Autochina Intl (PINK:AUTC)

Rodman and Renshaw on AUTC                         7/01/2011

AUTC: Rating Under Review

20-F Annual Report Deadline Missed: SEC requires foreign issuers to file their 20-F within six months of their fiscal year end. For AUTC this would imply a June 30, 2011 deadline for year ending on December 31, 2010. The company has missed this deadline, and announced that it will file a form 12b-25 for an extension. Management has attributed this delay to a dispute on the accounting treatment over the company’s earn-out shares. Press release also stated that the company is seeking guidance from Office of the Chief Accountant (OCA) of SEC, and potentially have to restate its 2009 historical financial statements. Additionally management discloses that the company is currently under an investigation conducted by SEC, and management is fully cooperating with SEC in providing information needed. Given the company’s inability to file its 20-F in a timely manner we are removing our financial projections for AUTC and putting our rating on the company Under Review from our prior Market Perform rating. We will revisit our rating upon receiving further clarity / updates from management and SEC.

Company Description: AutoChina International Limited (Nasdaq: AUTC) is a commercial vehicle sales and leasing company in China that primarily operates through its wholly owned subsidiary, AutoChina Group Inc. (ACG). The company completed the sale of its automobile dealership business for a total cash consideration of $68.8 MM on December 14, 2009. AUTC has been focused on expanding its commercial vehicle financing network and value added services across China. According to the company’s SEC filing and press releases, as of March 31, 2011, the company owns and operates a total of 318 commercial vehicle leasing centers in China. In 2010, AutoChina leased 12,561 units of trucks, a 66.1% increase from a year before.

Risks: a) Availability of finance, b) Risk associated with conducting business in China, c) Highly competitive nature of automotive sales and services industry, d) Risk associated with prevailing economic conditions, and e) Failure in expanding commercial vehicle financing center. f) Uncertainties around SEC investigation. g) Delay in 20-F filing and a potential restatement.

Notice Regarding Privacy and Confidentiality:


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman and Renshaw on AUTC                        6/29/2011

AUTC: Approaching 20-F Deadline

20-F Deadline: The deadline for AUTC to submit its annual filing for 2010 with the SEC is June 30, 2011. Management during its 1Q11 earnings conference call held on June 6, 2011 had indicated that the company was working towards meeting the filing deadline in a timely manner. We believe investors following the story are focused on this deadline as an important catalyst. In the current environment of heightened investor scrutiny towards small cap China names any development resulting in an untimely filing event could have a material negative impact on the stock.

Valuation: At current levels the stock is trading at ~13.6x to our FY11 earnings estimate, compared to an average forward FY11 P/E multiple of ~24.4x for similar companies listed in China and ~19.0x for the peer group listed in the US. The company’s growth strategy remains aggressive, which in our opinion requires substantial funding support. We maintain our Market Perform rating.


Notice Regarding Privacy and Confidentiality:


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman and Renshaw on AUTC                            6/7/2011

AUTC: 1Q11 Earnings Update

1Q11 Earnings: AUTC reported 1Q11 revenue and net income of $136.2 MM and $10.0 MM, with diluted EPS of $0.50, beating our expectations of $125.1 MM, $8.2 MM, and $0.37, respectively. Top-line grew by 12.8% Y-o-Y, while gross profit grew higher to $23.2 MM or 17.1% in gross margin, compared to $15.9 MM or 13.1% in 1Q10 and $24.9 MM or 16.0% in 4Q10. Net Income (from continuing operations) was $10.0 MM, compared to $6.2 MM in 1Q10. This yielded a diluted EPS of $0.50 given 20.1 MM diluted share count, compared to $0.33 in 1Q10.

Revenue Breakdown: During the quarter, commercial vehicle leasing and value-added services each contributed $116.6 MM and $19.6 MM in revenue, growing 5.0% and 103.9% y-o-y respectively. In commercial vehicle leasing segment, the company leased a total of 2,559 units of heavy trucks from its 318 stores across the country, resulting approximately 8.0 trucks per store and an average selling price of $45,581.

