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SORL - undervalued comparing to CAAS

SORL Auto Parts Inc. (SORL) AT 9.03

Fundamental: 8
Chart: 8

Jan 2, 2007

SORL Auto Parts, Inc., through a joint venture in China, engages in the manufacture and distribution of automotive air brake valves and related components for commercial vehicles in the People's Republic of China. It offers a range of air brake valves and hydraulic brake valves, as well as an export-ready line of products, including spring brake chambers, air dryers, electronic exhaust brake valves, clutch boosters, foot brake valves, and hand brake valves. The company’s products are primarily used in commercial vehicles weighing over three tons, such as trucks and buses.

SORL is a sympathy play along with CAAS and was mentioned when it was at around $8.20 in the forum. China's automotive market is growing fast and SORL is the perfect company to grow along with the China market.

SORL reported its Q3 2006 result on Nov 6 as the following.

  • Revenue for Q3 ended September 30, 2006 is $21.3 million comparing to $16.4 million in Q3 2005.
  • Revenue from sales to OEMs increased to $6.7 million, reflecting a 48.9% year-over-year growth.
  • Operating income increased to $2.6 million, reflecting a 44% year-over-year growth.
  • Third quarter diluted earnings per share increased to $0.13, reflecting a 18% year-over-year growth as $0.11 EPS in Q3 2005
  • 9 months revenue is $60.8 million in 2006 comparing to $45.8 million in 2005; 9 months EPS of $0.43 in 2006 vs. 9 months EPS of $0.33 in 2005.

SORL dropped in November is due to the follow-on offering of 4,285,714 shares at $7.25 per share. Net proceeds after underwriters' commissions and non-accountable will be approximately $28.352 million.

With the dilution in effect, the total outstanding shares should be around 17.65 million with a market cap of $159 million. The new 9 months EPS is now about $0.33. Let's compare SORL to CAAS. CAAS has a market cap of $290.93 million and a 9 months EPS of $0.15. SORL is very undervalued.

The price had been stable at this point and ready to move up again. SORL may pullback a bit to around $8.50 before the next upward movement. That is the best entry point. The stop loss should be about 90% of your entry price. Based on the fundamental comparison to CAAS, SORL should hit $12 again within 3 months and $16 or more within 9 months.

Published Wednesday, January 03, 2007 4:59 AM by itradestation
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