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Saturday, September 22, 2007

Harbin Electric (HRBN) quick look

Harbin Electric (HRBN, sec, website). The stock is up to $14 since I last looked at it on April 28, 2006. Q2 results: 16.6 million shares, about 19 million fully diluted. $25 million net cash. Other significant assets are PP&E, advances on equipment purchases, and AR. Around 2/3 equity. $31 million long term debt with a massive $19 million discount. What's up with that?

Revenues up around 44%, although this may be slowing. Over 50% gross margins! 39% operating margins. Huge interest expense just started showing up recently. Debt discount being amortized at $1.1 million per quarter. $757K non-operating income this quarter (not much last quarter). No taxes. This all needs some "color" to know what's going on here.

Cash flow from operations is a bit less than net income due to AR/inventories/advances which is largely offset by the non-cash debt discount amortization. Capex is $861K vs $209K depreciation.

A huge chunk of advances fall into the investment cash flow category.

Here's the cash flow story for 6 months: Operations generated $7 million on $27 million of revenue and $8 million of net income, much of that income was in Q2. Operating assets increased by $4 million. Around $12 million was invested in advances on equipment. $1 million went into a currency hedge deposit which has brought back around $300K in cash. Total cash dropped from $67 million to $63 million.

Very few options/warrant exercised. Very low allowance on AR.

This is worth more investigation if/when it falls below $12 per share. Right now it's about $14, so it doesn't seem cheap enough, although once again, I get a sense that it will do well over the long term. I should really be taking a better look to find new-school-Buffett type stocks that have very good long term characteristics. I really missed out with MTW. I knew it was very solid back in 2000-2002, but "it wasn't cheap enough." Early 2003 was the perfect chance to scoop it up at a low point for a nearly 10-bagger. Damn!

worth following

China microcaps are getting fired up all over

Why don't you grab a little HRBN now and a little at 12 when it gets 'cheap enough'.

Some of this stuff is going up 40% a day...

Finding a solid Chinese stock with real value is hard enough..
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