A-Power Shares Find the Wind at Their Back

Posted by OTCBlog at Monday, February 04, 2008 6:30 AM
Categories: Micro & Small-Cap Stock Market Report

MONDAY - FEBRUARY 4, 2008..... Wall Street capped a week of big gains with another sizable advance Friday after investors set aside anxiety over news that the economy lost jobs last month and focused on Microsoft Corp.'s bid for Internet company Yahoo Inc. and a possible rescue plan for the troubled bond insurance sector. The Dow Jones industrial average and the Standard & Poor's 500 index each rose more than 4 percent for the week, their steepest gains since March 2003. Stocks fluctuated at times Friday, however, as investors weighed seemingly contradictory readings on the economy. Wall Street was pleased by Microsoft's $44.6 billion bid for Yahoo. Merger news, which often energizes stocks, has been in short supply for months. But the mix of economic news reminded investors of the continuing fallout from the housing and mortgage crisis. The first blow came from the Labor Department's worrisome employment report for January. The economy lost 17,000 jobs, marking the first contraction of the labor market in more than four years. The news confounded economists, who were expecting 70,000 new jobs, according to Thomson/IFR. The unemployment rate fell to 4.9 percent from 5 percent in December, though the move came as the labor pool shrank. The Commerce Department added to the fray, reporting that construction spending dropped 1.1 percent in December -- the most in 15 months and twice what analysts expected. And rating agency Moody's Investors Service warned on a conference call Friday that it expects to downgrade some bond insurers this month. A top rating is crucial for bond insurers to draw new business and for investors to feel secure about the bonds these companies already insure. Stocks did get some ballast from a report showing a pickup in the nation's manufacturing sector in January. The Institute for Supply Management, a business group, said its index of manufacturing activity rose to 50.7 from 48.4 in December. Wall Street had expected the figure would come in at 47, a reading that would indicate a contraction of the manufacturing sector. "We're starting to see the long-term investors and the fund mangers come back into the market. That's why I think you're seeing stocks rally even when there is negative news," said Marc Pado, U.S. market strategist for Cantor Fitzgerald.

The Dow Jones industrial average rose 92.83, or 0.73 percent, to 12,743.19 after climbing more than 200 points Thursday. Broader stock indicators also moved higher. The Standard & Poor's 500 index rose 16.87, or 1.22 percent, to 1,395.42, and the Nasdaq composite index advanced 23.50, or 0.98 percent, to 2,413.36. For the week, the Dow jumped 536.02 points, or 4.4 percent. The Standard & Poor's 500 index, the market measure most closely followed by professional traders, added 4.9 percent and the Nasdaq composite index rose 3.8 percent. The Russell 2000 index of smaller companies rose 17.20, or 2.41 percent, Friday to 730.50. Advancing issues outnumbered decliners by more than 3 to 1 on the New York Stock Exchange, where consolidated volume came to 4.51 billion shares, compared with 5.22 billion shares traded Thursday. Bond prices slipped in late trading. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.60 percent from 3.59 percent late Thursday. The dollar rose against most other major currencies, while gold prices fell. Light, sweet crude oil fell $2.79 to settle at $88.96 per barrel on the New York Mercantile Exchange after the employment report raised concerns that the U.S. economy will slow and hurt demand for oil. Stocks climbed Friday after a week in which Wall Street saw huge gains but also enormous volatility. The week began with a sharp advance as investors awaited the Federal Reserve's decision on interest rates. Stocks extended their gains Tuesday and on Wednesday the central bank delivered on a widely expected half-point cut in interest rates. But unease about bond insurers short-circuited a rally in stocks after the rate cut. Stocks sold off again early Thursday but performed an about-face to close sharply higher as investors considered the effects of rate cuts and the possibility that the government might orchestrate a rescue for the trouble bond insurance market.

