CSGH is on a real romp.
++++++++++++++++++++++++++++++++++++++++++
Powerful Potential at China Sun Group
28 September 2009 Rick Telfur
China Sun Group High Tech Co. (CSGH), a Chinese producer of cobaltosic oxide and lithium cobalt oxide for lithium-ion batteries, may not be as popular as A123 Systems, Inc. after its highly successful initial public offering, but the stock offers investors a powerful play on the growing alternative energy industry and could be undervalued by 50% or more!
A Brief History of China Sun
China Sun Group’s operating business, Dalian Xinyang High-Tech Development Co. Ltd., began as a research group focused on developing technologically feasible nanometers to be used in lithium-ion batteries. In April 2006, the company began producing and selling cobaltosic oxide, which is used as the anode in lithium-ion batteries, with its sales to battery manufacturers.
Since then, China Sun Group has grown to have the second largest cobalt series production capacity in China, according to the China Battery Industry Association. This sizable capacity has helped it meet growing demand for anode materials as demand for lithium-ion batteries has increased, especially in the consumer electronics industry.
A Growing Market for Lithium-Ion
Lithium-ion batteries are well-known for the versatility, compact design, light weight, high voltage, high capacity, high energy density, and excellent energy retention characteristics when compared to traditional lead-acid batteries. As the cost-to-power ratio of lithium-based batteries continues to improve, demand is expected to expand into additional new markets.
According to the Battery Industry Association of China, lithium-ion batteries will become one of the most important sources of chemical power in the 21st century. In fact, the association projects that the industry will grow at an annual rate of over 30% of annual output based on units, with global demand for lithium cobalt oxide to reach 40,000 to 50,000 tons.
Strong Performance, Cheap Price
China Sun Group is a leading provide in a niche cottage industry associated with the growth in lithium-ion batteries. In fiscal 2009, the company saw its revenues increase 46.4% to $37 million, while its net income jumped 27.3% to $6.7 million, or $0.16 per share. Meanwhile, the company’s cash generated from operating activities jumped 147% to $12.75 million.
Financial Performance 2006-2009; Source: SEC Filings
Despite the strong results, China Sun Group’s stock continues to trade at just 8.9x earnings. When subtracting the company’s $0.17 per share in cash, the earnings multiple drops even further to 7.8x earnings. With a company posting a conservative 20% growth rate, investors should expect to pay a multiple closer to 15x earnings, which would yield a share price of $2.40.
Future Innovations in Development
China Sun Group continues to expand through technical innovation. In March 2009, the company announced that its in-house R&D team had successfully completed testing on its latest energy power battery anode material, lithium iron phosphate. And in April 2009, the first samplings of the product had been sent to two partner firms to test performance and life.
Many investors are looking forward to lithium iron phosphate as a new and improved cathode material. In fact, Tianjin Lishen featured a new article titled “Lithium Iron Phosphate – A New Type of Lithium-Ion Battery Cathode Materials”, which highlighted the many advantages of lithium iron phosphate as compared to other cathode materials.
Conclusion
China Sun Group is a profitable company in a very promising industry, and remains well-positioned as the second largest supplier of cobalt series capacity. Meanwhile, the company also remains substantially undervalued given its previous growth, future prospects and strong balance sheet and cash position.
Contact: Simon Monger, 877-586-5658
sumfolio.com |
