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Jinpan International Limited: A China Infrastructure and Global Expansion Play

January 12, 2010 | About:
"Jinpan International Limited (JST), a manufacturer of transformers, is the top pick for 2010 from Tracey Ryniec.

The value stock strategist for Zacks.com explains, "The company is positioned to benefit from the trillions of dollars of government stimulus around the world, as much of it is going into infrastructure."

"China has been an investing hotspot for several years. Even the great recession of 2008 and 2009 did little to slow down investor interest as the Chinese government injected massive stimulus into its economy which has propelled growth.

"In 2009, the Shanghai Composite Index surged over 70%, far outperforming the stock markets of the United States and most of Europe.

"Questions abound about whether China is too hot to handle and is a bubble waiting to burst. But I believe investors should look at each company individually, whether it is in China or not.

"While macroeconomic and political issues shouldn't be ignored, some companies will be better suited to ride out any rough patches. One of those companies is Jinpan International, one of only two UL certified cast resin transformer manufacturers in the world.

"While it has its headquarters and manufacturing facilities in China and generates a majority of its business in China, Jinpan is actually an American company held by a British Virgin Islands holding company. It is also not a newbie on the Chinese stage. Jinpan has been in business since 1993.

"The company manufactures medium voltage transformers (10-25 kV.) That doesn't sound too glamorous, but the transformers are used in large infrastructure projects like factories and real estate developments as well as in municipal transportation projects like airports and subway systems.

"Jinpan is positioned to benefit from the trillions of dollars of government stimulus around the world, as much of it is going into infrastructure. International sales have been growing. In the third quarter, sales outside of China rose 40% to $8.1 million and accounted for 18.5% of net sales, up from 13% a year ago.

"International customers were ordering cast resin transformers for wind power applications, along with the more traditional orders for use in airports, subways, and data centers.

"Orders for wind applications were 18% of net sales in the third quarter. The company's recently opened Shanghai manufacturing facility now handles the growing wind energy products business.

"In October 2009, Jinpan expanded in the U.S. opening a New Jersey office and warehouse. Clearly, international sales are key to Jinpan's growth in 2010 and beyond.

"Despite a big jump in the stock in 2009 (what didn't rally in 2009?), Jinpan has attractive valuations. The company is trading at about 13 times forward earnings. It has a low PEG ratio of just 0.64. Analysts polled by Zacks project earnings growth of 42% in 2009 and, so far, just 3.19% in 2010.

"But the company has had two big earnings surprises in the second and third quarters of 2009 so there is reason to think that growth will be much hotter than current projections. Analysts are bullish on the long term outlook, expecting earnings growth to average 20% over the next 5 years.

"Jinpan has an excellent 1-year return on equity of 24.75%. The company also shows its support to shareholders by paying a dividend, unusual for a Chinese-based company, which is yielding about 0.50%."

The Stock Advisors

http://www.thestockadvisors.com

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The Stock Advisors
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