The latest rate cut meant the Fed had slashed rates by an unprecedented 1.25 percent in little more than a week, a move that appeared to largely erase doubts about whether the central bank would step in to assuage investors' fears about the health of the financial sector and, more broadly, of recession. "We expect volatility will remain elevated but will abate slowly because we think some of the recession talk will wane but not go completely off the table," said Nicholas Raich, director of equity research at National City Private Client Group in Cleveland. "There's no certainty and there's no clarity but valuations are cheap so there a lot of bottom-fishers in here looking for bargains," he said, referring to questions investors still have about the health of the financial sector. The week's gains restored some of the huge losses seen in the earliest days of the year. Still, stocks this week finished what was their worst January since 1990. The Standard & Poor's 500 index lost 6.1 percent for the month. Bond insurers showed gains Friday amid word that efforts are moving ahead to aid the troubled bond insurance market, though no proposal was imminent. A person with direct knowledge of discussions between banks and regulators about a possible bailout told The Associated Press that several plans were under consideration, though one that examined each company's needs was the most likely option. The person asked not to be named because he was not authorized to speak publicly. Ambac Financial Group Inc. rose $1.56, or 13 percent, to $13.20, while MBIA Inc. rose 86 cents, or 5.6 percent, to $16.36. In corporate news, Yahoo surged $9.20, or 48 percent, to $28.38, on word of the buyout offer for $31 per share. Yahoo said it would consider the offer. Microsoft, one of the 30 stocks that make up the Dow industrials, fell $2.15, or 6.6 percent, to $30.45. Google Inc. fell $48.40, or 8.6 percent, to $515.90 after reporting its fourth-quarter earnings and revenue growth slowed at a faster pace than Wall Street expected. Motorola Inc. jumped $1.19, or 10 percent, to $12.69 after announcing it is considering selling a sale or spinoff its lackluster mobile phone business. The Dow Jones industrial average ended the week up 536.02, or 4.39 percent, at 12,743.19. The Standard & Poor's 500 index finished up 64.81, or 4.87 percent, at 1,395.42. The Nasdaq composite index ended the week up 87.16, or 3.75 percent, at 2,413.36.

Top Stories

A-Power Shares Find the Wind
at Their Back

A-Power Energy Generation Systems, Ltd. (APWR), formerly Chardan South China Acquisition Corp., through its PRC operating subsidiary, Liaoning GaoKe Energy Group Co., Ltd., is the largest provider of distributed power generation systems in China and will enter into China’s wind energy market in 2008. The Company is also focused on developing and commercializing additional renewable energy technologies and has strategic relationships with both, Tsinghua University and the China Sciences Academy in Guangzhou.

Earlier this week, APWR announced that Liaoning GaoKe Energy entered into an agreement with Norwin A/S of Denmark which gave GaoKe the exclusive right to produce and sell Norwin’s 750 kW and 225 kW wind turbines in China. It was noted that the 750 kW turbine would sell for $460 thousand to $510 thousand and have a gross margin between 8-12%. To secure the rights, GaoKe paid Norwin a $3.5 million licensing fee.

The 2.5 MW wind turbine rights were acquired from Germany-based Fuhrlander AG and, when combined, would create a wind turbine portfolio that would give GaoKe the ability to accommodate the varying wind conditions across China.

To secure these rights, GaoKe agreed to pay Fuhrlander approximately $13.9 million (which covers the license, training and a fixed royalty). Fuhrlander will also receive a minority percentage of the gross profit generated from the sale of the first 100 wind turbine units manufactured by GaoKe.

The sales price of the 2.5MW wind turbine was expected to be between $2.7 million and $3.2 million with 8 to 12% gross margins. GaoKe would have the capacity to produce a maximum of 300 of the 2.5MW wind turbines on an annual basis after the first phase of its wind production facility was completed later this year.

On Friday, the Company announced that GaoKe had received letters of intent for 380 2.5 MW wind turbines which was noted as utilizing all of the anticipated plant capacity through 2009. Along with the letter of intent for the 2.5 MW turbine, the Company noted that they had also received a number of letter of intent for the 750 kW variation.

