approximately 4.75MM shares, or 16.3% of total, according to Capital
IQ, with five largest holders including China Merchants Hidden Jade Partners, Vision Capital Advisors, Gruber & McBaine Capital
Management, Straus Capital Management and Wall Street Associates.
Institutional Holders
Holder # Shares % of Outstanding Position Date
China Merchants Hidden Jade Partners 2,381,818 9.58% Mar-24-2010
Vision Capital Advisors, LLC 741,711 2.98% Dec-31-2009
Gruber & McBaine Capital Management, LLC 321,200 1.29% Mar-31-2010
Straus Capital Management LLC 256,050 1.03% Mar-31-2010
Wall Street Associates 216,900 0.87% Mar-31-2010
Allianz Global Investors AG 173,500 0.70% Mar-31-2010
Millennium Management, L.L.C. 89,264 0.36% Mar-31-2010
Westf ield Capital Management Company, L.P. 76,500 0.31% Feb-28-2010
BlackRock, Inc. (NYSE:BLK) 64,895 0.26% Mar-31-2010
Morgan Stanley, Investment Banking and 41,863 0.17% Mar-31-2010
Brokerage Investments
Source: Capital IQ, GHS Research

Management Overview
Lihua has brought together a very experienced management team and key operating personnel. LIWA’s management possesses
extensive management skills, relevant operating experience and in-depth industry and Chinese market knowledge, which should help
the company to formulate sound expansion strategies and to take advantage of market opportunities.
Jian Hua Zhu, President and CEO of the company and the Chairman of the Board of Directors, has over 25 years of experience in
China’s copper industry. Mr. Zhu founded Lihua Electron in 1999 and Lihua Copper in 2007 and served as the sole member of the
board of directors until July 30, 2008. Mr. Zhu currently serves as the Executive Director of Lihua Electron and Lihua Copper and is
responsible for corporate and product development and governmental regulations, in addition to overall management of the company.
Ya Ying Wang, Chief Operating Officer and a member of the Board of Directors, has over 25 years of experience in China’s copper
industry. Ms. Wang was also the founder of the company with Mr. Zhu, has strong technical knowledge of copper and extensive
industry relationships. In addition to her responsibilities as COO, Ms. Wang is responsible for the Sales and Production Departments.
Yang “Roy” Yu is the company’s CFO. Mr. Yu served as a member of the Board of Directors from June 24, 2008 until his resignation
on December 8, 2008. Between June 2006 and April 2008, Mr. Yu was the Executive Vice President of Finance at Fushi Copperweld,
Inc. (NASDAQ: FSIN). From May 2005 until June 2006, Mr. Yu served as the Chief Financial Officer of Songzai International Holding
Group, Inc. (OTCBB: SGZH). From October 2004 until May 2005, Mr. Yu worked as the Vice President at Yinhai Technology and
Development Co. Mr. Yu attended London Southbank University from 2001 to 2004, from which he holds a degree in accounting and
finance.
Zhu Junying, VP Sales and Marketing. Ms. Zhu has served as the VP of sales of Lihua Electron since its inception in 1999. Ms. Zhu
has more than 10 years working experience in Copper Clad Aluminum magnet wire industry. She had held various executive
management positions since Lihua Electron was established, including VP of operations, from 2001 to 2005. During her career, Ms.
Zhu has focused on the business development, strategic market planning, key account management, contract negotiation and loss
prevention. Ms. Zhu graduated from Changzhou Accounting College with a degree in marketing.
Daphne Huang is the Executive VP of Finance and Director of IR with the company. She has 9 years of corporate finance and debt
capital markets experience and has previously served as VP of GE Capital & Banc of America Securities. Ms. Huang is a CPA and
used to work as a Senior Auditor at PricewaterhouseCoopers. She holds an MBA from Stern Business School of NYU.
Valuation
We are initiating coverage on Lihua International with a Buy rating and a twelve to eighteen months Price Target of $16. At yesterday’s
closing price of $7.85 the stock is trading at 6.5x FY10 and 3.9x FY11 on a P/E basis, significantly below the peer group averages of
10.5x and 9.5x, respectively. On the EV/EBITDA bases, Lihua is trading at 3.3x and 2x for FY10 and FY11, based on our estimates,
which represents a significant discount to peer group multiples of 6.5x and 4.9x. Our peer group consists of profitable Chinese
companies operating in the industrial sector, as well as US and international companies operating in copper smelting and wire
businesses (excluding some outliers from the peer group average calculation).
Our $16 price target is predicated on 8x FY11 P/E and 4.9x EV/EBITDA multiples, in line with the other Chinese industrial companies.
In our opinion a target price of $16 is easily justified by Lihua’s impressive margins and profitability, robust capital expenditure plans
that are expected to quadruple capacity by the end of 2011 and significant historical and forecasted growth opportunities in the
domestic small diameter wire market. Lihua also has a solid balance sheet with a net cash level of over $75MM (on the post-raise
basis), a current ratio of 6.5x, a cash conversion cycle of only 29 days and an interest coverage ratio of 141x. In our view this is a
compelling stock on both an absolute and relative value basis and should be a top pick with US listed China investors or more broadly
with small cap investors in general.

