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Price 07-10-08: $4.85
52 Week Range: $1.60 - $5.25
Market Cap: $76.19 mil
Shares Outstanding (as of 07-10-08): 15.71 mil
Revenues (ttm to 03-31-08): $30.61 mil
EPS (ttm to 3-31-08): $0.50
P/E (ttm to 3-31-08): 11.6
Fiscal Year ends September 30
Business Description
SINOENERGY CORPORATION (“Sinoenergy” or the “Company”) manufactures a number
of items for the natural gas industry, and processes, transports and distributes natural gas to
meet China’s increasing need for environmentally clean alternative energy. The Company is
a leading manufacturer of non-standard pressure containers, compressed natural gas (CNG)
filling station equipment and transportation vehicles, and vehicle fuel conversion kits, as well
as a developer and operator of natural gas processing and retail filling stations. The
company’s 659,000 square feet pressure container and CNG equipment manufacturing
facilities are located in Qingdao, Shandong province, the People’s Republic of China.
Investment Highlights
Revenue ($ millions) Positive Momentum in China’s CNG-Powered Vehicle Market - Strong economic
24.73 growth and rising income levels have increased demand for motor vehicles and transportation fuel
CAGR = 73.3% in China making it the second-largest energy user in the world. Vehicle related pollution is
16.54 a significant problem in China’s cities, prompting the Chinese government to aggressively
12.39
promote the use of CNG as an alternative fuel. The use of CNG as a fuel also significantly
8.24
5.26 reduces the cost of operating a vehicle. Analysts estimate that at current market prices,
switching from gasoline to CNG can reduce fuel costs for a bus or a taxi by more than 40%.
Cal 2005 Cal 2006 Cal 2007 6 Mnths 6 Mnths An industry projection made by PetroChina estimates that there will be more than 300,000
3/31/07 3/31/08
CNG vehicles and 1,000 retail CNG filling stations in China before the year 2010.
Strong Profitable Growth - Sinoenergy’s net revenue for the first half of fiscal year
2008, ended March 31, 2008, was $16.54 million, a 215% increase over net revenue for
Gross Profit and Gross Margin ($ millions) the six month period ended March 31, 2008. Gross profit for the first half of fiscal year 2008
14 56% increased 179% year-over-year to a record $7.63 million. Net income grew 252% to $5.16
CAGR = 63.0% 11.74
12 54% million, representing basic earnings of $0.32 per share for the first half of fiscal year 2008.
10 52%
7.63
8 50%
6.48
6
4.42 48% Secured Natural Gas Supply - Sinoenergy has supply commitments for up to 400 million
4 2.73 46%
cubic meters of natural gas per year. These commitments are expected to be sufficient to
2 44%
- 42%
supply over 100 retail CNG filling stations, and will allow Sinoenergy to develop a CNG
Cal 2005 Cal 2006 Cal 2007 6 Mnths 6 Mnths wholesale and retail distribution network in Central and Eastern China.
3/31/07 3/31/08
Good Visibility Through 2009 - Sinoenergy’s sales during the six months ended March
31, 2008 were slightly more than the Company’s sales for the nine months ended
September 30, 2007. Sinoenergy expects its quarterly revenues for the quarter ending
Net Income ($ millions)
June 30, 2008 to be from $8 million to $9 million. The Company expects its quarterly net
5.63
5.16
income for the quarter ending June 30, 2008 to be from $2.8 million to $3.2 million. Sinoenergy
CAGR = 51.3%
set revenue targets for its fiscal 2008 of $53 to $56 million, and net income for its fiscal
3.45
2008 and 2009 to be $10 million to $12 million and $18 million to $20 million respectively.
2.46
1.47
Rapid Expansion - Sinoenergy had eleven retail CNG filling stations in operation as of
July 2, 2008 and plans to have a total of 51 retail CNG filling stations operating before the
Cal 2005 Cal 2006 Cal 2007 6 Mnths 6 Mnths
3/31/07 3/31/08 end of calender year 2008. The Company recently received significant orders for natural gas
transport trailers and CNG related items.
