This share has started to rise rapidly after the trading update which was very encouraging. The company provides batteries for mobiles etc and alternative power supplies. floated at 135p-should be a good investment with results due on April 18th.

The interims are out:

http://moneyam.uk-wire.com/cgi-bin/articles/200609270700325206J.html

Highlights
Turnover up 141% to 28.4 million as a result of increased turnover in
existing business and new business lines (H1 2005: 11.8 million)
Profit after tax up 25% to 2.0 million (H1 2005: 1.6 million)
Established a new plant manufacturing batteries for electric bicycles, with
a capacity of 12,000 units per day
Stake in FTD has been increased in 2006 from 30% to 51%, with FTD making
good progress signing a new contract to supply 150MW turbine to Shangdong
Haihua Group
Successful placing completed in period raising 5 million (before expenses)
which have been or will be invested into the expansion of manufacturing
capacity
Proposed interim dividend of 1.5 pence per share payable on 3 November 2006
Average debtor days reduced from 122 to 102 days

Look pretty good.

Ian

Yes good results I reckon.

On a single figure multiple which has got to be cheap in anyones book, outlook healthy and yearly dividend likely to be circa 4p.

Typical market reaction, time to add not sell in my opinion.

capa

CHNS tipped as a BUY by TechInvest Newsletter part of the T1ps group today.

Broker Seymour Pierce forecasts sales at 63 million pounds this year and 75 million pounds in 2007. Net profit to 31 December 2006 is estmiated to be 4.5 million pounds giving earnings per share of 21.6p. Corresponding figures for 2007 are 5 million pounds and 23.5p.

At current SP of below 200p, these shares are on a lowly PER of around 8 for next year.

Silvermede,

Thanks for the tip - I agree this looks good and will give it careful consideration.

Do you not think, however, that Seymour Pierce's EPS target is fairly conservative? I agree that the prospective PE is looking low, but on Seymour's figures it's the PEG that doesn't excite much.

However, I would hope that once the results come out and the profitable run appears more consistent that the market might react accordingly and award CHNS a higher rating.

I guess it has to be a buying opportunity after the post-results sell-off. Still bothered about that PEG though.

ST, good point and wanted to have another's views. I'll have another look at the PEG.

Thanks Silvermede. IfI can be more specific (now I'm slightly more awake than Iw syesterday evening), it just seems to me that profits are forecast to grow only around 10%. Frankly I'd be expecting more.

They did about 10p eps in the first 6 months, taking into account the bullish outlook and the new plant which is working flat out I expect the next 6 months to produce significantly more than 10p eps.

Seymour Pierces estimate of 21.6p is conservative, better this way though, makes good headlines when broker estimates get smashed.

capa

Is this a time to invest in this profitable company? as the results are looking good, out end of April and Dividend to be announced. See below:

Pre-close Statement
Press Release 1 March 2007
China Shoto plc (China Shoto or the Group) Pre-close Statement The Board of China Shoto plc (AIM:CHNS), a leading Chinese producer of industrial batteries and power supply systems, is pleased to announce that the year ended 31 December 2006 was a period of excellent progress for the Group. The results, which are expected to be announced in the last week of April 2007, will be in line with market expectations. The final dividend for 2006 will be announced with the results. During 2006 the Group significantly expanded its production capacity, on time and within budget. The new manufacturing facility, which came on stream in May 2006, rapidly moved into full production. The markets within which the Group operates continue to grow. The current year has started well and the board has every confidence that the Group will continue to make sound progress in 2007. - Ends - For further information:China Shoto plc
Cao Guifa, Executive Chairman Tel: +44 (0) 20 7398 7700
www.chinashoto.com
Seymour Pierce Limited
Stuart Lane / John Depasquale Tel: +44 (0) 20 7107 8000
jdp@seymourpierce.com www.seymourpierce.com
Media enquiries:Abchurch
Henry Harrison-Topham / Laura Riascos Tel: +44 (0) 20 7398 7700
henry.ht@abchurch-group.com www.abchurch-group.com
END

I know I am a bear on CHNS (have been since 200p levels), but it really is easy to find the company telling you what the problem is.


