CBAK, HPJ and CSGH: Three Chinese Battery Stocks at 52 Week Lows

Yesterday, I wrote about Altair Nanotechnologies (NASDAQ: ALTI), Advanced Battery Technologies, Inc. (NASDAQ: ABAT) and Ener1, Inc. (NASDAQ: HEV), three small cap clean tech battery stocks that also had fuel cell exposure while today I want to mention three Chinese battery stocks: China BAK Battery (NASDAQ: CBAK), Hong Kong Highpower Technology (NASDAQ: HPJ) and China Sun Group High Tech Company (OTC: CSGH). It should be noted that while operating in China means lower labor costs, Chinese battery stocks like CBAK, HPJ and CSGH are still facing headwinds from rising commodity prices, tough competition in certain battery market segments and exchange rate adjustments. Hence, they are all trading at 52 week lows. Nevertheless and with batteries being such an important part of our life right now, its still worth taking a closer look at CBAK, HPJ and CSGH:

• China BAK Battery (NASDAQ: CBAK) is a Chinese manufacturer of lithium-based battery cells that are components of batteries used for mobile phones and other consumer electronics devices as well as hybrid electric vehicles. For fiscal 2Q2011, China BAK Battery saw net revenues fall $26.5% from $63.5 million last quarter and down 7.4% from $50.4 million for fiscal 2Q2010 – partially due to seasonality and the Chinese New Year, aggressive competition and falling prices. In addition, CBAK reported a net loss of $4.1 million compared to net loss of $3.7 million for the previous quarter and a net loss of $2.5 million for the same period last year. Nevertheless, China BAK Battery ended the quarter with $25.6 million in cash and cash equivalents and noted that it has secured a new contract to supply lithium-ion high-power batteries to XDS Shenzhen Xidesheng Bicycle Co., Ltd., an electric bike manufacturer. China BAK Battery recently closed at $1.03 and has a 52 week trading range of $1.01 to $2.40 a share.
• Hong Kong Highpower Technology (NASDAQ: HPJ) is a holding company for several subsidiaries that produce various types of batteries, including electric bike batteries. For 1Q2011, Hong Kong Highpower Technology grew net sales by 33.3% from $20.2 million to $27.0 million while the company had a net loss of $0.5 million verses net income of $1.6 million for the same period last year. HPJ noted that their margins were impacted due to substantial increases in the price of raw material, including the price of nickel and rare earth materials, plus they experienced some impact from foreign exchange rate fluctuations. Hence, Hong Kong Highpower Technology reaffirmed net sales of $125 million to $135 million but they have updated their net income guidance to $3.0 million and $4.0 due to volatile commodity prices. Hong Kong Highpower Technology recently closed at $1.79 and has a 52 week trading range of $1.78 to $4.80 a share.
• China Sun Group High-Tech Company (OTC: CSGH) is a Chinese producer of cobaltosic oxide and lithium cobalt oxide which are materials used for lithium ion batteries. For fiscal 3Q2011, China Sun Group High-Tech had revenues increase by 24% from $10.8 million for fiscal 3Q2010 to $13.4 million while net income increased by 21% from $2.20 million to $2.66 million. CSGH noted that they have benefited from rising demand for lithium iron phosphate ("LIP product"), their new higher margin product, as well as a continued demand surge for lithium batteries. China Sun Group High-Tech recently closed at $0.49 and has a 52 week trading range $0.45 to $1.48 a share.

The bottom line: The recent financial results of Chinese battery stocks China BAK Battery (CBAK), Hong Kong Highpower Technology (HPJ) and China Sun Group High Tech Company (CSGH) appear to be all over the map but nevertheless, small cap investors should not rule out an investment in the sector – so long as they do their due diligence on any stock being considered.