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8-K - CHINA RECYCLING ENERGY CORP | v162628_8k.htm |
China Recycling Energy Corp.
Investor Presentation
October 2009
Safe Harbor Statement
This presentation includes or incorporates by reference statements that constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E
of the Securities Exchange Act of 1934, as amended. These statements relate to future events or to our
future financial performance, and involve known and unknown risks, uncertainties and other factors that may
cause our actual results,
levels of activity, performance, or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or implied by these forward-looking
statements. These statements include, but are
not limited to, information or assumptions about revenues,
gross profit, expenses, income, capital and other expenditures, financing plans, capital structure, cash flow,
liquidity, managements plans, goals and objectives for future operations
and growth. In some cases, you
can identify forward-looking statements by the use of words such as may, could, expect, intend, plan,
seek, anticipate, believe,
estimate, predict, potential, continue, or the negative of these terms or
other comparable terminology. You should not place undue reliance on forward-looking statements since
they involve known
and unknown risks, uncertainties and other factors which are, in some cases, beyond
our control and which could materially affect actual results, levels of activity, performance or achievements.
2
Company Overview
China Recycling Energy Group (CREG or the Company) Builds,
Operates, and Transfers (BOT) energy recovery systems for large, energy
intensive
industrial plants such as steel, cement, and coke plants in China
Currently 4 facilities in operation ( 28MW);
3 facilities under construction (45MW);
successfully transferred 2 projects
(50MW)
Ticker: CREG. OTCBB
Price: $1.73
(09/30/2009)
Shares out: 38.8M
Market
Cap: $ 67.1M
Blast Furnace Top Gas Recovery Turbine Unit (TRT)
3
Agenda
Introduction to CREG
4
Market Overview
8
Company Overview
19
Financial Snapshot
36
Investment Strategy Overview
39
4
Investment Highlights
5
Secure recurring revenues: operational periods last 5-20 years
Electricity sales secured by long-term electricity production agreements with
customer(s) with minimum operational hours per year guarantees
Internal systematic approval process, including detailed due diligence,
minimizes operational and collection risk
For private businesses, CREG requires mortgage collaterals, personal and
third party guarantees and or 3 months of upfront
payments
Emerging sector in China with strong government support:
Tax incentives: 15% preferential corporate income tax vs. 25% normal rate
Regulation: government is requiring all existing and new blast furnaces to
install TRT systems and 40% of cement factories must install CHPG systems
Rapid payback: Payback achieved in 3-4 years
Weighted average unleveraged IRR of 31% on current and projects under
construction
Investment Highlights (contd)
6
Undervalued: we anticipate to be listed on exchange and believe it will have
greater visibility
and increase our stock price.
Carlyle backing: Carlyle Asia Growth has invested $18m in equity and
convertible notes and
owns 32% of the fully-diluted float.
Strong management team: Strong team of management made up of
engineers and finance professionals
Proven track record of current and completed projects:
4 ongoing projects (28MW); concluded and successfully transferred 2 projects
(50MW)
Commercially-proven technology and project management expertise in
recycled energy system across various industries
Investment Highlights (contd)
High financial visibility due to strong pipeline:
3 facilities under construction (45MW)
Signed MOUs with additional 7 facilities (121MW)
Unique business model key to market success:
Only listed waste-energy recovery BOT pure-play; allows customers to invest
and focus on core businesses
No direct competition from financial competitors b/c they lack of technical
skills ,nor from engineering design institutes and EPC providers b/c they lack of
financial
means to provide BOT services
Offers affordable and flexible financial solutions to reducing energy costs and
emissions while extending the life of the primary manufacturing equipment
7
Agenda
Introduction to CREG
4
Market Overview
8
Company Overview
19
Financial Snapshot
36
Investment Strategy Overview
39
8
Products/Services
All of CREGs power systems recover byproducts, such as heat, pressure, steam,
residuals, etc., generated during industrial production processes which were previously
wasted. The
input materials have virtually no cost.
CREGs recycling energy model:
CREGs model creates a win-win situation for both itself and the clients.
CREG provides the initial capex investment for the customer in exchange for long-
term production agreement with attractive returns on investment.
The customers can focus their capital resources on their core businesses while
improve their energy efficiency and reduce emission in compliance with
governments
environmental regulations.
Pressure and heat
released in
production
9
Products/Services
CREG recovers energy in the forms of 1) Pressure, 2) Heat, and 3) Gas and convert it into
electricity. The energy recovery systems can generally be classified into 4 categories:
Steel plants, coking
factories
(Inv. >$25 M per unit)
Combined Cycle P
ower Plant, a system that generates
electricity by burning the previously released gas
generated
during the iron-making process from blast furnaces. This can be
achieved using either the boiler or CCPP turbine method.
