One of our readers has kindly pointed out a mistake we made last week in our commentary on China Shoto (LON:CHNS) . However, our overall prognosis on the business as a whole remains.  Unfortunately we used the 2008 net profit of £10.3m as our comparative instead of the 2009 net profit of £23.5m. Estimated net profit for the year ended 31st December will therefore be c£16.45m, resulting in eps of approx 69.4p in line with revised broker estimates of 70p.  At the current share price of 278p, this puts CHNS on a historic (2010 financial year) PER of just 3.97x. We appreciate that on historic multiples this looks dirt cheap, however, the prior year was boosted by government stimulus and investors in CHNS should be looking to future consistent growth in earnings following a defined business plan; with what has happened over the past few years we still question if this will be the case.

As a Foreign Investment Enterprise, CHNS also previously benefited from preferential income tax policies and they are now seeing an effective increase in tax rate from 13% in 2009 to 22% in 2010. This will also have a material effect in net earnings going forward making historic comparables less relevant. They decided to cut the interim dividend for 2010 and previously announced that they would consider a final dividend payment at the end of the period to 31 December 2010, however, the recent update made no reference to this.Gross margins at the interim stage fell to 23.6% (H1 2009: 30.8%) being impacted by adjustments to existing lead price linkage agreements which meant they were unable to increase prices to reflect increases in raw material costs as previously. Lead prices rose over just over 50% in the second half 2010 which must makes life very difficult for a producer of lead acid batteries. Lead prices have fallen off approximately 2% at the beginning of this year. What is the future for lead prices?  At the interim stage it was pleasing to note the increase in sales from power-type batteries to £12.76m (H1 2009: £6.38m) which was mainly attributable to increased sales to electric bicycle retailers and distributors rather than manufacturers. Management also drew attention to the size of the Chinese population and the popularity of electric bicycles and the potential for growth in this area a prime focus of…

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