Tuesday, June 23, 2009

Advanced Battery Technologies (ABAT)

AlphaNinja - A LOT going on here over the last few months. Advanced Battery (ABAT) sells polymer lithium-ion (PLI) batteries in China. Growth has been respectable, and they're solidly profitable.

In May, Advanced Battery announced very interesting details of a Chinese company it was acquiring called Wuxi Angell Autocycle Co - from here on out to be called "Wuxi Angell." For starters, the company was already a ABAT client:

"Located in the Wuxi City Economic and Technological Development Zone, Wuxi Zhongqiang was founded in 2002. It develops and manufactures electric vehicles, including electric bikes, agricultural transport vehicles and sport utility e-vehicles. Ancillary products include electronic controls and instrumentation, and assorted plastic products. Wuxi Zhongqiang's electric vehicles use ABAT's high-performance lithium iron phosphate batteries."

"Currently, Wuxi Zhongqiang has 4 production lines within its manufacturing facility, with the capability to expand in response to demand. Wuxi Zhongqiang's production lines manufacture approximately 20 types of vehicles, and each production line has the capability of manufacturing 100 vehicles per day. The area of Wuxi Zhongqiang's manufacturing facility totals 47,837 square meters, of which the R&D division occupies 3,000 square meters. The prices of Wuxi Zhongqiang vehicles range from $427 to $3471 with an average selling price of $957."

Interestingly, while ABAT declined to give guidance for 2009 in their recent earnings release, they issued 3-year guidance for the newly acquired Wuxi ZhongQiang. Purchasing the company while its capacity utilization is at 20% indicates one of a few scanrios -> this is a DUMB purchase, or they are buying at the bottom, potentially from an owner who is suffering financially. Time will tell.

"Wuxi ZhongQiang currently has 4 production lines in operation with production capability of 100 vehicles per day per line. The facility currently operates at lower than 20% of total capacity and expects to achieve its projections by increasing orders and maximizing production efficiency.
For the period of May through December of 2009, the Company believes Wuxi ZhongQiang will contribute revenue of $35.0 million - $37.5 million and gross profit of $9.2 million to $9.7 million.
For 2010, the company believes that growth in domestic and international demand for its products will continue and Wuxi production will reach approximately 2/3 of current capacity, or contribute $55.0 million to $65.0 million revenue, by the end of next year. For 2011, the company expects to utilize at least 80-85% of current capacity."

The company caught my eye today because there is a filing by existing shareholders for about 12million shares -->>note that there's only 58million shares outstanding. ABAT raised money a few weeks ago by offering a slew of warrants in a "Private Placement" orchestrated by Rodman & Renshaw, and now there is a filing for conversion and sale of said warrants, as well as warrants purchased in 2008.

Typically these PIPES (Private Investment in Public Equity) are last-resort financing, orchestrated by 3rd rate i-banks in what some would say a predatory manner. In ABAT's case, however, I'm comforted by a few things. The conversion to common stock takes place at stock prices well above these levels, so when the dilution does happen, it will be higher than here. Secondly, the founder and CEO, Fu Zhiguo, recently purchased 1,000,000 shares of common stock. Not warrants, not some sort of complicated super-voting garbage, but the simple common that you or I can buy alongside him ---->>>>a big plus sign. I'm still curious as to why the company needed to raise money in this fashion, but given the owner's large ownership stake and potentially shrewd acquisition ability, he might be a pretty good steward of the company's capital.

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