Assuming the Company finalized all of the 380 LOI’s, they would recognize some $1.12 billion in sales and some $112 million in profits, using average prices and margins but disregarding the $17.4 million in license fees and the LOI’s for the smaller 750kW versions.

In comparison, the Company (formerly Head Dragon Holdings Limited) reported revenue of $38.76 million in the third quarter producing $4.19 million in income. Nine month results displayed revenue of $110.45 million and $11.85 million in income.

Following the announcement, shares gained some 22.78% on over 1.01 million in volume. With the incredible growth the Company expects over the coming months from the sale of these wind turbines in China, it easily becomes one to watch.

Twin Disc Up on
Expanded Buyback Program
Twin Disc, Inc. (TWIN) announced on Friday that the Company has authorized the repurchase of up to 500,000 additional shares, or roughly 4.5 percent of its common stock outstanding. The buyback expands on a previously announced program that had 140,000 shares remaining. Twin Disc gained almost 6% on the news, up $3.21 over Thursday’s close to reach a session high of $59.71. Chairman and CEO Michael Batten stated in Friday’s release, "This is the third stock repurchase program that we have initiated during the last 12 months. We are committed to use our capital in ways that provide the greatest return to our shareholders." Twin Disc designs, manufactures and sells marine and heavy-duty off-highway power transmission equipment. Products offered include marine transmissions, surface drives, propellers and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches and control systems. The Company has posted TTM revenues of $332.7 million with a net margin of 5.29%.

Shares of Outdoor Channel
Holdings Spike 12% on Strong Q3 Results
Shares of Outdoor Channel Holdings, Inc (OUTD) climbed as high as $8.18 in Friday’s intraday after the Company posted strong Q3 results before the market opened today. In Friday’s pre-market release, the Company reported Q3 revenues of $12.66M.-- up almost 12% from last year’s Q3 of $11.31M -- and EPS of 6c, which easily bested last year’s Q3 net loss of (20c). OUTD’s Q3 EPS of 6c also beat Q3 EPS consensus estimate of 3c. Currently, shares of OUTD are up 88c, or more than 12% from yesterday’s close of $7.17 on close to 3x normal trading volume.

Transmeta Moves Past Litigation with
Intel; To Consider Sale To Activist Investor
Trading on Transmeta Corporation (TMTA) was up +3.715% after the company reported the formal dismissal of a patent litigation in which Intel made an initial $150M payment. Transmeta’s lawsuit was orginally announced in October 2006. The complaint charged that Intel had infringed upon Transmeta’s patents by making and selling a variety of microprocessor products including Intel’s Pentium III, Pentium 4, Pentium M, Core and Core 2 product lines. The complaint requested an injunction against Intel’s continuing sales of infringing products as well as monetary damages, including reasonable royalties on infringing products, treble damages and attorneys’ fees. On the same day, Transmeta received a letter from Riley Investments expressing interest to acquire all of the company’s outstanding shares for $15.50 in cash. The bid is higher than today’s opening bid of 13.59000, though lower than the 52 week high of 15.70000. As an activist investor, Riley has been known for an aggressively strategy, as it recently filed a 13D over a proposed merger proposition on January 18, 2008 between Zilog and Universal Electronics, which it tried to forge at $4.50 a share. While Zilog’s decision based on due diligence is pending, Riley Investment previously ran into trouble with the 7% owned Regent Communications Inc, as it became involved in an August lawsuit in connection with a solicitation of requests from Regent shareholders to call a special meeting to amend Regent’s bylaws, and to add four new directors to Regent’s board, nominated by Riley. Transmeta also announced today that it will consider Riley’s offer.

