China Natural Gas Bumping Against All Time Highs

The stock price for China Natural Gas (CHNG) appears about to break out for valid reasons. Energy, and especially clean energy, is critical to China. Clean natural gas and compressed natural gas is being mandated by the PRC and local governments. China Natural Gas has a head start in the mid and down stream segment of this important source of energy- natural gas.

Most Chinese regional stocks, including CHNG, have withstood recent negative media on China, a long run that is strengthening the government's intervention to contain the booming economy. More specific to CHNG, the PRC has also added tax incentives for use of clean energy. Solving pollution problems is critical to China's survival. Now that natural gas is a competitive energy source, the outlook is blooming.

CHNG's ability to take advantage of the favorable situations has resulted in more than doubling of revenues and income for several years. Major commitments to LPN facilities for the future will further diversify the company products. Their regional natural gas pipeline and strong management keeps them competitive and less exposed to newly available foreign money. The overall Chinese markets have locals lined up to buy stocks and foreigners adding venture money for growth. TA analysis is supportive of these great fundamentals.

Now, one can expect the added trade volume to be supportive as the stock is bumping against all time highs. Management's recent guidance for additional filling stations, expanding into virgin territories. Their likely listing on a major U.S. exchange and a robust '07 and '08 outlook is more than just strong support at these latest price levels. The strong stable management has a good record of meeting its past optimistic commitments. I have followed the Chinese market for years and have averaged up my holdings of CHNG.

CHNG 1-yr chart:

Disclosure: The author has a position in CHNG.

Comments

[abh3vt:]

Max, I don't know how long you have been following CHNG, but it is not accurate to say that this management has been good at making operational forecasts. Check their PRs from the past year regarding ownership of projected CNG filling stations for proof. Forecast: 21. Actual: 17

2007 Jul 19 09:54 AM

[max petrisek:]

Yes there has been confusion on the status and number of "filling stations." I took this as poor PR in too generally defining changes in this, rather than not meeting forcasts. Translation and visibility is not the companies strongest point as is obvious from CC as well as published reports. It is not like a US blue chip company. So I agree- this is not "best of breed" reporting.

2007 Jul 19 12:47 PM

[max petrisek:]

Humor of stock message boards: Several have commented to me about my positive article here on CHNG. One indicarted that I should be aware that favorably publicizing a stock that you own costs the writer money! The stock goes up and you have to pay more in the future. He further claifies that by commenting that we should be silent about the present value of the company. I guess he is wishing for bad press so he can buy on the cheap. Another person incicated, what many have stated on the Investor Village board, that there is confusion in the translation from Chinese as to the actual number of "filling stations." The lack of clarity of this is correct but the writer blamed this on poor management. These "filing stations" are for hybrid CNG and electric motor vehicles which are heavily Government owned and commercial as mandated by the PRC. An interesting potential for the growing hybrid cars in China is coinversion kits for more common gas combustion motor vehicles to use compressed natural gas. The growing number of Chinese motor vehicles and more so the natural gas hybrids should offer CHNG a good potential. Guess we should keep these good fortunes a secret so one can buy CHEN at a discount. No doubt my being overweight on this stock causes my biased attitude. Certainly it is bad investing to get married to a stock or get blinded by being overly biased. In the fullness of time the truth shall be evident. What is the real value of a stock- real, intrinsic, perceived or just wishful thinking?

2007 Jul 19 10:58 PM

[Karl Francis:]

The company buys natural gas and sells it with a 100% mark up after compression. Is that a sustainable margin?

2007 Jul 20 12:30 PM

[max petrisek:]

That is a good question. There is a lot about CHNG's pricing that I'm not certain about. A few things that are certain: that Govs set most energy prices and have raised them to encourage the use of clean gas. Also PRC offers 50% reduction in tax level since 2005 as an incentive to use clean fuel. So "is a 100% markup sustainable?" Unfortunately that depends on the Central Gov and that is favorable at the moment. The local & national Gov. mandate hybrid vehicles in CHNG'S region of business. One would like to see pricing power but I would not wish to depend on that in CHNG's case.

