China Architectural Engineering: Pushing the envelope
Softening global economic conditions have created a rough patch in the commercial real-estate market, causing some experts to fear the worst is yet to come for companies involved in the construction of office buildings, shopping centers and malls.
Indeed, amid the credit crunch, high oil prices and inflation concerns, activity in the U.S. commercial real estate market has slowed even more dramatically as jobs fade and the economy weakens.
Even China's construction boom hasn't been immune, experiencing a marked slowdown since last year (albeit one that pales in comparison with the slump in the United States). Even so, offset by ongoing urbanization, the Chinese market continues to show a strong appetite for apartment complexes, offices and retail space.
One player fairing well in the challenging yet rewarding environment is China Architectural Engineering, Inc. (Nasdaq:CAEI), a leading provider of custom architectural solutions for developers or commercial and public works projects. CAE specializes in the design, engineering, fabrication and installation of high-end building envelope systems, including curtain wall systems (glass, stone and metal), steel construction systems, roofing systems, eco-energy-saving building conservation systems and related products. Through its subsidiaries, CAE's principal business is the design, manufacture, installation and maintenance of structural glass walls for new construction, glass skins for existing buildings and other light structure building systems. CAE, which once operated exclusively in China, now serves the global commercial construction industry, doing business throughout Southeast Asia, Australia, the Middle East and the United States.
As many other companies in the commercial construction sector stumbled in the second quarter, CAE thrived on business growth in China and its rapid expansion in international markets. Beating prior guidance, its revenues rose 113% to $41.38 million, up from $19.45 million in the prior year's quarter. Earnings rose to $7.58 million, or $0.14 per share, up from $4.28 million, of $0.08 per share, in the year-ago quarter. In the first half of the year, net income has more than doubled, while revenues have soared 97% over last year. Looking forward to the third quarter, the company expects net income to be in the range of $8 million to $10 million, or $0.14 to $0.18 per fully diluted share. Revenues are projected in the range of $45 million to $53 million.
During the second quarter, the CAE established U.S. operations and snagged its first American project, sealing a $11.6 million deal to design, construct and install the curtain wall for a 21-story luxury condo complex in the Big Apple. It also landed a $15 million contract for curtain wall systems for the "Silicon Valley" development in fast-growing manufacturing hub of Guangzhou, China. And, it began realizing revenues from contracts awarded in the first quarter — to engineer, build and install external envelopes for subway stations in the extravagant, construction-happy Middle Eastern emirate of Dubai.
The company’s domestic business and international expansion plans are likely to be supported by China's infrastructure build-out and its continuing efforts to gain market share in two of the most lucrative construction markets in the world, the Persian Gulf and the United States.
Shares, which have ranged between $4.75 and $27.25 over the past 12 months, closed at $7.92 on Wednesday. Michael Cox of Piper Jaffray maintains a "buy" rating with a $14 target.
