Zongshen Power Systems Rated a 'Hold' as E-Bike Sales Disappoint

Electric-powered bike maker Zongshen Power Systems Inc. (ZNGSF.PK) -  which is hoping to make some big noise in the Chinese motorized e-bike market - is still a “show me” story, says Canaccord analyst Michael Deng, pointing to disappointing sales volume in the company’s second quarter.

After Zongshen posted earnings for the quarter of C$0.01 per share, Mr. Deng said in a research note to clients:

E-bike sales were weak due to rural-focused distribution network, the high price of low-end models, and the delay of production of the premium models.

This was above his estimate of no earnings, but below consensus estimates of C$0.02 a share.

Mr. Deng said:

Although the small gas bike business offers growth opportunities, we think [Zongshen] will need to establish appropriate distribution channels, and its premium e-bikes still need to be accepted by the market.

The good news is that, with C$39-million of cash (C$0.53 a share) in hand, Zongshen “could acquire an e-bike manufacturer with existing distribution channels.”

Mr. Deng maintained his hold recommendation on the stock, but is raising his target price to C$1.40 from C$1.20, based on a multiple of 10 times his increased estimates for 2009 of C$0.14 a share. “Our target price multiple is in line with the average trading multiple of the peer group.” On Tuesday, the stock was trading at C$1.14 in late afternoon.

Comments

[Onegus:]

Ok e-bikes are electric bikes?

Dec 24 09:06 AM