2007 Jul 20 01:20 PM

[max petrisek:]

SNEN is a close peer to CHNG and could follow in performance soon. Their area of business does not make them a competitor at present. I am a holder of SNEN but much less than CHNG. SNEN has an interesting involvement in conversion kits for gas combustion motor vehicles to a variety of hybrids vehicles using CNG and also ownership in a Chinese auto companiy. The fact that CHNG broke strong through it's all time high at near double volume may be the start a new era of visibility and performance. Closed at high of 6.12 vs old high of 5.48 ior 5.58 depending on ones source of data- up 13% for the day! Yahoo has poor accurracy in their reported #s. When doing DD of these small Chinese stocks, conflicting data is not uncommon.

2007 Jul 21 07:49 AM

[ChinaMart:]

Given CHNG's recent volume and run compared to SNEN's as-yet undiscovered status, I'm entering SNEN here for the more favorable valuation and forward growth reasons.

Thanks for the tip!

2007 Jul 21 08:01 AM

[max petrisek:]

Response to China Mart : Thanks for commenting. , Your reasons for entering SNEN implies your favor that stock over CHNG for the reasons stated. The as "yet underscovered status" of SNEN could be its biggest negative even compared to CHNG. The undiscovered may be for too long a period to wait for people to "discover SNEN" and a longer time to see much buying action. The very low SNEN volume is a possible clue to that argument- not impressive following! So I would favor CHNG on that count. The "recent volume and run" depends on your critical matrix for taking action. I like the CHNG volume but the run (valuation) will peter out someday. Usually extreme volume or a blowout is more likely to indicate topping out. I suspect CHNG is not a blowout so I've just overweighted CHNG compared to SNEN. This is I stated here previously. Yes, the latest gains in both price and volume of CHNG should be a matter to watch. In the fullness of time these questions will be answered.

2007 Jul 21 09:08 PM

[max petrisek:]

Update on CHNG since the date of my article: Ths stock went from about 4.5 just prior to the article to 6.75 high by Monday and finished today @ 6.07. The highs were broken by about 48%. There has noit been any news on the company and much on China. My opinion on the stock are as stated in the article and comments to the article's responders. - still bullish but would take a little off the table if it went to the high 7s. Then I would be able to have mostly profits invested for the longer term.

2007 Jul 24 07:59 PM

[max petrisek:]

This article is carried by other sites as Yahoo Financial. See (click on)right column (Yahoo F) of other CHNG events. Some significant news since the date of the original article: On7/24 CHNG opens NYC office to expedite US activity. The strong educational & experience credentials of the staff idicates the significance of such an addition. Speculation is that this new office is likely to expedite a move up in listing the stock from the present. ob catagory- anyone long would welcome this as supportive to the stock price. Also it is important to note the about 40% break through of the old all time high of 5.58. The volume has been about 8 to 10 time the previous monthly volume to about 600,000/daily. There is further related interest in Boone Pickens who is involved in CNG in the states. He has taken a trip to China to expedite that interest. Other articles indicate the growth of the more demanding need for compressed natural gas motor vehicles in polluted China than in less polluted USA. CHNG is well located to take advantage of this move as there are about 50,000 commercial CVG vehicles in it's growing and prosperous area of business. Another Chinese company close to having a business like CHNG is SNEN.ob who also sells conversion kits for converting gas combustion vehicles to CNG vehicles and operates outside CHNG's territory. It manufactures the important cylinders used in CNG vehicles and for a broad area of other applications. SNEN is further diversified by ownership in Chinese auto company that does the vehicle conversions. The expansion of filling stations by SNEN is in the earlier stages but is more ambitious with 150 stations on the drawing board at about $800,000 cost/each. SNEN's first station will be operational next month so it may be months until they track the progress of CHNG. I own a smaller position in SNEN. The ownership in shares of these 2 companies adds to my enthusiasm for maintaining interest and further ownership in this part of the NG industry.

