We rated battery and power systems-maker China Shoto as a buy last July on account of its exposure to the booming Chinese market for these products, as well as the low price-to-earnings rating of its shares.

Admittedly, our timing could have been better since the shares, recommended at 153.5p each, subsequently began a long journey to below 120p. However, they have staged something of a comeback after this week’s upbeat trading statement.

China Shoto revealed that financial results for the year to 31 December will be better than market expectations. Despite this, a quick chat with Seymour Pierce revealed that the house broker’s forecasts for 2007 and 2008 are no different from those it made last summer: it still expects pre-tax profits of £6.2 million and £7.3 million for 2007 and this year, which should translate to earnings per share of 22.5 and 25.5p respectively.

Even so, a historic p/e of 6.1 times is impressively low for a fast-growing business that is exposed to a booming market. Meanwhile, the company is set to pay a final dividend of 4.5p per share after it reports its results on 22 April, which means the shares will yield 3.3 per cent at their current price (there was no interim dividend).

As well as continuing to grow in its domestic Chinese market, China Shoto said it made significant progress developing its export markets last year. An order signed with Reliance Communications, a leading Indian telecoms operator, signalled its entry into the Indian market. And the company became a qualified locomotive battery supplier to General Electric subsidiary GETS.

We thought the shares were low at 153.5p and have been surprised at their weakness since we started following the company, especially as there has been no bad news coming out of the business (apart from some instances of increased raw material costs). If China Shoto does indeed deliver in excess of its house broker’s expectations for 2007 when it reports in April, then we believe the shares should finally head back up to 200p and beyond. Buy.

China Shoto	AIM	£21.01m	90.00p	0.00p
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Other company articles:
China Shoto			24/04/2008
China Shoto			23/04/2008
Seymour Pierce			01/04/2008
China Shoto			13/03/2008
Seymour Pierce			30/10/2007