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China Energy's (OTC BB: CGYV) Knock Out Numbers: What Recession?

Of the 8 small companies I have on my current menu of ideas, China Energy continues to be the one I believe offers the most upside potential with the least amount of risk. Why? - check out today's earnings release for 2008. Here are their achievements:

Revenues up a mere 95.6% - $23.18 million in 2008 up from $11.85 million in 2007
Gross profit increased to $5.07 million, a 138.2% increase from $2.13 million in 2007
Gross profit margins improved to 21.9%, as compared to 18.0% in 2007
Profits increased by 110.6% to $1.61 million in 2008 from $0.76 million in 2007
Without the aforementioned non-cash expenses of $0.72 million, net income would have been $1.83 million, an increase of 185.9% over that of 2007.
Total shareholders' equity improved to $7,623,445, up from a negative $213,989 in 2007
EPS came in a $.041. Without the one time, non cash pub co expenses, EPS would have been about $.086 per share

Ok- anyway you spin this, these are simply great numbers. When analysts finally catch on to this company, they will love the increase in gross margins. So, not only are their sales numbers rising quite dramatically, the percentage of gross profits CGYV enjoys from the sales is going up as well. This means the company will be able to generate higher profits on the same revenues.

Now, let's look at the 4th quarter to help us figure out what's going to happen in 2009. CGYV delivered $7.2 million in Q4, which suggest they are on an annual revenue run rate of $28 million, but the quarterly numbers keep increasing.

CGYV delivered $6.1 million in Q3- quarter over quarter growth was 18%. If they can keep up at that clip, let's look at '09 numbers. Sequentially in '09, CGYV should deliver $8.4 million in Q1, $9.9 million in Q2, 11.66 million in Q3, and 13.76 million in Q4.

Adding it up, CGYV could deliver $43.72 million in revs in 2009- another whopping increase of 88%. If gross margins stay the same, gross profits would come in at $9.6 million. Margins will increase as it won't cost them any more money to be a public company. In fact, a bunch of one time, non cash expenses would no longer apply- I'd look for about $5 million in net profits, or $.17 in EPS.

If you still like the good old fashioned idea of PE ratios, in any normal market environment a company with a growth rate of 80% should trade at a minimum 40 times earnings.

So, if all this forecasting comes to pass, 40 times .17 would give us a stock price of $6.80.

All this perfect math can give you a guideline, but it rarely follows the play book. They are upside surprises and disappointments along the way. Nevertheless, the numbers are the numbers, and based on the numbers there is no recession going on at China Energy Recovery.

In fact, there is an enormous amount of chatter in the media about the $680 billion China stimulus plan, and a lot of chatter about a substantial amount of those funds going towards energy efficiency and cleaning up the environment.

Manufacturing is down in China in 2009, but the lowered demand is going to the most efficient factories. Therefore, in order to compete, these factories need to retool, and what better way than with government subsidy money.

The chart tells me this stock is just looking to break out on some sort of volume increase. I don't know when that's going to come. The sell pressure has dried up, and there's been no downside pressure at these levels of late. This stock is easy to hold when one simply looks at the corporate performance. Sooner or later the buyers will come, and this stock will be ready to surge.

It's simply a no brainer. Sometime this year China Energy will go nuts, and I hope you are along for the ride. If you don't own this one, and you like small stocks, you are simply cheating yourself. Every small stock investor should own a suitable position in CGYV.

Here's the complete text of today's news for your review:

Press Release Source: China Energy Recovery, Inc.

China Energy Recovery Announces Record Full Year and Fourth Quarter Financial Results for 2008
-- Revenue Grew by 95.6% to $23.2 Million in FY 2008 -- Gross Profit Increased by 138.2% to $5.1 Million in FY 2008 -- Net Income Rose by 73.3% to $1.1 Million in FY 2008

SHANGHAI, March 31 /PRNewswire-Asia/ -- China Energy Recovery, Inc. (OTC Bulletin Board: CGYV - News; ISIN: US16943V2060; "CER"), a leader in the waste heat energy recovery sector of the industrial energy efficiency industry, today announced record financial results for the fiscal year and fourth quarter ended December 31, 2008.

Full Year 2008 Financial Results

Revenue for 2008 increased by 95.6% to $23.18 million from $11.85 million in 2007. Product sales generated revenue of $18.50 million, or 79.8% of the total revenue, and increased by 125.7% from $8.20 million in 2007. Design services generated revenue of $1.27 million, or 5.5% of the total revenue, and increased by 187.8% from $0.44 million in 2007. Revenue from an EPC (engineering, procurement and construction) project that required the company's special technological expertise accounted for $3.42 million, or 14.7% of the total revenue.

