Biofuels processing technology supplier China New Energy Ltd’s trading subsidiary Guangdong Zhongke Tianyuan New Energy Science and Technology Co (ZKTY) has reported a 20% increase in revenues to RMB101.7m in the nine months to September2011.
ZKTY’s profit was flat at RMB 15.5m, although this excludes the overheads of the holding company which are around RMB10m. Arden believes that China New Energy can make a profit of £2.66m on revenues of £15.4m in the full year even though work on some contracts has been delayed.
China New Energy is the market leader in China and it is branching out into other markets in Europe and south east Asia. There is still plenty of growth in the Chinese market. At the moment, 2m tons of cellulosic ethanol are produced in China and the government wants to increase this to 10m tons by the end of the decade. Mckinsey believes that the figure could be as high as 31m tons by 2020. China New Energy is well-placed to provide a large percentage of the capacity that will be required to achieve this growth.
China New Energy is trying to build up its recurring revenues so it is not so dependent on the timing of large contracts. One of the ways it will do this is by providing yeast management services. It will build plants supplying wet yeast next door to the main biofuel processing plant. There are also ways of modifying equipment to produce production savings that can be shared with the customer.
China New Energy is collaborating with companies and universities developing new technologies for the production of bio-butanol from agricultural waste. This enables the company to be involved in these new technologies without using up its own cash.
China New Energy has shown that it can generate cash from its operations and the cash generated should increase over the next couple of years.
Net cash was RMB8.2m at the end of June 2011, although that excludes RMB46.9m of convertible bonds. China New Energy raised just over £600,000 at 7p a share when it joined Aim in May but there was only £60,000 left after the expenses of the flotation.
Management wants to start paying dividends in 2013.
At 6p a share, China New Energy is valued at £18.3m.
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