Piper Jaffray Sees Upside in China Automotive Systems Despite Delayed 10-K Filing (CAAS)

In a report published earlier today, Piper Jaffray discusses its optimism regarding China Automotive Systems

. It notes that the stock has performed poorly over the past several months, and that CAAS's delayed 10-K filing may have contributed to suspicions of what they refer to as possible “fishy” accounting practices. Nevertheless, Piper Jaffray believes that this may have been a case of overreaction, and states that the official PricewaterhouseCoopers audit due in Q2, should “put these concerns to rest.” Still, CAAS outperformed consensus estimates for Q4 on a number of fronts. Q4 revenues of $100.5m beat Piper Jaffray's estimates of $96.4m and consensus estimates $90m, whereas operating profits of $12.3m slightly beat consensus estimates of $12.1m. This is attributed to the “downward impact of warranty expenses on gross margin”. Management estimates for 2011 sales growth of +20% were in line with Piper Jaffray's, but would result in a higher total due to CAAS beating Q4 estimates. As a result, Piper Jaffray reiterates its “Overweight” rating for CAAS, citing the Big 4 audit in Q2 as a “meaningful and permanent” catalyst. Piper Jaffray believes that the company's fundamentals which include: “a solid management team, a differentiated and technologically advanced product, and a solid growth outlook” should help serve as strong catalysts in pushing the stock up in the near future. Piper Jaffray currently has a $16 price target for CAAS, which is derived from a 12.0x of 2011 EPS estimate. This is lower than the historical average of 13.5x, and CAAS currently has a PE of 9.67x. CAAS is currently trading at $10.79.