Tri-Tech Holding: The Most Exciting Chinese IPO Ever Listed

| About: Tri-Tech Holding, (TRIT)

China is facing a severe water crisis. If present trends are not reversed, the World Bank forecasts that by 2020 there will be 30 million environmental refugees in China due to water stress.

  • With 20% of the world’s population but only 7% of global water resources, China meets with a severe challenge.
  • More than half of China’s 660 cities suffer from water shortages, affecting 160 million people.
  • The per capita water volume in China is one fourth of the world average.
  • 90% of cities’ groundwater and 75% of rivers and lakes are polluted.
  • As a result of widespread water pollution, 700 million people drink contaminated water every day.
  • Waterborne diseases have created a rising number of premature deaths.
  • Between November 2005 and January 2006, three large-scale incidents occurred, halting water supply for millions of people and raising awareness of the challenges ahead.
  • The government plans to mitigate water pollution by investing in wastewater treatment facilities.

The Chinese government is addressing this problem with big dollars. From the Tri-Tech prospectus,

From 2005 through 2010, China’s environmental investment is expected to be approximately $184.2 billion. This growth represents a cumulative annual growth rate of approximately 14.5%. Of the estimated $184.2 billion to be spent on environmental protection, approximately $39.5 billion is expected to be used for water resource management, urban water management, wastewater treatment, sewage reuse and water treatment.

In November 2008, the Chinese government announced a stimulus package worth approximately $585 billion designed to respond to the current global economic crisis. The first two allocations of the stimulus package have allocated approximately 10% of the $33 billion to environmental projects in China. While it is unclear at this point how much of the stimulus package will be allocated to or ultimately spent in our industry, the stimulus package may cause our industry to grow significantly.

Enter TRIT

I think that last week's IPO, Tri-Tech Holding, Inc. (NASDAQ:TRIT), is the most exciting Chinese IPO to ever get listed. This Company directly addresses China's biggest environmental challenge, water scarcity.

From the prospectus,

Our company works with local and regional government bodies in China to design and implement systems to monitor and manage China’s natural and municipal water resources. Since we began providing these services in 2002, we have implemented more than 200 projects in provinces, municipalities, autonomous regions and special administrative regions throughout China.

We design sewage treatment and odor control systems for municipal supplies. These systems, which coordinate technological solutions (software, management information systems, enterprise resource planning and local and wide area networking) with hardware (sensors, distributed control systems, programmable logic controllers, supervisory control and data acquisition systems and mechatronics), allow our clients to monitor and control numerous variables in the sewage treatment and odor control processes. Our goal in this regard is to be a total solution provider for our clients, allowing them to engage us to design processes and systems that work seamlessly to manage the process from the initial intake of raw sewage through the return of water to consumers for reuse.

We also assist the government in monitoring natural waterways. We provide systems that combine technological solutions (software, geological information systems, management information systems, enterprise resource planning and local, wireless and wide area networking) with hardware (sensors, supervisory control and data acquisition systems and mechatronics) to track water levels for drought and flood control, monitor groundwater quality and assist the government in planning its water resource use and management.

My Estimates on TRIT

TRIT has a tiny float of only 1.7m shares with approximately 5.2m shares outstanding after last week's IPO. So the share structure is very small for a Company in such an exciting growth sector. Last Quarter revenues increased by 54.5% and net income increased 93.3%.

My calculation for EPS Run Rate with the new IPO shares is $852k for the last Qtr X 4 = $3.4m / 5.2m O/s = .65 EPS. However, with the strong growth prospects and current growth rate I can see this having potential to quickly climb to $.75-$1.00 EPS. DGW, another IPO serving the Chinese water industry, has had a P/E of 20-30 at various times since its IPO.

Based on Growth Prospects and DGW P/E range I personally target a PPS range of $15-$30 if momentum volume occurs.

Specific Growth Opportunities

Lastly, here are some specific growth prospects from TRIT's (From 10-Q) :

New Opportunities in Water Resources and Wastewater Treatment

We are currently pursuing over 100 smaller river basin flood monitoring and forecasting systems with a market potential of approximately $72.5 million, and groundwater monitoring systems for over 100 counties across the country with a market potential of another $72.5 million. There can be no guaranty that we will be successful in all or any of these endeavors. Through local distributors and partnerships, we also promote our proprietary products targeting the water monitoring and dispatching systems of the Northward Rerouting of Southern River engineering construction, which has market potential of approximately $43.5 million.

South-North Water Transfer Project is a large, inter-basin, long-distance water transfer project that is charged with dozens of major urban water supply tasks for such cities as Beijing, Tianjin and Shijiazhuang. The current automated dispatch system monitors a total of 304 buildings. As a result of our ability to assist with (i) the use of information acquisition and processing technology, (ii) the modernization of the operations maintenance and management, (iii) the establishment of a sound system and (iv) the greatest degree of rational management of water to make full use of China’s valuable water resources, we expect an increase in sales of this project.

China frequently faces flash floods and similar national disasters, so strengthening the prevention and treatment of such disasters is essential. System monitoring of rainfall by the water system, early warning and early warning response system is comprised of three parts. Data and early warning information processing service as the core, through computer networks, databases, early warning command and control platform release constitutes a set of flash floods disaster early warning system, especially for Hubei and Qinghai provinces. We expect an increase in sales of this project.

Disclosure: I am long TRIT from $8.65.