Name Ticker Rating Price Market Value EV Net Debt/Total Cap P/E P/E P/E PEG EV/EBITDA EV/EBITDA EV/EBITDA
2009 2010 2011 '08 - '11 2009 2010 2011
SmartHeat Inc. HEAT Not Rated $5.51 $190.1 $154.2 -18.3% 8.5 9.0 6.9 0.5 7.3 6.1 4.3
Suntech Pow er Holdings Co. Ltd. STP Not Rated $8.64 $1,623.9 $2,397.9 22.6% 25.7 14.7 10.0 0.7 12.0 7.7 6.8
Yingli Green Energy Holding Co. Ltd. YGE Not Rated $8.43 $1,311.7 $1,595.5 12.9% NA 9.5 8.7 1.4 10.2 4.8 4.3
Trina Solar Ltd. TSL Not Rated $15.72 $1,301.8 $1,316.9 0.8% 11.0 7.7 7.3 0.6 8.4 5.0 4.6
Duoyuan Global Water Inc. DGW Not Rated $19.39 $499.9 $289.0 -42.2% 11.5 14.8 12.0 2.0 6.7 6.3 4.5
JA Solar Holdings Co., Ltd. JASO Not Rated $4.53 $775.0 $768.0 -0.7% NA 6.1 6.6 0.7 18.6 3.7 3.6
Hong Kong Highpow er Technology, Inc. HPJ Not Rated $3.47 $49.0 $57.7 13.3% 9.4 7.9 6.4 0.3 7.6 6.9 5.6
China Fire & Security Group, Inc. CFSG Not Rated $11.44 $319.0 $293.9 -7.9% 13.1 6.8 5.7 0.3 10.2 5.3 4.3
Harbin Electric, Inc. HRBN Not Rated $16.35 $512.3 $492.8 -3.4% 26.8 6.2 5.8 0.3 8.2 4.0 3.8
RINO International Corporation RINO Not Rated $11.20 $358.1 $276.0 -22.0% 5.2 5.5 5.7 0.2 4.8 5.0 3.9
51job Inc. JOBS Not Rated $19.32 $534.3 $347.8 -34.9% 34.4 17.0 14.2 0.7 18.3 9.2 7.2
A-Pow er Energy Generation Systems, APWR
Ltd. Not Rated $6.91 $333.9 $188.6 -40.9% 12.1 6.3 5.5 1.1 6.1 3.3 2.5
Solarfun Pow er Holdings Co. Ltd. SOLF Not Rated $6.91 $419.8 $601.1 24.6% NA 6.8 7.7 NA 16.5 5.2 5.3
China XD Plastics Company Ltd. CXDC Not Rated $6.44 $290.5 $312.5 6.9% 14.3 11.2 9.2 NA 13.6 8.3 5.4
Jinpan International Ltd. JST Not Rated $15.17 $269.9 $250.8 -6.9% 8.7 8.5 7.2 0.6 7.3 7.3 5.8
China BAK Battery, Inc. CBAK Not Rated $1.80 $120.9 $322.0 55.6% NA NA 12.0 NA 32.9 15.0 8.3
Fushi Copperw eld, Inc. FSIN Not Rated $9.32 $366.2 $293.5 -19.5% 10.2 7.2 6.1 0.8 5.2 4.1 3.3
China Valves Technology, Inc. CVVT Not Rated $7.83 $299.7 $295.1 -1.5% 10.2 6.6 5.4 NA 10.3 5.1 4.5
China Wind Systems, Inc. CWS Not Rated $4.17 $74.9 $74.1 -0.9% 13.0 9.1 6.1 0.4 6.0 3.8 NA
China Sunergy Co. Ltd. CSUN Not Rated $3.51 $162.6 $171.7 2.9% NA 8.8 8.2 NA NA 4.0 4.1
China Ritar Pow er Corp. CRTP Not Rated $3.30 $75.4 $76.8 1.5% 8.7 6.5 5.0 0.3 6.4 4.7 4.0
China Average $470.9 $503.6 -2.8% 13.9 8.8 7.7 0.7 9.7 5.9 4.8
Coleman Cable, Inc. CCIX Not Rated $6.65 $115.3 $362.3 63.8% NA 13.5 10.2 NA 7.7 6.0 5.3
Encore Wire Corp. WIRE Not Rated $18.93 $439.0 $308.6 -29.7% 64.2 52.1 17.3 NA 12.5 10.5 4.8
General Cable Corp. BGC Not Rated $27.30 $1,497.7 $2,005.1 20.9% 9.6 13.6 10.1 NA 5.5 6.0 5.2
Metalico Inc. MEA Not Rated $4.39 $211.8 $333.4 35.9% 878.0 9.8 7.2 NA 11.5 5.6 4.8
US and International AVERAGE $566.0 $752.4 22.7% 9.6 12.3 11.2 0.7 9.3 7.0 5.0
Com bined AVERAGE $518.4 $628.0 10.0% 11.8 10.5 9.5 0.7 9.5 6.5 4.9
Lihua International, Inc. LIWA Buy $7.85 $240.2 $163.6 -31.6% 5.9 6.5 3.9 0.3 5.1 3.3 2.0
Multiples with Price Target $16.00 489.7 413.0 12.0 13.2 8.0 0.5 12.9 8.3 4.9
Potential Risks
a) Potential disruptions in the availability of raw materials; b) Fluctuating copper prices c) Customers honoring contracts in a volatile
pricing environment d) Limited public operating history; e) Geopolitical risk of operating in China; f) Currency exchange risk

