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RCON Net income increased 57% to $1.86M or $0.83 per diluted share

Recs

9

September 18, 2009 – Comments (3)

for the nine months ended March 31, 2009, from $1.19M or $0.54 per diluted share for the same period in 2008.

Another under the radar Growth stock trading under $10/shr


Recon received proceeds of $10.2M from the 1.7M shares offered at its IPO.


Recon Technology, Rapidly Growing Chinese Oilfield Automation Services Company, Completes Successful Nasdaq IPO; Secures $971,000 in New Equipment Orders for Chinese Oil and Gas Fields.
For over 10 years, Recon Technology has provided oilfield services and products to automate and enhance the extraction of petroleum in China, including well service, drilling service, production and field service. Recon's specialized proprietary software and hardware manage the oil extraction process in real-time thereby reducing extraction costs.

http://www.hawkassociates.com/pdf/profile/RCON.pdf

One of the most important advancements in China’s petroleum industry has been the automation of significant segments of the exploration and extraction processes. Recon's technology increases efficiency and profitability for petroleum companies by enabling them to monitor, manage and control petroleum extraction, increase the amount of petroleum extracted and reduce impurities in extracted petroleum.

China is the world’s second-largest consumer of petroleum products, third-largest importer of petroleum and sixth-largest producer of petroleum. In the last 20 years, China’s demand for oil has more than tripled, while domestic production levels have increased only modestly. China has been a net importer of petroleum since 1983 creating a strong national goal of meeting as much of the country's domestic oil demand as possible.

China's oil and gas industry is dominated by three state-owned holding companies. Two of them, CNPC (SEHK: 0135) and Sinopec (NYSE: SNP) are Recon's primary customers. Recon has provided services to Sinopec since 1998 and CNPC since 2000. Recon has conducted automation projects for about 80% of CNPC and Sinopec's oil and gas fields, covering three of China’s four highest producing oil fields in Daqing, Shengli and Xinjiang.

Recon's technology is based on three software copyrights, eight product patents and four pending patents. Recon's R&D team consists of 27 experienced engineers, developers and programmers. Recon places a high priority on exploration, design and innovation. Recon also cooperates with the Oilfield Service and Geology Research Laboratory of Nanjing University.

Recon is the first Chinese non-stateowned Oil and Gas service company to be listed on Nasdaq. Recon has 96 employees, 90% of whom are college graduates.

Recon Technology Ltd. (RCON)       
Sep 18 9:19 AM EDT
Last Price     9.571
Change     
Day High     N/A
Bid     9.65
Ask     10.23
Dividend     0.00
    
Last Trade     9/17/09
% Change     0.00%
Day Low     N/A
Bid Size     100
AskSize     800
Ex-Div Date     N/A
    
Tick     
Open     N/A
52 Wk Hi     10.43
EPS(TTM)     N/A
Shares     3.42 m
Yield     0.00
    
Volume     100
Prev Close     9.571
52 Wk Low     5.13
PE Ratio     N/A
Market Cap     
close Exchange Information
Listed On
Nasdaq Small Caps (NSC)
32.72 m
Exchange
    NSC

Differentiators
Products and Services

Recon’s supervisory control and data acquisition system (“RSCADA”) –
This industrial computerized process control system monitors, manages and controls petroleum extraction at underground, ground and above-ground levels. RSCADA uses 2.4G wireless frequency to connect the elevated central control room, the ground-level relay station and the underground bottom intelligent terminal. RSCADA has received grants and awards from the State Ministry of Science and Technology and the city of Nanjing.

Water System –
As China’s oil extraction has grown, most of China's oil fields are in the third stage of oil extraction characterized by decreased oil output and increased water content. Recon's technology reduces the amount of water in extracted petroleum.

Oil Field Furnaces –
Crude petroleum contains impurities including water and natural gas that must be removed before the petroleum can be sold. Recon's heating furnaces remove the impurities and prevent solidification and blockage in transport pipes. Recon's highly automated furnaces operate with 90% heating efficiency.

Proprietary Multipurpose Fissure Shaper –
Before any petroleum extractor can test for the presence of oil, it must first drill a hole for testing. The depth of the hole is extremely important in the testing process. This process improves the ability to locate productive oil fields and increase output of oil wells. Recon's fissure shaper, used with a perforating gun, increases the perforation depth by 46-80% by shaping stratum fissures and improving the stratum diversion capability.