Silicon Motion Facing Positive Outlook
Thanks to FCI Acquisition, Market Trend
Silicon Motion Tech Corporation (SIMO) is a fabless semiconductor company that designs, develops and markets universally compatible, high-performance, low-power semiconductor solutions for the multimedia consumer electronics market. The company’s three major product lines are its mobile storage business, its multimedia SoC business, and its mobile communications business. In November of 2007, the company moved to acquire Future Communications IC, Inc. for $90M, and today, it is reaping the benefits of that deal. At the time of the acquisition, CEO Wallace Kou stated, "We believe Mobile TV represents the next major wave of innovation for the wireless handset industry and we are very excited that FCI will be joining Silicon Motion. Korea, where mobile TV is already well on its way to becoming widely adopted by consumers, is the global market leader in the rollout of mobile TV, and is a test bed for the development of other related cutting-edge advances in mobile handset technologies. This acquisition not only allows us to step into such a favorable environment, it also gives us the opportunity to strengthen our portfolio of solutions for mobile devices, including for multimedia applications. FCI’s Mobile TV tuner solutions are used by many of Korea’s leading handset manufacturers, and are considered among the best in class in terms of size, power and performance. FCI has shipped over 35M units of CDMA transceivers and other front-end, as well as Mobile TV tuners which have been used in over 150 phone models. They also own over 30 patents and pending patents, and their margins are similar to our own." Trading on Silicon Motion was up 10.779% this morning after today’s earnings call in which the company reported a 48% increase in sales and an EPS increase to $0.47, which was in line with the Street’s expectations. In today’s conference call, the company stated that it now has two strong engines of growth thanks to its acquisition of FCI. Going forward, the company anticipates that approximately one-third of its revenue will come from communications, and two-thirds from storage. The FCI acquisition should account for apprimately 25% of 2008 revenues. The company’s mobile tv segment is projected to play a major role in its revenues from communications. In the second half of 2007, mobile TV accounted for 7% of total revenue, a larger percentage than any other listed company Silicon is aware of. It is also well positioned in the Korean market, where it owns one-third of the market share. Launched in 2005, Silicon is now projecting the number of mobile TV users in Korea to double from 7M to 14M by the end of the year. It is believed that Silicon’s acquisition will bolster the company’s ability to bring mobile TV solutions to market faster in accordance with that demand. In 4Q, Silicon reported that Samsung was its largest customer, accounting for over 10% of its overall sales. Although the quarter was atypical of their normal business with Samsung, it stated that their partnership with Samsung is gaining momentum, along with other large customers. In discussing the recent economic slowdown, Silicon is confident that it can take advantage of the market trend. Said Kou, "Starting in 2008, lower density platforms will become more popular because of cheaper and higher density. That is why we believe we will benefit, especially in the downturn of econimics." Full year revenue for 2007 was 70% higher than 2006. The company also notes a three year decline--as it predicted--in the rate of Active Server Page (ASP) erotion from 48% in 2005, to 35% in 2006, to 19% in 2007. According to Kou, this decline is the result of increasing barriers to entry, and the economy of scale is increasing its importance in the flash controller business for three reasons. The first is due to increasing R&D needed to keep up with non flash technology advancements, the second relates to more engineering support needed for partners with product introduction, and the third involves an increasing proliferation of electronic devices using flash cards that need compatibility. Given the rising demands, the company appears to be well positioned for the year ahead.

Today's Headlines

SHARES CONTINUE TRADING DOWN FOLLOWING Q4 REPORT: Shares of Coffee Holdings Company, Incorporated (JVA) were still moving downward in Friday’s intraday trading after the Company announced Q4 results shortly before yesterday’s close. In Thursday’s press release, JVA reported a gain in Q4 revenues with $16.63M vs last year’s $13.46M, but saw a decline in net income posting a net loss of (1c) versus last year’s Q4 of 5c. For the year, JVA reported revenues of $57.42M and EPS of 17c. Both amounts were up from the previous year. Currently, the JVA’s stock price is at $4.15, down more than 5% from yesterday’s close of $4.39.

