Today’s exercise in hyperbole comes from the folks at Lombardi Publishing — they’re trying to get you to subscribe to their VIP Fast Track newsletter, which I’ve never heard of before (each of their editors seems to have almost a half-dozen newsletters, perhaps they’re just throwing them out to see what will stick … like Chef Gumshoe’s famous spaghetti done-ness test). This particular one is co-edited by George Leong and Mitchell Clark, and it’s about yet another Chinese stock.
“The facts are as mind-boggling as the profits you’re set to make.
“Thirty million people in 28,000 Chinese villages are about to get electricity — for the first time in their lives.
“And our top stock analysts predict you can triple your money on the small cap getting all the business.
“Everything points to this $10 stock leaping to $30 in a hurry. And that’s why I’m writing to you today.”
This is apparently a stock that they’ve “found” before …
“It’s already up double since we found it. You’ll triple yours. Top VIP analysts say everything points to a surge to $30.”
The boom we’re told to expect that will fuel the rise of this stock is all about more Chinese folks getting and using lots of electricity …
“Like a horde of rich kids in a candy store, they’re buying up all the comforts of life. Refrigerators. Washers and dyers. Air conditioners. Computers. Printers. Cellphones. Domestic consumption in China is now 41% of its ever-expanding GDP.
“China is re-igniting itself!
“China reports that when rural households get power for the first time: 99% buy a color TV… 49% rush out to get washing machines… 30% purchase refrigerators… 10% buy air conditioners.
“To support this massive domestic boom, China is flooding their banks with more than $200 billion, putting another $585 billion into infrastructure, and earmarking 9% of their explosive GDP to construction.
“Power plants are going up at the incredible pace of one a week — just to run all the new appliances and electronic gadgets.
“And yet, 30 million Chinese — nearly the entire population of Canada — are still without electricity. China needs those 30 million (about 7.5 million households) to become consumers to keep their new boom booming.”
I don’t know what kind of impact bringing electricity to the last two percent of the population would have on stimulating the economy, assuming that 30 million figure is correct (30 million people = roughly 2.2% of China’s population). Numbers I’ve seen recently are actually much lower, the National Energy Administration recently estimated that there were two million rural Chinese households without electricity, though I don’t know if that number is any more or less believable.
Either way, we can probably accept the fact that Chinese electricity consumption is going up very fast as more families begin to enjoy more modern conveniences. We only have to look at automobile purchases to know that there’s a rapid adoption of Western conveniences in China these days, their auto sales in recent months have been nearly double the rate of a year ago.
So what is this company that’s going to make us rich because of increased electricity consumption — and, naturally, the need for more electricity generation? Well, to answer that we’ll look at the section of the ad that’s replete with delicious little clues:
“Opening up a brand new, untapped market of consumers 30-million strong is an extraordinary reason for China to power up those 28,000 villages in a hurry.
“And this small cap is set to get all the business.
“Profits are a virtual lock for all, the company, and its shareholders.
“There is only company in China licensed to build and maintain the specialized electric power plants capable of lighting up this colossal market. And it’s this company!
“Specialized plants are required because there’s no way China’s existing electrical grid can take on an added 30 million overnight. The grid’s already stressed from China’s insatiable demand for energy.
“The solution is DG power plants — off-grid plants that generate electricity to meet local demands. And get this: our small-cap hero is China’s largest provider of this technology, known for its distributed generation (DG) systems.
“And, as I just told you, this is the only company in China even allowed to do this. That’s a lock!
“The company is already providing DG power throughout China in 17 facilities. And 10 more are being built at this moment. Average capacity: 5MW to 24MW.
“In 2008, the company increased its focus on wind energy and then went right ahead and built China’s largest wind turbine manufacturing facility. Total capacity: 1,125MW….
“Get in now for about $10 and you get the bargain of the century — a special-situation stock dominating a soaring industry in a red-hot economy.
“Profit opportunities like this one come around once, maybe twice a decade. And I want to make sure you don’t miss out.
“But you need the name of this company, the updated financials, all the facts before you invest a dime. You get it all right here.”
OK …. so who are we dealing with here? A couple readers sent in suggestions for the same company, and the mighty Thinkolator concurs, this is …
A-Power Energy Generation Systems (APWR)
This is a distributed generation company in China, as you can probably guess — this is how they describe themselves:
“A-Power Energy Generation Systems Ltd. is a Nasdaq-listed (ticker: APWR) alternative energy company based in Shenyang, an industrial hub in Northeast China. With 17 projects completed since 2003 and more than 10 currently in-process, we are the largest provider of distributed power generation systems, focusing on energy-efficient and environmentally friendly projects of 25MW to 400MW both in China and overseas.
“In 2008, we entered the wind energy market and have built China’s largest wind turbine manufacturing facility, located in Shenyang, with technologies licensed from German Fuhrlander AG and Denmark-based Norwin, and a total annual production capacity of 1,125MW. In March 2009, We entered into an agreement to establish a Joint Venture partnership with GE Drivetrain Technologies to produce wind turbine gearboxes in Shenyang.”
And this has been a favorite of value-focused and green-focused China investors for a while — including Keith Fitz-Gerald, who pegged it as a favorite in a teaser I wrote about a few weeks back. It looks cheap based on current and projected future earnings, it’s in a hot industry with its new focus on wind turbines, and, well, it’s Chinese, so it must be poised for rapid growth, right?
Maybe so, but it’s perhaps worth noting that though their distributed generation (DG) business is a nice profitable niche for them — they’re the only private company that does this, apparently, and there’s certainly some potential for increasing the number of DG systems — the wind turbine business is much larger and more competitive, especially in China, where there are dozens of Chinese firms fighting for a perceived windfall of business and most of the large global players like Vestas and Gamesa also have a significant presence. There’s an interesting blog post over at SeekingAlpha from this past Summer that lays out some of these concerns, though I haven’t checked all their facts. It’s tough to really get a handle on how “green” energy companies will do long-term in China, they’re certainly pushing for more solar and wind power to help clean up their smog, but there are also so many businesses like this that are so fiercely competitive and/or subject to patronage that the future profitability always seems to me like a wild guess.
I like the idea of their DG business (and its profitability), since it makes sense that local communities, industrial areas, and other small groups of businesses would continue work together to create effective and efficient local micro-power grids to ensure reliable power supplies (as well as cut costs and increase efficiency), but I have less confidence that I can guess whether or not APWR will be able to compete effectively with Sinovel, Goldwind, Vestas and their ilk (though they very well might, and they do have deals in place with some manufacturers for components, notably GE).
Financially they look to be in very good shape — A-Power has a market cap of about $360 million, but in addition to being consistently profitable they’ve also got well over $100 million in net cash on the books, so they can afford to invest in the growth they’re looking for. On the other hand, we should also use some caution in relying on analyst estimates of that future growth that give us the forward PE of 8 — the small number of analysts who follow APWR has been consistently way off, the company has earned far less than estimated (or in analyst-speak, “surprised on the downside”) for each of the past four quarters. Profitable, sure … but exactly how profitable is apparently very difficult to predict.
So … it seems to me like APWR is an undervalued builder of micro-grids and distributed generation, stapled to a company that’s working on a capital-intensive buildout in the competitive wind turbine business. Certainly some potential there, though probably also some risk. I know there are a lot of Gumshoe readers who follow and own this one and know it far better than I do, and even one person who suggested APWR for the contest we had about a year ago (the shares have more than doubled since then, FYI), so if you’ve got more info on APWR to share please do so with a comment below. Thanks!