1
Industry Drivers
M o to r V e h ic le s in C h in a (M ill
Rising Demand for Motor Vehicles Has Lead
35
to Rising Vehicle Related Pollution 30
C A G R : 1 4 .5 %
27
25 24
Vehicle emissions are an important source of air pollution in 21
20 18
16
big cities. The growing number of cars and trucks through- 15
5
nitrogen oxides and carbon monoxide throughout the 0
2000 2001 2002 2003 2004 2
country, and the gases are especially high in urban areas. S o u rc e : C E IC , C re d it S u is s e R e s e a rc h
2
Data from China’s Statistics Bureau show that none of the 47 major cities along China’s east coast
meet the highest standards set for air quality, and less than 40% of those cities meet the next
lower level of standards set for air quality. Of 338 cities monitored, only 112 cities reach the next
lower level of standards set for air quality, and 137 reach the next even lower standards set for
air quality, the lowest acceptable air quality standards, which means their air is severely polluted. To
address the environmental impact of China’s rapid development, the government recently stated in its
draft “China Medium and Long Energy Conservation Plan” that one of its ten most important energy
conservation projects is “to promote natural gas use for buses and taxis.”
Corporate Overview
Corporate Organization - Sinoenergy operates four business segments: 1) CNG filling station
facilities design consulting, construction and storage transport, 2) manufacturing vehicle fuel conversion
kits, 3) manufacturing non-standard pressure containers, and 4) retail CNG filling station design,
construction and operation. With 55 years of experience in the pressure container industry and over
3
10 years management experience in the CNG facilities and equipment manufacturing business,
Sinoenergy is a leader in the Chinese CNG infrastructure market and a participant in numerous parts of
the CNG industry.
In the latest 6 months ending March 31, 2008, Sinoenergy generated 50.7% of its revenues from
CNG station facilities design consulting and construction and storage transportation, 25.0% of its
revenues from its vehicle fuel conversion kits business, 22.2% of its revenues from non-standard
pressure containers, and about 2.1% of its revenue from retail CNG filling station operations.
In April 2008, the Company received a $17.87 million (RMB 124.76 million) strategic investment from
a group of Chinese investors. Strategic investors acquired 24.95% of the Company’s subsidiary
Qingdao Sinogas General Machinery, which, after the Company went through reorganization,
controls the Company’s manufacturing business segments.
4
Manufacturing Facilities - Along with its downtown Quigdao manufacturing facility,
Sinoenergy has a 22,000 square feet manufacturing facility for vehicle fuel conversion kits in
Jiaxing City, Zhejiang province. The Company rents 5,000 square feet of office space in Beijing
for its corporate headquarters.
Sinoenergy recently acquired Qindao Jingrun General Machinery Company and Qingdao Shan
Yang Tai Chemistry Resources Development Co.Ltd., a joint venture that owned a 1.1 million
square feet property. On March 31, 2008, the Company announced that it had leased its current
manufacturing facility in the center of the city of Qingdao and planned to move its operations to
Qindao Jingrun’s property located in an industrial development zone located outside of the city
of Qingdao. Sinoenergy will move its pressure container and CNG equipment manufacturing
facilities to this new location before the end of 2008.
The CNG filling station construction service business includes the design and construction of
CNG filling stations and installation of CNG filling station equipment. Because the number of
retail CNG filling stations in China grew rapidly during the last several years, Sinoenergy was
able to use its design and construction expertise to generate high gross margins
from 2005 through 2007.
The CNG storage transportation segment of the business includes the manufacture
of CNG transportation trailers. The company is one of the three companies which
have C2 and C3 licenses issued by the Chinese central government for designing
and manufacturing CNG transportation trailers.