Financial Models
Income Statement
Lihua International Inc (LIWA)
Income Statement
All Figures $MM, except per share FY 2006a FY 2007a FY 2008a Q1 3/09a Q2 6/09a Q3 9/09a Q4 12/09a FY 2009a Q1 3/10a Q2 6/10 Q3 9/10 Q4 12/10 FY 2010E FY 2011E
Net Sales 15.7 32.7 50.0 20.6 48.8 40.9 51.3 161.5 63.2 68.8 60.5 74.7 267.2 597.9
% growth year-to-year NA 107.5% 53.0% 109.4% 224.7% 185.9% 372.7% 223.0% 207.6% 40.9% 47.8% 45.7% 65.4% 123.8%
Cost of Goods Sold 10.6 22.9 33.2 14.9 39.1 31.2 40.4 125.3 51.4 54.2 48.0 58.7 212.3 504.7
% of Revenue 67.6% 70.1% 66.4% 72.3% 80.1% 76.1% 78.8% 77.6% 81.3% 78.8% 79.4% 78.6% 79.5% 84.4%
Gross Profit 5.1 9.8 16.8 5.7 9.7 9.8 10.9 36.2 11.8 14.6 12.5 16.0 54.9 93.2
% of Revenue 32.4% 29.9% 33.6% 27.7% 19.9% 23.9% 21.2% 22.4% 18.7% 21.2% 20.6% 21.4% 20.5% 15.6%
Selling expenses 0.2 0.4 0.7 0.2 0.6 0.5 0.5 1.7 0.5 0.6 0.5 0.5 2.0 4.8
% of Revenue 1.5% 1.3% 1.4% 1.0% 1.2% 1.1% 0.9% 1.1% 0.7% 0.8% 0.8% 0.7% 0.8% 0.8%
% growth year-to-year NA 81.7% 67.7% 134.1% 241.2% 44.5% 273.4% 146.0% 121.8% -6.3% 7.1% 8.9% 16.6% 138.2%
General and administrative expenses 0.3 0.5 1.9 0.5 1.1 1.2 1.2 4.0 1.3 1.2 1.2 1.3 5.1 6.6
% of Revenue 2.1% 1.4% 3.8% 2.6% 2.2% 2.9% 2.3% 2.5% 2.0% 1.8% 2.0% 1.8% 1.9% 1.1%
Operating Income 4.5 8.9 14.2 5.0 8.1 8.1 9.2 30.5 10.1 12.8 10.8 14.1 47.8 81.8
% of Revenue 28.8% 27.2% 28.4% 24.1% 16.5% 19.9% 18.0% 18.9% 15.9% 18.6% 17.8% 18.9% 17.9% 13.7%
Interest Expenses (0.0) (0.1) (0.5) (0.113) (0.1) (0.1) (0.1) (0.3) (0.029) (0.0) (0.0) (0.0) (0.1) (0.4)
% of Revenue -0.3% -0.3% -1.0% -0.6% -0.2% -0.2% -0.1% -0.2% 0.0% 0.0% 0.0% 0.0% 0.0% -0.1%
% growth year-to-year NA 125.2% 433% 47.4% -0.6% -63.5% -66.4% -34.9% -74.2% -72.4% -53.5% -45.7% -65.2% 242.8%
Interest Income 0.0 0.0 0.1 0.0 0.0 0.1 0.0 0.2 0.0 0.1 0.1 0.1 0.3 0.3
% of Revenue 0.0% 0.0% 0.1% 0.1% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% 0.2% 0.1% 0.1% 0.1%
% growth year-to-year NA 288.9% 336.6% 797.6% 520.2% 267.1% -9.9% 154.3% 37.6% 111.9% 50.6% 177.8% 91.8% -10.0%
Change in fair value of warrants - - - (0.1) (0.2) (8.0) (0.5) (8.8) - - - - - -
% of Revenue 0.0% 0.0% 0.0% -0.6% -0.4% -19.6% -0.9% -5.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
% growth year-to-year NA
Other Income, net 0.0 - (0.3) - 0.5 (0.0) 0.0 0.5 - - - - - -
% of Revenue 0.0% 0.0% -0.5% 0.0% 1.0% 0.0% 0.0% 0.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
% growth year-to-year NA -8875.0% -100.3% -296.0% -100.0% -100.0% -100.0% -100.0% #DIV/0!
