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China
Energy Puts It In Writing, Consumer Confidence Realities |
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It's
hard to believe a company that did $23.2 million in business during calendar
2008 is now set to do about $32.7 million (so far) worth of business over
the next twelve months. Well, actually it's not that hard to believe,
considering it's China Energy Recovery Inc.
We'll dive into
the numbers and a likely outlook in a moment, but first we want to take
a good analytical - and honest - look at this morning's newest Consumer
Confidence figure.
The optimism
reading made an unexpected jump from March's reading of 26.9 to this month's
reading of 39.2. While we use consumer confidence as a market indicator,
we
have to wonder if this jump is actually a sign of unrealistic expectations.
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Confidence
Reverses - Blip, or Trend? |
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With the Conference
Board's Consumer Confidence reading coming in at 39.2 this month, optimism
is now back above December's - and even October's - levels.
 That's
no particularly impressive feat, but it's better than the alternative.
However, as
we've pointed out a few times here at the Micro Cap Press, confidence
measures and their strong reversals are outstanding long-term market indicators.
Take a look at the nearby chart to see what we mean.
Confidence was
rock-bottom in March of 2003. It was even worse in February of 1992. Yet,
the market was getting ready to start a recovery or resume a bull trend
in both cases. And as you can see, the consumer confidence reading started
to trend higher in both instances, and kept trending higher for the duration
of the long-term rally.
So we're
bullish? Not quite - at least not based on consumer confidence.
Despite the
nice reversal in April, the consumer confidence trend (which is
our
primary concern) has hardly made a decisive reversal to the
upside.
This month's
reading may indeed be one of those 'green shoots' everyone's talking about,
and may actually be the beginning of better days. But, we can't overlook
the fact that confidence made several starts and stops in 1992. Any of
those could have been interpreted as a green shoot as well.
 We
also saw an upward reversal in the consumer confidence reading in October
of 2001 (shortly following the 9/11 attacks) that looked much like the
one for this month. Clearly the October 2001 upside swing wasn't a permanent
condition though; the current one may not be either.
Just to be clear,
we're not saying the market has or has not made a major bottom - we're
just saying we don't have enough data from the consumer confidence chart
to make that call yet. Nobody does.
The downside
to waiting until it's clear confidence is trending higher is simply that
you may miss a large chunk of the early gains of a bull market. The upside
is, you're not suckered into stocks if the surge in consumer confidence
ends up being a mere head-fake. Your job is to find the appropriate balance
of risk and reward.
We'll continue
to monitor this chart, looking for actual confirmation the long-term trend
has changed. We haven't seen it yet, but that does NOT mean you
can't make money on the long side of the market. Just pick your spots carefully
In the interest
of perspective, we're currently bearish in the short run, believing
the six-week rally that began in early March has run out of steam; consumer
confidence has no bearing on that short-term view . We're not yet looking
for a major selloff though... just enough selling to remind the
buyers to respect the risk they're taking.
Longer-term,
our stance is still a neutral one for the time being... a view that does
factor
in consumer confidence levels.
Unlike most
other commentators and forecasters, we're not married to the idea that
the recent rally can only be a bear market rally. The March of
2003 rebound was called a bear market rally for months before
the masses accepted we were in a new bull market. We're not going to fall
into the same trap.
If stocks can
give up some ground with falling apart - and then even just modestly
start to rise again - we're apt to move to a long-term bullish stance.
Ideally, consumer confidence will confirm a new uptrend around the same
time, though that kind of timing could be tough for the market to coordinate.
China Energy
Recovery Inc. (CGYV) confirmed a number we suspected a few weeks ago
by letting us know their twelve month sales backlog now stands at $32.7
million. That business should be delivered, billed, and paid for by the
end of April, 2010.
 So,
since twelve months is twelve months no matter how you slice it, the
company's top line should be just a little above $30 million in 2009, right?
Not quite.
The backlog
may
now stand at just under $33 million, but what's not being included
in the figure - because it can't be - is how much new business
China Energy Recovery will win and deliver in the meantime.
Were China Energy's
waste-heat boiler factories operating at maximum capacity, and booked solid
through April of next year, we might have to simply leave the outlook at
the backlog figure. But, it's our understanding that the company's production
capacity is upwards of $50 million per year. So, there's room to add
revenue into their twelve month outlook.
In fact, we
believe $40 million worth of business is a more realistic 2009 projection
for the company.
Take a look
at some of the recent progress to that end.
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09/30/08 - $3.2 million boiler finished for Two Lions Chemical
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11/06/08 - $11.6
million build-contract signed
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01/06/09 - $3.3
million project completed for repeat customer
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01/27/09 - Sopo
Chemical group to acquire boiler system for $8.9 million
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04/07/09 - Hubei
Yangfeng Group purchases $1.4 million waste heat system
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04/22/09 - $1.8
million contract won from Dongsheng Chemical.
