To OTC Journal Members: 

China Energy's Real Impact, For the Layperson

Before I forget, U.S. markets are closed this Friday (the 10th) in observance of Good Friday, so it's going to be a shortened trading week. That said, what a week so far, huh? The best four-week period in years came to a screeching halt right out of the gate on Monday, only to be revived again today. There are a lot of nay-sayers and perma-bears out there still preaching against the market, and maybe they're right. In the meantime though, stocks are going higher, and I'm far more interested in what stocks are doing than what they "should be" doing. Anyway...

I wasn't able to discuss China Energy Recovery (CGYV) on Tuesday morning following their news, since I wanted to focus our attention on Single Touch's (SITO) CharityCall news instead. As it turns out, it's a good thing I was forced to wait - China Energy posted another batch of encouraging news today. 

We'll look at both items, but I also want to use the discussion as a platform to provide some real-life perspective on just how big of a positive impact China Energy Recovery is making in terms of the environment (which is subsequently why we see the stock as one of our very best current opportunities). 
 
 

Yesterday's News: Another $1.4 Million Worth of Business

One of the most compelling aspects of China Energy as an investment, aside from last year's 96% increase in revenue, has been the reliability and consistency of the flow of good news. It's nice to see publicity that will foster interest in the stock, but more importantly, it's nice just to see that the company's getting results that are meaningful enough to actually talk about. Case in point - the Tuesday morning announcement that China Energy Recovery (or CER) has been awarded a $1.4 million contract to build a waste heat recovery system for Hubei Yangfeng Group... one of China's biggest phosphate fertilizer producers.

The only detail I'm going to expand on is the size of the contract. The $1.4 million deal alone is the equivalent to 6% of all of last year's top line, and it seems like these contracts are coming down the pike on a regular basis now. I'd be very surprised if 2009 isn't significantly better than 2008, as they had already booked about $30 million worth of deals for this year. 

We've covered the fiscal metrics ad nauseam though, so I won't pound them in this time around.

Instead, I want to offer to take some of the ambiguous data (to a layperson, including me) in the press release and put it into terms we can all relate to. If you were impressed by the dollar figures involved, I think you'll be equally impressed by the quantifiable impact China Energy's systems make in the advancement of clean energy. From the news release...

"The two sets of waste heat recovery systems for Yangfeng Group are designed to generate 120 tons of steam per hour. This is equivalent to nearly 24MW of heat energy generation capacity and will enable Yangfeng Group to reduce the cost of purchasing steam from outside sources needed to support the facility operations. In total, this project is expected to achieve an annual saving of roughly 57,100 tons of coal (coal equivalent), which would otherwise be required to produce the same amount of power, and consequently the reduction of roughly 151,700 tons of carbon dioxide emission from the burning of that coal each year."

You know how much coal 57,000 tons worth of coal is? I couldn't even fathom what that would look like in my head until I did a little digging. One coal car on a train can hold about 140 tons worth of coal. Dividing 57,000 by 140 means about 400 coal cars worth of coal (or equivalent) won't be annually consumed now because of CER's waste heat boilers. Stunning.

As far as how to put 151,700 tons of carbon dioxide gas into perspective, it's a little tougher. I was able to find out, however, that one ton of CO2 gas (not in solid form) would fit into the volume occupied by an average three-bedroom house. So, 151,700 tons of CO2 roughly means 151,700 "average houses worth" of carbon dioxide will NOT be spewed into the air thanks to Hubei Yangfeng Group's newest equipment.

Geez - no wonder this is all such a big deal, and no wonder China Energy's boilers are in such demand. 

Like we've said already, CGYV is one of the most attractive prospects we see right now, and even more so when put into the above perspective. 
 
 

Today's News: Successful Even By Picky Standards

The other news I wanted to mention was this morning's release of 1.8 million common shares that had been held in an escrow account since about this time last year.

As part of a financing completed on April 15th, 2008, 1,779,180 CGYV shares that were technically owned by a handful of China Energy's founders (Poise stockholders, technically) were first placed in an escrow account. They were to stay in that account until the company (Hi-tech, technically) achieved certain financial objectives. Namely, China Energy Recovery was to generate $21.6 million in annual revenue (which they topped by 7% last year), and China Energy Recovery was to earn a gross profit of $5.1 million (which was topped by 17% last year). 

So, the shares were handed back over to some of CGYV's founders, acknowledging the financiers were satisfied.

The de-escrow event in itself means very little to you and I...not directly anyway. The market cap won't change, the shares aren't being retired, and growth or profitability won't be affected. 

Indirectly though, the release of the stock from the escrow account means a lot. 

The series A preferred stock investors from last April's financing weren't 'Joe Investor' from down the street; they seemed to know where to set the bar - just high enough to be rewarding to them, but not so high as to make the deal unattractive to China Energy. 

Here's the interesting part about the deal from last April's financing though.... had China Energy NOT achieved those objectives, those escrowed shares would have instead been given to the series A convertible preferred stock investors who put their cash on the line last year. Talk about pressure on China Energy! Those series A holders were facing a win-win scenario either way, but CER's founders were facing a true win-or-lose scenario.

Either way, my point is simply if China Energy did well enough to satisfy some major institutional-level backers, I think the rest of us should take the hint. Just a thought, even if it's not a game-changer.

In the meantime - and along those same lines - I'll reiterate my feelings that CGYV should eventually be valued north of $5.00. A fund or an institution just isn't likely to look at the direction margins are headed and pass on China Energy. Tomorrow, next week, or next month? I'm not sure, but I think sooner than later, once we finally crack the $2.00 mark.