Total Non-Operating Expenses (0.0) (0.1) (0.7) (0.2) 0.2 (8.0) (0.5) (8.5) 0.0 0.1 0.1 0.1 0.2 (0.1)
% of Revenue -0.2% -0.2% -1.4% -1.0% 0.5% -19.6% -0.9% -5.3% 0.0% 0.1% 0.1% 0.1% 0.1% 0.0%
% growth year-to-year NA 123.5% 768.1% 187.7% -316.7% 5122.9% NA 1109.5% -102.0% -68.7% -100.9% NA -102.6% -146.2%
Income Before Taxes 4.5 8.8 13.5 4.7 8.3 0.1 8.8 22.0 10.1 12.9 10.9 14.2 48.0 81.7
% of Revenue 28.6% 27.0% 27.0% 23.1% 17.0% 0.2% 17.1% 13.6% 15.9% 18.7% 18.0% 19.0% 18.0% 13.7%
% growth year-to-year NA 95.9% 53.1% 75.7% 105.4% -98.0% 267.7% 63.2% 112.7% 55.4% 12099.7% 61.9% 117.9% 70.3%
Income Tax Expense - 1.1 1.8 0.8 1.6 1.4 1.5 5.2 2.7 3.2 2.7 3.5 12.2 20.7
Tax Rate % 0.0% 12.4% 13.3% 16.1% 19.0% 1600.7% 17.0% 23.8% 25.0% 25.0% 25.0% 25.0% 25.4% 25.4%
Amortization of Preferred Shares discount - - 1.0 - -
Net Income Available to Common Stock Holders 4.5 7.7 10.7 4.0 6.7 (1.3) 7.3 16.8 7.4 9.6 8.1 10.6 35.8 61.0
% of Revenue 28.6% 23.6% 21.4% 19.3% 13.7% -3.3% 14.2% 10.4% 11.7% 14.0% 13.5% 14.2% 13.4% 10.2%
% growth year-to-year NA 71.7% 38.5% 68.8% 91.5% -134.8% 624.6% 56.8% 85.5% 43.9% -709.7% 46.3% 113.4% 70.3%
Earnings per share - fd 0.32 0.55 0.70 0.18 0.31 (0.08) 0.29 0.88 0.28 0.32 0.27 0.35 1.21 1.99
% growth year-to-year NA 71.7% 26.8% 8.5% 23.1% -128.6% 336.8% 25.7% 53.8% 2.6% -440.3% 21.5% 38.2% 64.3%
Weighted Avg. S/O (mil)-fd 14.0 14.0 15.3 21.8 21.8 17.1 25.4 19.1 26.3 30.6 30.6 30.6 29.5 30.6
Non-GAAP Adjustments - - - 0.1 0.2 8.0 0.5 8.8 - - - - - -
Net Income - non-GAAP 4.5 7.7 10.7 4.1 6.9 6.7 7.7 25.6 7.4 9.6 8.1 10.6 35.8 61.0
% of Revenue 28.6% 23.6% 21.4% 20.0% 14.2% 16.4% 15.1% 15.9% 11.7% 14.0% 13.5% 14.2% 13.4% 10.2%
% growth year-to-year 71.7% 38.5% 74.1% 97.7% 74.5% 670.0% 139.4% 79.9% 39.4% 21.6% 37.7% 39.8% 726.7%
EPS - fd - non-GAAP 0.32 0.55 0.70 0.19 0.32 0.39 0.30 1.34 0.28 0.32 0.27 0.35 1.21 1.99
% growth year-to-year 71.7% 26.8% 11.9% 27.1% 43.3% 364.2% 91.8% 49.2% -0.6% -32.1% 14.4% -9.7% 610.6%
adjusted EBITDA 4.9 # 9.4 # 15.0 5.2 8.4 8.5 9.9 32.0 10.6 13.3 11.3 14.6 49.7 83.8
% of Revenue 30.9% 28.8% 30.0% 25.4% 17.2% 20.7% 19.3% 19.8% 16.7% 19.3% 18.7% 19.6% 18.6% 14.0%
% growth year-to-year 93.4% 59.5% 78.0% 94.2% 78.3% 230.9% 113.3% 102.7% 58.3% 33.0% 47.4% 55.4% 68.4%
Depreciation & Amortization 0.3 0.5 0.8 0.3 0.3 0.4 0.7 1.7 0.5 0.5 0.5 0.5 2.0 2.0
% of Revenue 2.1% 1.6% 1.6% 1.3% 0.7% 0.9% 1.3% 1.0% 0.8% 0.7% 0.8% 0.7% 0.7% 0.3%
% growth year-to-year 56.2% 56.5% 65.8% 81.5% 65.4% 179.7% 103.5% 88.8% 43.9% 34.1% -27.5% 19.5% 0.0%
Source: Company Report, GHS Research

