China Tracker - Details for China Electric Motors (CELM)

 China Electric Motors
 Analyst Coverage
2011-03-31Red ChipDowngradeSuspendedn/a
2011-03-31Global HunterDowngradeTerminatedn/a
 

We are discontinuing coverage of China Electric Motor, Inc. (CELM) due to possible issues raised by the company's independent auditor concerning its banking statements. As a result, the company delayed the filing of its 10-K while its Board of Directors has formed a Special Committee to investigate this matter.

2011-03-22Roth CapitalDowngradeSuspendedn/a
2011-01-25Roth CapitalReiterationBuy$10.00
 

We believe the current weakness represents a good entry point for CELM investors. CELM shares are trading at 3.9x to our FY11 est. EPS of $1.21, well below the peer multiple of 20x and our projected 3-year growth rate of 18%. We further believe a successful closing of the HRBN (Buy-$18.08) buyout (which is considered CELM's closest peer) and a potential auditor upgrade provide potential near-term catalysts. We consider 8x to our estimated FY11 earnings as a fair valuation, given the company's new listing status, low trading liquidity, smaller size than its peers, and the lack of research coverage. Accordingly, we maintain a BUY rating and $10 price target on CELM.

2011-01-04Global HunterInitiationBuy$9.00
 

China Electric Motor is a fast growing micro-motor manufacturer in China primarily serving consumer-related end markets such as home appliances and automotive applications. The company has grown revenue at a 75% CAGR in the last three years, with strong demand driven by overall industrial growth and increasing consumer spending in China. With competitive advantages in low cost manufacturing, R&D capability, production flexibility and quick turnaround, CELM has been taking market share from its international and domestic competitors. We believe CELM has proved its strong execution capability in the last few years with sustained margins, strong operating cash flow and healthy balance sheet. We expect continued growth, driven by capacity expansion and consolidation in a highly fragmented market. Shares are trading at just 4.3x our FY11 EPS estimate, thus we believe the valuation is attractive. We are initiating coverage with a Buy rating and $9 price target, which is 8.6x our FY11 EPS estimate.

Strong end-market demand. Both of the CELM’s primary end markets - household appliances and automotive - have been experiencing strong demand and rapid growth, driven by economic growth and rising consumer spending in China. China’s micro-motor industry is expected to produce 10B units in annual output in 2010 and grow at a CAGR of 8%+ for the next five years.

Unique competitive advantages. While the micro motor sector is highly fragmented and competitive, CELM has been able to establish and expand its market share in the last few years. Compared to foreign competitors, CELM has the advantage of low cost manufacturing, production flexibility (to handle large and small orders), quick turnaround time and close customer relationships. Compared to domestic competitors, CELM has large scale production, R&D capability, high product quality and reliability, and strong financial resources.

Strong operating results and financial condition. Despite a global slowdown, CELM achieved strong top line growth with a CAGR of 75% during 2007-2009, driven by strong domestic demand and successful penetration into the automotive market. It has maintained gross margins of 27%-29% and net margins of 14%-15%, thanks to its margin-focused development strategies. With sustained profitability and short DSOs, the company has been generating relatively strong operating cash flow and maintaining a healthy balance sheet, which helped support the company’s continued growth.

Well positioned for further expansion. With capital raised from its IPO and internal cash flow, CELM has been in the process of increasing its production capacity from 24MM units of micro motors at the end of 2009 to a total capacity of 46MM units of AC/DC motors and 43MM units of coreless motors by the end of 2010. Operating in a highly fragmented industry, we believe CELM is also evaluating different acquisition opportunities to increase its product offering and expand market share. We expect the increased capacity and new acquisitions to drive the company’s growth in the next two years.

