 As
promised, the small cap company we've been excited since last week is finally
going to be named today. Some great news put the 'icing on the cake' a
few moments, so to speak. What news? In short, the recent pace of growth
- and prospects for future growth - are just too strong to to leave
us sitting on the sidelines any longer.
Specifically,
the company has 61% more revenue on tap for the last half of the year than
they did for the first half. That puts them on a pace to double 2007's
top line, which happened to be a double of 2006's revenue. See the trend?
Better
still, their government continues to pass and enforce legislation that
drives more demand for their product.
In
other words, this stock looks like it could be an outstanding, money-making
opportunity. That's just about everything a small cap investor could
hope for.
The
core driver behind the growing demand is simple - the high costs of all
energy sources over the last few years. You don't need me to tell you what
kind of a global energy craze we've seen lately; we need more of it, in
every form. Yet, we need to create it cleanly. The pollution created by
antiquated electricity generation systems is staggering. Neither of those
problems is going to change anytime soon without work though. That reality
has brought about a paradigm shift in China ... at the state level.
| Company
Name: |
China
Energy Recovery |
| Stock
Symbol : |
CGYV |
| Coverage
Initiated: |
Sep.
12th, 2008 |
| Current
Price: |
$3.30 |
| Avg.
Volume (1 wk.): |
91,000 |
| 52
Week Range: |
$0.54
- $12.90 |
| Market
Cap: |
$88.8
M |
|
|
So,
the company we believe is set to yield big returns in the coming months
ahead is China
Energy Recovery (OTCBB: CGYV). China Energy Recovery addresses
both issues - efficiency and cleanliness - with a real revenue bearing
solution.
China
Energy Recovery owns a proven technology that makes generators about 20%
more efficient, lowering the amount of electricity a factory needs to consume.
Since less fuel is required to produce the same amount of electricity,
less waste is expelled.
And,
it's not just theoretical - China Energy Recovery has already installed
some of these systems, and gotten paid for doing so. That's verification
of demand for what they do. In fact, they turned a profit over the last
six months of operation.
I urge
you to invest a couple minutes of your time to read the rest of this report
and watch the short video (link is below) on this highly attractive Company.
Its unique, proven energy recovery technology is brilliant, and I feel
you owe it to yourself to really understand what the company is. I believe
you'll want to become a shareholder once you do.
 |
 |
What
Exactly is Energy 'Recovery'? |
|
To
be clear, this isn't another crude oil story and its subsequent effect
on gasoline prices. That's the least of our worries. I'm talking about
electricity and how it's created, particularly in China.
 Energy
recovery is the process of getting more output from the same input ...
a
literal recovery of lost energy.
In
a typical scenario, a factory or manufacturer only gets about 1/3 worth
of the fuel they pay for. That 1/3 is converted into electricity and successfully
used. The other 2/3 is expelled, unused heat and/or pollution. However,
it could be used....it just isn't. That's called 'waste energy'.
China
Energy Recovery simply uses that 2/3 of 'waste energy' by doing something
with it - they use it to create steam, some of which turns generators
to create electricity. Or, the plant can simply just use that steam for
other purposes.
The
company's technology is so efficient that in the end, only 10% of heat
is actually lost or unused (which is phenomenally efficient). And of
course, heating water to make steam has no environmental impact - it's
perfectly clean. The steam just condenses back into water.
The
nearby comparison chart explains the difference pretty clearly.
China
Energy Recovery's technology is highly adaptable too. Of the 100+ systems
they've already installed, customers have included the petrochemical industry,
paper manufacturing, refining and power generation (including ethanol refining),
coke processing, and the cement and steel industries.
At
first glance it might appear to be one of the latest brilliant advances
in the field of alternative energy. 'Brilliant' we agree with, but
using the term 'alternative' may be the wrong way of seeing things.
We
consider the recovery concept to be 'renewable' energy. Alternative
energy sources are still proven (or unproven) to various degrees, and are
largely government subsidized...and those subsidies can go away without
notice. China Energy Recovery's techniques and hardware work
well with the current electricity infrastructure, and they can operate
profitably without assistance.
It
may be just semantics, but an important distinction all the same.
|
|
Support
from the Right Source |
|
The
likely reason demand has grown so much - and the reason we think this
stock could make its investors a considerable amount of money - is
largely due to recent legislation from the Chinese government.
