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CGYV

CGYV

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06/16/2009

 
 Analyst:
Victor Sula, Ph.D.Initial ReportJanuary 14th, 2009
China Energy Recovery Inc. (OTCBB: CGYV)
1
 
 Analyst:
Victor Sula, Ph.D.Initial ReportJanuary 14th, 2009
Company Introduction
China Energy Recovery Inc.
9440 Little Santa Monica Blvd.Suite 400Beverly Hills, CA 90210Phone: (310) 402-5901E-mail (IR): jim@prfmonline.comWebsite: www.chinaenergyrecovery.com
MARKET DATA
SymbolExchangesCurrent PricePrice TargetRatingOutstanding SharesMarket Cap. Average Volume (3m):
Source: Yahoo Finance
CGYVOTCBB$1.85$4.00Speculative Buy28.77 Million$53.23 Million62,295
China Energy Recovery, Inc. (CGYV) designs, manufactures, mar-kets, licenses, installs and services waste heat energy recovery
systems that signicantly reduce greenhouse gas emissions. The
Company’s energy recovery systems capture and re-use over 90%of waste heat energy and enable many industrial facilities to sat-isfy 50% to 80% of their energy needs internally. In addition, theCompany`s customers gain tradable Carbon Credits, known as
Certied Emission Reduction (CERs). CGYV also owns a proventechnology that makes generators 20% more ecient and reduces
electricity consumption and costs.
The Company focuses on the Chinese market, which is already the
world’s second largest energy consumer and experiencing energy
demand forecast to double over the next ve years. CGYV built Chi
-
na’s rst sulfuric acid energy recovery system and retroed thatcountry’s largest sulfuric acid manufacturing facility - Two Lions
Fine Chemical Company – with its largest-ever recovery system.
The installed system has 54 megawas (MW) of power generationcapacity sourced from recovered heat energy. The Company hasalso built energy recovery systems in Egypt, Turkey, Korea, Paki
-
stan, Vietnam and Malaysia. CGYV is currently involved in over
100 assorted energy recovery system projects in China and interna-
tionally. Total value of contracts and orders completed during 2007and 2008 exceeds $40 million and CGYV has already secured new
orders valued at approximately $19 million for 2009.In November 2008, the Company contracted to design and man-ufacture the world’s largest straw pulp alkali recovery system for
Shandong Tralin Group, one of China’s top paper manufacturers.
1/13/09volume2.001.751.501.251.000.75
8006004002000
 © BigCharts.com
CGYV dailyNov Dec Jan
       T       h     o     u     s     a     n       d     s
 
 Analyst:
Victor Sula, Ph.D.Initial ReportJanuary 14th, 2009
China Energy Recovery Inc. (OTCBB: CGYV)
2
The total project cost is estimated at RMB95 million (approximately $13.9 million), of which RMB79 million
(approximately $11.6 million) represents the estimated cost of the alkali recovery system CGYV will design and
manufacture. The system will process some 1,200 tons of toxic residual black liquid generated from pulp-makingand purify this discharge. This system is expected to generate 145 tons of steam per hour, equivalent to nearly 12MW of heat energy generation capacity.Business model leveraging waste heat recovery technologyThe Company designs, manufactures and installs highly-customized systems that recover up to 90% of wasteenergy from inecient industrial facilities while also eliminating harmful emissions. CGYV targets industriesin which customers achieve payback on invested capital within one to three years. While a majority of the waste
heat recovery systems CGYV has installed to-date have been for chemical manufacturing plants, the Company
has also installed systems for steel manufacturers, cement makers, paper mills, coke processors, reneries (in
-
cluding Ethanol reneries), and petro-chemical processors. CGYV has installed more than 100 energy recovery
systems in China and internationally.Substantial market opportunity
Booming economic growth and rapid industrialization has spurred electricity demand in China. At year-end2007, China’s total installed generating capacity was 713 gigawas (GW), up 14% from the prior year-end. Ac
-
cording to the International Energy Agency, China must add 1,300 GW of new electricity generating capacity,
more than the current total installed U.S. capacity, to meet its growing energy demands over the next few years.Due to the expansion of energy-intensive sectors such as steel, cement, and chemicals, China’s energy consump-
tion is growing faster than its domestic GDP, resulting in shortages of electricity and coal in over 20 of the coun
-
try’s 32 provinces. Energy recovery systems oer a cost-eective solution for rising energy demand. Accordingto the U.S. Department of Energy and Environmental Protection Agency, energy recovery systems could gener
-
ate nearly 200 GW of new power in the U.S. alone. The European Union is also commied to energy recoverysystems, with 104 GW of installed capacity; Germany and Italy have the most installed capacity, at 16 GW and13 GW, respectively.Signicant cost savings aainable through energy
recovery systemsEnergy recovery systems represent a large-scale,environmentally friendly and economically fea-sible form of power generation. Compared withother alternative energy sources such as solar,wind or biomass, energy recovery systems are
much more aordable and already capable of de
-livering power on the scale necessary for indus-trial processes. Energy recovery systems are evencost-competitive with conventional large-scalepower sources such as coal, fossil fuels and nucle-
Investment Highlights
 
