Micromotor maker Johnson Electric has outperformed the Hang Seng Index by almost 10 per cent over the past 12 months. In fact, it has been the fourth-strongest stock in the index over the period, outpacing such darlings as Citic Pacific. Despite a recent downturn, analysts remain confident in Johnson, saying that capacity expansion, combined with increasing end-user demand, will support growth for years to come. The stock closed down 2 per cent at $23 yesterday. The company will post a profit of $387 million in the year to March, up 41 per cent from a year earlier, according to forecasts in the Estimate Directory. BZW Asia analyst Vijay Harjani said Johnson's capacity expansion between 1993 and last year was perfectly timed to meet a surge in demand. 'The management of this company has been brilliant,' he said. Developments in the world car industry have been key to success. Amid increased competitions, car-makers have been forced to offer more options such as electric windows in lower-end models. In the next few years, luxury cars are expected to include an average of 100 micromotors a vehicle, com pared with about 80 now. More than 30 per cent of Johnson's sales were derived from the car industry, analysts said. Two potential negative factors could hit the stock in coming months. While a decline in the price of copper has helped increase the company's operating margins since the start of last year, prices of the metal are again on the rise. Copper accounts for as much as 60 per cent of the firm's material costs. There is also concern that Johnson could be removed from the Hang Seng Index due to its relatively small capitalisation and turnover. In February, the company spent more than $1.1 billion to redeem convertible bonds due in 2000. The redemption and resulting fall in interest income from its large cash balance caused some selling of the stock. Analysts stressed that the redemption eliminated the possibility of an estimated 13 per cent dilution of outstanding stock if the bonds had been converted. Even after the redemption, the company held more than $1 billion in cash, they said. Johnson's share price also looks reasonable compared with its competitors. Mabuchi Motor of Japan, a world leader in the micromotor industry, trades at a price-earnings (PE) ratio of more than 35 times existing earnings, while Johnson's PE is about 22 times. Nikko Research Centre analysts Tim Finucane said: 'In terms of PE, it is still within its historic range.'