 We've
looked at China Energy Recovery a couple of times now - from a bird's-eye
view. Today it's time to get our hands dirty and take a very close
look at the mechanics and metrics (dollars) of their technology, answering
the question 'does it add up?' Two announcements this week are the
perfect launch pad for the task.
Specifically,
we want to find out just how marketable these waste-heat recovery systems
are. The cost and the financial benefit are the key drivers
behind the purchase-decision process, so the math has to show a fiscal
upside to any potential buyer.
Fortunately,
you don't have to be a waste-heat recovery expert to make sense of the
numbers.
We're familiar
with the big numbers - like revenue and earnings - for China
Energy Recovery (OTCBB: CGYV). For instance, a couple of weeks
ago we knew the sales backlog for the remainder of the year (at the time)
was around $16 million, which put the company on pace to do about $26 million
in business for all of 2008. We also knew the company swung to a profit
in the first half of the year, and they expected to widen their net margins
in the near future.
 Those
are fairly abstract numbers though. Many small cap investors want to get
a feel for the odds of success by diving into the details of the product.
That's what we've got today.
Earlier this
week, China Energy was awarded a design contract valued at $140,000.
Just to be clear, this isn't a contract to build a waste-heat recovery
system - it's a contract to design it. Most of our attention has
been on the company's ability to build and install theses systems, but
there's clearly good money in drawing the plans up as well.
Several weeks
ago, China Energy Recovery - or CER - signed a deal to design
and actually install two waste-heat recovery systems. The agreement
was said to be worth $6.9 million, which the company called 'significant'.
And, judging from the tone of the press release and the completion target
of late 2009, it likely was a bigger-than-average contract.
Looking further
back in time at the detailed portions of China Energy's SEC filings, we
can get a better feel for how much the 'average' contract is worth. Actually,
we can get the exact number.
For the first
six months of the year, the average revenue per contract (whether it was
designing, building, or consulting) was $185,000. The bulk of their business
came from product sales (worth an average of $190K each), and design services
(worth an average of $166K per project). It's also worth mentioning
those averages are progressively getting bigger.
Here's the key
rhetorical question - is a $200,000 investment (more or less) a big
deal for the average factory or energy production facility? It's not
something a CFO can just grab by dipping into the petty cash account, but
no, $200K isn't a huge deal even for a modestly-sized company.
So, we have
a basic idea about the cost, but what about the benefit?
Earlier this
morning we were given some insight about the other side of the coin - the
benefit side...and we're not even talking about reduced energy expenses.
 Two
Lions Fine Chemical Co. was one of CER's earliest customers; their waste-heat
recovery system was installed in 2005. As it turns out, the heat-recovery
equipment has paid off nicely in more ways than one.
Two Lions recently
disclosed they're going to be able to annually sell some of their carbon
credits, which are currently worth $2.5 million. That's relatively
easy cash which can simply be pocketed. The amount could be even greater
in the future.
What the
heck is a carbon credit? Think of it as a carbon-emission allowance.
To make sure there's not too much pollution (like sulfur dioxide, or in
this case carbon dioxide) being spewed freely into the environment, Chinese
manufacturers are given limits on how much CO2 they can produce each year.
An efficient factory can produce a lot of goods yet produce very
little (relatively) pollution. An inefficient factory produces too
much pollution in relation to its manufacturing process.
See where
this is going? If a facility has a greater emission allowance - more
carbon credits - than it needs, those credits can be sold. It's
pretty easy money, actually.
Now, Two Lions'
waste-heat recovery system is the biggest of its kind within China's sulfuric
acid industry, so odds are the original price tag was more than the average
sticker price of $190,000. However, even at a few million dollars it
would be a bargain if it can produce something around $2 million annually
(if not more). Remember, those carbon credits can be sold each year.
Though their value may fluctuate, they'll most likely appreciate in value
over time.
That's not even
the whole benefit though. Remember, CER's technology also reduces the
amount of fuel required to generate the same amount of heat or electricity.
