Sino Clean Energy (SCEI) is the fifth largest producer of coal-water slurry fuel ("CWSF") by sales in China, according to latest conference call. The company sells its products in China and its customers include industrial, commercial, residential and government organizations. The company has seven production lines located in Shaanxi, Liaoning, and Guangdong provinces in China.
What Is Coal-Water Slurry Fuel (“CWSF”)
CWSF is a liquid fuel that consists of fine coal particles suspended in water, mixed with chemical additives, and is primarily used to fuel boilers and furnaces to generate steam and heat for both residential and commercial heating and industrial applications. CWSF is an economic and environmentally friendly alternative to oil and natural gas and provides many benefits over coal briquettes, including increased burn-off rates, improved thermal efficiency, and reduced emissions.
China's heavy reliance on coal for heat and energy, its extensive coal reserves, and increased government attention to clean coal technologies make CWSF an ideal alternative for cleaner heat and energy production in China.
China's economic growth over the last four decades has led to a rapid increase in energy demand. According to Frost & Sullivan, China accounted for 17.7% of global primary energy demand in 2008 and will overtake the United States as the world's largest consumer of energy in 2011.
China is the largest producer and consumer of coal in the world, making it much more reliant on coal than other developed nations, as it is used extensively not only for power generation, but also for industrial applications and residential heating. Coal is the most widely used energy source in China for heating and electric power generation due to its abundance, broad geographic distribution, and mature power conversion infrastructure. According to the National Bureau of Statistics of China, coal is expected to be used for approximately 67% of total energy consumption in China in 2010 and represents more than 90% of estimated domestic fossil fuel reserves.
According to Frost & Sullivan, overall CWSF demand in China is expected to grow at a compounded annual growth rate ("CAGR") of 24.7% from 2008 to 2014. The market demand for CWSF in China in 2008 was 15.9 million metric tons. CWSF is used in 700 industrial furnaces and in hundreds of industrial kilns as a replacement for oil, natural gas and coal briquettes.
Sino Clean Energy's current annual production capacity is 1,150,000 metric tons. The company has already booked sales of 1.2 million metric tons for the year 2012 according to latest conference call. The company is on track to increase its annual production capacity to approximately 2,500,000 metric tons during 2012 through the expansion of their existing production facilities in Shenyang and the planned expansion into the provinces of Guangxi and Guangdong. Sino Clean Energy believes they were among the first companies in China to produce CWSF on a commercial scale, and their first-mover advantage, combined with their reputation for high quality products has allowed them to establish strong customer and supplier relationships.
Sino Clean Energy has a large cash position of $2.49 per share. Company's management has fiscal year 2011 revenue guidance of between $101.5 million and $110.7 million. The company expects Non-GAAP adjusted earnings to be in the range of $23.02 million to $24.80 million and full year adjusted earnings per share of between $0.98 and $1.06.
I am expecting Sino Clean Energy's sales for 2012 to be in a range of $150 million and $200 million based on increased production capacity. My earnings expectations for 2012 are above $1 per share. The share price of the company is currently just $1.16. I recommend buying this stock below $2.
Disclosure: I am long SCEI.