Balance Sheet
Balance Sheet
Assets
Cash and Cash Equivalents 0.9 3.2 26.0 25.3 28.1 38.5 34.6 34.6 46.3 94.6 91.5 73.0 73.0 85.2
Restricted Cash - - 1.8 1.0 0.7 0.7 0.6 0.6 - - - - - -
Notes receivable, net - 0.7 0.3 - -
Accounts Receivables, net 1.2 5.4 5.0 5.5 7.8 7.2 11.0 11.0 16.4 12.0 13.1 14.3 14.3 32.0
Other receivables 0.0 0.0 - 0.9 0.6 0.7 0.5 0.5 0.2 0.2 0.2 0.2 0.2 0.2
Inventories 1.3 2.6 0.6 4.3 7.9 12.7 17.5 17.5 13.5 14.0 17.0 15.3 15.3 36.4
Prepaid land use right – current portion - 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Deferred income tax assets 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Due from related parties - 4.0 - - - 0.0 - - - - - - -
.
Total Current Assets 3.4 16.0 33.9 37.1 45.4 60.0 64.5 64.5 76.7 121.1 122.0 103.1 103.1 154.1
Buildings, machinery and equipment, net 5.1 5.9 7.4 14.3 15.3 15.4 18.4 18.4 18.1 20.6 26.1 50.6 50.6 68.6
Construction in progress - 2.5 6.0 1.0 1.1 1.5 0.1 0.1 0.5 0.5 0.5 0.5 0.5 0.5
Deposits for buildings, machinery and equipment 0.9 1.2 1.1 1.6 0.6 0.6 0.0 0.0 0.2 0.2 0.2 0.2 0.2 0.2
Prepaid land use right - long term portion - 4.4 8.3 8.3 8.2 8.2 8.2 8.2 8.1 8.1 8.1 8.1 8.1 8.1
Intangible Assets, net - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Deferred income tax assets - - 0.0 - - - - - - - - - - -
Total Assets 9.4 30.1 56.8 62.3 70.6 85.7 91.2 91.2 103.6 150.5 156.9 162.5 162.5 231.6
Liabilities
Accounts Payable 1.9 2.5 1.6 3.5 5.1 5.2 4.9 4.9 5.9 10.5 9.7 5.6 5.6 13.2
Other payables and accruals 0.5 0.5 0.8 1.1 0.6 0.8 0.7 0.7 1.1 1.1 1.1 1.1 1.1 1.1
Income Taxes Payable - 0.4 0.4 0.7 1.6 1.4 1.6 1.6 2.7 2.7 2.7 2.7 2.7 2.7
Short-term bank loans - 4.1 6.1 5.0 4.4 4.4 2.2 2.2 2.2 2.2 1.2 0.2 0.2 0.2
Due to related parties 1.1 3.5 - - - - - - - - - - -
Total Current Liabilities 3.5 11.0 9.0 10.3 11.6 11.8 9.4 9.4 11.9 16.5 14.7 9.6 9.6 17.2
Common stock purchase warrants - - - 2.4 2.6 10.7 - - - - - - -
Total Liabilities 3.5 11.0 9.0 12.8 14.3 22.5 9.4 9.4 11.9 16.5 14.7 9.6 9.6 17.2
Commitment and contingencies

