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Technology Stocks : VALENCE TECHNOLOGY (VLNC)

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To: Matthew Leo who wrote (92)	2/16/1997 6:48:00 PM
From: FMK	of 27311

A repeat of my last post again-with a better layout Revised $ estimates based on latest production information-(stated in previous post) Line 1 maximum capacity cellphone cells---------7mln cells/yr x 4.18 watt hr/cell = 29.25 watt-hr/yr (or) laptop cells------1.5mln cells/yr x 15.5 watt-hr/cell = 22.25 watt-hr/yr High speed lines maximum capacity (each) cellphone cells--------21mln cells/yr x 4.18 watt-hr/cell = 87.8 watt-hr/yr (or) laptop cells-----5.25mln cells/yr x 15.5 watt-hr/cell = 81.4 watt-hr/yr The popular Sony 18650 cell holds 90 watt-hours per kilogram while VLNC cells hold over 1.5 times as much. The main difference is due to the 19650's metal case required to hold liquid. Volumetically, specific energies for liquid and solid electrolyte are about equal. OEM's are now paying about $2 per watt-hour for the liquid cells. In his conservative manner, Cal Reed said "We don't know what premium the market will pay for solid cells, if any" It would seem that given the higher density and elimination of liquid electrolyte, there should be some premium (5-15%?). I will use the $2 figure regardless. From the conf. call Cal Reed still expects line 1 production cells for testing this quarter and to be production-qualified this summer. He expects line 2 qualification near yearend or early next year with a 7-12 mln cells/yr rate at yearend. It seems reasonable that lines 1 and 2 could be in full production by the end of the fiscal yr(March 31). I will use a .75 factor to allow for holidays and repair shutdowns etc. With the company's 40% profit goal, This would be $ the rate of production: Line 1- laptop cells--------22.25 wh/yr x $2/wh x .75 x .4= $13.4 mln/yr Line 2 - cellphone cells------87.8 wh/yr x $2/wh x .75 x .4 = $50.9mln/yr -------------------------------total $64.3 mln/21.7 mln sh = 2.96 or $3/sh/yr After experience with line 2, design for lines 3 and 4 could be finalized simultaneously and both fully-operational by Summer '98 with the first Hanil-Valence lines in Korea. The on-line efficiency should increase. I will use .8. Here is an "if all goes well" scenario ( Ireland plant only) for mid '98. Remember the market is such that there should be no problem selling all that can be produced! Line 1- 50/50 mix including special orders, more setups, shorter runs etc -----------laptop cells--------------22.25wh/yr x .5 x $2/wh x .75 x .4 = $6.7mln/yr -----------cellphone cells------------29.25wh/yr x .5 x $2/wh x .75 x .4 =$8.8mln/yr Line 2-large OEM order cellphone cells---87.8 wh/yr x $2/wh x .8 x .4 = $56.2mln/yr Line 3-large OEM order laptop cells-------81.4wh/yr x $2/wh x .8 x .4 = $52.1mln/yr Line 4-large OEM order cellphone cells---87.8 wh/yr x $2/wh x .8 x .4 = $56.2mln/yr ----------------------------------subtotal---------------------------------$180mln/yr ---operating cost at $1.5mln/mo from conf call---------------------------($18mln/yr) ---Irish govt contribution after $5mln prod shipped ----max $30mln-------$15mln -----addl expenditures for expansion-guess-------------------------------($25mln/yr) ------taxes - Ireland--- wild guess----------------------------------------($20mln) -----net profit (neglecting joint ventures)----------$132mln/21.7mln sh = $6.08/sh/yr Joint venture revenues should show up around mid '98 and there may be more of them well before then. With a conservative multiple or 10, its easy to see why this could easily become a $60 stock, even without joint ventures or 6 more prodution lines in the Ireland plant! Feedback and comments are welcome. Best regards

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