Blended Margins Continued to Improve: Overall gross profit reached $23.2 MM, a 46.6% y-o-y increase from 1Q10, representing a 17.1% gross margin, compared to 13.1% in 1Q10 and 16.0% in 4Q10. The continued margin improvement was primarily attributable to the contribution from higher-margin Services segment. Commercial vehicle leasing, the core business, in fact generated lower gross margin of 3.1% for the quarter compared to 5.6% a year ago and 3.8% in last quarter.

Used Vehicle Sales-Leaseback Program: AUTC announced that it has officially launched Used Vehicle Sales-Leaseback program, which the company has been trying since September 2010. The program allows truck owners to sell the vehicle to AUTC for cash and AUTC leases them to customers who seek cheaper leasing solutions. This enables the company to leverage its current store network to further diversify its service portfolio and penetrate in commercial vehicle market.

Guidance Reiterated: Management reiterated its FY11 financial guidance of $900 MM ~ $950 MM for top-line and $52 MM ~ $57 MM for bottom-line. Margin outlook remains positive with gross margin expectation around 15%~20% for the year. Management also indicated that it expects to timely file its 20-F by June 30, 2011.

Our Estimates: For 2Q11, we are now projecting $254.0 MM for revenue, $35.5 MM for gross profit, $12.2 MM for net income, and $0.53 for diluted EPS. Our full year estimates are $927.3 MM for top-line, $55.0 MM for bottom-line, and $2.24 for diluted EPS.

Valuation: At current levels the stock is trading at ~16.0x to our FY11 earnings estimate, compared to an average forward FY11 P/E multiple of ~20.0x for similar companies listed in China and ~18.6x for the peer group listed in the US. The company’s growth strategy remains aggressive, which in our opinion requires substantial funding support. We maintain our Market Perform rating.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman and Renshaw on AUTC                        5/05/2011

AUTC: 1Q11 Lease Numbers Lower Than Expected

1Q11 Lease Numbers Lower Than Expected: AUTC released its 1Q11 numbers for leased trucks and new store openings. The company opened a total of 18 new leasing stores during the quarter, and sold/leased 2,559 trucks. As per the announcement the company is now operating a total of 318 stores. This averages to 8 trucks leased per store during the quarter, compared to 180 total store numbers and 13.9 trucks leased per store in 1Q10, and 300 stores and 10.3 trucks per store in 4Q10. The company’s truck leases came in lower than our expectations; we were expecting 15 new store openings in 1Q11 with an average of 10 trucks per store, and a total of 3,150 trucks leased during the quarter.

Potential Headwinds: We believe this lower-than-expected truck leases for 1Q may partially be attributed to seasonality. However, we cannot overlook potential negative catalysts such as higher fuel costs and continued domestic tightening leading to a weaker demand for heavy trucks. NDRC raised gasoline and diesel prices three times by a total of 10% plus over the past 6 months amid severe inflation pressure in China. Truck drivers have been suffering from the rising fuel cost and lower profit in transportation leading to the recent unrest in Shanghai. We believe that pressure on drivers’ income and affordability may weigh on their willingness to enter the market. Additionally a tightening credit policy from PBOC may impose uncertainties on lessee’s interest cost and default rate, which may potentially negatively impact the company’s profit margin and cash collection.

Revising 1Q11 Expectations: Based on the new update, we are now revising our 1Q11 revenue projection from $136.9 MM to $125.1 MM. Our net income and diluted EPS expectations are now $8.2 MM and $0.37 per share, compared to our previous projections of $8.3 MM and $0.38 per share. Our revised full year projections for revenue, net income, and diluted EPS are $922.1 MM, $55.3 MM, and $2.20 per share, respectively, still in line with the company’s previously issued guidance of $900 MM~$950 MM for top-line and $52 MM~$57 MM for bottom-line.

Management Maintains Annual Guidance Management maintained their annual guidance of 20,000 truck leases in 2011. We will wait for the company’s quarterly conference call before making any changes to our annual expectations.

