CAAS - Chinese Chrysler's coming soon....
[07/5/2007] CAAS - Chinese built Chrysler's coming soon...
01:18:40am
2007-07-05
First off, I hope everyone had a safe and happy 4th of July holiday! Mine was going great until I, and my wife and kids got front row seats at St. Louis' annual 4th of July Parade. Sounds harmless enough, right? It was, until the always hysterical (sarcasm) prank where the team of fake firefighters pretend to toss a bucket of water on the crowd only to reveal that the bucket is filled with confetti. Yes, this is the same old gag the Harlem Globetrotters have been doing since the late '70's. Except in 2007 it's not enough to have a bucket of confetti. No way. Now someone has decided that the prank is only funny if you hook up giant firehoses to even more giant containers full of confetti and absolutely cover an unlucky group of spectators with it. Evidently someone forgot to mention to the pranksters that in 2007 virtually everyone who plans to spend a day outside in July, lathers themselves and their kids up with sunscreen. Picture my entire family, the blanket we were sitting on, any open beverage, and all the gear that goes along with toting a 2 and 4 year old - covered from head to toe in several pounds of sunscreen adhered confetti. Good times indeed.
Anyhow, enough about my holiday. Tonight we're going to look into the prospects for CAAS (China Automotive Systems). CAAS is a Chinese (of course) manufacturer of power steering systems and components. CAAS is a holding company for seven separate business units. The operations under it's Great Genesis Holdings Limited division comprise the power steering subsystems business. There are three distinct units within Genesis that sell into diverse automotive markets...
*Shashi Jiulong Power Steering Gears Co., Ltd.
Jiulong engages in the production of integral power steering gears for heavy-duty vehicles.
*Jinzhou Henglong Automotive Parts Co., Ltd.
Henglong is engaged in the production of rack and pinion power steering gears for cars and light duty vehicles.
*Shenyang Jinbei Henglong Automotive Steering Systems Co., Ltd.
Shenyang focuses on power steering parts for light-duty vehicles.
CAAS is doing business with virtually every automobile manufacturer in China. They've got relationships with over 60 unique manufacturers comprising everything from light trucks, to cargo vans, and scaling up to heavy trucks. The lionshare of CAAS' business comes from China's light duty passenger vehicle makers. Namely Chery, Brilliance, and Geely. These mainland manufacturers are seeing unprecedented demand in China as the burgeoning middle and upper class segments of their society now have the purchasing power to own an automobile.
The company's results have been illustrative of the growth in the Chinese auto industry....
* On a year over year basis - sales are up 50%
* On a year over year basis - EPS is up 40%
* Q1 saw revenues at a record $28.5 million vs. $21 million in Q1 '06 (up 35%)
* Q1 operating income rose to $5.2 million vs. $2.6 million in Q1 '06 (up 98%)
* Q1 EPS rose to $.07 fully diluted and taxed vs. $.05 in Q1 '06 (up 40%) and up 15% sequentially from Q4
Looking at the stock on a trailing P/E basis, we can see that it's not exactly a value play at 31x the trailing 12 month EPS of $.23. However, keep in mind that CAAS will probably better last year's revenue of $96million by at least 30% in 2007 putting the revenue around the $125 - $130 million range. If net margins maintain their current levels (and there's currently no reason to believe they won't) at around 11.5%, CAAS should book EPS of at least $.40/share fully diluted and taxed in 2007.
There's good reason to believe that CAAS growth rate isn't about to slow any time soon. This is fresh off of the wires tonight and as you read it, remember that Chery is one of CAAS' largest customers....
~~~PASTE~~~
Chrysler to sell Chery A1 hatchback in U.S. in 2008
By Tian Ying and Jeff Green
Bloomberg News
Wednesday, July 4, 2007
BEIJING: Chrysler will introduce a Chinese-made small car in the United States next year that retails for about half the price of its cheapest model, as it seeks to win back market share from Toyota and Honda.
Chrysler will begin selling Chery Automobile's A1 hatchback in the first quarter of 2008, Chery's president, Yin Tongyao, said in Beijing on Wednesday. The 1.3-liter A1 sells from 53,800 yuan, or $7,100, in China. Chrysler's least expensive U.S. model is the $13,850 Dodge Caliber, according to the Web site Edmunds.com. Yin did not say how much the A1 would cost in the United States.
Chrysler, which will be the first U.S. automaker to import cars from China, also plans to cut production at home after reporting a loss last year and slipping to fourth place in U.S. sales. Working with Chery will allow the company to add models able to compete with Toyota, which makes the Yaris, with less investment.
"It can be very unprofitable to develop new small-car platforms on your own," said Rebecca Lindland, a forecaster for Global Insight in Lexington, Massachusetts.
Chrysler plans to sell current and future Chery models worldwide. Chery may eventually build as many as 100,000 vehicles a year for Chrysler, Yin said at a signing ceremony Wednesday, without a providing a time frame. The capacity can also be expanded in the future, he added.
