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.

Couple of posts from the SC site.


Richard Gill Reged: 28/06/07
Posts: 495
Re: China Shoto [Re: JamesFaulkner]
#429812 - 18/09/08 08:00 AM

Fuuny how they dont mention the negative cashflow being the house broker and all


PapalPower Reged: 17/10/04
Posts: 4889
Re: China Shoto [Re: Richard Gill]
#432230 - 14/10/08 12:08 AM

Warnings were given that this company seems set on increasing debt and being operating cash flow negative.

In this climate, to go about a process of gaining revenue by offering "deffered payment", in effect ramping up your working cap to get revenues, its in my opinion very stupid.

Revenue is vanity, real profits and generating cash is sanity.

This company increases revenues and paper profits, and then bumps up debt and working cap all the time to go with it.

Not a well run business at all imo, and one that could collapse when the China slowdown and banking crisis bites.

GNG warned today already of a slowdown hitting H2 figures, imagine what these Chinese companies are going to be saying when it comes to reporting 2009 H1 and H2.

The outlook on China is now darkening fast.

On top of the GNG admission that things are slowing down, today also saw ZTC (Chinese telecoms) say this which again is more evidence to say that things in China are under pressure, and those who said 2009 would be a bad year for anything China related, might well be proven correct :

"As has been widely reported, trading and credit conditions for SME's in the PRC have become increasingly difficult throughout the third quarter of 2008. This is due to deteriorating macro economic conditions outside the PRC and slowing economic growth and restrictive credit policies in China. As a consequence, our markets have become increasingly competitive, disruptive and oversupplied. ZTC has therefore achieved sales significantly below those seen in the same period last year.

As a consequence, the Company's working capital available to operate and expand its business has become constrained, as has been previously announced. The Company continues to review all aspects of its operations to reduce costs and improve efficiencies to improve the availability of working capital for new model and market development. The possible sale of assets referred to above is one example of a potential method of cash generation that is being actively considered."

CHNS could achieve 35p-40p EPS this year against a 96p share price imho given current exchange rates.

And at a 19.5m m/cap it trades at below tangible net asset value!

The yuan is now at 10.6 against the pound...certainly the broker forecast of 33p EPS looks comfortable imo given the relatively secure nature of CHNS' customers and markets.

The lead price, which comprises 70% of CHNS' input costs, continues to plummet and is down to $0.525, the lowest for over 2 years.

Intriguingly I've come across what appears to be a new CHNS web site. The emphasis on CHNS being "a green energy solution provider" is particularly interesting given the involvement in electric bikes and cars, wind power, solar power etc:

http://chinashoto.net/index.asp

In addition, the Chinese 3G spending spree is starting - note carefully the last sentence about 23,000 (!) base stations being purchased. These will all require batteries, and we all know that CHNS is China Mobile's main supplier (and Unicom's too) and the market leader...

http://www.tradingmarkets.com/.site/news/Stock%20News/1971675

"SHENZHEN, Oct 27, 2008 (SinoCast via COMTEX) -- ERICY | Quote | Chart | News

China Mobile, the largest telecom carrier in this country, is scheduled to make public on October 30 the bidding result for the second stage project of the TD-SCDMA network construction....

China Mobile started to invite public bidding for the second stage project of its TD-SCDMA network on September 11. It was about to procure 23,000 wireless base stations."

And fortunately:

- CHNS' sales are mostly infrastructure-based, and it's that very sector which is being and will be expanded by the Chinese government over coming years via:

- 3g telecoms roll-out happening now
- railways expansion happening now
- nuclear expansion
- wind, solar, electric car, renewable power expansion

All of which are markets addressed by CHNS' products.

Plus electric bike markets are booming worldwide due to the high price of oil and the increased efficiency of electric bikes.

On a P/E of only 2, trading at below tangible NAV and with reasonable gearing at 55% - note that interest rates are coming down fast - any downturn should be priced in here and then some.

Massive debts.

Increasing debts.

Unable to be net cash flow positive from operations in H1.


Looks like an avoid to me.....mind you, while you were saying buy at over 200p, some of use were saying sell. I think those that said sell due to debts and poor cash generation were correct.............

Moving up today.