SHARES JUMP AFTER RELEASING YEAR END RESULTS: Shares of BAB Inc (BABB) jumped more than 11% in Friday’s intraday on light trading after the Company released its Year End results shortly after noon ET. The Company reported revenues of $3,.99M and net income of $1.24M, or 17c. This compared to FY06 revenues of $3.92M and net income of $716K, or 10c. FY07 net income included a $500K deferred tax benefit. Shares of BABB are currently up to 95c after closing at 85c on Thursday. Fifty-two week low for the Company is currently at 80c.

FINALIZES MERGER AGREEMENT: Canadian Blue Gold Inc. (CBGC) announced that it has finalized a Merger Agreement with a leader of the North American water bottling industry. Canadian Blue Gold Management indicated that the Merging Company is well established in the water distribution market both in Canada and the United States. Canadian Blue Gold will disclose further information regarding the transaction upon consent from the respective attorneys and approval by applicable regulatory authorities.

LOWERS REVENUE GUIDANCE: ECO2 Plastics, Inc. (ECOO) announced that the Company is revising downward its Q4 2007 and 2008 revenue projections as it addresses production constraints. Q4 2007 revenue is revised downward from $4,000,000 to $2,300,000 with fiscal year 2007 revenues of $4,300,000 versus prior guidance of $6,000,000. Fiscal year 2008 revenue projections have been revised downward from between $24 and $30 million to $20 million. Due to the lower rates of production in the near term, the Company will continue to run operating losses through Q2 2008 but expects to generate profits from operations for the fiscal year 2008.

ENTERS CO-PROMOTION AGREEMENT: Labopharm Inc. (DDSS) announced that its Canadian licensing and distribution partner for its once-daily tramadol product (Tridural(TM)), Paladin Labs Inc., has entered into a co-promotion agreement for Tridural(TM) with Nycomed Canada Inc. The agreement will double the number of primary care sales representatives promoting Tridural(TM) in Canada.

ENTERS AGREEMENT TO ACQUIRE EXCLUSIVE RIGHTS TO SOFTWARE: Health Partnership Inc., d/b/a Narrow Dynamics (HHPN) announced that it has entered into a binding agreement to acquire the exclusive worldwide licensing rights to all software of KT-Tech, Inc. KT-Tech develops and deploys the most advanced video, audio and image compression technology available in the market today. This technology can be applied to mobile communications applications for business, government and consumers. The technology can compress data by up to 80% with virtually no data loss and compress images by 98% with no visual loss of data. KT-Tech software has been developed by a team of former defense sector research scientists and is the result of eight years of research and development. Their video/audio technology, KTvid has accomplished what no other company in the wireless industry has achieved: enabling real-time, high-quality two-way videoconferencing on cell phones, over today’s mainstream cellular networks. This same technology provides a myriad of other solutions, reducing the amount of bandwidth required for transport and storing of still and motion images, as well as delivery of audio over the internet.

ANNOUNCES ACQUISITION FOR 80K SHARES: Smart Move, Inc., (MVE) announced that it has acquired the business assets of Star Relocation Network Alliance Inc. The assets include trademarks, trade names and operating assets relating to Star Alliance’s co-branded and private label move management programs offered to the real estate brokerage community, third party relocation companies and HR departments of major corporations. The purchase price was the issuance of 80k shares of Smart Move common stock and the issuance of 100k common stock purchase warrants with an exercise price of $1.20. In addition, the sellers could receive an additional 45k shares based upon an earn-out provision tied to the achievement of top line revenue performance targets associated with operations using the Star Alliance assets.

CLOSES PUBLIC OFFERING OF 8M SHARES: Capstead Mortgage Corporation (CMO) announced that on February 1, 2008 the Company closed its public offering of 8M common shares. Capstead received aggregate net proceeds of approximately $118M after underwriting discounts, commissions and estimated offering expenses. Capstead intends to use the net proceeds from this offering to finance purchases of additional adjustable-rate mortgage, or ARM, Fannie Mae, Freddie Mac or Ginnie Mae-guaranteed residential mortgage-backed securities, on a leveraged basis, and for general corporate purposes.


 

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