SORL - SORL Auto Parts Message Board

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Non-Tech : SORL - SORL Auto Parts

SORL 4.710

0.0%

May 15 4:00 PM EDT

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To: Tom Caruthers who wrote (13)	6/4/2008 2:58:08 AM
From: Tom Caruthers	of 21

SORL would appear to be doing very well. biz.yahoo.com In fact, they are doing well. The one major problem has been cash flow. They account for revenue on an accrual basis. Given that they have extended very favorable payment terms to their customers, cash flow significantly lags revenue growth, expenses and inventory spend. They utilize bank acceptances (hence the increasing notes receivable) to offset part of this issue and have a $7M line of credit with Bank of China collateralized by international accounts receivables. SORL only has a couple of customers that make up greater than 5% of revenue and the company has been trying to move away from higher credit risk customers. Defaults and write-offs of doubtful accounts have historically been nominal. I have become more optimistic that SORL will start seeing improved cash flow, based on the age of their receivables and a concerted effort by the company to reduce AR. The other problematic issue is the ownership and controlling interest of the Ruili Group, SORL's former parent. SORL continues to distribute non-brake parts from Ruili group. In addition, there have been several "questionable and non-arms length" transactions between parent and child, most notably SORL's purchase of land rights and a factory from Ruili. I worry that Ruili may be milking SORL's profits. That being said, the market opportunity for SORL is extremely large and they seem to be expanding and gaining market share both domestically, but more importantly, internationally, where they can benefit from positive currency exchange effects. Tom

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