Acoustic Pipeline Monitoring System –
Recon is one of the few acoustic system providers in the world. Recon's system is widely used by Sinopec to prevent oil/gas leakage in transport pipes. Recon is also cooperating with Sinopec to implement solutions in imports instrumentation, the introduction of equipment and oilfield chemical additives.

Recent News
9/08/09-
Recon Technology Secures $971,000 in New Equipment Orders for Chinese Oil and Gas Fields
8/24/09-
Recon Technology, Ltd. [RCON] Chief Executive Officer To Ring The NASDAQ Stock Market Opening Bell
7/30/09-
Recon Technology Announces Pricing of Initial Public Offering on NASDAQ

    * Risk Factors Limited history as a public company
    * Limited acquisition of new crude oil reserves by customers
    * Volatility of the petroleum industry
    * China’s competitive environment


The Outlook Recon's growth is driven by a number of factors:

# 79% of net growth in world oil demand for the next two decades will come from China and Asia.
# The automation of China's petroleum industry is still in initial stages.
# China's oil reserves and production yield are negatively correlated. U.S. proved crude oil reserves are 2.45 times China's, however, U.S. production yield is 3.3 times China's.
# There is a growing need for high-tech and precise instruments in the oilfield service market, because of the surging oil demand and declining oil resources.
# Industry trends favor integrated service providers.
# China is currently diversifying its energy sources with liquefied natural gas, which also employs Recon's automation system.
# Compared with foreign competitors, Recon is able to leverage its knowledge of Chinese business culture.

In the short-term, Recon continues its R&D on improved automated systems to maximize extraction at a lower cost. Recon continues to extend its market share by acquiring new projects in CNPC and Sinopec's overseas subsidiaries and other Chinese petroleum companies.

For the longer term, Recon expects to become a leading non-government-owned service provider to the oilfield exploitation industry in China, Russia, Southeast Asia and other low technology oil producing countries.

For the nine months ended March 31, 2009, revenue was $9.10M, up 25% from $7.26M for the nine months ended March 31, 2008. This was attributed to Recon's reputation for operational success built over the past 10 years, its continued strong business relationship with customers, a focus on high-volume transactions and an improved accounting infrastructure, which has shortened the time required to recognize revenues.

The majority of Recon's revenues are from hardware sales, facilitated by its software and system designing business. As Recon earned substantially all of its software revenues from new clients, the company expects its service revenues to continue to grow, as these new customers require continuing service associated with their software purchase.

Gross profit increased 26% to $3.59M from $2.85M for the same period in 2008. Gross profit as a percentage of revenue increased slightly to 39.5% from 39.2% for the same period in 2008. The increase was because of increase of service business and effective cost control.

Net income increased 57% to $1.86M or $0.83 per diluted share for the nine months ended March 31, 2009, from $1.19M or $0.54 per diluted share for the same period in 2008.

Use of IPO Proceeds

Recon received proceeds of $10.2M from the 1.7M shares offered at its IPO.

Description of Use
    
% Net Proceeds
Acquisition and Biz development     
48%
General working capital     
25%
Product R&D     
15%
Sarbanes-Oxley compliance     
5%
Fixed asset purchases     
5%
Employee training     
2%
Management
CEO and Director-
Mr. Shenping Yin

CFO-
Ms. Jia Liu

CTO and Director-
Mr. Guangqiang Chen

CMO and Director-
Mr. Hongqi Li

Independent Director-
Mr. Nelson N.S. Wong

Independent Director-
Mr. Jijun Hu

Independent Director-
Ms. Xiaorong Liao

Independent Director-
Mr. Dennis O. Laing

3 Comments – Post Your Own

#1) On September 18, 2009 at 9:56 AM, IBDvalueinvestin (99.64) wrote:

The only way this stock won't skyrocket big is if China all of a sudden ceases its demand for oil and stops all its growth.

Like anyone really thinks that will happen. Like it or not oil will only get more expensive and RCON will profit from servicing the oil sector.

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#2) On September 18, 2009 at 11:49 AM, awallejr (82.72) wrote:

+rec.  I appreciated your effort.

Report this comment
#3) On September 19, 2009 at 10:42 AM, irishred1 (< 20) wrote:

 ditto

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