The China-based auto parts manufacturer Wonder Auto Technology (WATG) has revealed that it expects a robust 61% growth in revenue to $32 million in its engine valve business for the first half of 2010.
This is backed by the expansion of engine valve production capacity by 13 million units in July this year at its subsidiary, Jinan Worldwide Auto-Accessory Limited Company (“Jinan Worldwide”). The increase in production capacity will raise the total annual production capacity of engine valves from 27 million units to 40 million units.
Wonder Auto acquired a 65% interest in Jinan Worldwide, the largest engine valve and tappet manufacturer in China, in October 2008. The acquisition opened up the Chinese diesel engine market for Wonder Auto.
The auto parts maker has witnessed a strong growth in its engine valve business since the acquisition of Jinan. The business saw a 13% rise in sales to $46.58 million in 2009.
Wonder Auto has made meaningful acquisitions over the years. The acquisition of Jinzhou Wanyou Mechanical Parts Company in 2006 diversified the company’s product offerings and expanded export sales.
Furthermore, the acquisitions of Jinzhou Hanhua and Jinzhou Karham in 2008 have reduced the cost of its raw materials and components. This is because Wonder Auto was able to absorb administrative costs without a rise in sales revenue, as both the companies acquired had been its suppliers.
Due to these acquisitions, Wonder Auto achieved about 44% CAGR (compound annual growth rate) in sales revenue for the last 5 years.
In the first quarter of 2010, Wonder Auto reported earnings of $7.4 million or 22 cents per share, exactly meeting the Zacks Consensus Estimate. The earnings were higher compared with $5.2 million or 19 cents per share in the first quarter of 2009.
Revenues in the quarter shot up 59.1% to $63.6 million, driven by a strong demand for the company’s products both inside and outside China. Revenues in China rose 50.7% to $55.7 million, while those outside China increased by 163.7%, to $7.9 million in the quarter.
Revenues from alternators increased 35% to $19.5 million while that from starters rose 51% to $20.1 million in the quarter. China continues to be the major source of revenues for alternators and starters. Revenues from rods and shafts grew 48% to $7.4 million, driven by strong export sales of the products. Revenues from engine valves and tappets shot up 129% to $16.7 million due to strong domestic sales of the products.
Founded in 1996, Wonder Auto Technology is presently China’s second-largest manufacturer of alternators and starters. Its manufacturing facilities are located in Jinzhou, China. Wonder Auto ranks second in both sales revenues and volumes in the Chinese market for alternators and starters.
Wonder Auto has set up long-term original equipment manufacturer (OEM) business relationships with more than 50 automobile and engine manufacturers in China, including exclusive relationships with Beijing Hyundai Motor Company and Dongfeng Yueda Kia Motor Co. as well as the most competitive engine providers such as Shenyang Mitsubishi Aviation Engine Co. and Haerbin Dongan Engine Co. It also sells to foreign customers, accounting for about 10% of the total sales. Most of its exports are to South Korea, Turkey and the U.S.
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