Despite many hours traveling the "back roads" of China to meet with of China BAK Battery (NASDAQ: CBAK), Tony Sagami states, "It was absolutely worth it."
The editor of Asia Stock Alert jests, "In my search for 'the next great opportunity' I have found a company that is helping to power the 'Doodad Revolution'." Here's a look at the lithium ion battery maker.
"The firm manufactures lithium ion batteries for just about every portable electronic doodad you can think of — cell phones, laptop computers, MP3 music players, PDAs, digital cameras, camcorders, and Bluetooth devices — as well as industrial applications such as power tools and miners hats.
"The reasons lithium ion batteries power all those power devices are simple: They offer the best weight-to-energy ratio of any battery and a slow loss of charge when idle.
"Those characteristics make these batteries ideal for any application where weight is an issue, such as portable electronics. That same high energy density characteristic makes lithium ion batteries the best choice for hybrid vehicles ... because when it comes to gas mileage, a car’s biggest enemy is weight.
"In short, China BAK Battery makes the batteries that power the doodads that make up our communications revolution — and demand for lithium-based batteries will continue to rapidly expand.
"From a big picture, long-term perspective, CBAK is in the right business at the right time and its future couldn’t be brighter.
"CBAK’s main competitors are Japanese and South Korean, both of which have substantially higher labor costs. The average wage in Japan is $2,700 a month and $1,500 a month in South Korea. But the average salary for a CBAK factory worker is around $160 a month.
"Equally important is CBAK’s location in Guangdong province, the epicenter of Chinese manufacturing. That proximity gives CBAK another huge advantage over its Japanese and South Korean competition.
"Meanwhile, its laptop production capacity is set to double. CBAK has already been running three shifts and keeping its factory open 24 hours a day. So the only way for the company to meet the heavy demand for laptop batteries is to add more production capacity.
"That’s exactly what was going on. A small army of masons, electricians, carpenters, dry wall installers, and HVAC workers were going gangbusters; that additional capacity is going to translate into more sales and more profits.
"The last person I talked to was CBAK’s Chief Technology Officer, Dr. Mao who noted that the company’s new factory in Tianjin will focus on larger batteries for things like power tools, UPS (uninterruptible power sources) and electric hybrid batteries.
"CBAK’s basic business is already strong. The world loves its electronic doodads and that trend is only going to get bigger. However, the electric hybrid vehicle market is a new one for CBAK — and one that could shoot its profits to the moon.
"I knew before I arrived that CBAK was already working with General Motors on its A123 Systems batteries, a new generation lithium ion battery based on nanotechnology that can produce cars which get 150 MPG.
"But what I didn’t know was that CBAK was also in talks with Japanese automakers. Between Chinese, American and Japanese automakers, CBAK should soon be making a mint from hybrid batteries — on top of its bread-and-butter consumer electronics business.
"The Wall Street crowd expects CBAK to make 29 cent a share of profits in 2008 , which means CBAK is trading for roughly 17 times this year’s earnings. CBAK does, however, have 69 cents per share of cold, hard cash sitting in the bank. If you back out that cash, CBAK is really only selling for 14 times earnings — a bargain in my book."