Series A redeemable convertible preferred stock - - 13.1 13.1 13.1 - - - - - - - -
-
Shareholders' Equity
Common Stock-par Value 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Additional Paid in Capital 0.1 4.7 8.0 7.4 7.5 28.6 39.9 39.9 42.5 75.0 75.0 75.0 75.0 75.0
Statutory Reserves 0.6 1.3 2.6 2.6 2.6 2.6 5.4 5.4 6.2 6.2 6.2 6.2 6.2 6.2
Retained Earnings 5.1 12.1 21.5 23.8 30.5 29.4 33.8 33.8 40.4 50.2 58.4 69.1 69.1 130.5
Accumulated Other Comprehensive Income 0.1 0.9 2.6 2.6 2.6 2.6 2.6 2.6 2.7 2.7 2.7 2.7 2.7 2.7
- - - - - - - - -
Total Shareholders' Equity 5.9 19.1 34.7 36.4 43.2 63.1 81.8 81.8 91.8 134.0 142.3 153.0 153.0 214.4
Total Liabilities & Shareholders' Equity 9.4 30.1 56.8 62.3 70.6 85.7 91.2 91.2 103.6 150.5 156.9 162.5 162.5 231.6

Cash Flow Statement

Cash Flow
Operating Activities
Net Income 4.5 7.7 11.7 4.0 6.7 (1.2) 7.3 16.8 7.4 9.6 8.1 10.6 35.8 61.0
Depreciation 0.3 0.5 0.7 0.2 0.3 0.5 0.7 1.7 0.5 0.5 0.5 0.5 2.0 2.0
Amortization - 0.0 0.1 0.0 0.0 (0.1) - - - - 0.0
Merger Expenses - - 0.3 - - - -
Stock-based compensation - - 0.4 0.1 0.1 0.1 0.1 0.3 0.1 0.1 0.1 0.1 0.4 0.4
Warrants issued for services - - 0.1 - - - -
Deferred income taxes - - (0.0) 0.0 0.0 (0.0) (0.1) (0.1) 0.0 - - - 0.0 0.0
Change in fair value of warrants - - - 0.1 0.2 8.0 0.5 8.8 -
Change in restricted cash - - - - 0.0
(Increase)/Decrease in Current Assets:
Accounts Receivable (0.8) (4.1) 0.7 (0.4) (2.4) 0.7 (3.8) (5.9) (5.4) 4.4 (1.0) (1.3) (3.3) (17.7)
Notes receivables - (0.7) 0.5 0.3 0.0 0.0 0.0 0.3 -
Other receivables 0.1 0.0 0.0 (0.9) 0.2 (0.1) 0.3 (0.5) 0.3 - - - 0.3
Deferred income tax assets 0.0 (0.0) - - - - 0.0
Inventories (0.4) (1.3) 2.2 (3.8) (3.6) (4.8) (4.9) (16.9) 4.1 (0.5) (3.0) 1.6 2.2 (21.1)
Increase/(Decrease) in Current Liabilities: - -
Accounts Payable 1.4 0.6 (1.0) 1.9 1.6 0.1 (0.7) 2.9 0.9 4.6 (0.8) (4.1) 0.6 7.7
Other payables and accruals 0.4 (0.0) 0.3 0.3 (0.5) 0.2 (0.1) (0.2) 0.5 - - - 0.5 0.0
Income Taxes Payable - 0.4 (0.0) 0.3 0.8 (0.1) 0.2 1.2 1.1 - - - 1.1 0.0
Net Cash from Operating Activities 5.6 3.0 15.8 2.2 3.5 3.3 (0.6) 8.4 9.4 18.8 3.9 7.5 39.6 32.2
Addition to buildings, machinery and equipment (4.9) (3.8) (4.9) (2.6) (0.4) (0.8) (1.3) (5.1) (0.7) (3.0) (6.0) (25.0) (34.7) (20.0)
Proceeds on sales of fixed assets - - - - - - - - 0.0 - - - - 0.0
Prepayment for land use right - (4.5) (3.8) - - -
Addition to intangible assets - (0.0) - - - - - - 0.0 - - - - 0.0
Repayment by (loan to) a related party 0.0 (4.0) 4.2 - - - -
Merger expenses for reverse acquisition - - (0.3) - - - -
Net Cash from Investing Activities (4.8) (12.3) (4.7) (2.6) (0.4) (0.8) (1.3) (5.1) (0.7) (3.0) (6.0) (25.0) (34.7) (20.0)
Financing Activities
Advances from (Repayment to) related parties (0.2) 2.4 (2.7) - - (0.0) 0.0 0.0 - - - - 0.0
Proceeds from short-term bank loan - 4.1 12.0 - 1.5 0.0 0.7 2.2 0.0 - - - - 10.0
Repayments of short-term bank loans - - (10.2) (1.2) (2.0) (0.0) (2.9) (6.2) 0.0 - (1.0) (1.0) (2.0) (10.0)
Proceeds from Private Placement, net of restricted cash - - 11.9 0.8 0.3 - 0.1 1.2 0.6 0.6 0.0
Issuance of capital of Lihua Electron and Lihua Copper - 4.7 - - - - 0.0
Proceeds from Common Stock and Warrants - - - - - 7.9 0.1 8.0 2.5 32.5 - - 35.0 0.0
Net Cash from Financing Activities (0.2) 11.2 11.0 (0.4) (0.3) 7.9 (1.9) 5.2 3.0 32.5 (1.0) (1.0) 33.5 0.0
Foreign Exchange Effects 0.1 0.5 0.7 (0.0) 0.0 0.0 0.0 0.0 0.0 - - - 0.0 0.0
Net Change in Cash 0.7 2.3 22.8 (0.7) 2.8 10.4 (3.9) 8.6 11.7 48.3 (3.1) (18.5) 38.4 12.2
Cash - Beginning Balance 0.2 0.9 3.2 26.0 25.3 28.1 38.5 26.0 34.6 46.3 94.6 91.5 34.6 73.0
Cash - Ending Balance 0.9 3.2 26.0 25.3 28.1 38.5 34.6 34.6 46.3 94.6 91.5 73.0 73.0 85.2