CCPP
Oil refinery plants and
coal mining
(Inv. >$10 M. per unit)
Waste
Gas P
ower Generation, a system that utilizes flammable
waste gas from coal mining,
petroleum exploitation and refinery
processing as a fuel source to generate electricity.
WGPG
Cement plants
(Inv. required > $7M. per
unit)
Cement
Heat P
ower Generation, a system that collects the
waste heat from the entrance and exit ends
of the cement rotary
kilns to generate electricity.
CHPG
Steel plants
(Inv. Requirement $3.5
M per unit)
Blast Furnace T
op Gas Recovery
Turbine Unit, a system that
utilizes high pressured gas emitted from the steel blast furnace
top to drive turbine units and generate electricity.
TRT
Application
Description
System
10
Alternative Energy Generation
0.017-0.023
1,140-1,430
0.1
Others
0.2857-0.4286
2,000-2,570
0.08
Solar Power
0.0229
1,450-1,670
0.7
Nuclear Power
0.0057-0.0129
860-1,430
26.8
Hydroelectricity
0.0214-0.0271
640-1,140
72.22
Thermal Power
0.0043-0.01
600-1,070
0.08
Waste Heat & Pressure
$/kw
$/kw
Power Generation Cost
Capital Investment
% of total Market
Power Type
Electricity generated from CREGs power systems has likely the lowest cost in the
world as it requires no fuel input.
Source: Industrial Associations Reports and CREGs Estimates
11
Market Outlook - TRT
Market dynamics: China produces more than 1/3 of the worlds steel. The
steel industry has been growing at 20% per year for the past 5 years and is
expected to continue its
growth in line with the Chinese economy driven by
continued strong government infrastructure spending
38kWh can be recovered from each ton of steel produced
Source: Steel Association Report 2008
Regulatory support: The
government is requiring all
existing and new blast furnaces
to install TRT systems; currently
only ~50% are in
compliance
Potential market size: over 200
TRT projects in China over the
next 5 years. Equivalent to
Electricity Revenue: $686m
annually
12
Market Outlook-CHPG
Market dynamics: China produces more than 45% of the worlds cement.
With large scale plants (eligible for CHPG installation) producing more than
1.35bn ton per year
$568bn stimulus package to build roads and ports for the next 2 years will
continue to drive cement production
35kWh can be recovered from each ton of cement produced; potential
market size: over 480 CHPG projects in China over the next 5 years
Regulatory support: The government
requires that by 2010 40% of new dry-
type cement production plants must
install CHPG systems. Currently less
than 10% have installed
such systems
Source: Cement Association Report 2008
13
Market Outlook - WGPG
WGPG - Coke:
The WGPG recycled electricity market is estimated to be about 22.5 billion KWh (or about
US$1.5 billion in revenue size).
*
With Chinas annual coke output reaching 281 million tons and the industry growing at 20%
per year, the growth potential
is significant.* Each ton of coal gauge can help generate
80KWh of electricity through
its process, more efficient than steel or cement.*
There are many other applications of recycling waste heat, pressure and gas in
steel factories,
cement plants, glass factories, non-ferrous metal refining factories as well as from recycled
natural gas or biomass. CREG has the expertise
and operation experience to penetrate into
many other sectors when sufficient capital is available.