A rapidly growing part of its business, Sinoenergy recently strengthened its position in the CNG
vehicle fuel conversion kits market by acquiring a controlling interest in Jiaxing Lixun Automotive
Electronic Co., Ltd, a leading designer and manufacturer of electronic control devices for alternative fuel
(CNG and Liquid Propane Gas) vehicles, including computer controllers, conversion switches,
spark advancers, tolerance sensors and emulators. Jiaxing Lixun is one of the largest manufacturers
and exporters of fuel conversion kits devices in China and has a wide customer base in Europe,
Russia, the Middle East and Southern Asia.
5
In April 2008, Sinoenergy Corporation reorganized its group structure to separate the Company’s
manufacturing business segments from the development and operation of retail CNG natural
gas stations.
In the Non-Standard Pressure Container segment, Sinoenergy has a wide customer base
consisting of more than 50 clients across mainland China in the provinces of Shandong, Shanxi,
Hebei, Henan, Anhui and Jiangsu. Its clients are in diverse industries, including steel, petroleum,
chemical, metallurgy, and electricity. No one client accounted for more than 10% of total revenues
in 2006.
Wholesale CNG Processing and Retail Filling Station Construction and Operation
Sinoenergy is developing and operating a network of retail CNG filling stations throughout China.
The Company will deemphasize its construction services for third party operators to concentrate
on building and operating its own network of retail filling stations. Developing, owning and operating
retail CNG filling stations is expected to become the major part of the Company’s business.
The Company currently rents or owns the land rights for for its retail CNG filling stations in the cities
of Wuhan, Pingdingshan and Xuancheng.
In October 2007, the first two retail CNG filling stations were completed in Wuhan City, the
capital of Hubei province and the largest city in central China.
In November 2007, a third retail CNG filling station was opened in Xuancheng City, Anhui province.
Xuancheng City has a population of 3 million, with 1,000 buses and 2,000 taxis currently in use.
The Company plans to develop up to 10 retail CNG filling stations in Xuancheng City and its
surrounding area.
On March 19 2008, the Company reported that it had three CNG retail filling stations open and
operating. 16 stations had completed construction and were waiting for final government approv-
als and 32 stations were in the planning or construction phase. All of the stations that were not
yet open and operating were expected to be operating, subject to government approvals, by
the end of calendar 2008.
On March 27 2008, Sinoenergy announced the opening of three new retail CNG filling stations
that were selling CNG. This brought the total number of stations opened by the Company to six
stations in Central and East China.
On May 5 2008, the Company announced that it opened a new retail CNG filling station and
completed the construction of another new retail CNG filling station.
On July 02 2008, the Company announced that it opened three new retail CNG filling station in
Wuhan and one new retail CNG filling stations Pingdingshan that start selling CNG.
6
Experienced Management Team
Sinoenergy’s management team consists of 37 professionals, each with over 15 years of experience in
the design, production, marketing, technology or operations of CNG equipment and CNG filling stations.
Mr. Tianzhou Deng, Chairman and Director - Mr. Deng, one of SINE’s co-founders, has been
Chairman of the company since June 2006. From 1999 to 2005, he was chairman of Beijng Sanhuan
Technology Development Co., Ltd. From 1997 to 1999, he was Team Leader at the Natural Gas
Vehicle Development Center of CNPC, previous to which he was an Engineer and Chief Engineer at
Jianhan, CNPC. Mr.Deng holds a MBA degree from China Science & Technology University and a
Bachelors degree from the University of Petroleum, China. Mr.Deng holds a senior engineer certificate
with professor rank issued by the Chinese government and is nationally recognized as a leader in
the alternative fuel industry in China.
Mr. Bo Huang, CEO & Founder - Mr. Huang has been CEO and Chairman of Sinogas since its start
in 2005. He is one of the co-founders of Sinogas. He was President of Beijing Sanhuan Technology
Development Co., Ltd., a company engaged in the development of natural gas conversion kits, from
2003 to 2005. Mr. Huang was Vice President of Chengchen Group, an investment and trading
company, from 1997 to 2003.
