China Recycling Energy Corporation
China Recycling Energy Corporation (NASDAQ:CREG) is a pioneer and leader in the industry and has investments for the completion of projects including direct investment in overall cycle energy solutions involving technology and other full-service operations. The second largest shareholder is the Carlyle group. Customers are offered a complete range of services relating to separating energy systems in the industrial applications of design, the financing of energy cycling plants and equipment and civil engineering custom tailored to the requirements of customers to produce energy recovery equipment and devices after the cyclone energy equipment operational service have been completed. The focus is on a business model which provides a win-win situation for customers and includes taking responsibility of the financing of each project and the generation of the sentient project benefits. This means that customers can concentrate on capital investment in the principal lines of business and not bother about additional capital expenditure to satisfy environmental regulations. At the same time, they can achieve a reduction in energy bills and reduce the level of pollution.
The company based in Xi’an, China specialises in environmentally friendly waste-to-energy technologies to recycle industrial by-products for steel mills, cement factories and coke plants in China. By-products such as heat, steam, pressure, and exhaust generate large amounts of lower-cost electricity and reduce the need for outside power sources. The Chinese government is following policies to encourage the use of recycling technologies in a bid to optimize resource allocation and cut down on pollution. Currently, recycled energy represents only an estimated 1% of total energy consumption and this renewable energy resource is viewed as a growth industry because of intensified environmental concerns and rising energy costs following the continued expansion of the Chinese economy. The management and engineering teams have over 20 years of experience in industrial energy recovery in China.
Financial highlights first quarter 2016.
Interest income on sales type leases declined by 24.8% from USD $6.67 million in the previous year to USD $ 4.89 million in the current quarter. Total revenues, inclusive of sale of systems, contingent rental income and interest on sales type leases fell 26.7% from USD $ 6.67 million in the previous year to USD $ 4.89 million in the current quarter. Operating expenses declined by 30.3% year-on-year to USD $ 0.49 million and not operating expenses fell by 402% year-on-year to – USD $ 4.14 million. Net income came to USD $ 93,000 down 97.8% from USD $4.14 million in the first quarter of the previous year.
Chairman and CEO of the company Quohua Ku said that net income for the quarter declined by 97.8% because of a fall in contingent rental income and interest income on sales type leases resulting from the downturn and the decline in iron and steel companies in China. During the quarter, the Zhongtai CDO project was transferred to Zhongtai as part of a planned integration to repurchase all its outsourced projects. Operations were strengthened further and operational efficiencies increased while maintaining cost controls and fiscal discipline.
Principal businesses
TRT is the use of energy in industrial production because of the pressure difference generated by the recovered into mechanical energy used to drive generator technology. Steel plant TRT is the use of blast furnace bye products – blast furnace top gas pressure energy and heat, so that gas turbo-expander is converted to mechanical energy to drive a generator or other device drivers in a secondary energy recovery process. Petrochemical plants TRT takes advantage of the pressure and heat generated during the production of petrochemicals,through a turbo expander which converts it into mechanical energy to drive a generator or other device driver for secondary energy recovery.
Cogeneration technology involves the recovery of production wasted in the low-temperature waste steam, gas and other heat exchange to generate steam for power generation. It can be applied to iron and steel, building, petrochemicals, chemicals, nonferrous metals and other industries. Steel plant waste heat power generation is the use of waste heat in sintering machines produced by heat exchange to generate electricity. Building materials mainly cement kiln production, grate cooler and preheater kiln produced at a temperature below 300 ~ 400 degreesin low temperature waste steam heat contained in the flue gas of low grade to generate electricity. Sinopec in the process of petrochemical production uses the waste generated in the low-temperature steam, gas and other heat exchange to produce steam, which in turn generates electricity.
High efficiency gas is the use of combustible gas emissions generated in production of industrial combustion power generation, power generation by the reduction of emissions, atmospheric pollution; cogeneration technology in gas boilers and efficient gas combustion engine – steam combined cycle power generation. It can be used in industries such as iron and steel, building materials, petrochemicals and mining. In gas boiler power, a fuel or other heat energy is used to heat water the kinetic energy is converted into electrical energy. In combustion engine generation: fuel is introduced into the cylinder resulting in the rapid expansion of high temperature high pressure gas, which drives a piston converting kinetic energy into electrical energy. In gas – steam combined cycle power generation, compressed turbo air is mixed with fuel combustion in the combustion chamber and the sharp expansion powers the power turbine acting rotary drive generators.
The bottom line
With the disappointing results for the first quarter of FY 2016, the stock has declined by more than 40% since 23. December, 2015 and has under performed the S&P 500 more than 47%. However, the company is operating in business segments which are potentially extremely lucrative and could lead to substantial future growth. The Chinese government has been encouraging the use of recycling technology to maximise resource allocation and reduce levels of pollution and this will continue to be a priority area in the future. Considering that recycled energy is only an estimated 1% of total energy consumption, it is definitely a growth market and business could explode in the future. As such, we believe that this could be a promising stock investment which could deliver substantial returns in the long run.
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