China Automotive Systems: A Way To Play The World's Largest Auto Market

| About: China Automotive (CAAS)
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Today's news included news stories about U.S. auto sales being the highest in four years. In September, 1.19 million cars, trucks and sport utility vehicles (SUVs) were sold in the U.S., a 13% increase from the number sold last September. On an annualized basis, this sales rate corresponds to slightly fewer than 15 million units.

But missing in most mainstream news articles about the U.S. auto sales was news about the world's largest auto market, China. Three years ago, China became the world's largest automobile market when it surpassed the U.S. Despite the current slowdown in China's economy, it is still projected that by 2015, China's auto market will exceed that of Germany, Japan and the United States combined.

Data released by the China Association of Automobile Manufacturers indicated that there were 18.5 million sales of cars, light trucks and SUVs in China during 2011. The Association also is projecting that auto, SUV and light truck sales in China this year will approximate 20 million units.

A direct play on China's auto industry is Nasdaq-listed China Automotive Systems (NASDAQ:CAAS). Through eight joint ventures in China, the company manufactures and sells power steering components and systems to China's automotive industry, and also exports to North America. The company is the largest power steering manufacturer in China's domestic market.

For the second quarter of this year, the company's sales increased 2.8% to $80.4 million. China Automotive Systems explained this revenue increase was due to higher sales volumes, including sales to North America. The North American sales consisted of sales of steering products for Jeep Wranglers and trucks under the Dodge and RAM brands manufactured by the Chrysler unit of Fiat S.P.A. (FIATY.PK).

For the second quarter of this year, China Automotive Systems' net income was $8.6 million, up from $7.2 million for the second quarter of 2011.

The company's shares closed at $4.24 today. While definitely a smaller capitalization stock, China Automotive Systems' market capitalization is $120 million. The company's PE is 6.16.

Most importantly, as an indication of company management's commitment and belief that its shares are undervalued, the company announced a share repurchase plan in late August to purchase up to $5 million of its common shares periodically over the next 12 months. The company's shares are up slightly since that announcement.


China Automotive Systems is interesting for investors as not only a way to participate in the world's biggest auto market -- China -- but also as an indirect way to participate in growing U.S. auto sales.


There is no question that investing in smaller-capitalization companies, as well as investing in companies in emerging markets, is not suitable for all investors, and can be risky. It's important that investors thoroughly perform their own due diligence and analyze the potential risk.

China Automotive Systems, while definitely a smaller-capitalization company with Chinese operations, is a U.S. reporting issuer, subject to the reporting requirements of the U.S. Securities and Exchange Commission, so U.S. transparency and disclosure is available to investors.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CAAS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.