ABAT

[stocky]

This puppy rose about 1000% this year, formerly ABAT.OB. But its interesting alt. energy play. Check out the details.

Advanced Battery Technologies, Inc., through its subsidiaries, Heilongjiang ZhongQiang Power-Tech Co., Ltd., engages in the design, manufacture, and marketing of rechargeable polymer lithium-ion (PLI) batteries in the People's Republic of China. Its products include rechargeable PLI batteries for use in consumer products, such as portable computers, personal digital assistants, and cellular telephones. The company markets its products in southeast Asia, primarily in the People's Republic of China, Taiwan, and Japan. Advanced Battery Technologies, Inc. was founded in 1984 and is based in New York, New York.

I dont have any position in the stock.

[stocky]

The company abondend plans to raise finances in US, which explains some selling pressure, also with so much profit on the table, it would be very tempting to leave them. Hope David can dig deep more.

[stocky]

I started a quarter position today. Will wait for a 25% drop on light volume to add another quarter, if the market is not too much jittery. A small holding of this volatile baby, I hope, will not harm. Google, yesterday, showed interest in alternatives by investing in about 40 startups. It was only token but something to keep eye on. I know couple of companies which are based here in LA. But unfortunately they are private and 'well funded' as per their IR.

[David Randolph]

ABAT.OB, I remember watching it rise everyday from the sidelines ... it seems the rise was parabolic and the stock came down to the previous level. Curiously, all this activity can be interpreted just as a "reverse to the mean", as GBT (ABAT moved to the AMEX) came down to touch its long term ascending 200 days SMA.

Technically stocky's timing was perfect.

Let me make a few fundamental tests.

1) First, I'll try to understand the company's business, what's the product?

«Advanced Battery Technologies, Inc., through its subsidiaries, Heilongjiang ZhongQiang Power-Tech Co., Ltd., engages in the design, manufacture, and marketing of rechargeable polymer lithium-ion (PLI) batteries in the People's Republic of China. Its products include rechargeable PLI batteries for use in consumer products, such as portable computers, personal digital assistants, and cellular telephones. The company markets its products in southeast Asia, primarily in the People's Republic of China, Taiwan, and Japan. Advanced Battery Technologies, Inc. was founded in 1984 and is based in New York, New York.»

Ok, I don't know what a "rechargeable polymer lithium-ion (PLI) battery" is. Ok, I get it here and in the company's website.

I enjoy the company's products, especially the solar chargers in the bottom.

Ok, I find the business attractive.

2) Market cap, historical dilution, balance sheet

This part concerns to risk. The market cap is $206 M, so fairly small company. I see heavy dilution between 2004 and 2006, with the # of shares outstanding rising from 12.9 million to 49.6 million. Hmm, but dilution seems to have stopped, since in November 8th, 2007, the company reported it has 49,688,998 shares outstanding, the same as in the end of 2006.

So perhaps as it finally turned profitable it doesn't need more financing, is that it? Before that, the balance sheet looks healthy from a current ratio perspective, since that ratio is 6.5. However I see just $871 K in cash, and that's a red flag. Ok, I was watching the Q2 balance sheet, in Q3 it shows $2.55 M in cash, nice increase.

3) Revenue trend, earnings, valuation

Revenue was $1 M in 2004, $4 M in 2005 and $16 M in 2006. For 2007 I see GBT will sell at least $29 M. So there's very strong revenue growth. And what about EPS? It was ($0.23) in 04,  ($0.01) in 05 and $0.13 in 06. For 07 I expect about $0.25. The earnings multiple is about 18.

The earnings multiple is 18, while the growth rate in earnings is 92% from the year ago levels. This looks attractive.

One issue that worries me though is something I've learned from one of the best analysts I know ... you see, GBT sports a 38% net profit margin. This seems too high. Once I owned CHID.OB and when I asked about it to this fellow partner he said: "they have 25% net profit margin making batteries, which is essentially a commodity. I don't buy it, that company is cooking books". And he was right. I'm afraid GBT can be another CHID.OB.

Conclusion

GBT's price to sales ratio is 7.5. If the company is lying about its profit margins ... the stock may fall a lot. Any clues you guys may have to why the net profit margin is so high can be helpful. With what I know now I don't buy it.

Good luck

[stocky]

I agree with David that margins seem like cooked. Now thats the exact problem with small Chinese companies. Infact all small emerging economies companeis carries greater risk of having cooked books.

