With production facilities covering 1.9 million square feet in Shenzhen in the People's Republic of China, China BAK Battery (Nasdaq: CBAK), which is also known as Shenzhen BAK Battery, is a giant - one of the largest manufacturers of lithium-ion battery cells. These cells are the primary component of rechargeable batteries used in cell phones, notebook computers, MP3 players, and so on. China BAK stock had a gangbusters month in December, posting a 67 percent gain, but roller-coastered down in January, falling more than 26 percent from its December level, with a close of 4.30 dollars per share on Friday. As you might expect for a company so far removed from Wall Street, the price of China BAK stock does not seem strongly correlated to the Nasdaq composite. For example, on December 27, the market took a beating, but China BAK stock rose 19% that day.
A plethora of problems plague China BAK. They have a substantial debt, 143 million dollars, which is almost as big as their annual revenue of 146 million dollars. Even just the interest expense was almost as large as their operating income, both about 5 million dollars, for the 12 months preceding September 30, 2007. China BAK stock is down 27% for the last year, compared to a 6% drop for the S&P 500. China BAK is the low cost alternative in a market sector with rapidly changing technology, and it's questionable whether China BAK can keep pace with stiff competition from companies like Ultralife Batteries Inc. Even they are concerned about uncertainties with respect to the People's Republic of China legal and regulatory environment. And China BAK acknowledges weaknesses in its internal accounting procedures.
On a brighter note, in March 2007 the company announced a breakthrough in developing a miners' lamp battery. As their press release explains, "For their materials unsteady characters, it exist danger at work." We are just happy to find a company that makes more mistakes in their writing than we do here at www.hotstocked.com.
And they have a plan. "We'll penetrate into China energy industry," said China BAK's CEO Mr. Xiangqian Li at the China Mobile Phone Industry Annual Conference for 2007, according to a press release by China BAK. Mr. Li explained, "In the coming few years, our strategy is to transfer our business from the predominantly mobile communication market into hybrid electric vehicles ('HEV'), power tools, laptop computers, etc. Our products will not only be battery cells, but a kind of energy."
If you want to hear more about China BAK (or just want to hear some amusing stilted English), CEO Li will host a conference call at 8:00 pm ET, Thursday January 31, 2008 to discuss the fiscal results for the first quarter of 2008. If you have any questions for Mr. Li, you can call five to 10 minutes prior to that time: (888) 339-2688 or outside America +1 (617) 847-3007. The pass code is 26608786. The conference call will be broadcast live over the Internet at http://www.bak.com.cn and they recommend going to the website at least fifteen minutes prior to the start time.
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