To OTC Journal Members: 
 

China Recycling and Universal Travel Report

It's a very interesting morning. Here's what I'm learning from these earnings releases. As far as China stocks go, the ones to own are the more obscure stocks in companies delivering great numbers, but still trading on the Bulletin Board.

CREG and UTA were both out with 10Q quarterly filings today, and they were both absolutely dynamite. However, CREG is up and trading very nicely, UTA is down and the market is yawning. CREG is still on the bulletin board. UTA is on the NYSE. Go figure. Here's your review:
 

China Recycling Energy (OTC BB: CREG): Way Ahead of Schedule

CREG delivered its quarterly result this morning pre open, and the BOT model for saving energy in China seems to be all the rage. That's Build, Operate, and Transfer for those who don't remember the model.

The company has really nailed it in the industrial production energy savings space. 

For Q3, $18.4 million in revenues turned into $3.8 million in after tax profits, which equates to $.10 in EPS, or $.08 in EPS fully diluted. This suggests the company can earn $.40 on an annualized basis, which equates to a $4 stock hands down. 

In the press release, CREG also boasts it has already attained the top and bottom line it forecast for the entire year. Not bad. Revenues were up 333% and profits up 1045% over the same quarter last year, but that's a little misleading. The company changed the way it booked its financial results.

Here's the part I really like- CREG reported $1.8 million in interest income for the quarter- over $4 million for the 9 month period. These are zero cost of goods pure profit recurring revenues, and those numbers will continue to grow as the company completes more installations and converts them to the BOT model.

Let's say when it's all said and done the company delivers $7 million in interest income for the year. This means the company starts every year with about $.18 in EPS without even opening its doors. Not bad. You can make an argument the stock is worth $3 on recurring revenues alone. However, there are lots of new projects around the corner for CREG. 

The balance sheet is extremely strong with the company boasting $63.5 million in assets vs $17.8 million in liabilities. I'd like to see the company strengthen its current assets vs liabilities, and I suspect they will. Profits will help on that issue.

As you can see from the chart, the stock is trying hard to make a new all time high. No reason it shouldn't chug higher as the market starts to digest these numbers and more investors learn about this company.

I was a little late to the party on this one having picked it at $2.40, but this party promises to go on for some time to come. The company is worth $4 today on $.10 in EPS in Q3 and recurring revenues. This is one to accumulate. We're up 12.5% so far, but lots more to go.
 

Universal Travel (NYSE: UTA): What's Not To Love?

UTA delivered its Q3 numbers early today, and the stock is selling off a bit on the event. The stock ran up last week in advance of the numbers, and they came in pretty much in line with expectations. Since there wasn't an upside surprise, I suspect the hot money is coming out right now, and longer term money will replace it on this pullback.

UTA delivered nearly $30 million in revenues for the quarter, up 49% over the same quarter a year ago. It equated to $6.6 million in pre tax profits, and $4.7 million in net after tax profits.

Since there are still only 14.4 million shares I&O, the EPS was a whopping $.34- $.31 fully diluted. This suggests the company is now generating about $1.36 in annual EPS.

There's one issue the market probably doesn't like. Bottom line profits were not up appreciably from last year thanks to one entry in their income statement. The company booked a $1 million loss on "change in fair value of derivative liabilities". The company shows a $4.7 million Derivative Liability on its balance sheet. This is another one of those entries where the company had to book a non cash loss because the price of their stock went up. Thank you FASB- your view on this stuff is simply insane. Companies are being penalized for having good stock performance.

So, at the current price of about $12, the market is willing to pay less than 10x annualized EPS with 49% top line growth. I still believe the stock is going to $20 someday, and that remains my target price for this idea.

As you can see from the chart, this stock ran up over 30% into this earning release. The numbers have been filed with the SEC, but the company has not put out a formal press release on the event yet. 

I would wait for the numbers and the conference call to be a week or two in the rear view mirror before considering jumping in. Let's let the hot money come out of the stock completely. 

With $1.35 in annualized EPS, and 40% top line growth, the market has bid this stock higher eventually. Travel in China is a high growth industry, and will be for some time to come.

All we have left is CEU and CGYV. Stand by for those.

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