 Historically,
the usage of electricity in China has been very inefficient. As a result,
'clean
and efficient energy' is one of the state's focal points for the next several
years. In many cases, the only way many factories or power plants are
going to be able to stay compliant with the growing number of efficiency
requirements is to utilize China Energy Recovery's systems; upgrading to
an entirely new system just isn't fiscally feasible for many factories.
Just
to provide some scope on how much help the government is providing for
China Energy Recovery (even if unintended), check out just a few
of the state government's recent decisions:
-
Construction
companies that install energy-intensive devices could face penalties of
200,000 yuan to 500,000 yuan ($30,000 to $80,000). A similar penalty even
applies to designers of such plants or buildings.
-
The Chinese
government is in the midst of a 5-year plan to increase the country's energy
efficiency by 20% by 2010. The country has set a goal for renewable energy
to make up 15% of its energy consumption by 2020.
-
China's
premier has vowed to shut down inefficient factories in high-pollution
industries (specifically, coal, electricity, and steel).
-
The State
Environmental Protection Administration in China has created regional districts
to enforce mandates, not only for FGD (flue gas desulfurization) equipment
in power plants, but to also oversee the installation of emissions-monitoring
equipment.
-
China
is aiming to quadruple the country's GDP by 2020, but only intends to double
its use of energy. Energy efficiency will have to be maximized to achieve
this goal.
-
China
has raised the sulfur pollution tax on power plants, and also implemented
an incentive to assist in the installation cost of FGD (flue gas desulfurization).
The
message is clear ... change is coming one way or another. Assuming
most power plants and factories would rather adapt than be shut down by
the government, odds are China Energy Recovery's solution is going to start
looking very attractive to those desperate entities.
With
the basics under your belt, now may be a good time to view the video, Just
click here: http://www.smallcapnetwork.com/video/fp/company/cgyv/.
|
|
Getting
Specific With the Numbers |
|
OK,
we know the opportunity is real, and we know the company's ability
to deliver is real. The only thing left to do is figure out just what these
shares could be worth in the foreseeable future.
 At
the same time, I want to pass along another idea ...we're now entering
the most bullish time of the year for stocks, and for small caps
in particular. During fourth quarter, the average return for the overall
market is about 5.6%. The figure is slightly better for small cap equities.
I'll take those odds, but more pertinent to us today, I think it
means we'll have the wind at our backs at just about the right time for
this trade.
In
terms of the stocks' valuation, here's my math...
From
today's news release we now know they're sitting on $16 million worth of
orders to be completed in 2008, which easily tops last quarter's sales
of $5.6 million (which was a record, by the way) and the $4.4 million in
sales for the quarter before that. All together, this translates into sales
of about $26 million for 2008.
In
comparison, they did $11.8 million in 2007, and $5.5 million in 2006. That's
two consecutive 100%+ increases in annual revenue. We also know they
turned a profit over the prior six months. So, things seem to be clicking
now.
At
the same time, we know the company's got 29.5 million shares issued and
outstanding. At $3.30 each, that means the market cap is about $97 million.
The
question is, what's a reasonable revenue projection for 2009? I
don't see any reason to expect less than a double again. The global market
for heat-recovery boilers alone is already $1.4 billion annually,
and $170 billion is spent each year on energy efficiency. So, the market
is more than adequate to fund that level of growth for China Energy Recovery.
 Assuming
nothing major changes with the company's capitalization, I think shares
could make their way to $6.00 in the foreseeable future - close to a
double. The market cap would be about $160 million then. If my revenue
expectation for next year is somewhere close - in the $50 million area
-
that would be in line with a price/sales ratio of about 3.0. So, I suggest
$6.00 as a first target.
On
the flipside, I don't want to suggest a stop just yet. Normally I would,
but I don't think CGYV has really drawn a proverbial line in the sand.
Let's assess how the stock behaves for a while with its recently-found
volume and newly-found attention. I'll suggest a stop later on.
The
only thing I wonder about is the entry - I don't know if there will be
a rush on the stock come Monday. If there is, and the stock's price
goes through the roof, we'll have to play it by ear. Check the blog after
the first hour of trading or so. If need be, I'll post an assessment of
the chart and provide what I see as a good entry level. If the stock opens
and trades reasonably early in the day, I may not need to post any specific
trading suggestions.