Lihua International, Inc. (LIWA) Disclosures

Analyst Certification
I, Dmitriy Shapiro, certify that the views expressed in this report accurately reflect my personal beliefs about this company and that I
have not and will not receive compensation directly or indirectly in connection with my specific recommendations or views contained in
this report.
I, Joe Giamichael, certify that the views expressed in this report accurately reflect my personal beliefs about this company and that I
have not and will not receive compensation directly or indirectly in connection with my specific recommendations or views contained in
this report.
Important Disclosures
§ GHS does and seeks to do business with the company covered in this research report.
§ As with all employees of GHS, a portion of this analyst’s compensation is based on investment banking revenues.
Risks & Considerations

The primary risks to our price target are: a) the ability to manage the seasonal working capital needs b) ability to fund
facility expansion from organic cash flows c) significant government influence across the food sector, c) risk of an
economic slowdown hampering growth opportunities d) emerging market volatility and significant insider ownership, e)
potential for food quality issues that might adversely affect the brand’s reputation, and f) potential near-term equity raise to finance
future capacity expansions.
See the Company’s most recent SEC filings, including 10-Ks, 10-Qs, 8-Ks and proxy filings, for additional risks and
considerations.
Other Companies Mentioned In This Report
SmartHeat Inc. (NasdaqGM: HEAT; $5.51) China XD Plastics Company Ltd. (NasdaqGM: CXDC; $6.53)
Suntech Power Holdings Co. Ltd. (NYSE: STP; $8.64) Jinpan International Ltd. (NasdaqGS: JST; $15.28)
Yingli Green Energy Holding Co. Ltd. (NYSE: YGE; $8.44) China BAK Battery, Inc. (NasdaqGM: CBAK; $1.81)
Trina Solar Ltd. (NYSE: TSL; $15.7725) Fushi Copperweld, Inc. (NasdaqGS: FSIN; $9.29)
Duoyuan Global Water Inc. (NYSE: DGW; $19.44) China Valves Technology, Inc. (NasdaqGM: CVVT; $7.89)
JA Solar Holdings Co., Ltd. (NasdaqGS: JASO; $4.52) China Wind Systems, Inc. (NasdaqGM: CWS; $4.17)
Hong Kong Highpower Technology, Inc. (NasdaqGM: HPJ; $3.51) China Sunergy Co. Ltd. (NasdaqGM: CSUN; $3.52)
China Fire & Security Group, Inc. (NasdaqCM: CFSG; $11.49) China Ritar Power Corp. (NasdaqGM: CRTP; $3.2999)
Harbin Electric, Inc. (NasdaqGS: HRBN; $16.47) Coleman Cable, Inc. (NasdaqGM: CCIX; $6.6632)
RINO International Corporation (NasdaqGS: RINO; $11.28) Encore Wire Corp. (NasdaqGS: WIRE; $18.85)
51job Inc. (NasdaqGS: JOBS; $19.35) General Cable Corp. (NYSE: BGC; $27.18)
A-Power Energy Generation Systems, Ltd. (NasdaqGS: APWR; $6.9) Metalico Inc. (AMEX: MEA; $4.3985)
Solarfun Power Holdings Co. Ltd. (NasdaqGS: SOLF; $6.89)

Lihua International, Inc. (LIWA) Disclosures (Continued)
Historical Recommendations
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
9/21/2009
11/2/2009
12/1/2009
1/14/2010
1/29/2010
2/12/2010
5/11/2010
10/5/2009
3/15/2010
3/29/2010
4/13/2010
4/27/2010
5/25/2010
11/16/2009
10/19/2009
12/15/2009
12/30/2009
9/4/2009
3/1/2010
Initiated coverage on 5/27/2010 with a Buy rating and price target of $6.00.
Date Rating Price Target Closing Price