Potential market size:*
300 Blast Furnace Waste Gas projects
500 Blast Furnace Waste Heat projects
100 Glass Furnace Waste Heat projects
300 Non-ferrous Metal projects
300 Waste Gas Power Generation projects
*Source: Coal Association Report 2007 and CREGs Estimates
14
Agenda
Introduction to CREG
4
Market Overview
8
Company Overview
15
Financial Snapshot
36
Investment Strategy Overview
39
15
Proven Model and Added Value
Benefits to CREGs customer
Focus on core business
No capex needed to comply with government environmental
regulations
5-20% cheaper electricity rates and lower operating cost
Enjoy partial benefit of CDM credits
Extend life of primary manufacturing equipment
National Grid
Power Rate
CREG Operated
Rate
Invest and Build
Power Plant at
Factory
Construction 3 -12
months
Operate Facility:
Customer off-takes
all the electricity for
5-20 years at below
market prices
Transfer: Give/Sell
Power Plant to the
Factory at the End
of the Contract
Term
RMB
0.45-0.50
Kw/h
RMB
0.35-0.40
Kw/h
16
Business Models
All of CREGs power systems recover byproducts generated during
industrial production processes that were previously wasted
BOT model: CREG finances and constructs the project, operates the project
for 5-15
years, and then transfers the project to the owner
Lease model: CREG finances and constructs the project, leases to the owner,
and
then sells/gives the project to the owner when the lease expires
Investment model: Both CREG and the customer finance and construct the
project and
share in the profits over 5-20 years or with no time limits
CREGs model creates a win-win situation for both the company and its
clients
CREG provides the capex investment in exchange for attractive returns on
investment
The customers can focus their capital resources on their core businesses and
comply with government regulations with no capex
17
Business Outlook
CREGs projects are as follows:
2 TRT projects and 2 CHPG projects are in operation
3 projects are under construction, including 2 Heat Recovery/WGPG projects
and 1 WGPG/CCPP project
MOUs for 7 other TRT, CHPG and WGPG projects
CREG is engaged in significant contracts with some industrial giants in
China, such as:
Sino-Steel Group, Binhai Branch, Chinas largest nickel steel plant
Erdos Metallurgy Co., the worlds largest ferrosilicon alloy plant
Shengwei Cement Group, major cement producer
Strong pipeline of signed projects in place for the next 3 years
with industry giants
18
Projects in Operation
19
Unleveraged IRR
50%
Year payback
3
12
12
12
12
12
12
12
12
12
12
12
12
12
(25)
Revenue - operating costs
Zhangzhi Iron & Steel TRT Project
Unleveraged IRR
24%
Year payback
3
10
10
10
10
10
(28)
Revenue - operating costs
Xingtai Iron & Steel TRT Project
Unleveraged IRR
33%
Year payback
3
19
19
19
19
19
(43)
Revenue - operating costs
Shengwei Tongchuan CHPG Project
Unleveraged IRR
38%
Year payback
3
24
24
24
24
24
(50)
Revenue - operating costs
Shengwei Jinyang CHPG Project
14
13
12
11
10
9
8
7
6
5
4
3
2
1
(RMBm)
Year
Projects Under Construction
Year
(RMBm)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Shanxi Ferroalloy Coke WGPG/CCPP Project
Revenue - operating costs
(107)
30
30
30
30
30
30
30
30
30
30
4
Year payback
25%
Unleveraged IRR
Sinosteel Binghai I WGPG Project
Revenue - operating costs
(55)
21
21
21
21
21
21
21
21
21
3
Year payback
35%
Unleveraged IRR
Erdos Phase I Project
Revenue - operating costs
(78)
24
24
24
24
18
18
18
18
18
18
18
18
18
18
18
4
Year payback
27%
Unleveraged IRR
20
Emission Reductions
Tons of
Coal
Tons of CO2
(tons annually)
Type
MW
saved
reduced emissions
Current Projects
Shengwei Jinyang
CHPG
9.0
66,555
166,388
Shengwei Tongchuan
CHPG
7.2
55,463
138,658
Xingtai Iron & Steel
TRT
5.0
39,440
98,600
Zhangzhi Iron & Steel
TRT
6.3
51,558
128,895
Total
27.5
213,016
532,540
Projects Under Construction
Shanxi Ferroalloy Coke
WGPG/CCPP
20.0
295,800
739,500
Sinosteel Binghai Phase I
WGPG
7.0
42,595
106,488
Erdos Phase I
WGPG
18.0
63,597
158,993
Total
45
401,992
1,004,980
Assuming 1 ton of coal = 2.5 tons CO2
21
Competition
CREG faces no significant competition b/c financial competitors are lack of
technical skills, while engineering design institutes and EPC providers are
lack of financial
means to provide BOT services
CREG combines functionalities of Bank, Design Institute, EPC / Turnkey Provider and
Project Operator. While there is significant
competition in each of these fields, there is
no direct competitor who provides all these services in one package
Future competition could arise if EPC or equipment providers acquires financial
platform to become BOT provider but CREG has significant head start in China with
lock on largest
clients and projects with best returns
Main competitors are government owned research institutes and their wholly owned
construction companies but they lack the financial resources to fund projects
For TRT projects, CREG is competitive with clients in-house investment options. Most
TRT projects are done in-house due
to high investment returns
22
Technology Entry Barriers
TRT
Limited competition in outsourced TRT
market; most systems are done in-house
Steelmakers only trust experienced operators
CHPG and WGPG
CHPG technology is relatively new in China
and there are only a limited number of sizable
factories doing it themselves
Most of these WGPG systems are very small
in scale
CCPP
Low competition because of high technology
requirement
23
Technology
Entry Barriers
Experience
Track record
Capital
Customer
Relationship
Technology
30 engineers, 80% of whom have over 15 years of experience
Self-owned Xing Iron & Steel design institute is capable of consulting,
engineering and supervision on TRT/waste heat/waste gas power
generation projects
The Company has 2 self-owned patents, 6 authorized-to-use patents
Will apply for 10 patents in 2009, derived from Erdos WGPG project
CREG is cooperating with design institutes and companies in the steel,
construction material, metallurgy, chemical and petrochemical sectors to
achiever better integration of
power generation devices with the main
projects
24
Experienced Management
with Proven Track Record
Mr. Ku Guohua Founder, CEO, Chairman
More than 20 years of experience in TRT technology, design, R&D and project
management
Involved in the 1st set of TRT installation and operation in China
Mr. Peng Xinyu CFO
Former CFO and Director of MOD3 Cabinets & Home LLC and CFO of Creative Hospitality
Concepts LLC.