And bear in mind
these deals were made in and around the heart of a global recession.
Plus, this list doesn't include the smaller contracts, which the
company doesn't bother publicizing.
Bottom line
- there's $30 million worth of revenue represented by this list alone,
and it only looks at about half a year's worth of marketing progress.
We're realistically
looking
for enough growth to crank up twelve-month results closer to $40 million
by the time we get to the end of this year, which would translate into
earnings of somewhere between $4 million to $5 million. That makes the
forward-looking P/E something close to 12.7, which is attractive on
its own, but phenomenally low given China Energy Recovery's
likely growth rate.
We'll discuss
CGYV's chart and a valuation model in the blog later this week. For now,
here's the press release.
| China Energy
Recovery Announces Record Backlog Orders for 2009
SHANGHAI, China,
April 28 /PRNewswire-Asia/ --
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Contract values of
backlog orders amount to RMB223 million (US$32.7 million), up by 86% year-over-year,
to be completed in the next 12 months
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Backlog orders will
potentially help save 370 thousand tons of coal and reduce 1 million tons
of carbon dioxide emissions annually
China Energy Recovery,
Inc. (OTC
Bulletin Board: CGYV; ISIN: US16943V2060; "CER"), a leader in the waste
heat energy recovery sector of the industrial energy efficiency industry,
today announced the company has record backlog orders of RMB223 million
in contract value (approximately US$32.7 million based on the exchange
rate as of the date of this press release). This represents an 86% increase
compared to the backlog orders of RMB120 million (approximately US$17.6
million) at the same time in 2008. These orders are expected to be completed
in the next 12 months with the majority to be completed by the end of 2009.
"We're very pleased
to achieve this milestone in such a challenging economy both in China and
globally," commented Mr. Qinghuan Wu, Chairman and CEO of China Energy
Recovery. "It is encouraging to see that industrial firms are becoming
more proactive to include energy recovery systems in their plans for new
facility construction or retrofit projects of existing ones. Customers
are seeing the tremendous economic benefits of such systems in addition
to the need to achieve compliance to government mandates for environmental
protection and energy efficiency. Though there are currently impacts on
industrial manufacturers like us from the economic downturn and there will
be quarterly fluctuations as a result of our order-based business model,
our strong backlog orders provide us good visibility for our performance
in the next 12 months, especially for the second half of that period. Our
pipeline has also been expanding which is expected to further enhance our
performance for the whole year of 2009 and beyond."
The energy recovery
systems under these backlog orders, upon completion, are expected to generate
nearly 174MW heat energy. This is equivalent to achieving a total annual
saving of roughly 370,000 tons of coal (coal equivalent), which would otherwise
be required to produce the same amount of power, and consequently the reduction
of roughly 1,000,000 tons of carbon dioxide emissions from burning of that
coal each year.
As the numbers
presented above represent backlog orders estimated to be completed in the
next 12 months until April 2010 based on contracts signed as of the press
release date, the actual revenue realized through that date is subject
to the completion of all these orders during the next 12-month period.
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, and
would lead to delay in the completion and/or shipments of these orders,
thereby affecting the revenue to be recognized for the company in the next
12 months. The contract numbers presented above are the total contract
values, which include a 17% value added tax ("VAT") and the retainage amounts
for product warranty purpose, which are 5-10% of the total contract values
and will be recognized as deferred revenues. VAT and the retainage amounts
are excluded for revenue recognition for the current period according to
US GAAP. The numbers presented represent values based on current exchange
rates. Changes in the currency exchange rates would result in a commensurate
change in contract value.
What is Waste
Heat Energy Recovery?
Industrial facilities
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 heat energy or electricity, dramatically lowering energy costs.
Energy recovery systems are also capable of capturing harmful pollutants
that would otherwise be released into the environment. It is estimated
that if energy currently wasted by all the U.S. industrial facilities could
be recovered, it could produce power equivalent to 20% of U.S. electricity
generation capacity 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 designing, manufacturing and installing waste heat energy recovery
systems which provide facilities with greater energy efficiency. The company's
primary focus is 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, Korea, Vietnam and Malaysia.
CER focuses on numerous industries in which a rapid payback on invested
capital is achieved by its customers, including: chemical, paper manufacturing,
refining (including methanol refining), etc. 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 CER 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, CER's ability to execute on its business plan and strategies
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 Securities
and Exchange Commission, including CER's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 30, 2009.
For more information,
please contact:
Media
Sean Mahoney
Tel: +1-310-867-0670
Email: seamah@gmail.com
Investor Relations
Jim Blackman
Tel: +1-713-256-0369
Email: jim@prfmonline.com |
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Updated: 8:42 pm PDT (03:42 GMT), September 7, 2010