2010-11-12Roth CapitalReiterationBuy$10.00
 

Raise PT to $10 (from $9); BUY on weakness. We believe the selloff presents a good entry point for CELM investors. CELM shares are trading at 4.6x to our FY11 est. EPS of 1.21, well below peer multiple of 20x and our projected 3-year growth rate of 18%. The BSD acquisition and on-track capacity expansion have actually improved the visibility next year. We consider 8x to our estimated FY11 earnings is fair, given the company's new listing status, low trading liquidity, smaller size than its peers, and the lack of research coverage. Accordingly, we raise CELM price target to $10 from $9 and reiterate a BUY rating.

2010-11-10Roth CapitalReiterationBuy$9.00
 

Anticipate outperforming Q3'10 financials For Q3'10, ROTH projects revenue of $30.2M and net income/EPS of $4.7M/$0.21. ROTH represents consensus for CELM. We believe the strong demand for small home appliances in China will drive the sales growth. We notice that most of CELM's domestic peers had sequential margin expansion in Q3, despite raw material price inflation. In our view, CELM, which employs a flexible pricing strategy, was capable of maintaining margins by passing through cost pressure to customers, which gives us confidence in strong Q3 results.

Accretive acquisition announced. CELM announced yesterday that it will acquire the assets and business from Ningbo Bang Shi Da Electrical Equipment Co. (BSD) for RMB 49.3M (~$7.4M) in cash, or 5x expected 2010 net income. BSD manufactures DC auto air compressors for the automotive aftermarket and personal care market. Products are sold through local distributors to North America, Europe, Australia, and the Middle East. We expect the acquisition will expand CELM's product offering in the automotive micro motor segment, which carries higher margin than small appliance. We anticipate a minimal revenue contribution from BSD during Q4 but at least $0.07 EPS accretion in 2011. CELM shares trade for 5.5x our FY11 EPS estimate of $1.11, well below the peer average of 22x. Our $9 price target is based on a 8x multiple applied to our estimated FY11 earnings of $1.10.

2010-09-13Roth CapitalReiterationBuy$9.00
 

We recently visited CELM headquarters in Shenzhen (our fourth visit since last December) and met with with management at the ROTH Hawaii conference. We are encouraged by CELM's capacity expansion, new products mix, and improving factory management. Our recent checks on peers indicate the current momentum is likely to continue due to strong demand from consumer appliances. We lower EPS estimates by a penny and two cents for 2010 and 2011, following the company's recently approved stock compensation plan. We maintain our BUY rating and $9 PT.

2010-07-28Roth CapitalReiterationBuy$9.00
 

CELM shares trade for 6x our FY10 EPS estimate of $0.83, well below peer averages (17x for Chinese peers and 18x for U.S. peers). Our PT is based on an 11x multiple to FY10 earnings; we maintain our BUY rating and encourage investors to accumulate shares at current levels.

2010-06-14Red ChipInitiationBuy$10.20
 

Using a weighted relative valuation and discounted cash flow (DCF) analysis we derive a target price of $10.20 per share for CELM, an upside of 125% from recent market prices. Trading at less than six times trailing twelve months earnings, the Company trades at a severe discount to its industry peers such as Harbin Electric (15 P/E) and Baldor Electric (43 P/E).

2010-03-09Roth CapitalInitiationBuy$8.00
CELM
Electronics

COVERAGE SUSPENDED OR TERMINATED
 
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Current Price:  n/a
F10k Day (2010-01-29): -100.00%$4.45
2010 Close: -100.00%$4.55
2011 Close: -100.00%$0.08
High (2011-07-29): -100.00%$0.30
Low (2011-12-30): -100.00%$0.06
Exchange: PNK
Market Capitalization: n/a
Total Shares: 21.94 mill
Float: n/a
Avg Volume: 134.20 k
Short Interest: 99.20 k
Short Ratio: n/a0.7 d
Last Quarter: 2010-09-30
Revenue (MRQ): 32.88 mill
Net Income (MRQ): 5.14 mill
Op. Cash Flow (MRQ): 1.99 mill
all financial data provided without warranty