Zongshen PEM: E-Bikes Not Catching On In China

Canaccord Adams analyst Michael Deng downgraded Zongshen PEM Powersystems Inc. (ZNGSF.PK) from a Speculative Buy to a Hold, and slashed price target from C$4.25 to C$1.20 after Zongshen announced that only 30% of its 2008 production would actually be electric bikes.

"The company's premium e-bikes have not found a customer base in the highly competitive Chinese market," wrote Mr. Deng in an investor update note, reducing earnings forecast for 2008 from C$0.09 to C$0.07, and from C$0.22 to C$0.14 for 2009.

The 70% cut in target price hinges on the lower selling price point for gas-powered bikes, as well as reduced growth scenario for the mature,
traditional gas-powered bikes industry. "While the gas bikes may also provide more opportunities, it is not the kind of growth we had envisioned
for e-bikes," wrote Mr. Deng.

The analyst based his 12-month target price of C$1.20 on a 10x normalized2009E Earning Per Share, more in line with the average trading multiple of the peer group. ZNGSF.PK stock was trading at $1.12 (C$1.20) as of press time.