New Energy Systems Group (fka NEWN)

[Jan814]

Perhaps it is time to take another look at NEWN. We haven't seen this kind of a stock price since early 2009 and that was way before the acquisition of NewPower (now gone), Anytone and Kim Fai. With the sale of E'Jenie and NewPower, we have a different Company. But is it really worth just $.75 per share? Well, the stock market says so, but maybe not.

I have been making positive comments about NEWN over the last couple of years, and like many of you, have been disappointed by the performance of the Company. But management has faced some incredible difficulties. They have had to deal with the Reverse Merger Trauma, false hit pieces, fraud accusations, product piracy, excessive competition in the battery industry, over production in the solar industry, and a customer law suit. Through it all, they kept the Company in the ballgame. As we emerge from a 2011 we would like to forget, Jack Yu and his people could yet add some real value to the price of this undervalued stock. He has the products, the industry ties, and certainly the huge customer base to make it happen.

We should not forget, that despite the piracy problems in China, the China market for NEWN products is incredibly large. Here are a three recent articles that remind us of the sales growth possibilities in China: (Keep in mind, NEWN already has sales agreements with China Unicom).

http://online.wsj.com/article/SB10001424052702304223804576447963332660164.html?mod=WSJ_hp_LEFTWhatsNewsCollection

http://www.businessweek.com/news/2012-01-25/apple-didn-t-bet-high-enough-on-china-iphone-demand-cook-says.html

http://www.businessweek.com/news/2012-01-10/apple-moves-closer-to-offering-iphone-for-china-telecom.html

Even with the restructuring of the Company and the pirating issue at Anytone, the Company is still projecting profitability for full 2011 (on an adjusted EPS basis) to the tune of about $.45 per share. At a $.75 per share stock price, that equates to a PE of 1.67. That is cheap. Of 94 "U.S. listed China stocks" with positive earnings, only one has a trailing PE of less than 1.67 (per China Analyst).

NEWN will probably not report FY 2011 and Q4 numbers until early to middle March. As mentioned earlier, full year is expected to be profitable even though Q4 will be a small loss. But those numbers will be less important than the corporate guidance for FY 2012. That guidance will tell us how well management has positioned the Company for the future. Q1 could be reported as early as mid May, just one and a half months after FY 2011 is reported. The Q1 numbers should give us our first actual quantitative view of what the new NEWN is all about.

China has been on holiday (like shut down) all this past week so we really couldn't expect any words from NEWN. But they will be back to work soon and investors are waiting to see the results from the NEWN visit to the CES in Vegas. We could be seeing the renewal of an effort to sell backup power supplies to users of Apple products, and others, in the United States. NEWN, back in mid 2010, announced its' intent to launch the MeePower Brand in the U.S., but it did not happen.
But remember the words in the recent news release:
"Mr. Weihe "Jack" Yu, Chairman and CEO of New Energy Systems Group along with New Energy sales staff and agents will be meeting with potential distributors and customers during the three-day trade show event."

We could learn the outcome of those meetings in the next week or two. Apple has an enormous presence in the U.S., and as we know, the backup power systems manufactured by NEWN are certified to be interoperable with Apple's mobile digital devices and can also be used with other (Motorola, Samsung etc.) portable electronics. If NEWN can get Anytone product flowing through the U.S., either using the MeePower brand or local brands for local manufacturers, it could be a game changer, since Anytone could realize a second major revenue stream, and this one would not be encumbered by piracy costs.

It may not take much to move this stock beyond $.75 per share. This is a profitable company with plenty of working capital. There is insider buying. The Company has restructured to eliminate the weaker subsidiaries. As Anytone works to defuse the piracy problems in China, it continues to issue new products, and NEWN may be in the process of launching a U.S. sales effort for Anytone products. Also, we are seeing good news from the solar sector which could benefit Kim Fai:

http://www.businessweek.com/news/2012-01-29/solar-ceos-see-boom-in-china-will-ease-glut-in-2012-energy.html

Maybe, just maybe, with this very low stock price, and a reconfigured Company, NEWN may, over the next couple of quarters, deliver the success story we have long been expecting. And yes the stock price is at $.75. But adding just another $.75, results in a 100% gain.

As always, just one opinion.

Jan