1. 6/8/2010 Buy $16.00 $7.85
Explanation of Ratings
Buy: We expect the stock to outperform the average total return of the stocks in the analyst’s industry (or industry team’s) coverage
universe over the next six to twelve months.
Neutral: We expect the stock to perform in line with the average total return of the stocks in the analyst’s industry (or industry
team’s) coverage universe over the next six to twelve months.
Sell: We expect the stock to underperform the average total return of the stocks in the analyst’s industry (or industry team’s)
coverage universe over the next six to twelve months.
Ratings Distribution
Research Coverage Investment Banking Clients*
Rating Count % of Total Count % of Total % of Rati ng Category
Buy 68 61.8% 8 100.0% 11.8%
Neutral 33 30.0% 0 0.0% 0.0%
Sell 9 8.2% 0 0.0% 0.0%
Total 110 100.0% 8 100.0% 7.3%
*Investment banking clients are companies from w hom GHS or an affiliate received compensation f rom investment banking services provided
in the last 12 months.
Note: Ratings Distribution as of March 31, 2010
Disclaimer & Other Disclosures

This material has been prepared by Global Hunter Securities, LLC ("Global Hunter") a registered broker-dealer, employing
appropriate expertise, and in the belief that it is fair and not misleading. Information, opinions or recommendations contained in the
reports and updates are submitted solely for advisory and information purposes. The information upon which this material is based
was obtained from sources believed to be reliable, but has not been independently verified. Therefore except for any obligations
under law, we do not guarantee its accuracy. Additional and supporting information is available upon request. This is not an offer or
solicitation of an offer to buy or sell any security or investment. Any opinion or estimates constitute our best judgment as of this date,
and is subject to change without notice. Global Hunter and our affiliates and their respective directors, officers and employees may
buy or sell securities mentioned herein as agent or principal for their own account. Not all products and services are available
outside of the US or in all US states. Copyright 2010.

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2010 06 08 LIWA Initiation

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Global Hunter Securities, LLC June 8, 2010

Houston w Los Angeles w New York Initiation of Coverage

Rating: Buy Lihua International, Inc.

Source: LIWA, GHS Research

Global Hunter Securities, LLC Equity Research Page 2

The current organizational structure of LIWA is as follows:

Source: LIWA, GHS Research

Global Hunter Securities, LLC Equity Research Page 3

Segment Description - LIWA Offers Various Pure Copper Alternatives

Revenue Breakup FY2009 Total Tons Sold in FY2009

Source: LIWA, GHS Research

Global Hunter Securities, LLC Equity Research Page 4

LIWA’s Manufacturing Process

Source: LIWA, GHS Research

Copper Clad Aluminum (CCA)

Global Hunter Securities, LLC Equity Research Page 5

CCA Wire Illustration

Source: LIWA, GHS Research

Copper Rod and Cable

Source: LIWA, GHS Research

Global Hunter Securities, LLC Equity Research Page 6

Market / Industry Overview

Global Cable and Wire Market

China copper wire output Global market share

Source: International Cablemakers’ Federation, 2009

China Magnet Wire Market

Source: Kaiboxin, 2007

Global Hunter Securities, LLC Equity Research Page 7

Copper Consumption and Production -- Industry Overview

Countryw ise copper production and reserve (In % of

Source: Copper Development Association Inc., 2008 and KGS research

Copper Price Volatility

Global Hunter Securities, LLC Equity Research Page 8

Source: InfoMine.com, GHS research

Global Hunter Securities, LLC Equity Research Page 9

Copper Replacement Market

Government Regulation and Support

Global Hunter Securities, LLC Equity Research Page 10

LIWA is Poised to Capture Additional Market Share

Shifting Product Mix Towards Refined Copper

Source: LIWA, GHS Research

Global Hunter Securities, LLC Equity Research Page 11

CCA Refined Copper

Source: LIWA, GHS Research

Strong Emphasis on R&D Accelerates New Product Introduction

Global Hunter Securities, LLC Equity Research Page 12

Rigorous Quality Control

Natural Barriers to Entry Provide Competitive Advantages

Diversified Customer & Supplier Base

Expanding Capacity to Meet Growing Customer Demand

Global Hunter Securities, LLC Equity Research Page 13

LIWA's Production Facilities

Source: LIWA, GHS Research

LIWA's CapEx Plans

Source: LIWA, GHS Research

Significant Short Interest and a Flawed Short Argument

Strong Historical Growth

Global Hunter Securities, LLC Equity Research Page 14

Strong Historical Growth

Revenue EBITDA Net Income (adjusted)

Source: LIWA, GHS Research

Recent Financial Results

Forward Looking Projections