Highpower Intl (NASDAQ:HPJ)

Rodman and Renshaw on HPJ                                          6/27/2011

HPJ: Share Buyback Program Announced

$5.0 MM Stock Repurchase Program: HPJ announced a stock repurchase plan to buyback up to $5.0 MM of common shares from open market. The timing and exact amount will be dependant on market conditions. The repurchase program does not require the Company to acquire a specific number of shares, and the repurchase program may be limited or terminated at any time without prior notice.

Key Takeaways: In the current environment, we view this is as a pro-active effort by management to boost investors’ confidence and repurchase shares at depressed levels. On a YTD basis, HPJ shares has been down 48.0% amid the overall negative sentiment toward US listed Chinese companies, even though both top-line and bottom-line have been growing. We believe this program should provide support to HPJ stock depending on the manner in which it is executed.

Valuation: At current levels HPJ is trading at P/E multiples of ~7.9x and ~4.5x to our FY11 and FY12 EPS estimates. These multiples compare to industry averages of 12.1x and 9.5x for FY11 and FY12 consensus earnings. Our price target of $4.00 translates into a P/E multiple of 9.9x to our estimates for FY12. We maintain our Market Outperform rating.

Notice Regarding Privacy and Confidentiality:


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman and Renshaw on HPJ                        5/13/2011

HPJ: Lowering Price Target On Margin Pressure

1Q11 Results: HPJ reported 1Q11 revenue and net loss of $27.0 MM and $(0.46 MM), with diluted EPS of $(0.03) based on diluted share count of 13.8 MM, compared to our expectations of $24.1 MM, $1.4 MM, and $0.10, respectively.

Lowering PT to $4.00: We are lowering our gross margin expectations for HPJ from 19%-20% levels to ~17.00% to account for higher raw material prices. This change results in our EPS expectations for 2011 to drop from $0.44 to $0.23. In line with this we are lowering our price target from $7.00 to $4.00. However we continue to maintain our Market Outperform rating as we believe the longer term outlook remains relatively positive with the company’s move into the lithium ion battery business. We will be looking for the company to follow through on re-negotiating customer contracts / pricing and improve on raw material inventory / purchase management. At current levels HPJ is trading at P/E multiples of ~11x and ~6.3x to our FY11 and FY12 EPS estimates. These multiples compare to industry averages of 13.1x and 10.1x for FY11 and FY12 consensus earnings. Our new price target of $4.00 translates into a P/E multiple of 9.9x to our estimates for FY12. We justify this by pointing investors to the company’s low PEG ratio of ~ 0.30 at these multiples.

Lithium-ion Momentum Strong: Revenue came in stronger than we expected, with Li-ion battery sales growing by 50.7% y-o-y, much faster than 9.5% for Ni-MH batteries. While HPJ remains a leader in Ni-MH space, with over 10% plus market share, we believe Li-ion should continue to be the major growth driver in the foreseeable future. On a going forward basis, management expects Li-ion battery sales to continue growing at a faster pace compared to Ni-MH.

Rising Commodity Price Continues To Weigh On Margins: Gross margin declined significantly from 21% a year ago to 14.8%, driven by rising nickel price and related rare earth materials. During the first quarter, the LME Nickel spot price had been volatile, rising by 16.6% from $25,110/ton on January 4 to $29,281/ton on February 21, and then declined to $26,075/ton on March 31, 2011. Management stated that it is renegotiating pricing with its major customers, in order to at least partially pass on the higher costs, and it expects to see the gross margin to improve steadily as the negotiation moves forward for the rest of 2011.

Updated Guidance: Management reiterated its full year revenue guidance at the range of $125 MM ~ $135 MM, while lowering the net income guidance to $3 MM ~ $4 MM from previously announced $6 MM ~ $7 MM.

