$CAAS Quick Pitch
China Automotive Systems, Inc. is one of the largest power steering components and systems suppliers in China.
CAAS 0.00%↑ #QuickPitch mcap= $106.86 m, price $3.54 / share
CAAS 0.00%↑ #Pitch:
China Automotive Systems, Inc. sits among China's top suppliers of power steering components and systems, serving over 60 vehicle manufacturers, including notable names like FAW Group and Dongfeng Group. Their collaborations extend to companies such as Shenyang Brilliance Jinbei, Chery Automobile, Xi’an BYD Automobile, and Zhejiang Geely.
The company's partnership with Tsinghua University gave birth to the Tsinghua Henglong Automobile Steering Research Institute, focusing on advancing electronic-controlled power steering systems. This move marks a significant shift from China's historical reputation for 'copycat cars' to a contender in the global automotive scene.
BYD, a key strategic partner, has propelled China's electric vehicle (EV) dominance. China Automotive Systems supplies them with traditional hydraulic steering systems, C-EPS, and R-EPS products, cementing their role in BYD's journey to becoming a global EV giant.
CAAS 0.00%↑ boasts an extensive product lineup, offering over 310 models of power steering for various vehicles, including commercial and passenger vehicles. Their product range includes manual steering, electric power steering, steering columns, pumps, and hoses.
The company maintains a strong balance sheet with net income and strong cash flow from operating activities in 2023. As of December 31, 2023, total cash and cash equivalents, were $125.74 million, and $18.24 million in capital expenditures. Total parent company stockholders' equity was $368.42 million. These cash flows and cash on hand provide the resources to invest in our operations for future growth.
Sales in 2023 witnessed a healthy 8.8% increase, driven by a surge in electric power steering product sales. Diluted net income per share soared by 80.8% year-over-year, indicating improved profitability. The company's focus on higher technology content products (especially the growing electric power steering product) contributed to an enhanced gross margin.
In the latest quarter, revenue and profit growth gained momentum, fueled by a 24.6% surge in electric power steering product sales. Sales in Brazil experienced a notable 22.9% uptick, offsetting weaknesses in North America, signaling improved economies of scale.
Data from the China Association of Automobile Manufacturers shows that the production volume and the sales volume of NEVs in China reached 1.25 million units and 1.21 million units in the first two months of this year, up 28.2 percent and 29.4 percent year-on-year, respectively.
China dominates the global New Energy Vehicle (NEV) market, with its NEV sales capturing a staggering 63.6% of global share1. CAAS 0.00%↑ is well-positioned to benefit from this dominance.
Insider ownership stands at 64%, showcasing alignment between management and shareholders. However, it also poses a risk in case of significant stake sell-offs.
The company plans to invest USD 25 million in capital expenditure for 2024. A significant portion of the capital expenditure will be allocated towards the expansion of products, particularly targeting international markets and large domestic OEMs. CAAS 0.00%↑ has identified two key product lines for investment: i-RCB and ERCB, which have existing orders from global OEMs, and R-EPS, which is experiencing a surge in demand. Therefore a portion of the investment will be directed towards increasing production capacity for the R-EPS product line. The company plans to allocate funds to upgrade existing production lines and facilities to ensure they can meet current customer demands while expanding into new markets.
CAAS 0.00%↑ valuation:
$CAAS has a market cap or net worth of $106.86 million and a negative enterprise value of -$11.75 million. Simply put, a negative enterprise value means that a company has more cash than it would need to pay off any debt and buy back all its stocks in one go if it wanted to. No wonder it's called the takeover value.
The company has $125.74 million in cash and $49.48 million in debt, giving a net cash position of $76.26 million or $2.52 per share.
While the current Free Cash Flow suggests overvaluation, the PE ratio, trailing at 2.78 and forward at 5.33, along with a PEG ratio of 0.61, indicate favorable valuations compared to industry averages. A P/TBV ratio of around 0.32x further reassures about downside protection. That is cheap.
Expected Gain: Given that China Automotive Systems' current trading level is lower than its cash and equivalents, there is substantial room for growth in its stock price, which could potentially increase by 100%.
This is an interesting stock although it might be a Cayman Islands type of setup - I included your write-up in my Emerging Market Links + The Week Ahead (April 29, 2024) for today: https://emergingmarketskeptic.substack.com/p/emerging-markets-week-april-29-2024