If you go to the last prelims (period of 12 months to 31st Dec 2006) they clearly state ;

http://www.investegate.co.uk/Article.aspx?id=200704260700315229V

"Earnings and Dividends

Basic earnings per share in 2006 are 18.30 pence (2005: 19.80 pence), which was affected by the significant increase in raw material prices during the year. An interim dividend of 1.5 pence per share was paid in November 2006 (2005: nil). The Directors recommend the payment of a final dividend for 2006 of 3 pence per share (2005: nil)."

***************************************************************

If you then look at LEAD prices during 2006 its like this ;

The rise in 2006 was minor compared to the ongoing rise in 2007........which therefore, according to the companies statement on earnings in the 2006 prelims, will affect the earnings even more dramatically than it did in 2006, as the rise is larger.




Taking that into account, it probably explains why the price is falling, and looking like it wants to fill the gap back to 130p imv

Rising interest rates are going to be hurting on the debt front, the past rises in the price of lead will not be out of the system as yet, lots of competition in this business, no news at all, all quiet and a falling SP.

Will they belatedly now look at a placing and raising funds to reduce their debt burden ? and allow them to expand into different products ? In the present climate, given the problems in the past, what price would a placing be at ? Certainly the potential is there for a lot lower than today.

I suggested they would do a placing last year, they did not. Perhaps they should have done it then, and put themselves into a better positon, as with the credit crisis, China's rising interest rates to battle inflation, rising labour costs due to the new labour law, inflation and all the other China problems, its certainly not a good time to be trying to raise cash now, and not a good time to have a nasty lump of debt in China either.

Ignoring the headline noise about EPS, PEG, PER etc..........in order to get a view of whether this company is functioning well, imo, look at the following lines in the results.



2006 Full Year Figures to watch for IMO :


2006

On Current Assets

Inventories = 10,122 (should reduce)
Trade receivables = 15,009 (should reduce)
Other receivables and prepayments = 7,224 (should reduce)
Cash and cash equivalents = 9,937 (should increase)


On Liabilities

Bank borrowings = 12,236 (should reduce)


On Cash Flow

Net cash from operating activities = 1,606 (should increase (not be negative ie a figure in brackets)


*********************************************

As a comparison, looking at the 2007 interims, PERHAPS people can understand why the price has been falling - don't get ramped into EPS and that crap, look at cash, debtors, working cap requirements etc.. :


2007 INTERIM FIGURES

On Current Assets

Inventories = 17,135 (Going up)
Trade receivables = 20,819 (Going up)
Other receivables and prepayments = 8,542 (Going up)
Cash and cash equivalents = 4,331 (Down and down)

On Liabilities

Bank borrowings = 18,727 (Up and Up)


On Cash Flow

Net cash from operating activities = (10,941) (Gone Negative)

Results out - Negative Cash flow from operations and bank borrowing up !!!


Bank borrowings up to 23,284 in 2007, from 12,236 in 2006

Inventories up to 19,426 in 2007, from 10,122 in 2006

Trade and other receivables up to 31,479 in 2007 from 22,233 in 2006


Giving :


Net cash flows from operating activities to negative (3,026) in 2007, from positive 1,606 in 2006.



Cash Flow
The considerable increase in sales volume in 2007 resulted in the need for
greater working capital. Although debtor days reduced by 6 days from that of
2006, cash flow from operating activities in 2007 was still negative, at 3.03
million. The Group covered its deficit in operating cash flows by increased bank
borrowings. Interest paid was 1.46 million (2006: 822,000) and tax payments
were 976,000 (2006: 607,000).

The trouble is they really suffer with negative cash flow in the first half of every year, getting some of that money back into the system in the second half.

I would imagine that the coming interims will be pretty horrific in terms of increased borrowings, increased inventories, increased trade receivables and negative cash flow from operations - so get ready for a stinker in those terms comes interims in the Autumn imv.

If you look, the historic weighting is towards H1 for massive cash drain.

In 2006 they turned a 3m negative cash flow from operations at interims into a 1.6m positive come prelims.

In 2007 just reported they turned a 10m negative into a 3m negative at prelims just reported.


It would therefore suggest the business is growing at much faster than cash can handle........and so working cap will be hard hit in 2008........and likely result in a placing for cash for working cap imv.

They are massively in debt, and operationally now cash flow negative for the full year.

The onus is on the need for more working cap, and soon imv.

New article, click HERE

Nice news today of an Olympics contract win (see below).