Maintain Market Perform Rating: At current levels the stock is trading at ~12.8x to our FY11 earnings estimate, compared to an average forward FY11 P/E multiple of ~16.6x for similar companies listed in China and ~22.1x for the peer group listed in the US. The company’s growth strategy remains aggressive, which in our opinion requires substantial funding support. We believe management is working on addressing this aspect of the story but so far the company has provided limited clarity on what options they will pursue. We maintain our Market Perform rating.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman abs Renshaw on AUTC                                        3/25/2011

AUTC: 4Q10 Earnings Update; FY11 Guidance Strong

4Q10 Results: AUTC reported 4Q10 revenue and net income of $155.8 MM and $10.9 MM, with diluted EPS of $0.54, beating our expectations of $150.2 MM, $8.6 MM, and $0.43, respectively. Top-line grew by 3.8% Y-o-Y, while gross profit stood at $24.9 MM or 16.0% gross margin, compared to $16.4 MM or 10.9% in 4Q09 and $22.9 MM or 15.9% in 3Q10. Net income (from continuing operations) was $10.9 MM, compared to $8.3 MM in 4Q09. This led to a diluted EPS of $0.54 given 20.1 MM diluted share count, compared to $0.47 in 3Q10.

3,076 Trucks Leased in 4Q, 28 Defaults: AUTC announced opening a total of 82 new leasing stores and leasing 3,076 trucks during 4Q10, compared to our expectations of 57 new stores and 3,575 trucks leased for the quarter. Per store truck leases for 4Q10 were ~10 trucks compared to ~13 in 3Q10.

Higher OpEx: During 4Q10, the company spent $2.5 MM in selling expenses and $5.9 MM in G&A, accounting for 1.6% and 3.8% of total quarterly revenue. This percentage compares to 0.9% and 1.9% of revenue in 4Q09 and 0.9% and 3.2% of revenue in the last quarter. The increased spending in operating expenses was primarily due to the fast expansion of AUTC’s leasing locations and associated headcount expenses.

FY11 Guidance: Management expects 20,000 vehicles to be leased in 2011, with a total of 500 stores under operation by the year end. According to this, the company is guiding for revenue and net income of $900 MM~$950 MM and $52 MM~$57 MM.

Revising Estimates: We are revising our estimates according to the updated financial guidance. For 1Q11, we now expect the company to generate revenue, net income, and diluted EPS of $150.8 MM, $8.3 MM, and $0.38. 1Q should be slow due to the holiday season in China, and we expect commercial vehicle market to pick up substantially in 2Q. For full year FY11, our projections are $930.1 MM, $55.4 MM, and $2.21, respectively. Our assumption for Vehicles Leased Per Store is approximately ~38 trucks/yr, compared to ~42 trucks/year/store in FY10.

Maintain Market Perform Rating: At current levels the stock is trading at ~16.0x to our FY11 earnings estimate, compared to an average forward FY11 P/E multiple of ~20.0x for similar companies listed in China and ~18.6x for the peer group listed in the US. The company’s growth strategy remains aggressive, which in our opinion requires substantial funding support. We believe management is working on addressing this aspect of the story but so far the company has provided limited clarity on what options they will pursue. We maintain our Market Perform rating.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman and Renshaw on  AUTC                                                  3/11/2011

AUTC: Revising Rating To Market Perform

Valuation Driven Ratings Change: We are revising our rating on AUTC from Market Outperform to Market Perform. This is a valuation driven ratings revision. AUTC stock closed at $39.50 yesterday up ~6.5% above our previous price target of $37.00 and almost 100% higher than its recent $20 lows. At our $37.00 price target we had been assigning the company a ~17.5x P/E multiple relative to our 2011 earnings estimates. This compared to peer group average FY11 P/E multiples of 17.1x and 11.6x for companies trading in China and the US. Our relatively higher multiple was driven by the company’s unique position and rapid growth in China. At current levels we are comfortable moving to a Market Perform rating. We will be looking to 4Q10 earnings conference call (scheduled for March 24, 2010) for 2011 guidance. We will revisit our rating on any material upside to our estimates.

Recent Volatility: AUTC has come under scrutiny recently where short interests have challenged AUTC’s business fundamentals, including the company’s (1) capital leasing accounting treatment (2) ownership structure (3) related party loans (4) dilutive earn-out provisions (5) management background. The volatility in the stock increased substantially as the shorts and management publicly issued rebuttals.

