$16.03
0.64 (+4.16%)
A-Power Energy Generation Systems (APWR)
CAPS Rating:
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APWR is a nice combination play. It is a play on the infrastructure buildout in China that will go on for several decades. APWR works in the cogeneration and distributed grid workspace. They contract with industrial factories to harvest energy from the waste heat already being generated. The energy is converted to electricity and used for the plant or for nearby worker villages or for sale back to the regional power grid. APWR has an impressive backlog of 700 million in work to do. They typically take 12-18 months to finish a contract so there is a huge upsurge in annual sales rev coming for them. They grew from 98 to 152 million in annual revs last year. 2008-9 should be signficantly higher based on backlog. In addition to cogeneration, APWR is a wind energy play. They are currently building a new factory to build large wind turbines. They are licensing designs from lead European wind turbine companies and already have a huge LOI from a Chinese province that could take up the full capacity of the new factory for 2-3 years if the total contract is signed for almost a billion dollars. The gross margins are low at 9-12% due to licensing fees but the fees decrease after a certain number of units are built and there is a tax incentive if they export the wind turbines. The LOI is for a JV so the billion dollars would not all flow to APWR.
APWR has been consistently profitable for several years and guiding for profits of 35 to 45million for 2008 or about 1.20 eps. There are 32.7 million shares outstanding and mgmt owns 13million. No debt. Listed on Nasdaq and included in the Russell Global Index.
In addition to the solid backlog of cogeneration and power generation work that is approaching 1 billion dollars, APWR has another strong point. Mgmt is articulate and speaks English clearly. This is a big plus for APWR in communicating with hedge funds, mutual funds and institutions. I listened to the recent conference call and was very impressed with the CEO. He handled questions easily and had obviously communicated with several of the institutional analysts previously. While this sounds superficial, I don't think it's a coincidence that APWR has had a big run since going Nasdaq and has substantial institutional ownership.CEO is already in a very high growth industry in China, power generation and cogeneration. He has also aggressively moved APWR into wind energy. He has teamed up with two leading European firms that already have proven designs for wind turbines. The license agreement calls for the European manufacturer to help APWR set up their new factory. The proven designs will help APWR hit the ground running and almost immediately begin to produce high quality products. Apparently several Chinese wind turbine companies have run into problems by trying to design turbines themselves without enough experience. APWR will avoid these problems, have a world leader in the industry training and advising them and gradually use their experience to design their own products. China has passed a new law that will require 70% of all Chinese wind turbine components to be made in China. This doesn't take effect until 2010 but will require APWR to source components in China or make most of the turbine assemblies themselves. So the licensing is a fast way to start and there is still enough time to outsource components at a later date after the factory is up and running. APWR has even announced that they have already made the decsion to go ahead and build a second wind turbine plant. They have laid the foundation and will begin construction later in 2009. APWR has spiked to over $30 and then dropped sharply back under $20 recently. The fundamentals haven't changed. Should be a good long term play on the Chinese infrastructure buildout. Bobwins
I agree and note that APWR has strong government support, which can be key in country like China. While I made my call on this company at a much higher price, I've averaged down and couldn't resist the extreme pull-back yesterday. The contracts are just rolling in on this company and with their letters of intent, they're already half booked on their 2.7mW turbines! I fully expect that both manufacturing facilities will be operating close to capacity on the 2.7mW turbines by the middle of 09, and with current interest, they can only do one thing; plan and build a third manufacturing facility to accomodate demand. Most people don't realise just how large a country China is and they seem to be very serious about employing alternate energy sources. In 3 years time, I'm willing to bet that APWR will be a $60 stock, if not higher. Their '09 estimate of $1.99 will certainly be trashed yet again. I'm looking for an ultimate revision to the $2.40 - $2.50 range, and that might be conservative.JBB