On
that note, prior to this week volume may have been light. As of right
now though, this stock is actually quite liquid - particularly
for a small cap. I'm seeing a mere 3 cent spread, and pretty good sizes
for both the bids and asks. So, it should be relatively easy to step into
a trade.
Anyway,
my bottom line thoughts...
Between
the calendar, the growth trend, the energy overhaul in China, and the company's
own merits, I just believe the time is right to add China Energy Recovery
to an aggressive portfolio. This company is on the verge of major
growth and sustained profitability, and I want you to have a shot
at growing your investment's value alongside it.
China Energy
Recovery Announces Record Backlog Orders for Rest of 2008
Friday September
12, 4:00 pm ET
Contracts
for rest of 2008 total more than RMB 115M ($16 million USD)
Total value of
contracts up nearly 115% year-over-year
SHANGHAI, China--(BUSINESS
WIRE)--China
Energy Recovery, Inc. (OTCBB: CGYV) ("China Energy Recovery" or "CER"),
a leader in the waste-heat recovery sector of the alternative energy industry,
today announced that the company expects to hit record backlog orders for
its fiscal year 2008. With sharply increased interest in efficient energy
use and cleaner emissions from industrial facilities spreading to customers
both inside China as well as neighboring regions, CER expects to reach
record revenues for 2008 with the outlook toward 2009 continuing in an
upward trend.
"We're very pleased
to see such widespread and growing interest in our systems," stated China
Energy Recovery CEO, Mr. Qinghuan Wu. "Our product is catching on with
customers in our traditional sectors such as industrial chemicals, but
we're also experiencing considerable growth in new industries such as bio-mass.
And we expect our markets to continue to expand."
Total contract
values for backlog orders received and expected to be completed during
2008 are currently approaching RMB 115 million ($16 million USD), nearly
a 115% increase over the same period in 2007 with backlog orders valued
at RMB 53.8 million ($7 million USD). CER's systems have been installed
in over 100 manufacturing facilities in China and other countries including
Egypt, Turkey, Korea, Vietnam and Malaysia. The systems have primarily
been designed for chemical manufacturing, refining, paper mills, etc. The
systems are also adaptable to metallurgy and coking industries.
China is emerging
as one of the world's largest consumers and generators of energy, with
a generation capacity of 622 GW at the end of 2006. In that year, power
generation grew 13.5% to 2,834 billion kWh, with nearly 80% of power generation
coming from coal (76%) and natural gas (3%). Forecasts indicate the need
for many more power plants to meet future demand, creating a further burden
on the environment and limited natural resources. In order to meet demand
without further increasing pollution, we anticipate that China will need
to invest in energy-efficiency technologies. Recovery systems are proving
a very adaptable solution to an ever-increasing problem.
Advantages for
installing systems such as those CER produces include: reducing energy
costs by producing 2-3 times the useable energy from the same fuel, reducing
pollution by eliminating a number of toxic combustible wastes such as carbon
monoxide gas, sour gas and carbon black off gases and capturing carbon
that can be reused in the recovery process and monetized through the sale
of carbon credits. The systems can also help reduce the sizes of equipment
used as they reduce fuel consumption, leading to reduction of flue gas
and reduction in equipment sizes of all handling equipment such as fans,
ducts and burners can be achieved. Also, with the reduction in equipment
sizes, additional benefits can be realized in the form of reduced auxiliary
energy consumption.
From a clean,
alternative energy generating perspective, CER's technology generates power
at a small fraction of the cost of other leading clean energy technologies.
For example, for the cost of a solar energy system producing up to 54 MW
of power that would normally cost upwards of $200 million, CER has installed
a waste-heat recovery system with the same power generation capacity for
as little as $12 million. The systems are designed for the Chinese market,
but the company is finding customers globally interested in energy savings
and more efficient and cleaner use of the energy they consume.
As the numbers
presented represent backlog orders estimated to be completed in 2008 based
on contracts signed as of the press release date, the actual revenue realized
through the end of year is subject to the completion of all these orders
in 2008. The company acknowledges that there may be cases where there would
be causes which are out of the company's control, such as those by customers,
that would lead to delay in the completion of these orders, thereby affecting
the revenue generated for the company in 2008. The numbers presented are
contract values which also include 17% value added tax and the retainage
amounts for product warranty purpose which are usually 5-10% of the contract
values and will be recognized as deferred revenues.