We believe management provided timely and adequate response to the issues raised. In our opinion, all the issues raised have been available for the market’s scrutiny since the SPAC was executed. We believe there now is clarity and confidence surrounding accounting treatment of revenues and earnings and expectations regarding potential dilution from future earn outs (the company cancelled its earn out provision post 2011). The corporate structure and management background / history will continue to remain a part of the AUTC story and investors will have to decide how to weigh these aspects from a risk perspective. However, one issue that we have highlighted in the past and management will have to provide clarity / visibility on is the funding aspect for the next phase of growth. We believe the company is cognizant of this and should be working on formulating a sound strategy.

Company Description: AutoChina International Limited (AUTC) is a leading commercial vehicle sales and leasing company in China that primarily operates through its wholly owned subsidiary, AutoChina Group Inc. (ACG). The company completed the sale of its automobile dealership business for a total cash consideration of $68.8 MM on December 14, 2009. AUTC has been rapidly expanding its commercial vehicle financing network. Since the launch of its commercial sales and leasing business in March 2008, the company has leased over 12,561 trucks. As of December 31, 2010, AUTC owns and runs 300 sales & leasing branches in China, with 143 new branches newly opened in FY2010.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman and Renshaw on AUTC                                                        02/16/2011

AUTC: Earn-out Provision To Be Cancelled After 2011

Recap of Recent Developments: AUTC has come under scrutiny recently. An article published by a short seller challenging AUTC’s business fundamentals, including (1) capital leasing accounting treatment (2) ownership structure (3) related party loans (4) dilutive earn-out provisions (5) management background. The volatility in the stock increased substantially as the shorts and management publicly issued rebuttals. 

Minimizing Dilution: AUTC announced that it will cancel its earn-out provision after 2011, thus eliminating the associated dilution risk for current shareholders. Also, the current 2010 and 2011 earn-out conditions have been revised from a minimum of 30% y-o-y EBITDA growth to 70% in order for additional share issuance. The earn-out agreement was initially signed in April 2009 based upon AutoChina’s SPAC transaction, and the company was required to issue up to 20% more shares each year through 2013 to Chairman and CEO, Mr. Yonghui Li if the company achieves the EBITDA growth. 

Key Takeaways: We believe management has provided timely and adequate response to the issues raised. In our opinion, all the issues raised have been available for the market’s scrutiny since the SPAC was executed. We believe there now is clarity and confidence surrounding accounting treatment of revenues and earnings and expectations regarding potential dilution from future earn outs. The corporate structure and management background / history will continue to remain a part of the AUTC story and investors will have to decide how to weigh these aspects from a risk perspective. However, one issue that we have highlighted in the past and management will have to provide clarity / visibility on is the funding aspect for the next phase of growth. We believe the company is cognizant of this and should be working on formulating a sound strategy. 

Valuation: At current levels the stock is trading at ~12.4x and ~10.7x to our FY10 and FY11 earnings estimate, compared to an average forward FY11 P/E multiple of ~17.3x for similar companies listed in China and ~16.1x for the peer group listed in the US. We believe AUTC should command a multiple that is at a minimum in line with industry averages given the growth in its business and its leading position in the commercial auto financing market in China. We are maintaining our price target of $37, which translates to P/E of ~19.8x and ~19.6x to our FY10 and FY11 EPS estimates.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman and Renshaw on  AUTC             01/26/2011

AUTC: 4Q10 Preview 

12,561 Trucks Leased in 2010: AUTC announced opening a total of 82 new leasing stores and leasing 3,076 trucks during 4Q10, compared to our expectations of 57 new stores and 3,575 trucks leased for the quarter. Per store truck leases for 4Q10 were ~10 trucks compared to ~13 in 3Q10. On a full year basis, the company leased a total of 12,561 vehicles in FY10, with 300 leasing branches under operation, reaching its goal of 12,000~13,000 trucks leased and 275 stores by year end 2010. This compares to 7,564 trucks leased and 157 stores for FY09.