Our Estimates: For 2Q11, we are now projecting revenue and net income of $35.4 MM and $1.14 MM, with diluted EPS of $0.08. For full year FY11, our estimates are $130.5 MM, $3.25 MM, and $0.23 per share, respectively. Additionally we are introducing the FY12 estimates of $150.6 MM for top-line, $5.9 MM for bottom-line, and $0.40 for diluted EPS, implying a 15.6% top-line growth and 82% bottom-line growth.


Notice Regarding Privacy and Confidentiality:


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman and Renshaw on HPJ                                         3/28/2011

HPJ: 4Q10 Earnings Update

4Q10 Results: HPJ reported 4Q10 revenue and net income of $27.9 MM and $1.4 MM, with diluted EPS of $0.11 based on diluted share count of 13.7 MM, compared to our expectations of $24.3 MM, $1.5 MM, and $0.11, respectively. Top-line grew by 23.8% Y-o-Y and 0.38% sequentially. Gross profit was $6.3MM or 22.4% in margin, compared to $4.3 MM or 19.3% in margin in 4Q09 and $5.9 MM or 21.2% in margin in 3Q10. HPJ generated $1.7 MM in EBIT for the quarter, implying an EBIT margin of 6.0%, in line with 6.2% in the last quarter but higher than 4.33% in 4Q09. Net income was $1.4 MM, or 5.2% in net margin, an increase of 233 bps 4Q09’s 2.84%. HPJ ended the quarter with $8.5 MM in cash and $10.15 MM in working capital, accounts receivable and inventory stood at $20.9 MM and $13.5 MM, respectively.

Volume Growth Strong: HPJ reported 18% y-o-y growth in total volume for FY10, of which Li-ion battery products grew by 89% and Ni-MH products grew by 18% from FY09. ASPs for Li-ion and Ni-MH were up by 17% and 2% for the year, leading to revenue growth of 49%. New Materials increased from $1.0 MM in FY09 to $12.6 MM in FY10.

Margins: 4Q margin came in strong at 22.4%, higher than 19.3% in 4Q09 and 21.2% in 3Q10. The improved 4Q margin was primarily driven by a faster increase in ASP than COGS. ASP in 4Q10 increased by 15% y-o-y while COGS per unit was up by 9%. Full year gross margin of 20.8% was slightly lower than 21.4% in FY09, due to higher cost incurred in Li-ion battery capacity ramp-up and a greater contribution from the lower-margin New Materials business.

Liquidity: The company ended the year with cash balance of $8.5 MM. Operating cash flow generated in FY10 was $2.8 MM, compared to $3.3 MM in FY09. HPJ currently had bank borrowing of $22.5 MM, with $38.7 MM available as unused credit facility.

FY11 Guidance: HPJ is guiding for revenue and net income of $125 MM~$135 MM and $6.0 MM~$7.0 MM. The company also expects a higher cost of raw materials and human capital as the company continues to expand its international sales and marketing team.

Revising Estimates: For 1Q11, we are now expecting revenue and net income of $24.1 MM and $1.4 MM, with diluted EPS of $0.10. For full year FY11, our projections are in line with guidance at $127.6 MM, $6.2 MM, and $0.44, respectively. Our gross margin and EBIT margin are projected to be ~19.1% and ~6.1%.

Valuation: At current levels HPJ is trading at P/E multiples of ~7.8x to our FY11EPS estimates. These multiple is well below current industry averages of 8.8x for FY11 consensus earnings. Our $7.00 price target translates into a P/E multiple of 16x to our estimates for 2011. We justify this by pointing investors to the company’s low PEG ratio of ~0.30 at these multiples.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

 

Rodman & Renshaw on HPJ                               01/03/2011

HPJ: New CFO Appointed 

Appointment: HPJ announced that it has appointed Henry Sun to replace Henry Ngan as the company’s new CFO. Before joining HPJ, Henry Sun served as CFO at Zoomlion Concrete Machinery Company (a subsidiary of Zoomlion Heavy Industry Science & Technology Development Co., Ltd, 000157-SHG, Not Rated), where he was in charge of accounting and finance, strategic planning, corporate finance, as well as investor relations. Prior to that, he was the Finance Director at Yasheng Group (YHGG, Not Rated) and was responsible for corporate finance and investor relations. Sun graduated from School of Global Management at Thunderbid.

