Wonder Auto's Profit Up 84% - Analyst Blog

Wonder Auto Technology Inc. (WATG) reported an 84% increase in profit to $11.94 million in the third quarter of 2010 from $6.51 million in the same quarter a year ago. On an earnings per share basis, profit rose to 35 cents from 24 cents in the third quarter of 2009 and the Zacks Consensus Estimate of 22 cents.

The company's profit was favorably impacted by its acquisitions during the quarter and by an organic growth of 18%, despite the fact that July and August experience a slow season in the Chinese automobile market.

Revenues in the quarter appreciated 34% to $78.8 million, driven by strong rise in sales of rods and shafts. Revenues from alternators increased 7% to $22.69 million while that from starters rose 15% to $23.03 million. China continues to be the major source of revenues for alternators and starters, with 97% of sales during the quarter.

Revenues from rods and shafts soared 97% to $9.36 million, driven by a strong $3 million rise in export sales. Revenues from engine valves and tappets rose 11% to $14.33 million due strong domestic sales. Revenues from airbags and pretensioners totaled $9.4 million during the quarter.

Revenues from China grew 35% to $71 million, while revenues generated from outside China went up 24.5% to $7.9 million. These were attributable to higher sales volume during the quarter.

Gross profit surged 48% to $20.7 million (26.2%) from $14 million (23.7% of sales) in the third quarter of 2010. This was attributable to a decline in the cost of revenues as a percentage of sales to 74% from 76% a year ago, driven by improved gross margin from engine valves and tappets as a result of higher sales to the heavy duty engine sector.

As of March 31, 2010, Wonder Auto had $60.58 million in cash and cash equivalents compared with $82.41 million at the end of December last year. Secured borrowings were $139.29 million compared with $77.99 million as of December 31, 2009.

In the first nine months of 2010, the company had a net cash flow of $5.4 million from operating activities, a decline from $11.11 million a year ago, despite an improvement in income.

The decrease in cash flow was attributable to many factors, including a fall in deferred taxes, reductions in gain on disposal of investment in a non-consolidated affiliate and in equity in net income of non-consolidated affiliates, a decline in trade receivables and an increase in trade payables. Capital expenditures increased to $14.66 million from $6.46 million in the comparable period of 2009.

Wonder Auto Technology, a Zacks #2 Rank (Buy) stock, designs, develops, manufactures and sells automotive alternators, starters and suspension products through its Chinese subsidiaries. The company has set up long-term business relationships with more than 50 automobile and engine manufacturers in China. It also sells to foreign customers, accounting for about 10% of the total sales.