Wednesday, May 12, 2010

A123 Systems (NASDAQ:AONE): Colour on quarter - Bounce?

A123 Systems (NASDAQ:AONE) is getting some fairly supportive tier-1 commentary following results out last night:

- Morgan Stanley notes that new wins and capacity growth should offset Q1 miss.

AONE announced plans to expand capacity by a further 200 MWh to 760 MWh, enough to power approx 50,000 PHEVs or 380 grid batteries, assuming an average PHEV battery of 15kWh and a grid solution of 2MW. This should instill confidence in potential customers that AONE will be able to meet demand, according to MSCO.

New wins show momentum: AONE announced a new development contract with “one of the largest automotive manufacturers” to develop next-generation battery cells. Firm thinsk working with a large OEM is an encouraging development for AONE, especially if it could lead to a production contract. AONE also won a pilot program with Eaton for a fleet of PHEV medium duty trucks, another win in the company’s impressive commercial vehicle contract portfolio.

Investment thesis: They see substantial potential for upside if the company’s technology and production ability prove out. Risks are many, including need to reduce costs faster than competition over a 5-year curve, need for early wins to build scale, and execution risk in ramping from minimal revenues to potential billions in under 5 years.

Firm maintains their Equal-Weight rating but notes that their base-to-extreme-bull-case scenarios range from $25 to $54/share.

- Deutsche Bank is reiterating Buy and $17 target on AONE saying yesterday's commentary reinforces their positive thesis

Capacity expansion underscores management confidence in revenue pipeline AONE announced a further capacity expansion to 760 mega watt-hours by 4Q11, representing the third 200 mWh expansion announcement since Dec ‘09. The company appears to be planning to ramp capacity by ~200 mWh’s per quarter which, assuming 80% utilization, implies a revenue acceleration of $130MM per quarter. If one assumes two quarters of further expansion and add that to the $450MM - $550MM revenue run rate in 4Q11 implied by the current plan, the firm believes the company can be at a high $700MM run rate by mid-2012, which broadly supports their $800MM revenue forecast in that time-frame.

Development activity has doubled since IPO
The company stated that it is currently involved in 36 vehicle development programs, up from 18 at the time of its late September 2009 IPO. More than 50% of the increase are light-duty (passenger vehicle) programs and 80% of those are PHEV or EV programs (as opposed to Hybrid). Although the firm has no way to calculate the revenue potential from this increase, development activity (particularly for high revenue PHEV / EV batteries) appears to have clearly gained momentum. Taken in the context of the DOE revenue projections that were disclosed at the time of the IPO (significantly higher than DB current estimates), they believe that this is a bullish development.

Notablecalls: I would not be surprised to see AONE stage a bit of a comeback following yesterday's capacity announcements. The results missed consensus by a hair but lets face it - the current $24 mln revenue number is nothing compared to $800 mln run-rate DB sees for 2012.

The stock has been crushed since the IPO & may be due for a bounce. Right now, it's all about capacity & deals with automakers. AONE has both.

Would keep the position small as this is a highly speculative stock.


notablecalls said...


Stock Picker said...

i believe this company is setup nice in the future, but in the current up cycle other companies are actually seeing their business plan blossom with advancing sales and eps. Perhaps this electrical nano-wonder will have business plan blossom in the next up cycle a few years from now.