More CHNS news this week - trade fair coverage.

Note in particular the emphasis on lithium-ion batteries and the readiness for electric cars as well as the existing electric bike business.

Also that "sustained growth has been in Europe, North America, Southeast Asia and other regions", with the setting up of sales offices:

http://translate.google.com/translate?u=http%3A%2F%2Fwww.shuangdeng.com.cn%2Fnews%2Fnews.asp&langpair=zh%7Cen&hl=en&ie=UTF8

CHNS is on a P/E of 2, yet has imho huge guaranteed current and future sales pipelines from Chinese 3G expansion, railways expansion, nuclear industry expansion, wind and solar power expansion, electric bike and car expansion - i.e all infrastructure or green sectors which will only continue to grow.

Plus a huge proportion of its costs have plummeted in price with the lead price decline.

Plus exchange rate movements will only increase CHNS' EPS this and next year.

And interest cover and gearing at only 55% are perfectly reasonable and should improve again as they did in H2 last year.

Enough said :o))

PER looks ridiculous - punishment for cash flow?
CHNS is now all about Telco backup as opposed to bicycle batts.
I agree lead price decline should help
Used to well covered by Investors Champion, www.investorschampion.com but I haven't looked lately

Here's CHNS' recent trading update - they will beat expectations of 31.6p EPS. I'm hoping for at least 35p-37p EPS for 2008.

At 102p that's a historic P/E of just 2.9. And there's a 5p divi too - it's possible that with the yuan's rise against the pound we may even get 6p.

So in summary then:

- a P/E of 2.9 or less
- a m/cap at 2/3 of net tangible asset value
- a 5% divi yield
- laughably good PSR with 130m of sales against a 23m m/cap
- excellent and fast-improving interest cover and reasonable gearing
- and outstanding future prospects given the telco spending explosion in China, India, Pakistan, Costa Rica etc

http://www.investegate.co.uk/Article.aspx?id=20081210070019M8903

"Pre-Close Trading Update

China Shoto is pleased to announce that the strong progress previously reported for the six months ended 30 June 2008 has continued into the second half of the financial year. As a result of the continued strengthening of both domestic and international sales, the Board is confident that the results for the current year will be ahead of market expectations.

In the domestic telecoms sector, demand for the company's back-up batteries remains a key driver of the business. China Shoto has cemented its position as a market leader by remaining the largest back-up battery supplier to China Mobile, and has also successfully increased its sales to a number of other leading domestic operators.

Over the financial year China Shoto has also continued to expand into overseas markets, most notably and successfully in India where contracts with a value of US$54.92 million had been signed by the end of September 2008. While domestic sales continued to increase during the nine months ended 30
September 2008, international sales rose faster, accounting for approximately 15% of the Company's total revenues for the period, up from 6% during the 2007 financial year.

The Company has benefitted to some extent from the financial stimuli given to the Chinese economy by the Government in response to the global financial crisis. Following substantial interest rate cuts, and with falling prices of raw materials, the Company aims to take advantage of the easing of financial conditions whilst continuing vigorously to pursue its business opportunities despite
competitive product price pressures.

The Board is pleased to be able to report this positive progress, and is looking forward to developing the business further in 2009."

Massive debts.

Increasing debts.

Unable to be net cash flow positive from operations in H1.


Looks like an avoid to me.....mind you, while you were saying buy at over 200p, some of use were saying sell. I think those that said sell due to debts and poor cash generation were correct.............

Nope. As I said above, gearing is only just above 50%. PapalPower/Prosolenes' definition of "massive" is coloured by his rabid anti-Chinese agenda which he spouts on a dozen diferent bulletin boards day and night :o))

In addition to:

- a P/E of 2.9 or less
- a m/cap at 2/3 of net tangible asset value
- a 5% divi yield
- laughably good PSR with 130m of sales against a 23m m/cap
- excellent and fast-improving interest cover and reasonable gearing
- and outstanding future prospects given the telco spending explosion in China, India, Pakistan, Costa Rica etc

with today's news about Nortel going into Chapter 11 and shrinking rapidly, there's a big opportunity for Huawei and ZTE to gain market share.