Former Manager of Assets Management Dept., Bank of China Grand Cayman Branch
V.P., Tavistock Group (US) Asia, engaged in investment and financing in the Greater China
areas
Mr. Wu Zhigang Vice President, Finance
Responsible for the securities and financing activities of the Company
Over 10 years experience in Guotai-Junan Securities and Zhongzheng Investment
25
Core Competence
Strong industry connections in various industrial sectors
Proven records of technical design and engineering expertise in
recycled energy system across various industries
More flexible and nimbler than state owned competitors in project
assessment and negotiation
Close relationships with up-stream equipment suppliers
Strong installation, integration and implementation capabilities
Self-owned R&D center and partnership with other designing
institutions/universities
Diversified business models with financial options to customers
26
Agenda
Introduction to CREG
4
Market Overview
8
Company Overview
19
Financial Snapshot
27
Investment Strategy Overview
29
27
Financials & Projections
CREGs recurring net income continues to grow as it builds out
more and more energy efficiency systems that provide long-term
contracts
28
25.2%
25.6%
20.3%
25.4%
Margin %
9.2
8.2
3.9
2.4
Net Income excl. non cash items
23.3%
22.9%
nm
20.2%
Margin %
8.5
6.8
(2.2)
1.9
Net Income excl. FX impact
89%
128.4%
Growth over prior year %
38.9%
37.1%
39.0%
35.3%
Margin %
14.2
11.9
7.5
3.3
Total operating income
6.7
3.5
2.3
1.0
Interest income from Sale-type Lease
7.5
8.4
5.2
2.3
Gross profit
36.5
32.1
19.2
9.3
Total revenue
Dec-31-2009E
Jun-30-
2009A
Dec-31-
2008A
Dec-31-2007A
For the 12 month period ending
LTM
Key financials ($m)
Agenda
Introduction to CREG
4
Market Overview
8
Company Overview
19
Financial Snapshot
29
Investment Strategy Overview
29
29
Comparable Companies Analysis
30
9.9x
2.0x
$6.8
$32.1
$64
$67
OTCBB: CREG
China Recycling Energy Corp.
33.2x
3.8x
Median
31.2x
4.5x
Average
1 2008 revenue, EBITDA, and net income
34.0x
1.6x
$1.1
$23.2
$37
$38
OTCBB:CGYV
China Energy Recovery, Inc.1
13.5x
1.0x
$27.2
$255.5
$258
$368
NasdaqGS:APWR
A-Power Energy Generation
Systems, Ltd.
44.8x
9.3x
$8.8
$42.7
$397
$393
NasdaqGM:HEAT
SmartHeat Inc.
32.4x
6.0x
$58.2
$395.3
$2,383
$1,885
NYSE:ORA
Ormat Technologies, Inc.
P/E
TEV /
Revenue
LTM Net
Income
LTM
Revenue
TEV
Market
Cap
Ticker
Company
$MM (Except Per Share and Volume Data)
Strategic Plan
Short to mid-term goals:
Begin visibility effort in North America and Europe immediately
Upgrade to major exchange soon
Undertake large-scale total solutions projects that combines pressure, heat and
gas recovery projects in one site
Strong brand campaign and more market share
Business development in new application areas of recycling energy
Longer term plan:
Expand operations globally
Strategic expansion into other new green energy product categories
Maximize the interests of shareholders
31
Thank You!
IR Contact:
In China
China Recycling Energy Corp.
Mr. Leo Wu
Phone: +86-29-8765-1096
Email: tch@creg-cn.com
In USA
American Capital Ventures, Inc
Mr. Howard Gostfrand
Phone: 305-918-7000
Email: hg@amcapventure.com
32