What is Energy
Recovery?
Industrial facilities
and power plants release significant amounts of excess heat into the atmosphere
in the form of hot exhaust gases or high pressure steam. Energy recovery
is the process of recovering vast amounts of that wasted energy and converting
it into usable electricity, dramatically lowering energy costs. Energy
recovery systems are also capable of capturing the majority of carbon emissions
and other harmful pollutants that would otherwise be released into the
environment. It is estimated that energy recovery systems installed in
U.S. industrial facilities could produce up to 20% of U.S. electricity
needs without burning any additional fossil fuel, and could help many industries
to meet stringent environmental regulations.
About China
Energy Recovery, Inc.
CER is an international
leader in energy recovery systems, with a primary focus on the Chinese
market. CER's technology captures industrial waste energy to produce low-cost
electrical power, enabling industrial manufacturers to reduce their energy
costs, shrink their emissions footprint, and generate sellable emissions
credits. CER has deployed its systems throughout China and in such international
markets as: Egypt, Turkey, Korea, Vietnam and Malaysia. CER focuses on
numerous industries in which a rapid payback on invested capital is achieved
by its customers, including: chemical, petro-chemicals, refining (including
Ethanol refining), coke processing, and the manufacture of paper, cement
and steel. CER continues to invest in R&D and plans to build China's
first state-of-the-art energy recovery system research and fabrication
facility to allow it to meet the increased demand for its products and
services. For more information on CER, please visit: http://www.chinaenergyrecovery.com/s/Home.asp.
Information on CER's website does not comprise a part of this press release.
Forward-Looking
Statement Disclaimer
This press release
includes "forward-looking statements" within the meaning of the Securities
Litigation Reform Act of 1995, as amended. All statements, other than statements
of historical fact, included in the press release that address activities,
events or developments that the Company believes or anticipates will or
may occur in the future are forward-looking statements. These statements
are based on certain assumptions made based on experience, expected future
developments and other factors that CER believes are appropriate under
the circumstances. Such statements are subject to a number of assumptions,
risks and uncertainties, many of which are beyond the control of CER and
may not materialize, including, without limitation, the efficacy and market
acceptance of CER's products and services, and CER's ability to successfully
complete orders and collect revenues therefrom. Investors are cautioned
that any such statements are not guarantees of future performance. Actual
results or developments may differ materially from those projected in the
forward-looking statements as a result of many factors. Furthermore, CER
does not intend (and is not obligated) to update publicly any forward-looking
statements, except as required by law. The contents of this release should
be considered in conjunction with the warnings and cautionary statements
contained in CER's filings with the SEC, including CER's Current Report
on Form 8-K filed with the Securities and Exchange Commission on April
21, 2008.
Cautionary
Note About Financial Projections
The financial
projections for future periods contained herein were made with input from
CER's senior management and were not the result of a detailed budgeting
process. These projections are based on management's expectations and numerous
assumptions and CER makes no representations or warranties as to the accuracy
of the projections or the assumptions. This information represents CER's
current estimate of the operating and financial results which CER would
achieve if certain assumptions are realized. These assumptions relate primarily
to CER's ability to successfully complete product orders and collect revenues
therefrom, among other factors. These assumptions may be affected by a
number of risks and uncertainties, many of which are wholly or partially
beyond the Company's control, and, accordingly, there can be no assurance
that any of these assumptions will be realized. These risks and uncertainties
include, among others, those identified within CER's filings with the SEC,
including CER's Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 21. Accordingly, THE PROJECTIONS ARE PROVIDED
FOR ILLUSTRATIVE PURPOSES ONLY, AND THE RESULTS CONTAINED IN THE PROJECTIONS
ARE BY NO MEANS GUARANTEED. As a result, there can be no assurance that
CER will achieve the financial results that are described herein.
Contact:
for China Energy
Recovery, Inc.
Media
Sean Mahoney,
310-867-0670
seamah@gmail.com
or
Investor Relations
Jim Blackman,
713-256-0369
jim@prfmonline.com
Source: China
Energy Recovery, Inc. |
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Got comments, questions or suggestions?
Send 'em on over: Email
the Editor
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