Kandi Technologies Group Inc. (KNDI, Financial), headquartered in Jinhua, Zhejiang Province, China, is engaged in the research and development, manufacturing and sales of various vehicle products. Kandi has established itself as one of China's leading manufacturers of pure electric vehicle (EV) products (through its joint venture), EV parts and off-road vehicles. It is involved in designing, developing, manufacturing and commercializing EV, go-karts, all-terrain vehicles (ATVs) and specialized automobile-related products for the People’s Republic of China and global markets.
The company conducts its primary business operations through its wholly owned subsidiary, Zhejiang Kandi Vehicles Co. Ltd. (Kandi Vehicles) and the partial and wholly owned subsidiaries of Kandi Vehicles. As part of its strategic objective to become a leader in the EV market in China, the company focuses on fuel efficient, pure EV parts manufacturing with a particular emphasis on expanding its market share in China.
Its subsidiary, Kandi Vehicles, is nationally recognized as a high-tech enterprise by the Chinese government and is ranked as a top 500 company in the machinery industry in China. It is one of the largest all-terrain vehicle manufacturers in the world. It launched China’s first pure EV way back in August 2008.
China is one of the fastest-growing economies in the world, and Kandi is a hit. It posted impressive revenues during the second quarter and has more room to grow. It is progressing at a stable pace and is a long-term investment. Both sales and gross margin were in line with expectations. With positive operating cash flow of $11.6 million, it is fully prepared for the significant growth potential around the corner.
Strong third quarter
Total revenues increased by 14.3% and were $50.5 million during the third quarter of 2015 (which was $44.2 million during the prior year quarter).
Electric Vehicle parts sales increased by 35.7% and were $49.0 million during the third quarter. Sales were $36.1 million in the prior year quarter.
Kandi Electric Vehicles Group Co. Ltd. (the "JV company") sold 6,004 EV products, a 208% increase compared with the same period last year. Total EV product sales comprised 3,000 EV products through the Micro Public Transportation (MPT) program and 3,004 EV products through the distribution channel under its direct sales program, with the latter being a significant sequential increase of 367.2% over the 643 EV products sold through the distribution channel under the direct sales program in the second quarter.
GAAP net income for the third quarter was $2.3 million, or approximately 5 cents per fully diluted share (which was $13.5 million, or approximately 31 cents per fully diluted share during the prior year quarter).
Non-GAAP adjusted net income, which excludes stock award expenses and changes in the fair value of financial derivatives, was $6.3 million (which marked an increase of 17.7% from $5.4 million in the prior year quarter). Non-GAAP adjusted earnings per share were approximately 13 cents per fully diluted share for the third quarter (which was 12 cents per fully diluted share in the prior year quarter).
Total operating expenses were $9.6 million ($2.9 million in the prior year quarter). The significant increase in total operating expenses was mainly due to the $7.0 million expenses for stock award compensation and $0.5 million in legal expenses in the third quarter of 2015.
Gross margin in the third quarter was 13.5% (15.0% in the prior year quarter). The sequential decrease was the result of the lower-selling price to a strategic partner in the third quarter.
Working capital surplus was $54.2 million as of Sept. 30.
Cash, cash equivalents and restricted cash totaled $27.4 million as of Sept. 30.
Expectations for the fourth quarter
The company expects the following:
- Net revenues to be in the range of $54.0 million to $56.0 million.
- Gross margin to be in the range of 13.5% to 14.5%.
- The company also expects the JV company to deliver 8,000 to 10,000 EV products in the fourth quarter and a total of 20,000 to 22,000 EV products in the full year of 2015.
Strong attributes of the third quarter
- Achievement of excellent growth in EV parts and EV sales.
- Focus on strong operational results.
- Improvement of environmental conditions.
- Focus on easing traffic congestion and energy crisis.
- Successful launch of direct sales initiative this quarter.
- Multiple expansion initiatives to satisfy municipal and consumer demand.
Focus at the moment
- Continued strong cost savings.
- Free cash flow productivity.
- Product innovation.
- Improvement in top-line growth.
- Operating.
- Profit margin expansion.
- Sales growth.
On a concluding note
With a market capitalization of $423.4 million, the company is favorably positioned in the industry. It is the leading pure EV products provider in China. Its Micro Public Transportation Program takes advantage of Kandi’s existing EV products, technology and infrastructure and further stimulates the expansion of the EV markets to urban communities.
The company is currently focusing on efficiency, and this is going to fuel its future growth. It is constantly concentrating on emerging markets where it has tremendous potential in store. This company is a buy.
Disclosure: I do not hold any position in the company.
