As many of you know, we are very bullish on the long-term future of Chinese small cap and mid cap companies for two reasons:
1] The obvious reason - China is the fastest growing economy on the planet and nothing is going to slow down its ascent over the next 50 years and beyond. Investing in growth companies there just makes too much sense.
2] Great Results and Valuations - Many Small Cap Chinese Companies are listing in the US (OTCBB, NYSE Alternext and NASDAQ) with great financial results. Unlike many dubious US Small Cap Companies, Chinese Companies don't seem to believe in losing money or failing to execute in a business plan. As such, 7-digit revenues and profits are very common.
From a valuation point of view, many Chinese companies became a victim of their own success in Q4 2008 and Q1 2009. Why? When the world needed to start liquidating, one of the first places they looked were China where most investors had significant gains to sell into. This resulted in the proverbial baby being thrown out with the bathwater and some great valuations.
TODAY'S FEATURED COMPANY
China Recycling Energy Corp. is based in Xi'an, China and provides environmentally friendly waste-to-energy technologies to recycle industrial byproducts for steel mills, cement factories and coke plants in China. Currently, recycled energy represents only an estimated 1% of total energy consumption and this renewable energy resource is viewed as a growth market due to intensified environmental concerns and rising energy costs as the Chinese economy continues to expand.
On November 16th 2009, the Company announced unaudited financial results for the third quarter of 2009.
Check out the full details below!
HIGHLIGHTS
- $18.4 million of revenue and $3.8 million of net income for Q3 2009, up 333% and 1,045%, respectively, year-over-year
- Fully diluted EPS of $0.08 for Q3 and $0.19 for the year up-to-date, up from $0.01 and net loss of $0.14 per share in the same period last year
- As of Q3, reached the guidance for the entire 2009 fiscal year in revenue and net income
MY COMMENTS:
First of all, I love the waste to energy space and think it is going to be a big industry going forward. Why? It converges on two important global needs – especially in China. First, we all know that recycling is here to stay. That's an easy one. Second, we all know that renewable energy is going to play a vital role in our planet in the next century. To date, the main focus has been on renewable energy sources such as wind and solar.
However, very few people know that many forms of waste are also potential sources of renewable energy. They can be recycled and turned into energy. Until now, this has primarily come from incineration, which creates a host of other problems. However, new and effective methods are now being developed and coming to market. Wikipedia has a great overview on this very topic. These are the reasons I like company's such as China Recycling Energy.
Turning to the numbers, both revenue and profits grew at an extraordinarily fast pace, both sequentially and year-over-year. I also like the fact the company has now turned the corner and is in the black after losing $0.14 last year.
At $0.19 EPS for the first nine months, the company is on track for ~ $0.25 for the full year. At a current price of $2.85 the company is being valued at about 11 X PE. Not bad but given the fact China Recycling Energy is growing quickly and is playing in a very high growth industry for years to come, I am putting them on my radar screen.
As always, this is my view in a snapshot. It is intended to give you a running start into your research. Now, you have to do your own due diligence to make sure the valuation is not impaired by other factors including balance sheet items, lawsuits or any other negative events.
If you have any comments, I'd love to see them below.
YOUR RESEARCH STARTING POINTS FOR CHINESE SMALL CAP AND MID CAP COMPANIES
We've provided investors with two great starting points to research great Chinese small cap and mid cap companies.
1. ChinaSecurities.com - ChinaSecurities.com tracks 250 of the best small cap and mid cap companies trading on North American exchanges. It provides you with the best of the best in two ways. First, the front page lists the best news of the day coming out of the space. It does so by giving you a text view of the best press releases by industry and via Chinese Stocks TV, a 5-minute broadcast every morning just after the open. Chinse Stocks TV is archived, so you can catch up on shows you missed.
Second, if you want to research each of the 250 companies to find candidates for your portfolio, it has a very intuitive directory that lets you quickly review each company on the master list, or parse it out by industry and exchange if you have a particular sector of interest. Cool stuff.
2. Right here on AGORACOM, you can refer to our China category for other featured Chinese Small-Cap Companies. As always, we will disclose any IR relationship with any public company. Given the sheer number of great Chinese Small-Cap Companies out there, you can expect us NOT to have an IR relationship with most of these companies.
Regards,
George
FEED