 Analyst:
Victor Sula, Ph.D.Initial ReportJanuary 14th, 2009
China Energy Recovery Inc. (OTCBB: CGYV)
3
 
 Analyst:
Victor Sula, Ph.D.Initial ReportJanuary 14th, 2009
China Energy Recovery Inc. (OTCBB: CGYV)
3
ar power, but with the added benet of reduced greenhouse gas emissions. CGYV’s energy recovery technologycould reduce the cost of electricity to $6 per megawa hour (MWh), compared to costs for coal-produced electric
-
ity at $48 per MWh.Because CGYV’s technology generates power at a fraction of the cost of other technologies, customers realize arapid return on invested capital. The Company’s energy recovery systems reduce fuel consumption and costs by
potentially tripling the useable energy extracted from a given amount of fuel, allowing users to slash energy ex-
penditures by as much as 2/3rds.
Numerous advantages will support rapid deployment of the Company’s technology
Additional benets associated with CGYV’s energy recovery systems include: (1) reductions in the amount oftoxic, combustible wastes such as carbon monoxide gas, sour gas, carbon black-o gases and oil sludge releasedinto the atmosphere; (2) reduced equipment spending since waste heat recovery allows for smaller sized ue gas-handling equipment (fans, stacks, ducts, burners, etc.); and (3) lower auxiliary energy consumption. Smaller-sizedequipment reduces auxiliary energy consumption by fans, pumps and related items.
Exponential revenue growth
The Company reported revenue of approximately $16 million for the rst nine months of 2008, which is 112%more than for the same period last year. CGYV’s revenue growth reects increased contract volume and higherrevenues per contract. During the rst nine months of 2008, CGYV completed 60 contracts with revenues per con
-
tract averaging $255,377. This compares to 36 completed contracts and revenues per contract averaging $209,403for the same period of 2007.
Growing 2009 order backlog
The Company reported strong growth in contract volume during 2008 and is optimistic regarding full-year 2008and 2009 results. The total value of contracts and orders completed during 2007 and 2008 exceeded $40 million
and CGYV has already secured orders valued at approximately $19 million for 2009.
We believe CYGC’s sales will continue to grow, despite the sluggish global economic outlook, since the Companyhas already secured orders for future periods and is uniquely well-positioned with the engineering skills neces
-sary to design, build and install large energy recovery systems. In addition, the Company is pursuing sales op-portunities in new high-growth segments such as bio-mass.
Improving prot marginsThe Company signicantly improved gross margins in 2008 by expanding sales and gradually increasing contractprices to oset rising raw material costs. Operating and net margins gains were achieved by improving operatingeciency and increasing the number of higher-margin licensing and design service contracts. We anticipate netincome will continue to climb in 2009 as a result of sales growth, eciency gains and expanded sales of higher-
margin services.
The Company has aracted the aention of well-known venture capitalists. Roger Ballentine, a Venture Part
-
ner with ArborView Capital and the former Chairman of the White House Climate Change Task Force underPresident Clinton, serves on CGYV’s Board of Directors. eBay senior executive Steve Westley through his Westley
Group is an investor in the Company.

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