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Sorl Auto Parts Climbs on Supply Deal

NEW YORK ( TheStreet) -- China-based Sorl Auto Parts (SORL - Get Report) stock has climbed Wednesday morning after the company announced new contract awards in the agricultural and light vehicle markets.

Sorl said that it has signed a supply agreement with Chinese industrial giant Shandong KAMA Automobile Manufacturing to provide clutch boosters, clutch master cylinders and other air brake systems-related products. Sorl also said that, based on current expectations, its products could account for as much as 80% of the total products in those categories used by KAMA. KAMA's products include micro-trucks, light-trucks, medium-trucks and heavy-trucks and agricultural vehicles.

In addition, Sorl has been selected as a key supplier by the Shandong Wuzheng Group, a Chinese manufacturer serving the agricultural and light-truck vehicle sectors. Sorl estimates that products it has supplied to Wuzheng will reach 20 million RMB in 2010, doubling that of 2009.

Sorl looks well-positioned for growth as it rides the China wave. At the beginning of 2009, China surpassed the U.S. as the biggest auto market from a global volume perspective. Rodman & Renshaw analyst Amit Dayal cites KPMG as saying that the auto industry in the country is anticipated to grow at a rate of 10% over the next three years, exceeding the growth in developed markets.

Sorl stock has jumped 4.7% to $10 late morning Wednesday, while peer China Automotive Systems (CAAS - Get Report) has edged 1% lower to $22.70.

Dayal writes that China Automotive Systems has revealed plans to tap into the emerging electric power steering (EPS) market and plans to manufacture about 1,000 units a month -- to be ramped up to 100,000 to 150,000 units yearly by 2011. He also notes that the company's management expects that EPS demand will peak by 2012 and predicts production to rise up to 0.5 million to 1 million units a year.

The opportunities for the auto industry in China is clearly exploding, but Dayal notes that there are risks too, specifically those associated with political or regulatory changes in China, delay in new product development, and a highly competitive industry.

-- Reported by Andrea Tse in New York

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