2007 Jul 25 04:24 AM

[max petrisek:]

I'm stoll holding. Impressed with the gains in CHNG during the 2 day market drop. The volume has dropped to the near 300K/day level but is above the monthly average. No news in the past week and little comments on the message boards. The latest speculation of followers are the favorable Boon Picken's comments about NG & CNG and critical usage in China.

2007 Jul 28 07:43 AM

[max petrisek:]

With the drop of 500 DOW points in the past 2 days I felt obliged to again review CHNG's 5/07 10QSB report. I may add more shares soon but have no plans of selling at this level. It was not suprising- a very positive thorough "Clean report"- no apparent unusual problems stated. Of interest, the report offers the summary of the classification by the SEC as a penny stock- primarily stocks under $5 per share. Now that CHNG price is in the $6 range a favorable situation now applies to CHNG and it's present & potential shareholders. The CHNG shares are no longer under the "penny stock" regulations of SEC rule 15g-9 & rule 144. As this goes into effect it significantly benefits broker-dealer arrangemnents & restrictions of ownership. This avoids many financials restrictions of owning or trading a stock. This may have contributed to the increased volume noted in previous comments here. New buyers can be available in the past few weeks or soon. Hope can springs eternal when there are less restrictions to do ones business of investing. The area of margin buying, shorting, and other broker easements may often depend on individual brokers rules that are more restrictrive that that of the SEC. To understand these regulations one should do their own DD.

2007 Jul 28 08:59 AM

[max petrisek:]

Maybe I'm just talking to myself here? Having said that, I'll still update the NG record on China and CHNG. It is apparant that natural gas (NG) needs to grow and is doing that in China- need for clean fuel. This requires China to move out quidkly from the 2 % usage area for NG. Coal is about 75% of their fuel uage & it's pollution is harmful. There is abudent reserves of NG. Development of their fields, piplines and down stream conversions are taking off from those previous low levels. An interesting realitively new area is the # of motor vehicles ising compressed gas and LNG . NG filling stations are trying to keep up with the motor vehicle expansion. CHNG and SNEN along with the NG suppliers are in the forefront of this broader NG movement.

2007 Jul 29 04:33 PM

[Isak:]

hi max. I read your comments on CHNG, very positive and I am trying to get financial information from its website naturalgaschina.com but did not find any.
Do you know where to find them?
Thanks.

2007 Aug 01 10:42 PM

[max petrisek:]

Sure- glad to respond as it should be easy. Many of the better financial sites , also the 10Qsb SEC report as available many places as Yahoo Financials and always easy in Google site- just put symbol & company name in search box. Info is available without much effort but not like DD for MSFT , GE or IBM. Investor Village board for CHNG & it's peer SNEN offers wsome insight. If Practice doesn't make Perfect, it will be make it easier.

2007 Aug 04 11:49 AM

[max petrisek:]

Update of stock move- A few days ago CHNG dropped from over 8.4 to about 5.87 & closed Friday at 6.6. This type of move after about a 150% gain in a few weeks is not unusual for small Cap Chinese stocks. Most believe that the valuation will remain firm.

2007 Aug 05 02:24 PM

[ChinaMart:]

"Most believe that the valuation will remain firm."

Who is "most"? The current shareholders?

2007 Aug 05 07:19 PM

[max petrisek:]

yes- to China mart or maybe just many !

2007 Aug 05 08:44 PM

[ChinaMart:]

"yes- to China mart or maybe just many ! "

then "many" or "most" were very wrong.

I still like SNEN here. They made .24/share in 2006, which is more than CHNG did.
Best part about SNEN is that they have no need for this sort of dilution that CHNG is now faced with- SNEN has the cash they need to build the first 30 stations already.

Good luck.