[David Randolph]

I agree with David that margins seem like cooked. Now thats the exact problem with small Chinese companies. Infact all small emerging economies companeis carries greater risk of having cooked books.

GBT is down about 12% since I last wrote about it, closing at $3.98 on Monday. The 200 days SMA support currently stands at $3.65.

GBT recently announced a relationship with ZAAP.OB, which reportedly makes electric cars in China:

• ZAP Acquires Exclusive American Distribution From CCT Power for Portable Battery Technologies From Advanced Battery Technologies
Marketwire (Fri, Oct 19)

• New Electric Car Factory Rolls Out First ZAP Xebra(R)
Marketwire (Wed, Oct 24)

ZAAP.OB has been doing poorly, despite being in a "hot sector":



My grandmother says "show me your friends and I'll tell you who you are". It seems GBT is still ABAT.OB, and we know OTCBB's companies habit of diluting shareholders value or cooking books, especially Chinese micro caps.

I really enjoy the "portable energy" idea, but I worry that GBT's financial statements aren't accurate, because the net profit margin of 42% in Q3 2007 is too high.

I'll keep studying GBT from the sidelines.

[David Randolph]

I've been looking to see if GBT had such a product like a solar energy battery charger for laptops, but no. The solar energy battery chargers they have are only for smaller stuff like mobile phones and MP3 players:

Application examples of GBT's products

Still pretty cool applications.

But not enough for me to be a long term investor in the stock, as I fear dilution. I'll be interested in studying the 4th quarter results, though.

Good luck if you own GBT

[David Randolph]

GBT jumped 13.8% in Friday's session and 5% more in after hours trading, due to the following news:

• Advanced Battery Technologies to List on the NASDAQ Capital Market
Marketwire (Fri, Feb 15)

Moving from the AMEX to the Nasdaq Capital Market. This is an important move for a Chinese small cap, because it adds to its credibility, which is usually what lacks them to have a fair valuation.

Good move, but I'm still wary about that 42% net profit margin, which is way too high for a producer of batteries. GBT is not paying any taxes, I wonder how long that will last. 

Moreover, GBT is trading at about 17 times 2007 estimated EPS. I know of Chinese small caps which are growing much faster and trade at about 10 times 2007 EPS.

I'm curious about the 4th quarter results, because that is the strongest quarter from a seasonal standpoint. Good luck if you own GBT

[David Randolph]

GBT is ABAT once again (it was ABAT.OB in the beginning - when the stock was rising ), after moving from the AMEX to the Nasdaq.

After a huge run up in September 2007, ABAT is down 70% or so from the highs:



I wonder if there are any analysts covering the company ... let me check ... nope, none.

As one can read on this thread, I was always wary about ABAT's fat profit margins, they didn't seem credible, or at least, not sustainable. Let me check how were 4th quarter results:

Advanced Battery Technologies Reports Record 2007 Results
Marketwire (Mon, Mar 31)

Hmm, the market probably didn't like two things:

1 - Weak guidance for Q1 2008, on which management blamed seasonality;
2 - As I feared, net profit margin declined abruptly, from 42% in Q3 to about 20% in Q4 2007;

One issue that really surprises me in the 10-KSB is the share count is exactly the same from a year ago (if one trusts the information, many people don't trust Chinese small caps):



Anyway, even though revenue almost doubled, EPS grew "just" 29%. ABAT now trades at $3.02/$0.22 = 13.7 times earnings, which is attractive at first sight.

But technically the stock is bearish now and probably Q1 2008 results will be weak, given guidance.

I'll keep an eye on developments, the sector is attractive, with fuel prices so high and probably going higher, the cars of the future may very well work with electric batteries instead of fuel. It isn't a reality yet, but solar was also a futuristic thing just a few years ago and now there are a bunch of multi-billion dollars solar companies out there.

[Houlahan]

Hi David!
How are you doing...Long time, no talk! Good to see you in the afternoon posting. I know you're busy and it is late. I just wanted to say a be-lated "thank you" for your mini-classes. You have taught so many of us to be better traders. You do a great job walking us through your thought process.
I would have posted sooner, but I am a little lost sometimes of where to post an applaud. Well, applaud David...I love the developments at 3sof.

[setravis]

ABAT - Momentum
http://finance.yahoo.com/q?s=ABAT
Advanced Battery Technologies, Inc., through its subsidiaries, engages in the design, manufacture, and marketing of rechargeable polymer lithium-ion (PLI) batteries.