Hollysys Automation Technologies (HOLI) provides automation and control technologies and applications in China.  It has approximately 3,500 employees with nationwide presence in over 40 cities in China, with subsidiaries and offices in Singapore, Malaysia, Dubai, India, and serves more than 2000 customers in the industrial, railway, subway & nuclear industries in China, Southeast Asia, and the Middle East. The Company’s proprietary technologies are applied in its industrial automation solution suite including Distributed Control System (DCS), Programmable Logic Controller (PLC), RMIS, HAMS, OTS, and other products, high-speed railway signaling system of Train Control Center(TCC) and Automatic Train Protection (ATP), and other products, subway supervisory and control platform (SCADA), and nuclear conventional island automation and control system.

Source: Reuters.com, SEC Filings.

Investment Highlights

On Friday, HOLI set a new 52-week low when the price dropped down to $4.54 per share during trading. More than 1.26 million shares traded hands during the session, versus the 10-day average of 1.13 million shares.

Shares of HOLI have lost 21.63% in the last week; 52.65% in the last month; and 48.67% year-to-date.

The Company recently announced its unaudited financial results for its fiscal fourth quarter, posting earnings that were in-line with analyst expectations.

For the three months ended June 30, 2011, total revenues increased by 27.5% to $71.9 million, from $56.4 million in the prior fiscal year period.  Of the total revenues, revenue from integrated contracts increased by 27.5% to $67.6 million, as compared to $53.0 million for the same period of the prior year.

The dilution gain on share of an equity investee was $0.8 million for the three months ended June 30, 2011, which was from a dilution of the equity interest in IPE Biotechnology Co. Ltd. In April 2011, a third-party company injected $4.5 million to IPE, of which $0.9 million was recognized as the paid in capital, and the remaining $3.6 million was recognized as capital premium. As a result of this capital increment, HOLI’s’ equity interest in IPE was diluted from 28.04% to 23.39%, and recognized a gain of $0.8 million from this dilution.

The share of net gains from equity investees were $0.5 million for the three months ended June 30, 2011, of which, $0.3 million was from Beijing Techenergy Ltd., the 50/50 joint venture between HOLI and China Guangdong Nuclear Power Corp., that mainly engages in providing automation and control products and services to China’s nuclear industry.

Excluding non-cash stock compensation cost, the Company posted a net income of $7.0 million, or $0.13 per diluted share.  This was in line with analyst expectations, according to a poll by FactSet.  The result represents an increase of $0.7 million, or 11.9%, over the $6.3 million, or $0.11 per share, reported in the prior year period.

On a GAAP basis, net income attributable to HOLI was $6.9 million, or $0.12 per diluted share representing an increase of $0.7 million, or 11.8%, over the $6.1 million, or $0.11 per share reported in the prior year period.

In a message accompanying the release, CEO Changli Wang said the Company has noticed the short interest on HOLI has reached historical high in the past few months.

“We call on our shareholders who have been supportive to the Company, and have unfairly suffered, to be vigilant and make sure that they are in full control of the economic benefits of their ownership in our Company. It is prudent for our shareholders to issue an instruction to their respective brokers or custodians not to lend out their shares to third party, or alternatively, request a stock certificate be issued and be delivered to them so that shareholders are in complete control of shares of stock held,” CEO Wang stated.

Looking forward, the Company expects adjusted earnings in the current fiscal year to be $57 million to $58 million, with earnings per share at or above $1. Revenue is expected to be $354 million to $356 million.

Source: www.hollysys.com

Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=HOLI.O

Technical Analysis

Source: http://stockcharts.com

HOLI is below its 20-day moving average. This bearish sign is even more significant because the moving average is also trending lower.

HOLI’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility.

The MACD for HOLI currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9-day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

Comparative Analysis

Source: Thomson Financial

DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS REPORT. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority.  We are neither licensed nor qualified to provide investment advice.

The information contained in our report should be viewed as commercial advertisement and is not intended to be investment advice.  The report is not provided to any particular individual with a view toward their individual circumstances. The information contained in our report is not an offer to buy or sell securities.  We distribute opinions, comments and information free of charge exclusively to individuals who wish to receive them.

Our newsletter and website have been prepared for informational purposes only and are not intended to be used as a complete source of information on any particular company.  An individual should never invest in the securities of any of the companies profiled based solely on information contained in our report.  Individuals should assume that all information contained in the report about profiled companies is not trustworthy unless verified by their own independent research.

Any individual who chooses to invest in any securities should do so with caution.  Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested.  Always research your own investments and consult with a registered investment advisor or licensed stock broker before investing.

Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934.  Subscribers are cautioned not to place undue reliance upon these forward looking statements.  These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated.  Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC.  You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.

We are committed to providing factual information on the companies that are profiled.  However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions.  We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so.  Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable.

To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).

We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www.finra.org.

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The Company was incorporated in 2003 and is headquartered in Harbin, China.

Source: Reuters.com, SEC Filings.

Investment Highlights

Shares of the Chinese electric motor maker soared as much as 73% yesterday following news the Company has agreed to be bought by its chairman and CEO and a private equity fund for $24 a share in cash, offering a premium of 186% on HRBN’s share price at the end of last week. The deal, which values HRBN at close to $750 million, will result in the Company going private.

The Company’s stock fell to a new 52-week low on Thursday after Citron Research raised concerns about the go-private deal.  HRBN gained ground on Friday after it responded to the allegations, which it stated as “Yet another attempt to drive the stock price down based on factually incorrect as well as out-of-context information.”  The CEO and the Company reserve the right to bring legal actions against Citron Research for these erroneous allegations, it said in a statement.

HRBN chairman and CEO Tianfu Yang commented in a press release that while the events that negatively affected the Company’s stock price over the past few months have left all shareholders unhappy and frustrated, he believes that the approval of the transaction by the board of directors will lead to shareholder approval and the return of value to all shareholders who did not lose confidence in the Company and its management.

The Company said Tech Full Electric and Tianfu Investments have secured debt financing from China Development Bank Corp. and affiliates of private equity firm Abax Global Capital to finance the transaction. Tech Full Electric is owned indirectly by CEO Yang.

Pending customary closing conditions as well as approval and adoption of the agreement by its shareholders, the merger is expected to close in the fourth quarter of this year.

Visit HRBN at www.harbinelectric.com

Financial Summary

HRBN reported total revenues of $103.8 million for the first quarter of 2011, down from $105.5 million in the first quarter of 2010. Marginally lower sales in linear motors and specialty micro motors this quarter were partially offset by slightly higher sales in industrial rotary motors. In the linear motor product line, sales were down $0.6 million year-over-year. Lower sales volume in oil pumps (75 units in the first quarter of 2011, compared with 105 units in the first quarter of 2010, a $1.4 million decrease in sales) and in propulsion systems for coal transportation trains (a $1.4 million decrease) were largely offset by higher volumes in other linear motors. In the specialty micro motor product line, sales declined by $0.7 million. A decrease in sales volume of existing products was partially compensated by sales of new products. Rotary motor sales at Xi’an Tech Full Simo were up $1.3 million driven by higher volumes, while rotary motor sales at Weihai Tech Full Simo were down $0.7 million due to lower volumes. Sales of other products declined by $0.9 million due to lower volume.

The Company recorded a net income of $10.8 million, or $0.34 per diluted share in the first quarter of 2011, compared with the prior year quarter’s $20.6 million, or $0.66 per diluted share, representing a 47.4% decline.

Source: Reuters.com, SEC Filings.

Analyst Consensus

This is the consensus forecast among two polled investment analysts. Against the Harbin Electric Inc company.

The three analysts offering 12-month price targets for HRBN have a median target of 24.00, with a high estimate of 24.00 and a low estimate of 24.00. The median estimate represents a 186.12% increase from the last price of 8.39.

Source: markets.ft.com

Consensus Estimates Analysis

Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=HRBN.O

Technical Analysis

Source: http://stockcharts.com

HRBN is within its Bollinger Bands. This is a normal condition suggesting that it is neither overbought nor oversold relative to the recent price action.

The MACD for HRBN currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9-day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

Comparative Analysis

Source: Thomson Financial

DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS REPORT. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority.  We are neither licensed nor qualified to provide investment advice.

The information contained in our report should be viewed as commercial advertisement and is not intended to be investment advice.  The report is not provided to any particular individual with a view toward their individual circumstances. The information contained in our report is not an offer to buy or sell securities.  We distribute opinions, comments and information free of charge exclusively to individuals who wish to receive them.

Our newsletter and website have been prepared for informational purposes only and are not intended to be used as a complete source of information on any particular company.  An individual should never invest in the securities of any of the companies profiled based solely on information contained in our report.  Individuals should assume that all information contained in the report about profiled companies is not trustworthy unless verified by their own independent research.

Any individual who chooses to invest in any securities should do so with caution.  Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested.  Always research your own investments and consult with a registered investment advisor or licensed stock broker before investing.

Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934.  Subscribers are cautioned not to place undue reliance upon these forward looking statements.  These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated.  Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC.  You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.

We are committed to providing factual information on the companies that are profiled.  However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions.  We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so.  Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable.

To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).

We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www.finra.org.

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