China’s Electrical Energy Demand Propelling Asia Electrical Power 12 comments
-
Font Size:
-
Print
- TweetThis
Aside from the essentials such as food, water and of course oxygen, what is the one thing that we would have a very difficult, if not impossible time living without? Bonus points for you if you mentally (or verbally, whichever your preference) said electricity.
Without electricity, road traffic would be even more horrendous than it already is, perishables would in fact perish, and electric equipment would merely be oversized paperweights. Fortunately for us, we live in a country that has been developing its electrical systems (and maintaining them) for decades.
This, however, is not necessarily the case in China. As the recent power failures caused by the January snowstorms and more recent massive earthquake highlighted, China’s electrical power structure is in need of major upgrades. This coupled with the overwhelming demand for power has caused the government to allocate over $65 billion dollars specifically for expansion and upgrade of the electrical power grids.
Electrical power companies in China are already seeing a major increase in demand with those companies that have received specific designations and certifications by the government leading the way.
One such company, having recently received the designation of “Key Manufacturer” of secondary electrical power systems by China National Power Authority [CNPA], is Asia Electrical Power International Group, Inc. (AEPW.OB) (“Asia Electrical”).
Asia Electrical, through its subsidiary Asia Electrical Power Equipment (Shenzhen) Co. Ltd., designs, generates and markets electrical power systems in China. The Company’s products are designed to monitor and control the flow of electrical energy in order to provide protection to monitors, transformers and other electrically powered equipment.
The demand for such equipment has been consistently expanding as the demand for electrical energy has grown throughout the country. The Company’s management has recognized and addressed this trend early on and continues to invest heavily in R&D to ensure that Asia Electrical not only meets their customers’ needs but also maintains their position as an industry front-runner.
As one example, Asia Electrical recently completed construction of a brand new state-of-the-art Industrial Park which opened in early 2008. Comprising manufacturing facilities totaling more than 330,000 square feet, this Industrial Park was designed to deliver more comprehensive production scope through an enlarged physical plant housing improved machinery and equipment as well as greater personnel resources.
In launching this expansion project, management's goal has been to significantly enhance the Company's manufacturing capability in order to satisfy the anticipated drastic increase in both domestic and international demand. The Company moved to their new facilities in early 2008 and have already announced over $10 million in orders received in the first quarter of 2008.
Considering the fact that their full year 2007 revenues were $11.67 million, this is very big news. The Company’s products are, and will continue to be, in high demand in China because, as China’s economy grows, the need for electrical systems swells as well.
From an investor’s prospective there are a few key indicators that make Asia Electrical an intelligent investment choice:
Asia Electrical’s past performance confirms that they are a company with consistent revenue and earnings growth, showcased by their recent facility expansion, and this growth is projected to dramatically increase due to the Chinese government’s new plan to overhaul China’s electrical systems.
Add to the mix Asia Electrical’s customer base, which spans more than 30 Chinese provinces, and the regions’ continuous revenue growth, and you have a winning combination.
Now, you may be saying to yourself that all of the merits of Asia Electrical sound fine and good, but what about the money? Because let's face it, a company needs to be bringing in big bucks in order to make you big bucks.
Fortunately for Asia Electrical, and its investors, the Chinese government is providing the Company with some easy money. China’s government is beginning to see the light (no pun intended, well, maybe sort of) and is recognizing the necessity of expanding the country’s access to electrical power.
As noted earlier, recent problems with the power system currently in use in China have led the Chinese government to, correctly, require an overhaul of the power grid. As a result, over the next five years, the domestic market of Asia Electrical (medium voltage switchgear manufacturing) will benefit substantially from the launch of China’s 11th “5-Year Plan” for economic development.
As part of this plan, the government will invest the equivalent of approximately $110 billion towards the expansion and reconstruction of the country’s antiquated electrical power network, with two-thirds of the budget, or approximately $65 billion, earmarked for investing in the medium voltage network system – Asia Electrical’s key market segment.
Based on the current demand for its products and the anticipated drastic increase in demand caused by the government’s 11th “5-Year Plan”, the Company’s Compounded Annual Growth Rate [CAGR] is anticipated to be in double digit rates for the next five years.
Asia Electrical’s products are a critical component to building a modern infrastructure in China. From electricity distribution to components for infrastructure in industrial districts; from residential communities to civic buildings; from natural gas producers to coal and oil field operations, the Company’s current product line is in high demand in every corner of China. Electrical energy is the backbone of developed countries, and as China strives towards becoming a more prominent world player, electricity is emerging as a key commodity.