 Two
Lions Chemical Co. acknowledged their heat-recovery system paid for itself
in a couple of years, and that was before they sold their carbon
credits, and before coal prices went ballistic.
According to
the press release, for Two Lions to produce the same amount of energy with
a coal-fired power plant would require burning about 100,000 tons of coal
per year. With the price of coal recently sky-rocketing to over $100
per ton, CER's system may well be saving Two Lions something in the neighborhood
of $10 million per year in energy expenses.
Perhaps that's
the biggest selling point right now - the incredible increase in coal prices
over the last few months, which has topped crude oil's price increase.
Coal now costs close to three times what it cost in the middle of 2007,
so
coal-burning facilities are feeling the pinch. Two Lions' case may not
be a typical one in terms of size, but it is probably proportional.
These are only
some rough numbers, but eye-opening all the same. As CFO's and facility
managers start to do the same math we just did, the cost/benefit
ratio of China Energy Recovery's technology becomes pretty clear. Increased
demand for their product is likely to follow.
Here's the press
release.
| One of China's
Largest Sulfuric Acid Manufacturing Plants Celebrates Three Years Combined
Success of Advanced Waste Heat Energy Recovery System with Power Generation
Capacity of 54 MW of Electricity
Friday September
26, 7:00 am ET
-- Two Lions
Fine Chemical Company, a leader in using advanced heat recovery technology,
saves millions on energy costs allowing it to pay off cost of energy recovery
system in less than two years
-- Nearly 250,000
tons of reduced CO2 emissions result in approved carbon credits for the
project valued at approximately US$2.5 million per year
SHANGHAI, China--(BUSINESS
WIRE)--China
Energy Recovery, Inc. (OTCBB:CGYV) ("China Energy Recovery" or "CER"),
a leader in the waste-heat energy recovery sector of the alternative energy
industry, today recognized that an important client of CER, Two Lions (Zhangjiagang)
Fine Chemical Co., Ltd. ("Two Lions"), located in Jiangsu Yangtze River
International Chemical Industry Park, remains a model of waste heat recovery
technology application with installed power generation capacity of 54 MW
of electricity utilizing recovered heat energy, the largest of its kind
in the sulfuric acid industry in China.
When construction
was completed in 2005, the plant was considered the most technologically
advanced sulfuric acid production facility in the world, and its one million
ton per year output capacity continues to make it China's largest single
sulfuric acid manufacturing facility. Two Lions has been able to attain
a payback period of less than two years for the installed energy recovery
system from energy cost savings resulting from the system. Additionally,
Two Lions was granted Clean Development Mechanism (CDM) certification and
was approved to sell carbon credits for nearly 250,000 tons of reduced
CO2 emissions annually, the very first CDM certification in China's sulfuric
acid industry. The current value of the carbon credits is estimated to
be more than US$2.5 million per year.
"We are very proud
of the success of Two Lions and appreciate that they returned to us for
additional projects. With customers like Two Lions to recognize the benefits
of waste heat recovery technology, we are more committed than ever to making
sure our systems continue to improve in order to maximize heat energy recovery
capability for our customers," stated Chairman of the Board and CEO of
China Energy Recovery, Mr. Qinghuan Wu. "As a comparison, to generate the
same amount of electricity as Two Lion's installation in a coal fired power
plant would require burning approximately 100,000 tons of coal per year.
In contrast, Two Lion's energy recovery system generates the same amount
of electricity without consuming any additional fossil fuel. This represents
what our entire company's mission is about, and we look forward to continuing
to maximize our opportunity for growth with companies like Two Lions and
others throughout our target markets."
What is Waste
Heat 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 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, and CER's customers' ability to successfully pay back the
costs associated with installed energy recovery systems, obtain CDM certification
and be approved to sell and actually sell carbon credits. 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.
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. |
|
Updated: 9:18 am PST (17:18 GMT), January 5, 2009