Gross profit increased to $5.07 million, a 138.2% increase from $2.13 million in 2007. The company's gross margin was 21.9%, compared to 18.0% in 2007. The increase in the company's gross margin is mainly due to an increase of licensing and design service contracts, which normally achieve greater margins, and our obtaining higher margin orders leveraging our special technical expertise.

Operating income increased by 110.6% to $1.61 million in 2008 from $0.76 million in 2007. If the expenses of $1.47 million related to public company operations, including $0.72 million in non-cash, stock-based service and compensation expenses and finance expense, were excluded so as to be comparable to 2007 in which the company did not incur such expenses, operating income would have amounted to $3.08 million.

Net income for 2008 was $1.11 million, an increase of 73.3% from $0.64 million in 2007. Without the aforementioned non-cash expenses of $0.72 million, net income would have been $1.83 million, an increase of 185.9% over that of 2007. Further, to be comparable to 2007, without the $1.47 million expenses related to public company operations, net income would have been $2.58 million, representing a growth of 303.1% over that of 2007.

Fourth Quarter of 2008 Financial Results

Revenue for the fourth quarter of 2008 increased by 67.1% year over year to a record $7.20 million from $4.31 million in Q4 2007.

"I am very proud to have achieved another record year of growth in 2008," commented Mr. Qinghuan Wu, Chairman and CEO of China Energy Recovery. "In 2008, we continued to strengthen our leadership position in supplying superior energy recovery systems to the chemical and paper-making industries in China. Going public on an American exchange in 2008 helped us open a new era for the company and has helped increase the awareness for the company internationally. Though there will continue to be challenges in 2009 resulting from the global economic recession, we believe the company will continue to grow and capitalize on market opportunities created by the increasing demands for greater energy efficiency and global environmental protection initiatives. The market recognition for our superior design and engineering capabilities coupled with our expertise in waste energy recovery has helped us achieve a well-earned reputation for quality -- something we've endeavored for since the company's founding. We intend to continue to strengthen our core competencies, streamline our business model and expand into other market segments such as cement manufacturing. We will also continue to seek opportunities to expand our manufacturing capacity for our core products. All these efforts will lay a solid foundation for the sustained, long-term growth for the company in order to maintain a reputation as a world leader in waste energy recovery."

For more detailed financial information about CER, please refer to CER's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the Securities and Exchange Commission on March 30, 2009.

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.

                 CHINA ENERGY RECOVERY, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2008 AND 2007

2008 2007
ASSETS

    CURRENT ASSETS:
      Cash                                      $6,136,403          $306,150
      Restricted cash                              597,949            89,115
      Notes receivable                             120,749           351,799
      Accounts receivable, net of allowance
       for doubtful accounts of $151,094 and
       $237,475 as of December 31, 2008 and
       2007, respectively                        4,935,142           577,005
      Accounts receivable - related party        1,006,060           572,036
      Inventories                                7,774,775         5,262,329
      Costs and estimated earnings in
       excess of billings                               --         1,155,909
      Other receivables                             98,271            37,852
      Advances on inventory purchases            1,044,807         1,995,345
       Total current assets                     21,714,156        10,347,540

EQUIPMENT, net 850,888 649,392

    OTHER ASSETS:
      Long term accounts receivable,
       retainage                                   377,368           588,433
      Due from shareholder                              --           463,663
       Total other assets                          377,368         1,052,096

Total assets $22,942,412 $12,049,028

LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES:
      Accounts payable                          $3,331,293        $2,196,508
      Other payables                               466,392           275,591
      Other payables - related party                65,078            60,819
      Accrued liabilities                           21,228            27,851
      Customer deposits                          7,044,234         8,052,570
      Taxes payable                              2,282,621           719,132
      Deferred revenue                           1,518,431           930,546
      Deferred revenue - related party             208,270                --
      Short term loans payable                     381,420                --
       Total current liabilities                15,318,967        12,263,017

