NF Energy Saving Corp. (NFEC) is a provider of integrated energy conservation solutions utilizing energy-saving equipment, technical services and energy management solutions. Research Analyst Ira Zadikow of Pro-Active Research Group issued an initiation of coverage report on 8/28/09 with a speculative buy rating and $8/share long-term price target, with the following highlights:
- Excellent revenue growth: up 53% from 2007 to 2008 and expected increase of at least 60% in 2009
- New manufacturing facility under construction that should be completed within six months, focused on additional wind energy equipment manufacturing capacity
- Prime beneficiary of China’s push to promote energy efficiency and renewable energy initiatives and the strong current growth in the power industry as the Chinese government’s recent five-year plan is funded for 4 trillion RMB (nearly US$600 billion)
- Growth opportunities that include expanding and diversifying their product, service and consulting offerings within the clean energy infrastructure space
NF Energy Saving provides energy savings and emissions reduction equipment and services for China’s rapidly growing cogeneration sector. The company provides integrated energy conservation solutions utilizing energy saving equipment, technical services and energy management solutions. The company manufactures energy efficient flow control systems and provides services to improve energy efficiency and reduce emissions.
The company also provides energy saving technology consulting, optimization design services, energy saving reconstruction of pipeline networks and contractual energy management services for China’s electric power, petrochemical, coal, metallurgy and construction industries as well as institutions and municipalities.
The company’s subsidiaries are Nengfa Energy and Nengfa Sales, 99% owned by Nengfa Energy. Nengfa Energy manufactures, markets and distributes energy saving flow control equipment, wind power equipment and fittings, and a variety of flow control components including industrial valves, hydraulic systems and electric control systems, all widely used in water supply and sewage systems, coal and gas fields, power generation stations and the petroleum and chemical industries. Flow control system equipment is the key factor in determining the efficiency of pipeline systems.
Nengfa Energy also provides energy saving technical reconstruction and consulting services, including energy saving technology consulting, design optimization services, energy saving reconstruction and retrofitting of pipeline networks and contractual energy management services. Nengfa Sales is primarily involved in the sale and marketing of valve components and products.
The company categorizes its business into two reportable segments, heavy manufacturing and energy saving. Heavy manufacturing includes the production of valves and components and the provision of valve improvement and engineering services. Energy saving includes the production of wind energy equipment, the provision of energy saving related reengineering and technical services, and long-term construction projects.
On August 26, the company conducted a 1:3 reverse stock split, and changed its trading symbol from NFES to NFEC. The primary reasons for the reverse split were to potentially increase investor interest and to improve the marketability and liquidity of the stock, to potentially facilitate an alternate listing of the company’s stock onto a national exchange (from its current OTCBB trading status), and to potentially reduce trading costs in the stock due to brokers’ commissions on lower-priced stocks.
Using a valuation basis of a multiple of sales the stock is currently trading at slightly less than 5 times their 2008 revenues and at approximately 2½–3 times their anticipated 2009 revenues. Based on the company’s recent revenue growth, its recent pace of orders as well as their market share, their market focus and the Chinese government’s substantial focus and spending on energy efficiency and renewable energy initiatives and a growing market for the company’s products and services, Analyst Ira Zadikow believes that the stock presents an attractive investment opportunity and initiated coverage of the company with a speculative buy rating and an initial long-term (12–24 months) price target of $8.00, or approximately 3½–4 times expected 2009 revenues and approximately 3 times expected 2010 revenue.
Please visit the company’s Pro-Active News Room website for more information and resources, including the corporate presentation and research reports. Below are links to my two previous articles on the company, which include an overview article from July 26 and a 2Q09 earnings update article from August 13.
Disclosure: No position