Key Takeaways: We believe this was a mutually agreed upon separation between Henry Ngan and HPJ driven by contract expiry.

Valuation: At current levels HPJ is trading at P/E multiples of ~7.4x and ~5.4x to our FY10 and FY11estimates. These multiples are below current industry averages of 11.2x and 10.9x for FY10 and FY11 consensus earnings. Our $7.00 price target translates into a P/E multiple of 11.4x to our estimates for 2011. We justify this by pointing investors to the company’s low PEG ratio of ~0.30 at these multiples.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman & Renshaw on HPJ

Overview: HPJ reported 3Q10 revenue and net income of $27.8 MM and $1.4 MM, with diluted EPS of $0.10 based on diluted share count of 13.73 MM, compared to our expectations of $24.2 MM, $1.5 MM, and $0.11, respectively. Top-line grew by 31.9% Y-o-Y but declined 4.15% sequentially. Gross profit was $5.9 MM or 21.2% in margin, compared to $5.2 MM or 24.8% in margin in 3Q09 and $5.4 MM or 18.6% in margin in 2Q10. HPJ generated $1.7 MM in EBIT, implying an EBIT margin of 6.2%, lower than 8.8% and 6.6% in 3Q09 and 2Q10. Net income was $1.4 MM, down from $2.4 MM in 3Q09. Diluted EPS was $0.10 based on 13.73 MM of diluted shares, compared to $0.18 in 3Q09 and $0.12 in 2Q10. HPJ ended the quarter with $5.4 MM in cash and $8.7 MM in working capital, accounts receivable and inventory stood at $19.5 MM and $14.8 MM, respectively.

Healthy Top-Line Growth: Revenue for the quarter was $27.8 MM, a Y-o-Y increase of 31.9% from $21.1 MM in 3Q09. This was primarily driven by an improvement in ASP of battery products and the revenue contribution from New Material business, which generated approximately $2.7 MM, or 10% of total sales. Management expects 4Q10 to be an inflection point for its Lithium-ion battery products, which should grow decently into 2011. During 3Q10 HPJ produced a total of 1.2 MM units of Lithium-ion battery products.

Margin Volatility: Gross margin was 21.2% for the quarter, compared to 24.8% in 3Q09 and 18.6% in 2Q10. The volatility was mainly driven by the price movement in raw materials including Nickel and Lithium. For the near-term, management anticipates a similar level of raw material cost to the past few quarters, and expects gross margin to be maintained at the current level.

Growth Drivers For FY11: Going into 2011, the company expects the growth to be driven by (1) increase in shipment volume for Ni-MH products (2) stronger momentum in Lithium-ion products. (3) New Material business; should continue to grow and generating profits, also potentially enable HPJ to secure lower cost / high quality raw materials. HPJ should be able to fulfill additional demand by adding capacity at its existing facility located in Shenzhen. Construction of its facility in Huizhou is expected to be completed in 2011 and begin production in 4Q11.

4Q10 & FY11 Estimates: For 4Q10 we are maintaining our estimates for revenue and net income at $24.2 MM and $1.5 MM, with fully diluted EPS of $0.11. This implies a full year revenue, net income, and EPS of $101.3 MM, $6.1 MM, and $0.44, respectively. For FY11, our estimates are now $116.6 MM, $8.7 MM, and $0.61.

Valuation: At current levels HPJ is trading at P/E multiples of ~8.8x and ~6.4x to our FY10 and FY11 estimates. These multiples are below current industry averages of 11.2x and 10.3x for FY10 and FY11 consensus earnings. Our $7.00 price target translates into a P/E multiple of 11.4x to our estimates for 2011.


Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.