CHNS of course supplies both Huawei and ZTE. Here's Huawei winning base station orders from TeliaSonera:

http://www.reuters.com/article/rbssTechMediaTelecomNews/idUSPEK9015220090115

"BEIJING, Jan 15 (Reuters) - Huawei Technologies [HWT.UL], China's largest telecoms equipment maker, said on Thursday it will supply Teliasonera's (TLSN.ST) fourth-generation (4G) network, but did not give any financial details.

Huawei Technologies Co Ltd will supply long-term evolution (LTE) base stations, core network and operating support system to Nordic telecom company Teliasonera, in a deal that could be the Chinese company's first contract for 4G equipment.

Ericsson (ERICb.ST), the world's biggest telecom network maker, said earlier in the day that it would build a commercial 4G network for TeliaSonera.

Huawei and smaller rival ZTE (0763.HK) have been expanding rapidly, taking market share with aggressive pricing from global giants such as Nokia (NOK1V.HE) and Nortel Networks (NT.N) (NT.TO), which filed for bankruptcy on Wednesday."

Debts Debts Debts, and the inability to be cash generative (ON A FULL YEAR BASIS, AS SOME PEOPLE LIKE TO SPOUT ABOUT ONE HALF, AND IGNORE FULL YEAR 12 MONTHS).

The Yuan getting stronger and stronger is going to keep impacting on their margins and ability to export. They may have made progress in 2008, but for 2009 orders they should suffer badly due to Yuan strength.

And given you were ignoring their mobile phone base station battery business and RAMPING their "electric bicycle one" - now the Chinese economy is crashing and people no longer buying the bikes, suddenly bikes is forgotten and its all about base station batteries.

LOL :) Slipping and sliding.

You were ramping this at over 200p on many boards and its crashed, on poor cash generation and the debts.


Why should anyone put their money into this ? Far too many better companies out there to put money into, and with far less risk attached.

To reiterate the facts, CHNS are on:

- a P/E of 2.9 or less
- a m/cap at 2/3 of net tangible asset value
- a 5% divi yield
- laughably good PSR with 130m of sales against a 23m m/cap
- excellent and fast-improving interest cover and reasonable gearing
- and outstanding future prospects given the telco spending explosion in China, India, Pakistan, Costa Rica etc.

We know that CHNS' cash flow is subject to seasonality, so last year's H2 should follow previous years' with a positive trend. More to the point, there are good reasons why CHNS' cash flow should remain good and be subject to some improvement assuming working capital is controlled:

- CHNS should be benefiting positively from a time lag effect in that they're probably now receiving cash proceeds from sales made when lead prices were high, whilst they're only having to pay lead prices which are at a 2-3 year low, at around 1/3 of previous highs
- Chinese interest rates have fallen sharply, which will obviously benefit cash flows, and energy costs will also have decreased rapidly

I'd like CHNS to report their net debt movements in the period in yuan to get a true picture, since it's obvious that stated in pounds the net picture will be distorted by the yuan's rise.

Since lead costs comprise around 70% of input costs there should be a highly beneficial impact on CHNS' cash flows and costs from the recent dramatic fall in the lead price.

There are just far too many "better" companies to put your money into IMO, than one like this with lots of Debt and an inability to be cash flow positive from operations on a full year basis.

There are also so many other companies in China making batteries, and competition is tough - people try to hype that CHNS is perhaps the only company - this is totally untrue, and many companies get the "stamp of approval" and "official supplier" to the big companies. They all have to undergo the qualification process to become "approved"

The Yuan getting stronger and stronger is going to keep impacting on their margins and ability to export. They may have made progress in 2008, but for 2009 orders they should suffer badly due to Yuan strength.

And given some were ignoring their mobile phone base station battery business and RAMPING their "electric bicycle one" - now the Chinese economy is crashing and people no longer buying the bikes, suddenly bikes is forgotten and its all about base station batteries.

Seymour Pierce brought out a rather positive note last week as follows...and it doesn't even mention the 5p+ dividend on a 102p share price.

Or that CHNS trade at only two-thirds of their tangible net asset value. Or that CHNS is the market leader in China and aiming for Asia as a whole. or that Indian, Pakistani etc telco growth should keep CHNS heavily occupied for ther next few years (let alone the electric bike market which is booming in Asia and starting to take off worldwide).