Another Robust Year For Chinese Auto Market: The Chinese auto sector ended the year of 2010 with total production and sales volume of 18.3 MM and 18.1 MM units, representing Y-o-Y growth of 32.44% and 32.37%, respectively, making China the largest auto market globally again. Passenger Vehicles recorded production and sales volume of 13.90 MM and 13.76 MM for the year, growing by 33.8% and 33.2% from 2009, while Commercial Vehicles registered 4.4 MM and 4.3 MM units of production and sales, implying Y-o-Y growth of 28.2% and 29.9%, respectively.

Heavy Truck Sales Growth Outperformed Overall Market: In 2010 despite concerns about possible slowdown in China’s overall economy and construction activity the growth in heavy truck sector still outperformed the commercial vehicle market. In 2010, heavy truck sales reached 1.01 MM units, growing by 59.9% from 2009, compared to 3.86 MM units and 30.5% y-o-y growth in total truck sales and 4.3 MM units and 29.9% y-o-y growth in overall commercial vehicle market.

Cautiously Optimistic On Heavy Truck Market in 2011: As Chinese policy makers try to find a balance between fighting inflation and maintaining growth, interest rates could move around, therefore potentially adding some level of pressure on heavy truck leasing market. We will be looking for growth of heavy truck sales volume for 2011 to come in at a healthy 25%~30% range, still outperforming the overall auto sales volume of 10%~15% range, given continued expansion in road and highway coverage including rural areas and inter-city / province connections. The company’s recently added leasing stores should also provide support for growth in 2011.

4Q10 Preview: We have adjusted our 4Q10 financial projections to reflect the company’s recent update. For 4Q10 we now expect revenue, net income, and diluted EPS of $150.2 MM, $8.6 MM, and $0.43. For FY11, our estimates are $803.9 MM, $48.7 MM, and $2.12, respectively.

Valuation: At current levels the stock is trading at ~15.3x and ~12.9x to our FY10 and FY11 earnings estimate, compared to an average forward FY11 P/E multiple of ~15.5x for similar companies listed in China and ~17.1x for the peer group listed in the US. We believe AUTC should command a multiple that is in line with industry averages given the growth in its business and its leading position in the commercial auto financing market in China. We are maintaining our price target of $37, which translates to P/E of ~19.8x and ~19.6x to our FY10 and FY11 EPS estimates.


Notice Regarding Privacy and Confidentiality:


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Rodman & Renshaw on AUTC                                                     11/30/2010

Overview: AUTC reported 3Q10 revenue and net income of $143.5 MM and $9.5 MM, with diluted EPS of $0.47, compared to our expectations of $174.1 MM, $12.3 MM, and $0.61, respectively. Top-line grew by 41.4% Y-o-Y, while gross profit stood at $22.9 MM or 15.9% gross margin, compared to $10.3 MM or 10.1% in 3Q09 and $23.1 MM or 11.5% in 2Q10. Net income was $9.5 MM, compared to $7.0 MM in 3Q09. Diluted EPS was $0.47, compared to $0.60 in 3Q09 and $0.54 in 2Q10. The company ended the quarter with $27.8 MM in cash while accounts receivable and inventory stood at $16.8 MM and $0.8 MM. Deposits for inventory, including related parties, were $38.7 MM. Working capital as of September 30, 2010 was $99.5 MM, and short-term loan increased to $126.1 MM.

CITIC Trust Securitization Program: The company has engaged CITIC Trust to sell its truck leases through an investment trust products to investors for up to 60 MM RMB (~$9.1 MM) per month, which bears an annual interest rate of 9%. Management indicated that the current leasing contracts generate ~24% in IRR, and this securitization program will leave AUTC a ~15% spread. We believe this is a positive step for the company to secure external funding and reduce the liquidity risk while limiting potential dilution.

Share Buyback Execution: During the quarter AUTC executed its share repurchase program by buying back 27,000 shares of common stock for a total of $689,000. The program is expected to expire on February 2, 2010, and management expects to continue to execute on this front under the regulation rules.

