Seeking Alpha

RedChip's  Instablog

RedChip
Send Message
RedChip's long history of success includes the first to issue independent research coverage on Starbucks in 1992. Other names RedChip discovered as they were on the cusp of becoming Blue-Chip stocks were: Nike™, MarketWatch.com™, Daktronics™. Over the years, RedChip has evolved into a... More
My company:
RedChip Companies, Inc.
My blog:
Smallcap Ideas
  • China’s Car Boom Drives Growth for Micro-Motor Manufacturer CELM 0 comments
    Aug 17, 2010 3:11 PM | about stocks: CELM
    China has caught automobile fever, as rising disposable income among Chinese consumers has led to a boom in car sales. China overtook the United States in 2009 to become the world’s largest auto market, with 13.6 million vehicles sold during the year. Monthly demand for cars in China has doubled since January 2010. Shiny new purchases from GM, Toyota, Volkswagen, and Chinese automakers such as Geely and BYD are replacing the ubiquitous bicycle on China’s main thoroughfares.

    Even though China is outpacing other nations in terms of vehicle sales, there is still tremendous room for growth. According to estimates from JP Morgan, the per capita ownership of cars in China is roughly 1/20th that of Europe, or 1/40th that of the United States. J.D. Power and Associates forecasts that sales of passenger vehicles in China will increase from 8.7 million vehicles in 2009 to 13.5 million vehicles by 2015, an increase of more than 55%. With numbers like these, it seems safe to say that the outlook for China’s auto industry is quite positive.

    As car sales have grown in China, sales of electrical micro-motors have increased as well. Micro-motors control a wide variety of features in a car, from windshield wipers to power door locks and power windows. According to the China Electrical Equipment Industry Association, total sales of electrical micro-motors in 2008 increased 28% year-over-year to $9.6 billion. Global demand is poised to grow at an average rate of 12% annually for the next five years, attributed primarily to growing Chinese demand for consumer goods such as automobiles and household appliances.

    China Electric Motor, Inc. (NasdaqGM: CELM) has established a strong presence in the Chinese electric micro-motor market with its “Sunna” brand of motors. CELM’s products are used in automobiles, home appliances, and digital equipment. The Company caters to the needs of small and medium enterprise (SME) customers, which are not met by larger competitors who focus on higher-priced motors and long-term contracts. Sunna brand motors have a reputation as low-noise, low-vibration, energy-efficient, and highly reliable micro-motors.

    CELM has enjoyed rapid growth over the past five years due to expanding sales volume and increased focus on the fast-growing Chinese original equipment manufacturer (OEM) market, which produces higher margins than distributor-led sales. Revenues increased at a compound annual growth rate of 77% between 2004 and 2009. Net profit grew at a CAGR of 81% over the same period.

    The Company’s manufacturing plant operated at 106% of capacity in 2009, and the Company is currently constructing new production equipment with a capacity of 24 million motors per year to meet high customer demand. In July, CELM leased a new factory in Zhejiang, the second largest micro-motor manufacturing hub in China. The Zhejiang factory will give CELM approximately 21.6 million units of new capacity for AC motors and approximately 43.2 million units of new capacity for coreless motors. The Company recently reported earnings for the quarter ended June 30, 2010, highlighted by a 13.3% year-over-year increase in revenues and a 93.2% YoY increase in net income. With China’s vast appetite for cars and other consumer goods driving the electric micro-motor market, CELM has a green light for continued growth.

    Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.



    Disclosure: CELM is a client of RedChip
    Stocks: CELM
Back To RedChip's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.