JADE LJ International, Inc. (MM)

Dutton Associates continues its coverage of LJ International Inc. (Nasdaq:JADE) with an update report, maintaining its Buy rating. The report by Dutton senior analyst Silvia Kwan, CFA is available at www.jmdutton.com as well as from First Call, Bloomberg, Zacks, Multex, and other leading financial portals. Given LJ International Inc.'s solid result for the full year 2004, proven global expansion strategies and its potential in the retail jewelry market in the People's Republic of China (PRC), we reiterate our Buy rating on the stock. We have revised our 12-18 month target price downward to $4.20 from $4.80, due to change in the U.S. stock market valuation environment. The Company continues to report success in its global sales expansion and good acceptance of its product from existing and new customers. Despite the solid results for 2004, the Company's share price was weak recently due to a lower-than-expected earning guidance for Q1 2005 and the decrease in gross profit margin in Q4 2004. Revenue and EPS growth is likely to slow down in 2005 to 10% and 6%, respectively, after the strong performance in 2004. However, in our opinion, the stock offers investors good opportunity to tap into the growing consumer market for jewelry in the People's Republic of China (PRC). Net profit is forecast to grow at a compound annual growth rate of 38% from 2004 to 2007, with operations in the PRC anticipated to become profitable starting in 2007. At $4.20, the Company would be trading at about 18 times and 13 times our revised fully diluted EPS of $0.23 and $0.33 for 2005 and 2006, respectively. About Dutton Associates Dutton Associates is one of the largest independent investment research firms in the U.S. Its 27 senior analysts are primarily CFAs, and have expertise in many industries. Dutton Associates provides continuing analyst coverage of over 95 enrolled companies, and its research, estimates, and ratings are carried in all the major databases serving institutions and online investors. Our annual research coverage, which currently costs US $33,000 prepaid, is 4 Research Reports, typically published quarterly, and requisite Research Notes. Dutton Associates received $55,000 from the Company (for renewal) and Investor Relations International for 8 Research Reports with coverage commencing on 10/23/2003. We do not accept payment of our fees in company stock. Our principals and analysts are prohibited from owning or trading in securities of covered companies. The views expressed in this research report accurately reflect the analyst's personal views about the subject securities or issuer. Neither the analyst's compensation nor the compensation received by us is in any way related to the specific ratings or views contained in this research report or note. Please read full disclosures and analyst background at www.jmdutton.com before investing.