UPDATE:    Since our original story in late 2009,  GCHT has drifted in the $2.30 – $2.50 range under light trading.  Today, however, the stock is up 15% on no recent news other than the fact it is presenting in 1 week at the Needham Growth Stock Conference on January, 14th.    Perhaps interest is gathering ahead of the conference or pending news is coming.

GC China Turbine (GCHT.OB) is a manufacturer of efficient 2-bladed wind turbines based in Wuhan, China . The Company holds a license to manufacture these 2 bladed turbines which meet rigorous requirements for low-cost and high reliability. The technology was developed through a 10 year European R&D effort costing in excess of $75 million dollars.   They recently launched  a 1.0 megawatt (“MW”) utility scale turbine with designs for a 2.3MW and 3.0MW utility scale turbine in development. The Company’s initial efforts have been rewarded with contracts of approximately US$128 million to-date and realistic potential for an additional $200-$400 million in additional contracts in the next 12-18th months.    The deployment savings for the 2 blade turbine vs the traditional 3 blade turbine are signficant as listed below.

At approximately a $2200 savings,  a large wind farm could see savings in the hundreds of thousands of dollars.  In addition, the units yield a 3% uptime advantage over their 3 blade counterparts yielding additional revenue in the tens of thousands of dollars per year.

The company has recently engaged Deloitte & Touche Tomahatsu as their new independent registered public accounting firm to audit the Company’s financial statements for the fiscal year ending December 31, 2009. For a small firm such as GCHT,  getting a world class auditor to validate their financials will pave the way to a listing on an exchange such as the Nasdaq Global Select Market and off the bulletin boards.   If you are unsure the relevance of such a move,  look at companies such as Gulf Resources (GFRE) to see the potential impact.   Gulf Resources,  also a public company based in China,  rocketed more than 400% on the news.  But GCHT doesn’t need hype to move its stock price,   ultimately, it will need traction in its marketplace.   If we assume that existing business trends continue for GCHT,   a revenue figure of $275-300 million for the next 12 months seems like a conservative estimate.    Given the price to sales ratio of 2 inline with its peers such as A Power Energy Limited (APWR),  that gives the stock a potential market cap of approximately $600 million or about 3.15 times its current market cap.    Consequently,  a price of $9-11 is a reasonable valuation for GC China Turbine based on these parameters.    With the current price around $2.85,  the stock looks very attractive.    The chart below shows that GCHT recently dipped below its 10 day moving average but it has bounced back through resistance each time it has done so before.  In addition, the stock is currently at the lower end of the Bollinger band and could be poised for a rebound back to the mid 3’s in the short term.   Be careful however that this is a lightly traded micro cap stock and typically exhibits greater volatility than its industry peers

Company Website : http://gccturbine.com

Author’s disclosure: long small position in GCHT

Launched in July, there is a welcome of a “Pure Play” Wind Energy ETF. The ETF, named PowerShares Global Wind Energy Portfolio (Nasdaq: PWND), is based on the NASDAQ OMX Clean Edge Global Wind Energy Index. This index is comprised of companies related to the use, development, manufacturing or distribution of wind energy. Don’t expect a bunch of small cap or bulletin board stocks to comprise this ETF, Its major holdings include the major players in wind power. As indicated by the table below, the vast majority of its holdings are in major global wind companies such as Vestas and Gamesa. Many of these currently trade on foreign exchanges so this type of ETF definitely improves accessibility for the average American investor. As expected, many of the smaller volatile plays such as NCEN, WWEI and APWR are excluded for now.

The ETF justed launched in July, so there is not much history on performance of the ETF. The underlying index in which it is tracking however (NASDAQ OMX Clean Edge® Global Wind Energy Index), has been around longer and we can see that we are within 5% of the 52 week low of $22.46 which appears to be a solid buying opportunity. Unlike some other wind plays, we don’t expect this ETF to have the potential to be a 2-3 bagger, but could exhibit solid and steady growth over the next few years and wind energy becomes more prominent on the average investor’s horizon.

A-Power Energy Generation Systems Ltd said it has signed a deal, to build a wind turbine production facility, with the Chinese city government of Bayan Nur. 2,100 MW of wind power generation in the Bayan Nur region has already been approved by the government and A-Power will be poised to capitalize on this with a turbine production capacity of over 1,800MW by the end of 2009.
The 290,000 square foot plant is set to cost about $20 million and is expected to be completed in July 2009 less than a year away. This will allow A-Power to scale and manufacture wind turbines of 2.5MW and 750kW capacity. Furthermore, the company said that under the deal, the city government has agreed to tax breaks and to coordinate sales with wind farms in and around Bayan Nur region.

Currently analysts Roth Capital and Jessup & Lamont are covering the stock with Buy rating. Further more, the largest institutional holder (over 4.5 million shares) of APWR is hedge fund JLF Asset Management which happens to be a 25 minute drive to APWR US headquarters in San Diego, CA. This is quite important in my mind as I suspect JLF is having quite frequent dialog with APWR on the state of the business when company execs are stateside. I would be looking closely at movement on JLF Asset Management’s holdings as a forward indicator of the stock.

Looking at the fundamentals, APWR has over $100 million in cash and cash equivalents, over $700 in backlog and no debt. Furthermore, the company is on track to earn at least $1.5 per share and 500 million in revenue in FY 2009 giving it a forward PE of less than 20 at its current price of approx $27 per share. This looks like a stock you buy and forget about for a year and you could be well rewarded.

Below is a 3 month chart of APWR

Here is a link to a mention of APWR back in Feb on CNBC

Below is a 5 day chart of WelWind which illustrates the lower trading range this stock has settled into

In addition, form their most recent 10Q filing, they will need to raise substantial cash to fund future growth which will result in the company diluting shares or taking on debt.

Our cash on hand as of March 31, 2008 is $22,241. We have sufficient cash on hand to pay the costs of some of our operations as projected to twelve (12) months or less and to fund our operations for that same period of time. However, we will require additional financing in order to proceed with some or all of our goals as projected over the next twelve (12) months. We presently do not have any arrangements for potential lines of credit or sources of financing for the purpose of proceeding with any of our goals projected over the next twelve (12) months and beyond.

For now, it seems prudent to steer clear and reassess in 3-6 months to see whether the company is able to fund operations, execute against their current China projects and increase capacity so they can embark on new projects.  To sustain a market cap of even $30 million,  you should be able to net $2 million per year in net profits and it doesn’t look like that will happen until at least 2010-11.

• Based on current demand they believe their new wind turbine plant will be operating at full capacity until mid-2011bringing in over 1 billion in revenues

• APWR will bring online its 180,000 square foot wind turbine assembly facility with the capacity to produce 420 of the 750kW wind turbines and 300 of the 2.5 MW wind turbines each year and expects to begin producing wind turbines at this new facility in the third quarter of this 2008

• China’s wind energy market alone is expected to grow 40 fold to 50 GW of output by 2020, up from just 1.2 GW in 2005

• Q1 2008 Revenue increased 85.0% to $32.3 million from $17.5 million in Q1 2007

• Q1 2008 Net Income increased 79.1% to $2.9 million from $1.6 million in Q1 2007

• Cash balance as of March 31, 2008 approximately $94 million, up from approximately $36 million at the end of 2007

• Bridge loan was repaid in January 2008, Company is now debt-free

• Confirms Company on-track to reach 2008 earnings guidance of $35 to $45 million, or approximately $1.04 to $1.34 per share

If APWR continues to execute and become “best of breed” it could generate 2009 earnings close to $2.00 per share. With a aggressive multiple of 40 for a growth company such as this, it could warrant an $80 pps.