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Hanwei Energy Services Corp is headquarted in Vancouver, Canada and trades on the Toronto Stock Exchange. (HE.TO)
“Hanwei Energy Services Corp. provides high value products and services for the global energy sector. Hanwei serves its major energy customers through manufacturing facilities in China, producing products for the oil, coal power and wind power industries. Hanwei is focusing on providing products and services that address the growing need for improved energy efficiency and environmental protection in the world.”
Share price = $.80P/E = 9.9
Book Value = $2.20
Current Ratio = 1.5
Gross Margin = 28.6%
Insider Ownership = 22%
Since 2005, their CAGR is 81.3%
Hanwei’s revenues come from three different product lines. Below is a quick summary of each line. Fiberglass Reinforcded plastic (FRP) – 49% of 2008 RevenuesFRP accounted for 49% of Hanwei’s revenue in 2008. They are 1 of 2 companies producing high pressure FRP pipe for oil transmission and currently have more than 55% of the market share in China. They are currently investing in product development of a larger diameter pipe and new joint methods. They have also recently added products for water applications.
Their 2 – 12 inch high pressure FRP pipes are principally used in the following applications:
– Transmission line tie-in
– Down hole water injection
– Municipal water transport Pipe sales grew by 52% in 2008.
Wind Products - 48% of 2008 Revenues
Sales from their Wind products accounted for 48% of their revenue for 2008. They have invested extensively into their wind division and now have the design capacity to produce over 400 turbines and 100 blade sets per year. Their revenue grew by over 400% y-o-y in 2008. The Chinese market is 5th largest worldwide and has set a target of 100GW by 2020. Currently they have an installed base of 12GW. Foreign producers of wind turbines are slowly being phased out as government regulations are requiring “made in China” content. This is considered a significant barrier to entry, which is good for Hanwei. For example, in 2004 nearly 75% of turbine sales were from foreign companies. In 2008, it was around 35%.
Coal – 3% of 2008 Revenues
They manufacture FRP spray headers for SO2 scrubbers (FGD systems) which are pollution control devices. Their spray header systems sales grew 127% in 2008.
Why is their stock price so low?
Their most recent quarterly report was less than stellar. The economic downturn has significantly affected their business due to cut backs in capital expenditures from energy companies. For 6 months ended, their wind product line only accounted for only 13% of revenues, compared to 51% for 2008. This is mainly due to a timing difference and management is forecasting a significant increase for the second half of 2009. Their FRP pipe business actually grew 18% for six month ended when compared to 2008. Overall, revenue was expected to grow in the 30-50% range for 2009 compared to 2008, but management recently came out warning that they will in fact miss those estimates. They are now predicting revenues will be about the same as 2008. This fairly recent news caused a 20% haircut to the share price.
Their shares are near an all-time low of $.80, which seems very unreasonable considering management’s good track record and the price of their assets alone. Their share price was north of $6 in 2007.
With the growth potential in China, especially in the energy sector, this seems to be trading at a discount.