And gearing is low at just over 50%, whilst interest costs will be falling dramatically with recent rate cuts, thus benefiting profits further.

CHNS are forecast to make 8.8m pre-tax profit against a 23m m/cap!

http://www.smallcapnews.co.uk/article/Strong_telecoms_orders_underpin_profits_forecasts_for_China_Shoto/6529.aspx

"Strong telecoms orders underpin profits forecasts for China Shoto
Thursday, January 22, 2009

China Shoto, Chinas largest producer of back-up lead acid batteries, is rated a buy following the announcement of new investment plans by Chinas top mobile telecoms operators last weekend.

China Shoto supplies the countrys booming mobile telecoms industry with batteries for transmission masts. In a new note, house-broker Seymour Pierce says it believes the company has outperformed the market by 12.6% over the past 12 months, but is trading on a historic PE multiple of just 3.2.

The note adds that Chinas top mobile telecoms companies which are all China Shoto customers - are investing heavily in building 3G telecoms infrastructure.

Against this background, we are confident that the company will meet our forecasts for December 2008 and December 2009, the note says.

Pre-tax profits for 2008 are forecast at 8 million, rising to 8.8 million for 2009."

Year on year figures........have they managed to pay down debt ?

Have they managed to generate cash from operations ?

If not then a massive question mark over them.

Also, with the Yuan being so strong, their exports sales must be hurting in 2009........in terms of margins and profits.

Is it going to be more sales and revenues.............pumping the headlines, but not generation any cash in half 1 2009 yet again ?

CHNS are on:

- a P/E of 2.9 or less
- a m/cap at 2/3 of net tangible asset value
- a 5% divi yield
- laughably good PSR with 130m of sales against a 23m m/cap
- excellent and fast-improving interest cover and reasonable gearing at 53%
- and outstanding future prospects given the telco spending explosion in China, India, Pakistan, Costa Rica etc.

And of course the price of lead has fallen dramatically recently - lead comprises 70% of CHNS' input costs. This, plus the falls in energy costs and reductions in interest rates, should ensure that CHNS' cash flow continues to improve imo.

India's telco spending boom is even larger than China's, and due to CHNS' new partnership with Reliance Comms of India the company should continue to increase international sales in both India and Pakistan.

CHNS stated only last month that international sales (mainly to India) had increased from 7m in the whole of 2007 to around 35m in just the first 9 months of 2008! And this despite the strong yuan....

Here's proof this month of India's appetite for telco spending:

http://midastouch-mumbai.blogspot.com/2009/01/stock-ideas-nu-tek-india-ltd.html

"India has emerged as the largest growing telecom market in the world. Number of subscribers is expected to reach 500 million by 2010 and 650 million by 2012. Telecom regulator TRAI studies estimate the requirement of telecom towers to increase to 3,30,000 by 2010. Government too has aggressive targets. It plans to provide 200 million rural connections by 2012 (i.e rural teledensity to reach 25 percent from 8.35 percent in Dec'07). Besides targets for broadband services, 3G services and mobile TV etc indicate towards the massive telecom infrastructure that would be required."

More important questions................


Year on year figures........have they managed to pay down debt ? If business is good and margins wonderful and customer great, would think they could get out of this cycle of being unable to be cash generative from operations on a full year basis (always having a bad H1 a good H2 but overall for the year being not being able to generate cash from operations).

Constantly rising debt levels and not generating cash..........say no more.

Also, with the Yuan being so strong, their exports sales must be hurting in 2009........in terms of margins and profits, the effects of the strong Yuan will only be seen come later 2009 - in the first instance the strength will help obviously US$ translations of RMB sales, but after time it will severely hamper actual export sales, not just values of them.

Is it going to be more sales and revenues.............pumping the headlines, but not generatig any cash in half 1 2009 yet again ?

Brokers were saying "buy" at over 200p levels some time back, people have been ramping this like mad on ADFN.

The price action says it all.

Rising debts. Not generating cash on a full year basis.

And look at the dividend trend too given a 102p share price:

2006 - 3p per share
2007 - 4.5p per share
2008 - 5p per share
2009 - 6p perhaps?