Asia Electrical’s continuous revenue growth suggests a promising outlook for greater earnings growth through broader market penetration in the rapidly expanding electrical power industry sector in China. Revenues for the year ended December 31, 2007, totaled $11.67 million, an increase of 45% from $8.07 million in 2006. Net income for the year ended December 31, 2007, excluding a one-time expense, was a Company record $961,000, or $0.02 per diluted share. This represents an increase of 125% year-over-year.
In addition to continuing growth patterns, Asia Electrical anticipates to benefit significantly from the Chinese government’s recent mandate to fund the expansion and reconstruction of the country’s electrical power network.
Furthermore, the Company announced in March that it has launched an expansion program to enter the international market and that in the first month of this program (January 2008), the Company received over $3 million in orders from new foreign customers.
Asia Electrical is well on its way to realizing its goal of becoming the leading provider of secondary electrical power components in China. The Company’s first quarter 2008 financial results were recently reported and the numbers look promising. Revenues for the first quarter ended March 31, 2008 totaled $2.54 million, an increase of 31% from $1.94 million in the first quarter of 2007. This increase in revenue was attributed to the increased production capacity from its new facilities, as well as the Company’s establishment of 45 new branch offices and increased marketing initiatives in international markets.
On the whole it would appear that Asia Electrical’s future is as bright as the light bulbs its products power. The Company’s growth and development, combined with its pre-existing major supplier status, places Asia Electrical at the top of its market.
Investors can reasonably anticipate returns to continue to grow at highly desirable rates. China’s expanding appetite for electrical power systems will continue to generate sales and demand for Asia Electrical’s products; demand the Company is well positioned to meet.
Overall, Asia Electrical is quickly becoming more than just a wise investment choice; it is developing into a brilliant one.
Disclosure: Author holds a long position in AEPW.OB
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
TraderMark
-
2
Don Dion
-
3
Cliff Wachtel
-
4
Mike Havrilla
-
5
James Quinn
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 12 comments:
A small analytical boutique ("Vanguard something") was compensated for a glowing analysis culminating with a "Buy" rating. This should be a "red flag" alert for most investors.
I have been unable to confirm your comments about increased orders from any source like SEC filings, for example. I have not directly contacted the company itself. What is your source of information for these new orders? Where can an investor verify them?
The latest quarter's numbers filed with the SEC are unaudited.
This may...or may not be...a "brilliant" investment choice. Investors need to do their own due diligence and decide for themselves.
Again, your writing style is very good....
In terms of a fear of a hidden cash flow problem within the company as suggested by insider loans, it is my understanding that this is a common practice in China. From what I was able to gather, it seems that these insiders are loaning money to the Company so as to minimize dilution at these prices. It’s my understanding that the Company is looking to move up to the Nasdaq as soon as they can justify a $4 stock price based on fundamentals. If this is the case, then it would make sense why they’re not hitting the Street to raise capital right now. Asia Electrical insiders seem to have great faith in the company’s performance and therefore are very willing to supply low interest loans. There seems to be a definite “family” mentality within Asia Electrical.
Concerning where I located the numbers in respect to the new orders, the company issued a press release on March 11, 2008 regarding their initial entry into the foreign markets with $3 million in orders in the month of January, and then another release on April 2, 2008 regarding receipt of their initial orders from the Chinese government in excess of $7 million.
As crass as it might seem, the natural disasters (ice storms and earthquakes) in China are really serving to highlight the problems with their electrical power system. On the whole I feel that Asia Electrical shows immense potential that could be realized in the near future.
(Sorry about the delay in responding...I definitely hadn't forgotten you!)
Any recommendations would be appreciated.
In terms of potential investment opportunities, you really should consider your risk tolerance. If you are looking to invest in more volatile stocks, then BIDU and JRJC might be the route to take but they should be short term momentum trades as I personally believe both of these stocks are overvalued and will be making significant downward corrections in the next 12 months. However, if you are looking for a lower priced stock, with higher ROI potential that is more stable, my favorite is Asia Electrical Power (AEPW.OB) or maybe something along the lines of CAEI (formerly RCH). Both of these companies, especially in the case of AEPW, present great opportunity for returns.
Please let me know if you found this helpful and feel free to ask any more questions of me.
In terms of potential investment opportunities, you really should consider your risk tolerance. If you are looking to invest in more volatile stocks, then BIDU and JRJC might be the route to take but they should be short term momentum trades as I personally believe both of these stocks are overvalued and will be making significant downward corrections in the next 12 months. However, if you are looking for a lower priced stock, with higher ROI potential that is more stable, my favorite is Asia Electrical Power (AEPW.OB) or maybe something along the lines of CAEI (formerly RCH). Both of these companies, especially in the case of AEPW, present great opportunity for returns.
Please let me know if you found this helpful and feel free to ask any more questions of me.