Lowered Net Income Guidance: Management maintained its revenue guidance for FY10 at the range of $600 MM ~$650 MM, but lowered its net income guidance to the range of $34 MM ~$38 MM, from previously announced $42 MM ~$47 MM. This change was primarily due to an increase in down payments, which squeezed the margin charged on each lease.

Our Estimates: For 4Q10, we expect revenue and net income of $174.6 MM and $10.5 MM, with diluted EPS of $0.52. This implies full year revenue, net income, and EPS of $640.4 MM, $37.1 MM, and $1.87. For FY11, our estimates are now $721.8 MM, $43.5 MM, and $1.89, respectively.

Valuation: At current levels the stock is trading at ~13.4x and ~13.3x to our FY10 and FY11 earnings estimate, compared to an average forward FY11 P/E multiple of ~17.0x for similar companies listed in China and ~14.7x for the peer group listed in the US. We believe AUTC should command a multiple that is at a minimum close to industry averages given the growth in its business and its leading position in the commercial auto financing market in China. We are lowering our price target from $45 to $37, given that we are factoring in higher interest expenses for 2011 and assigning a valuation multiple that better reflects current industry averages. With the new price target of $37, the stock would trade at ~19.8x and ~19.6x to our FY10 and FY11 EPS estimates.


Notice Regarding Privacy and Confidentiality:


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Overview: AUTC reported 2Q10 revenue and net income of $201.5 MM and $10.9 MM, with diluted EPS of $0.54, compared to our expectations of $187.0 MM, $10.1 MM, and $0.54, respectively. Top-line grew by 219.7% Y-o-Y and 66.9% sequentially. Gross profit stood at $23.1 MM or 11.5% gross margin, compared to $4.8 MM or 7.6% in 2Q09 and $15.9 MM or 13.1% in 1Q10. The company generated $18.0 MM in operating income, implying an EBIT margin of 8.9%, higher than $3.3 MM in 2Q09 and $11.4 MM in 1Q10. Net income was $10.9 MM, compared to $3.79 MM in 2Q09. Diluted EPS was $0.54, compared to $0.38 in 2Q09 and $0.33 in 1Q10. The company ended the quarter with $30.5 MM in cash while accounts receivable and inventory stood at $3.5 MM and $0.6 MM. Deposits for inventory, including related parties, were $74.3 MM. Working capital as of June 30, 2010 was $55.2 MM, and short-term loan increased to $76.8 MM.

2Q Demand Strong; But Sees Modest Slowdown in 2H10: Due to a tightening credit policy in China aiming to rein the property market, we expect the growth in construction related transportation sector may moderate in 2H10. According to data released by China Automotive Technology Research Center, from January to July 2010, China’s total automobile production volume and sales volume reached 9.7 MM units and 8.2 MM units, implying a Y-o-Y growth of 39.4% and 28.6%, respectively. Industry average inventory days outstanding has been trending up since early this year, in July passenger vehicle inventory days outstanding was 60 days in average, up from June’s 57 days, while commercial vehicle inventory days outstanding grew from 49 days to 50 days in July. We believe this is signaling a slower sales growth for 2H10.

Raising Revenue Guidance: Management raised its full year revenue guidance to $600 MM~$650 MM from previously announced $550 MM~$600 MM and reiterated its net income guidance of $42 MM~$47 MM. Total vehicles leased are expected to reach 12,000~13,000 units, compared to the prior goal of 12,000 units.

Our Estimates: For 3Q10, we now expect $174.1 MM in revenue and $12.3 MM in net income, with diluted EPS of $0.61. For full year FY10, our estimates are $684.4 MM in top-line, $44.3 MM in bottom-line, and $2.21 in diluted EPS. We believe the guidance announced by management could still be proved conservative as the company has been consistently beating our expectations.

Valuation: Maintain Outperform Rating and $45 PT

At current levels the stock is trading at ~12.9x to our FY10 earnings estimate, compared to an average forward P/E multiple of ~21x for similar companies listed in China and ~15.5x for the peer group listed in the US. We believe AUTC should command a premium given the growth in its business and its leading position in the commercial auto financing market in China. We maintain our Outperform rating and price target of $45, which translates into ~20x to our FY10 EPS estimate.

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