Kandi Technologies Group, Inc. (KNDI) is engaged in the research and development, manufacturing and sales of various vehicle products. Kandi conducts the business primarily through the wholly-owned subsidiaries that operate in China and other global markets. The company has established itself as one of China's leading manufacturers of pure electric vehicle ("EV" or “PEV”) products, EV parts and off-road vehicles.
Strong second quarter
The company had excellent growth in EV parts this year, and sales of electric vehicles have pushed revenues up 37% compared to the same quarter of 2014, even though first quarters are typically the most difficult for the company.
Even so, as a result of a decrease in the fair value of financial derivatives, the net income was $5.8 million less than the net income of the same quarter of 2014. Gross margin was about 13.5% and the company expects gross margin to increase again in Q3 in the range of 13.5% to 14.5%.
Recently,Ă‚ Kandi Electric Vehicles Group, (the "JV Company") the manufacturer of Kandi Brand electric vehicles ("EVs") received prepayment for pure EV sales in 2015.
Forecasts and outlooks
Kandi's sales and revenues have steadily improved since 2011, and as China expects to have 5 million PEVs on highways by the end of 2020, Kandi expects to deliver 400,000 PEVs to Chinese consumers, up from an expected 25,000 for 2015.
All the strong financial results in the second quarter were in line with their expectations, and they expect to start selling their new model K17, Kandi Cyclone in Q3.
Partnerships
ZTE Corporation
In Q2, Kandi signed an agreement with ZTE Corporation, a leading international provider of telecommunications, enterprise and consumer technology solutions for mobile internet, and Zhejiang ZuoZhongYou Electric Vehicle Service, an electric vehicle leasing company that is now 19% owned by the Kandi JV. Under this agreement, Kandi, ZTE and ZZY will combine their expertise and resources to promote the Micro Public Transportation (“MPT”) program with advanced wireless charging technologies. This way, Kandi’s goal to accelerate MPT’s market penetration and to maintain their leadership position will be achieved, and by expanding its market it will have strong growth and profitability and will have greater success in China’s booming EV industry.
Alibaba Group
To enhance the intelligence of EV products, improve user experience and provide a consistent driving experience, they signed an agreement with Alibaba Group(BABA). Under this agreement, Kandi Electric Vehicles customers can use Alipay and Alipay Wallet, a service of Chinese Web giant. The agreement also allows zero deposit for qualified renters with good credit records based on Alipay's proprietary transaction data. They expect to launch the service by the end of November.
Is Kandi a buy?
The company is trading with a P/E(ttm) of 13.14 that is ranked higher than 69% of the other companies in the Global Auto Manufacturers industry, and even though the price has jumped over the past few days, it has dropped by 62% during the last year. This drop is mainly caused by the weak Chinese stock market, and the good news is the financials of the company are still strong with a rating of 7/10, and even profitability and growth has a positive rating of 6/10. Net-margin of 14.17% is outperforming 92% of other companies in the same sector, while the operating margin of 4.96% is low, but has been growing over the last 3 years.
| Operating margin | Ă‚ | Ă‚ | Ă‚ | |
| Ă‚ | 2012 | 2013 | 2014 | TTM |
| Ă‚ | 8.23% | 1.65% | 3.08% | 4.96% |
Operating margin is the only ratio that doesn’t show a strong growth rate, while revenue, gross profit, operating income and earnings per share almost doubled their values.
| Ă‚ | Dec -12 | Dec -13 | Dec -14 | TTM |
| Revenue | 64.2 | 94.5 | 170.2 | 188.8 |
| Gross profit | 12.9 | 21.7 | 23.4 | 24.2 |
| Operating income | 5.3 | 1.6 | 5.2 | 9.4 |
| EPS | 0.20 | -0.61 | 0.29 | 0.60 |
Both the DCF model and the Peter Lynch earnings line give to the company a fair value of about $9, which means the company is undervalued at a current price of $7.70.
Conclusions
The company shows strong growth rate on revenues, earnings and income. In 2014, Kandi announced that its innovative business called “Car-Share Program” had expanded to very big cities such as Shanghai, Chengdu, Nanjing, Guangzhou, Wuhan, Changsha, Changzhou and Rugao with a total of 14,398 Kandi EVs delivered.
The price, despite recent fluctuations, is still dropping and is very weak based on the weakness of the Chinese market. But the business is strong, so the price can bounce back to represent the real value of the company.
The company is not held by any guru, and during the last five years only Steven Cohen (Trades, Portfolio) and Jim Simons (Trades, Portfolio) traded the company.
