Check on China: A-Power Energy Generation Systems
The price of crude oil futures once again pushed into record high territory on Tuesday, reaching $119.48 a barrel on the weaker U.S. dollar and supply concerns stemming from militant attacks on Nigerian pipelines, reports that Russia will cut oil output this year, and the possibility of a worker strike at a 200,000 barrel-a-day refinery in Scotland.
Rising energy costs have consumers, businesses and entire sectors from New York City to Beijing feeling the pinch. In China, a combination of high energy prices amid spiraling demand and increasing concern over the environmental fallout from its breakneck growth has focused attention on energy alternatives like never before.
In the wake of legislation passed in 2005 mandating that renewable energy resources account for 10% of China's energy consumption by the year 2020, investment and R&D in the country's wind, solar, biomass and biofuel industries has driven companies to step up development efforts to create viable alternatives to conventional carbon-heavy energy sources.
A relatively new player in China's alternative energy arena is A-Power Energy Generation Systems, Ltd. (Nasdaq:APWR). Formerly China Energy Technology Limited, A-Power is principally engaged in providing distributed power generation systems. The company is also focused on developing and commercializing other renewable energy technologies, including wind power, and works closely with researchers at China Sciences Academy in Guangzhou and Tsinghua University.
Lately, the company has been busy. In January 2008, A-Power acquired Head Dragon Holdings, Ltd., a Hong Kong company that owns a controlling interest in sister firms Liaoning GaoKe Energy Group Company Ltd., Liaoning High-Tech Energy Sourcing and Thermoelectricity Design Research Institute (collectively referred to as GaoKe). These companies design, build and install distributed power generation systems and micro power grids networks in China.
In late January, A-Power's GaoKe subsidiary inked a deal with Norwin A/S of Denmark giving GaoKe exclusive rights to produce and sell Norwin's 750-kilowatt and 225-kilowatt wind turbines in China. The two firms plan to establish a joint venture company in Shenyang City that will be 80% owned by GaoKe. The joint venture will begin selling the turbines in late 2008 after the first phase of construction is completed on GaoKe's new wind turbine production facility.
As part of the deal, GaoKe and Norwin will also create a joint research and development facility in Shenyang with the goal of developing new wind turbine technology for Chinese and international markets. GaoKe has agreed to pay Norwin a licensing fee of $3.5 million in exchange for these rights. This move, along with GaoKe's aquisition of rights to build 2.5-megawatt turbines for Germany's Fuhrlander AG, will give GaoKe a diverse wind turbine portfolio to tap a growing marketplace (China's wind energy market is expected to more than triple its output by 2020).
The company reported on Feb. 12 that it signed two contracts worth a total of $72.3 million. The first project involves constructing a 24-megawatt distributed power generation system for a new paper and pulp plant in Wuzhong, China. The second calls for A-Power to build a 24-megawatt distributed power plant in Hailen, China.
On Feb. 14, A-Power announced it signed an agreement to acquire Liaoning International Construction and Engineering Group, a leading Chinese construction and engineering company with a Class-A license, which permits it to build large power systems and energy and infrastructure projects in China. Since 1993, Liaoning International has completed a various projects in China, Africa, Eastern Europe and throughout the Asia-Pacific region.
A-Power reported impressive numbers for fiscal 2007 on March 31 (ahead of Wall Street estimates). Revenues for the year surged 54.5% to $152.54 million, while net income doubled to $15.2 million, compared with $7.51 million a year earlier. For fiscal 2008, the company expects to see net income in the range of $35 million to $45 million, or $1.05 per share to $1.35 per share.
And the good news doesn't stop there. On April 15, A-Power made yet another announcement: the company signed a $150 million contract with National Power Supply Co., Ltd., a subsidiary of Advance Agro Public Co. Ltd., a large Thai-based conglomerate, to develop a 300-megawatt distributed power generation system (half fueled by coal, half powered by recycled waste) for a large paper mill project about an hour south of Bangkok, Thailand. The project, which is slated to start in May 2008, will take about two years to complete.
In an April 1 report, analysts at Roth Capital Partners were bullish on A-power, saying they believe the company's core distributed generation business continues to demonstrate strong momentum, and that the company’s expansion into international markets provides opportunities for incremental growth and improved profitability.
Since China's demand for energy is robust and growing, with its increasing presence in the Chinese alternative energy arena, A-Power is sure to be a beneficiary of a long-term bull market on energy.
A-Power shares, which have traded between $5.97 and $19.50 over the past 52 weeks, closed at $16.10 on Wednesday.
