Jinpan International: Getting Ready to Run

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About: Jinpan International Limited (JST)
by: John Henderson
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Jinpan International Ltd. (NASDAQ:JST) is a China-based provider of industrial electrical equipment. Its products include transformers, switchgear, unit substations and line reactors. The company’s main product line consists of cast resin transformers used in the construction and infrastructure sectors. JST also supplies products for the wind-power application market internationally, a sector primed for high growth in the coming years.

Jinpan’s revenues were $154M in 2008. As of now, there is only one investment house, Roth Capital, covering the stock. Roth has a $36 PT on JST based upon the following estimates:

  • 2009 revenues are slated to rise to $178.9M with $2.81 in EPS.
  • 2010 revenues are expected to reach $210M with almost $3.40 in EPS.

We feel that these estimates are too low and will be raised as we move further into the second half of 2009. After delving into the story over the past week, we feel confident that JST’s Q109 was an important inflection point for the company. In what is traditionally its slowest quarter of its fiscal year, JST’s Q1 saw a major re-acceleration in both its revenues and in its earnings:

  • Q109 net sales increased 36% year-over-year to $32.4 Million, versus $23.8M in Q108.
  • Q109 gross margins increased 483 basis points year-over-year to 36.2%.
  • Q109 diluted EPS increased 93% to $0.58 a share versus $0.30 in Q109.
  • International sales increased 485% year-over-year to $8M versus $1.65M in Q108. JST has made major in-roads with such blue chip customers as GE and Siemens in the international wind-power market and expects this trend to continue throughout 2009.

Going forward, JST has multiple drivers in place that should accelerate growth for the company throughout 2009. In the short term, Jinpan stands to benefit appreciably from the increased infrastructure spending from China’s stimulus plan.

Keep in mind, JST actually gained market-share during the economic slowdown, so the company’s domestic revenues should significantly ramp up in 2009 as China’s infrastructure build-out kicks into high gear.

Furthermore, China’s GDP expanded 29% from Q1 to Q2 which should also affect JST’s domestic business favorably.

The biggest growth driver for Jinpan in 2009 is its international growth. In just five quarters, JST’s international revenues have jumped from 7% of its total revenues in Q108 to 25% of total sales in Q109. With an emphasis on product quality and customer service, JST has established itself as a reputable supplier of cast resin transformers in both North America and in Europe.

Of note, Jinpan is one of only two manufacturers of cast resin transformers in the world to achieve Underwriters Laboratories (UL) certification – a standard of safety, recognized worldwide.

Late last week, we initiated a probe position in JST around $29.75. We hope to add more to this trade in the coming weeks on any pullback to $28-29 or on a high-volume thrust through $32. JST is a thinly-traded stock, so limit orders should be used if one decides to buy into this name.

A look at the 1-year, weekly chart reveals that JST may need a few more weeks to base out before it is ready to run from here:

Source: eSignal

With only 8.2M shares outstanding, any new institutional interest in JST should push the stock into the $40s by year end. For now, the only missing component is volume.

Jinpan’s Q209 earnings are not due until mid-August so be patient with the stock over the coming weeks as you slowly establish a position.

JST STOP LOSS: $26.74

Disclosure: We are long JST for the accounts we oversee.