COMMITMENTS AND CONTINGENCIES -- --

    SHAREHOLDERS' EQUITY:
      Preferred stock, $0.001 par value,
       50,000,000 shares authorized,
       714,963 and 0 issued and
       outstanding as of December 31,
       2008 and 2007                                   715                --
      Common stock, $0.001 par value,
       100,000,000 shares authorized,
       29,912,573 issued and outstanding
       as of December 31, 2008 20,757,090
       issued and outstanding as of
       December 31, 2007                            29,913            20,757
      Paid-in-capital                            7,645,404           870,787
      Accumulated deficit                         (363,147)       (1,270,165)
      Statutory reserves                           408,403           204,758
      Accumulated other comprehensive
       loss                                        (97,843)          (40,126)
       Total shareholders' equity                7,623,445          (213,989)

Total liabilities and
shareholders' equity $22,942,412 $12,049,028

                 CHINA ENERGY RECOVERY, INC. AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
                    FOR YEARS ENDED DECEMBER 31, 2008 AND 2007

2008 2007

    REVENUES
      Third parties                            $19,793,175       $10,923,338
      Related party                              3,384,900           923,554
        Total revenue                           23,178,075        11,846,892

    COST OF SALES
      Third parties                             16,155,562         8,929,769
      Related party                              1,951,549           788,655
        Total cost of sales                     18,107,111         9,718,424

GROSS PROFIT 5,070,964 2,128,468

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,463,682 1,365,321

INCOME FROM OPERATIONS 1,607,282 763,147

    OTHER INCOME (EXPENSE), NET:
      Non-operating income, net                    126,512            11,259
      Interest expense, net                        (57,411)          (42,446)
        Total other income (expense), net           69,101           (31,187)

INCOME FROM OPERATIONS BEFORE
PROVISION FOR INCOME TAXES 1,676,383 731,960

PROVISION FOR INCOME TAXES 565,720 91,041

NET INCOME 1,110,663 640,919

    OTHER COMPREHENSIVE INCOME
      Foreign currency translation
       adjustment                                  (57,717)         (201,560)

COMPREHENSIVE INCOME $1,052,946 $439,359

    EARNINGS PER SHARE:
      Basic
        Weighted average number of shares       25,705,500        20,757,090
        Earnings per share                          $0.043            $0.031
      Diluted
        Weighted average number of shares       27,033,819        20,757,090
        Earnings per share                          $0.041            $0.031

                 CHINA ENERGY RECOVERY, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                   FOR YEARS ENDED DECEMBER 31, 2008 AND 2007

                                                   2008              2007
    CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                                 $1,110,663          $640,919
     Adjustments to reconcile net income
      to cash provided by (used in) operating
       activities:
       Depreciation                                 92,885            51,715
       Change in allowance for
        uncollectible accounts                      55,549           164,445
       Common stock issued for services            469,631                --
       Stock based compensation                    193,222                --
       Value of warrants related to
        convertible notes                           52,279                --
       Loss on fixed assets disposal                13,186                --
      Change in operating assets and
       liabilities
       Notes receivable                            251,239          (201,663)
       Accounts receivable                      (4,298,231)        1,390,834
       Accounts receivable - related
        party                                     (387,120)         (549,380)
       Inventories                              (2,106,701)       (2,296,726)
       Costs and estimated earnings in
        excess of billings                       1,215,348        (1,110,127)
       Other receivables                           (57,199)           65,151
       Advances on inventory purchases           1,072,567        (1,229,206)
       Long term accounts receivable,
        retainage                                  221,919          (565,128)
       Other assets                                 (2,018)            1,211
       Accounts payable                            946,615           207,593
       Other payables                              168,521            (4,565)
       Other payables - related party                   --          (370,764)
       Accrued liabilities                          (8,225)           23,899
       Customer deposits                        (1,544,864)        5,005,764
       Customer deposits - related party                --          (190,186)
       Taxes payable                             1,486,832           137,740
       Deferred revenue                            718,290           163,590
         Net cash provided by (used in)
          operating activities                    (335,612)        1,335,116

    CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase equipment                           (246,196)         (246,264)
     Repayment of loans to shareholder             487,507          (707,003)
         Net cash provided by (used in)
          investing activities                     241,311          (953,267)

    CASH FLOWS FROM FINANCING ACTIVITIES:
     Increase in restricted cash                  (587,555)          (89,115)
     Cash received from re-organization                119                --
     Capital contribution                               --            67,150
     Proceeds from issuing preferred
      stock, net of offering costs               6,619,278                --
     Shareholder distribution from VIE            (519,744)         (210,756)
     Cash proceeds from short term bank
      loans                                        361,920           282,040
     Repayment of short term bank loans                 --          (298,980)
         Net cash provided by (used in)
          financing activities                   5,874,018          (249,661)