My overall take on CHNS at present on a current year P/E of 4.9:

- recent outlook statements have been very bullish
- lead, which makes up 70% of CHNS' raw material cost, has plummeted in price in H1'08 to levels not seen for 18 months
- CHNS' telecoms markets are booming and expected to accelerate due to 3G
- CHNS' electric bike markets are booming
- the yuan's currency appreciation is in CHNS' favour re helping a higher EPS
- CHNS have already begun selling into solar power and wind energy markets
- they're also developing electric car batteries
- gearing is low at 40% and historic interest cover fine

The facts are in CHNS' favour at a 129.5p share price with 26.6p EPS forecast for this year. If they can continue to improve cash flow etc as per H2'07 and come through with good results again as per their track record, then CHNS should continue to thrive.

Here's the Olympics news:

http://www.chinashoto.com/news/detail.asp?ID=168&tID=&tName=

"Olympic win paves the way to green energy market
July 9

AIM-quoted China Shoto, China's largest producer of back-up lead acid batteries, has successfully initiated its planned move into the renewables sector with the delivery of 40 sets of super-capacitors for solar-energy street lighting in the Beijing Olympic Village.

The company, which is already established as a leading supplier of power batteries and back-up batteries to China's booming telecoms market, believes completion of the Olympic contract will pave the way to future sales into the green energy economy.

The super-capacitors were manufactured by China Shoto's subsidiary, Nanjing Shuangdeng Sci &Tech Academy in Jiangsu Province, following a tendering process involving two other Chinese competitors. The capacitors have now been installed ahead of next month's Olympic Games to power the Olympic Village solar street lamps.

China Shoto's Executive Chairman Cao Guifa said: "Our success in this bid follows development work to produce capacitors that combined low current output with high storage capacity. We are pleased both to be contributing to the environmental objectives of the 2008 Olympics and to have developed a product we believe opens new markets for China Shoto."

China is already responsible for a third of the world's solar cell production, and by 2010, hopes to be generating and consuming about 300 megawatts of solar energy, which would position it among the world leaders in the field.

Last May, China Shoto reported a 2007 pre-tax profits increase of 58.7% to 7.15m on sales up 81%, to 107.5 million. It said it planned a steady advance into renewable energy industries to become a provider of environmentally-friendly energy systems."

Sounds a bit "hairy fairy" to me. If their core business was so strong - like they said in the past, then why mess about with this green nonsense, which will obviously cost them money as opposed to make money ?

The thing to watch for CHNS is if, come interims, their debt levels rise YET AGAIN, and also see if they are YET AGAIN, net cash flow NEGATIVE from operations.

Those are key indicators...........

Interesting and reassuring bearish views on the trend in the price of lead from Goldman Sachs, especially given the recent collapse in price. They say the next two years will see a continued downtrend, but that even after that when the price recovers, the highest point in 2012 would still only be just over where the price is now!

Has to be good news for CHNS - stability and relatively low prices comprising 70% of their input costs over the next 5 years will help them enormously:

http://www.livenews.com.au/Articles/2008/07/07/Commodities_Lead_Slumps_As_Oil_Rises

"Three month lead closed $US42 lower, or 2.6% at $US1,568 a tonne Friday in London. The metal has lost 39% so far this year, making it the biggest loser on the LME.

Goldman Sachs JBWere issued a bearish report midweek on lead, arguing that supply will outpace demand by 130,000 tonnes this year.

That's an estimated 29% more than all the lead held in warehouses monitored by the LME.

Lead stocks have more than doubled this year, to 100,675 tonnes.

Goldman Sachs said: "In the short-term (2008 and 2009), we see the global market remaining in surplus and, based on our expectations of mounting inventories and on our understanding of current industry costs, we expect further downside for prices over the next two years. We have made a reality downgrade for our 2008 lead price assumption based on recent/current trading levels; our 2009 forecast is unchanged.

"But in 2010 we envisage the market moving back to balance, and then into significant deficit in 2011 and 2012. We have therefore raised our price forecasts for the final two years of our forecast period as follows (previous estimates in brackets): - 2008: 99c/lb (105c/lb)- 2009: 70c/lb (unchanged)- 2010: 50c/lb (unchanged)- 2011: 70c/lb (45c/lb)- 2012: 90c/lb (45c/lb)"

I thought they were now fully hedged on lead, and it does not matter up or down it makes no difference with the hedge they have.............


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