With gearing at a reasonable 53%, excellent and improving interest cover, and the cash flow positives at present going CHNS' way in terms of:

- raw material prices falling precipitously
- interest rate cuts
- falling energy costs

there should be more than enough leeway imo for CHNS to continue to gain market share and new business whilst smaller competitors fall by the wayside, despite the slow Chinese payment culture.

The facts:

- a P/E of 2.9 or less
- a m/cap at 2/3 of net tangible asset value
- a 5% divi yield
- laughably good PSR with 130m of sales against a 23m m/cap
- excellent and fast-improving interest cover and reasonable gearing at 53%
- and outstanding future prospects given the telco spending explosion in China, India, Pakistan, Costa Rica etc.

We do have to look at the facts.

Loads of ADFN rampers locked into this from over 200p levels.

Its an illiquid stock, meaning you cannot buy any large amount without paying for a massive spread, and its difficult to sell as no MM wants sells, so you will struggle to sell any larger size holding for a decent price.

They are not cash generative from operations on a full year basis (they might struggle and just about do it in 2008, and maybe not)

They have just had a "Chinese Olympics" year, so their 2008 figures should be good in terms of sales, but 2009............ ???? as it goes on it should get worse.

Debts.......always going upwards........why is that ?? LOL :)

Strong Yuan, bound to hurt 2009 sales although will have provided a temporary boost to 2008 figures before the pain comes in later.

Paying a dividend whilst pushing up debt levels.......is that good business sense ?

Electric bike sales ??? Going to be going down now with China in recession (notice how the rampers were ramping this last year and not talking phones, and now they talk phones and not electric bicycles..........)

Certain broker was saying buy at well over 200p, and now its 50% of that.

All in all, its just an illiquid AIM "nasty" in most peoples views, one you cannot sell for a good price if you buy, so why bother, plenty of better trades about. Look at LLOY, up over 50% in a few days.

The Olympics year was actually a hindrance since much of China shut down for most of the summer.

Not only that, but last year saw the huge natural disasters of Sichuan, nationwide flooding, huge snowfalls etc....and despite all these factors, affecting almost half of 2008 in total, CHNS have indicated they'll beat expectations.

So 2009 should be decent by comparison.

And then of course we know that the Chinese and Indian telecoms infrastructure booms are only just beginning...

If China does go into recession, then it'll likely be electric bike sales that boom as people choose them over cars for reasons of cost, or if they downgrade from cars since they can't afford to run cars any more.

On a P/E of around 2.9 or less there shouldn't be much if any downside here imo, especially given the bullish outlook. But the upside could be huge. Or perhaps people prefer to be locked into Britain's bankrupt banks....

The momentum is building - China Mobile, Unicom and China Telecom are all CHNS clients:

http://www.intomobile.com/2009/01/26/china-plans-to-invest-more-than-585-billion-on-3g-over-next-3-years.html

"Three Chinese mobile operators China Mobile (NYSE: CHL), China Unicom and China Telecom plan to invest 400 billion yuan ($58.5 billion) over the next three years to build 3G networks.

Of that amount, China Mobile alone will spend 58.8 billion yuan to build about 60,000 TD-SCDMA base stations by the end of this year, when its coverage will serve more than 70% of all Chinese cities. Two smaller rivals, China Unicom and China Telecom, will each spend about 30 billion yuan in 2009 to develop their WCDMA and CDMA 2000 based networks, respectively.

As a result of adopting WCDMA and CDMA 2000 technologies that are widely used around the world and because of the sheer size of China Mobiles user base, China Unicom and China Telecom are expected to grow faster than China Mobile in terms of new users and sales. Still, China Mobiles network will be the best over the next 2-3 years, according to ratings agency Fitch Ratings."

Nonsense...........2008 was a massive year for CHNS with all the batteries for the Chinese systems installed before the Olympics.

Expectations should be a big jump in turnover/revenues............for 2008 but another problem year in generating substantial cash from operations.

Higher debts perhaps, and then a poor outlook for 2009 2nd half and the effects of the strong Chinese Yuan hurting exports.

Looks like an avoid IMO........far better stocks out there IMV.