Ms. Lan Gu, CFO - Ms. Gu joined Sinoenergy in June 2008. She is a Canadian citizen and has over
ten years of audit, accounting and tax management experience. Before joining Sinoenergy, Ms. Gu
was a senior auditor responsible for planning and managing client engagements at Canada based
Lanno Torollenie LLP. Ms. Gu also was an audit leader at Deloitte Touche Tohmatsu CPA Ltd. in
Shanghai and an auditor at PricewaterhouseCoopers in Canada. Ms. Gu has a B.A. degree with
Honors in business with a concentration in financial analysis from York University, Canada. She is a
U.S. Certified Public Accountant and Canadian Chartered Accountant.
Mr. Anlin Xiong, Corporate Secretary - Mr. Xiong recently joined Sinoenergy as Vice President
in charge of the Company’s financing and investment activities. Mr. Xiong previously was a senior
manager at BOE Technology Group Co., Ltd., a leading Chinese LCD (Liquid Crystal Display)
manufacturer. At BOE, he was responsible for corporate strategy, technology, and intellectual property
planning and management. Mr. Xiong holds a MS in Electrical Engineering from the University of
Illinois at Urbana-Champaign, U.S., a MS in Physics from West Virginia University, U.S., and a BS in
Electronic Engineering from Tsinghua University, China.
Mr. Peng Zhou, VP of Operation - Mr. Zhou has more than 8 years work experience in the CNG
powered vehicle industry. He worked at Beijing Sanhuan Technology Development Co., Ltd as an
Export Manager and Assistant to the President. Mr. Peng Zhou is an expert in purchase and supply
chain management.
Valuation
July 10, 2008
Company Ticker Price Market Cap EPS (ttm) P/E (ttm) P/B (ttm) (P/S) (ttm)
7
Selected Financial Data
Sinoenergy Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Unaudited)
(In thousands of US Dollars, except per share data)
(restated)
Net Revenue $12,393 $24,730 $5,255 $16,541
Cost of Revenue (5,909) (12,986) (2,522) (8,907)
Gross Profit 6,484 11,744 2,733 7,634
Operating Expenses
Selling Expenses 228 390 78 294
General and administrative expenses 2,061 4,337 1,247 1,975
Total Operating Expenses 2,289 4,727 1,325 2,269
Income (Loss) From Operations 4,195 7,017 1,408 5,365
Other Income (Expenses) net 1,865 (735) (83) 15
Income (Loss) Before Income Taxes 2,330 6,282 1,325 5,380
Income tax (Credit) 1,120 (398) 109 (45)
Income Before Minority Interest 3,450 5,884 1,434 5,335
Minority interest (3) (254) 32 (173)
Net Income 3,447 5,630 1,466 5,162
Earnings Per Share –Basic $0.24 $0.02 $0.06 $0.16
Earnings Per Share –Diluted $0.18 $0.02 $0.06 $0.14
Weighted Average Shares Outstanding- Basic 14,462,268 31,418,065 22,670,835 31,418,065
Weighted Average Shares Outstanding- Diluted 19,286,902 37,821,413 23,917,039 37,750,441
(Audited) (Unaudited)
Total Current Assets 50,223 28,076
Total Assets 89,066 100,642
Total Current Liabilities 25,538 26,997
Total Long Term Liabilities 29,485 30,257
Total Stockholders’ Equity 32,720 41,852
This Profile of Sinoenergy was developed by the Company and is intended solely for informational purposes and is not to be construed as an offer to sell or the
solicitation of an offer to buy the Company’s stock. This Profile is based upon information available to the public, as well as other information from sources which
management believes to be reliable, but is not guaranteed by Sinoenergy as being accurate nor does it purport to be complete. Opinions expressed herein are
those of management as of the date of publication and are subject to change without notice.