Harbin Electric Inc.

Company Description

Harbin Electric is a Chinese manufacturer of electric motors, including linear motors, automobile specialty micro-motors and industrial rotary motors. It operates 3 manufacturing facilities in China but has both domestic and international customers.

Acquired Xi'an Simo Motor Group

On Oct 19, the company announced that its subsidiary had completed the acquisition of Xi'an Simo Motor Inc., a rival Chinese electric motor manufacturer with a specialty in industrial rotary motors. Xi'an employs 2,000 people.

Harbin agreed to pay a purchase price equal to no less than 6 times and no more than 8 times the 2008 audited net profits of Simo Motors.

2009 Zacks Consensus Estimate Climbs

Harbin is expected to report third quarter results on Nov 10. Ahead of the number, the third quarter Zacks Consensus Estimate has been holding firm at 31 cents over the last 60 days.

The 2009 Zacks Consensus has jumped 11.3% to $1.28 per share over the last month. Analysts are also bullish on 2010, projecting a 30.98% increase in EPS to $1.67.

Revenue Jumped 60% in the Second Quarter

Despite the continued slowdown in North America in the second quarter, which is where Harbin has the majority of its international business, the company still surprised on the Zacks Consensus Estimate by 22.22%. Earnings per share were 33 cents compared to the Zacks Consensus of 27 cents.

Revenue climbed to $38.36 million from $23.96 million in the second quarter of 2008. Revenue also climbed 25% from the first quarter of 2009.

The company is getting a boost from the Chinese stimulus which helped fuel strong sales of industrial rotary motors. It also received a $1.17 million grant from the Chinese government to support its linear motor driven subway train project.

Value Fundamentals

Harbin Electric is a Zacks #1 Rank (strong buy) stock. It has attractive value fundamentals with a forward P/E of 14 and a price-to-book ratio of 2.34. The company has an tremendous 5-year average return to equity (ROE) of 33.30%.