2007 Aug 07 08:40 AM

[max petrisek:]

Not sure who is right or wrong on valuation for either stock. You seem to be sure?

2007 Aug 07 04:14 PM

[max petrisek:]

SNEN finally showing higher volume and stock appreciation @ day high of 2.75. CHNG languishing past week- close today of 5.85 with 6 as high.

2007 Aug 10 07:30 PM

[Richie:]

How about this one.

CHNG --- This must be some super great company. They have a private placement to raise $15 million and they priced the shares at about $4.00 each !!!!! That's about $2.00 BELOW the current market price. Then, the morons get in there and BUY the shares in the market and drive them up even further. Incredibly, $4.00 is all the company could get for their shares, but the morons feel they are worth not only ~ $6.00, but even more, because they bid them up even after SDTH announced its private placement. Thank God we have morons that buy stocks.

2007 Aug 08 02:49 PM

[max petrisek:]

Some believe that market investing is the game of "greater fools!" Or one persons junk is another's gold? So you may be right about morons!

2007 Aug 16 07:49 AM

[max petrisek:]

It may be too early to fully understand the details of the private palcement. From what was published it appears management did not get a good price or just did a lousy deal. The reaction to the placement wasn't too unusual if preceived to be a bad deal. I am surprised by the quick 2 day recovery to todays close of 6.18. That recovery was from a low of about 4.5? or about 36% from the low. Since I accumulated below 5$ I was pleased about the gain but not pleased that I don't have a grasp of what is occurring.

2007 Aug 08 05:47 PM

[max petrisek:]

Yes, the private placement of August pulled the stock down from near $7 to the mid $5s, But the news of a large expansion approved by the PRC on Sept. 27 pushed the stock to close @ $7.4. The expansion program is big and expands the product base and products available. With PRC support and a strong demand as well as a critical necessity (environment & cost advantages) for gas products, it is a win win period for CHNG. SNEN by association showed strength in line with (tracking ) it's peer CHNG. Since I may be one of few reading these comments I am closing out my CHNG follow-up comments on Seeking Alpha. It's comforting & profitable to stay with a great company. Good luck to the other longs.

2007 Sep 28 08:16 AM

[max petrisek:]

With CHNG's high of $14.50 another comment seems justified- WOW!!!!!

2007 Oct 16 08:11 AM

[growthvalue:]

Thanks for all the info. I have been a big supporter of SNEN

2007 Oct 17 06:19 PM

[growthvalue:]

Thanks for all the info. I have been a big supporter of SNEN

2007 Oct 17 06:19 PM

[max petrisek:]

value growth. Thanks for commenting. The most information I have posted on SNEN is on Agoracom site, since I am a forum leader there. To view:< place symbol SNEN in stock search button on top right of home page. Go to 'forum discussioin' & you'll find a lot on snen. I elected to do many comparison to CHNG as i believe they will "track" closely with CHNG, the more established, taking the lead. Anyone can comment as the more diverse group the better. Please take a look !

2007 Oct 19 12:06 PM

[max petrisek:]

A long time has passed from my last comments- I was out of CHNG but back in today at $2.45.A lotg happened but mainly positive in top and bottom line each quaterf and todays Q reporft is more of the same. Chinese small caps have been swooning for over a yearf BUT CHNG moved out ot thepack the past month !. Some new products or markets arfe: adding gasoline at the NG filling statgions, new exclusive arfe to provide piped NG, and of courfse recernt start of the LNG plant deue for com pletion '09. So soon we will exceed/? have a 100 million annual revenue!!! With $.48 earnings we have ~ 5 PE- not bad. Chinese auto sales are still on a growth path so hopes for more revenue / station ande more statgions. In tghe fullness of time XXXXXX!!!os ualghng

Mar 16 11:46 PM

[max petrisek:]

CHNG Vs snen on feb 1' 09 @ $ 3.51 Vs 1.90 and 5/12 @ $4.47 Vs 1.43 . Which you like the best?

May 13 01:03 PM