A-Power (Nasdaq:APWR) Reports Modest Results for Q2, We See Opportunity on Weakness
Aug 25, 2008
Author: SCP Editor
August 25, 2008 – A-Power (Nasdaq:APWR) reported Q2 results this morning, with net income of $6.2 million, an increase of 3% Y/Y, on revenue of $65.7 million, up from $54.1 million last year. Management reaffirmed earnings guidance of $35 to $45 million. The stock is trading lower this morning on the news, and we see this as an opportunity to accumulate stock in a company that is, in our opinion, carving out a leadership position in the burgeoning China wind energy market.
Other Highlights
· Cash position of $91.2 million as of June, 30, 2008, up from $35.8 million at December 31, 2007.
· Backlog of $650 million as of August 20, 2008.
· In Q2 received $150 million contract to develop a 300MW distributed power gen system in Thailand.
· Last month signed an MOU for a $300 million 600MW distributed power gen system in Thailand.
At $19.06, and a market cap of $623.3 million, stock is currently trading at a P/S (2007) multiple of 4.09 and at a P/E (2007) multiple of 40.98. We think that, based on the company’s reiterated guidance of 2008 earnings in a range of $35 to $45 million, the stock looks cheap here, trading at 1.45x 2008 revenue. We are assuming a $40 million number for 2008 earnings, and then use this number to back into a topline forecast of $430 million in revenue. This would represent 182% Y/Y topline growth and 163% Y/Y earnings growth.
We think this growth justifies a multiple of 2.5x 2008 sales, which would result in an implied market cap of $1.2 billion, which would yield a stock price of $32.87, and a multiple of 25x 2008 earnings, which would result in an implied market cap of 1 billion, or a stock price of $30.57. On the low end, this represents about 60% to the upside from the current $19.06 level.
To be fair, the stock is selling off this morning because the growth just didn’t look impressive this quarter. But on the other side, management is sticking to its guidance for earnings in the $35 to $45 million range this morning and this implies that the growth will be there for the second half, and that management still feels confident as such. In which case, this is the basis for our conclusion that the weakness in the stock is an opportunity to accumulate, and for our target trading range for the stock in the low $30s.
Previous A-Power Commentary
Important Disclosure: SCPEditor is LONG APWR.