Chrysler aims to begin selling Chery-made vehicles under its Dodge brand in Latin America and Eastern Europe by the end of the year, Chrysler's chief executive officer, Tom LaSorda, said.
The company will decide on any possible equity cooperation with Chery in the future, he added.
DaimlerChrysler announced in May the sale of Chrysler to Cerberus Capital Management, after $680 million in losses last year, ending a nine-year merger. Cerberus, which is based in New York, will invest $7.4 billion as part of the transaction.
Under the agreement, Cerberus will buy 80.1 percent of Chrysler, while Daimler will retain the rest.
Chrysler plans to close a Delaware plant and to cut 13,000 jobs. On Tuesday it reported a 1.4 percent decline in June U.S. sales; Toyota gained 10 percent and Honda 11 percent. Toyota surpassed Chrysler in U.S. sales last year.
Chrysler plans to introduce 32 models from 2006 to 2010, an increase from 21 between 2000 and 2004.
"As part of Chrysler's global transformation, we are finding new ways to bring vehicles to market - faster, more efficiently, with less costs and the same high quality standards," LaSorda said.
Chery, China's first vehicle exporter, expects to raise sales 29 percent this year following a 60 percent increase last year, it said in January.
The company sold about 305,000 vehicles, including 50,000 exports, in 2006.
In the first five months of this year, the Chery had a 4.8 percent share of its home vehicle market, the world's second-largest behind the United States.
Chery has sold vehicles in more than 50 countries and regions, according to the statement. In November, it abandoned plans to export its own-brand vehicles to North America with Visionary Vehicles.
Chinese automakers have begun to target overseas sales as increasing competition at home crimps profit. Carmakers' profit margins in the country averaged 3.1 percent last year, compared with 9 percent in 2003, according to calculations based on figures issued by the country's automakers association.
Vehicle exports from China rose 80 percent from a year earlier to 47,000 in May. Last year, the tally almost doubled to 342,400, according to the customs bureau.
General Motors' South Korean unit filed suit in Shanghai against Chery in 2004, claiming that the Chinese automaker's QQ minicar was a copy of its Matiz model. The two sides settled the dispute out of court in 2005. Terms were not disclosed.
~~~END PASTE~~~
Undboubtedly, the new Chery made Chrysler's will be equipped with power steering, and CAAS will be the benefactor. There's also a deal that was announced back in May that's helping to fuel CAAS' growth for this calendar year....
~~~PASTE~~~
China Automotive Systems Signed Supply Agreement with Volkswagen Joint Venture in China
Thursday May 17, 12:01 pm ET
WUHAN, Hubei, China, May 17 /Xinhua-PRNewswire/ -- China Automotive Systems, Inc. (Nasdaq: CAAS - News), a leading power steering components and systems supplier in China, today announced its subsidiary, Jingzhou Henglong Automotive Parts Co., has entered into an agreement with FAW Volkswagen to supply its high quality power steering systems.
The agreement will commence immediately, with a term of one year and an option to extend for a further two years. The power steering systems will be installed in Volkswagen's Jetta and Audi vehicles in China. The first commercial shipment will be delivered by China Automotive Systems on May 21st 2007. Other terms of the contract were not disclosed.
With this supply agreement, China Automotive Systems has entered into Volkswagen's global sourcing system. According to the China Association of Automobile Manufacturers, two key Volkswagen joint ventures in China, FAW Volkswagen and Shanghai Volkswagen, collectively produced and sold more than 680,000 passenger cars in China in 2006. FAW Volkswagen, the number one passenger car producer in China, experienced a robust 40% year over year unit sales growth in 2006. In the first quarter of 2007, FAW Volkswagen's production and sales unit growth accelerated to 55% up from same period in 2006.
"This agreement represents a major step towards our goal of becoming the number one producer in the power steering market in China. After a decade long effort of improving our product R&D, quality control, production scale and after-sale customer services, we have finally become a tier one supplier to one of the largest global automakers. We are very excited about this opportunity to provide reliable and dependable support to Volkswagen's rapid growth in China. As China's passenger vehicle OEM market continues to grow, we remain focused on expanding our market share and strengthening our relationships with major OEMs, like Volkswagen, by providing high quality and competitively priced products. In addition, we continue to improve product quality and ramp up production capacity to prepare for potential opportunities outside of China," said Mr. Hanlin Chen, Chairman and Chief Executive Officer of China Automotive Systems.
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Clearly there is a long term secular growth story going on in the Chinese auto industry both within China and soon, ramping exports exponentially through link-ups with the likes of Chrysler and GM. CAAS is poised to benefit as it's steering systems will find their way into most of these vehicles. Trading here at just over 1x sales and with a forward P/E of less than 20x, the stock is priced at a level that discounts the enormous growth on the horizon. We've also got a 52 week low at $6.50 that serves as a firm support level and stop out point for the trade.
AI
