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Welcome to Profit Confidential • Tuesday, May 22, 2012

This Stock Has Growth Power

Wednesday, November 26th, 2008
By Mitchell Clark, B.Comm. for Profit Confidential

I love the power generation business — especially in times of recession. It’s interesting how entire industries get ignored in bull markets; then, when everything comes crashing down, investors go back to looking for more stable businesses.

Power generation is the one industry that continues to be booming in India and China. Not only are tens of billions being spent in those two countries on large-scale, countrywide power grids, but investment in more local, community-based power generation is also booming.

One very interesting small company that’s experiencing significant growth right now is A-Power Energy Generation Systems (NASDAQ/APWR). Operating through several subsidiaries, this company helps design and build micro power grids for industry and small communities in China. The company is now also selling larger-scale wind power generating systems.

A-Power Energy has so far completed nine energy production projects, with 11 projects currently under construction. The company is now also building its own facility to assemble wind turbines, based on technology licensed from European partners. With 200 employees, the business is headquartered in Shenyang, Liaoning Province, China.

In its most recent third quarter, A-Power’s revenues grew to more than eighty-five million dollars, representing an increase of 120% from revenues of almost thirty-nine million dollars generated in the three months ended September 30, 2007.

Net income grew to a solid $9.4 million, or $0.28 per share, representing an increase of 124% over net income of $4.2 million generated in the comparable quarter.

For the nine months ended September 30, 2008, the company’s revenues grew to more than one hundred eighty-three million dollars, representing an increase of 66%. Net income for the nine-month period was eighteen and a half million dollars, representing an increase of 56% over the comparable nine-month period. A-Power finished the period with cash and cash equivalents of close to sixty million dollars, and virtually zero debt.

In recent years, there have been a lot of power shortages throughout China and Southeast Asia, causing widespread blackouts or brownouts. Given this reality, the Chinese government and local governments are promoting the development of local power generation as an alternative to overburdened main power grids. Accordingly, the company does not expect any slowdown in its business due to the current global recession.

Recently, A-Power secured a new power generation contract in China’s Jilin province worth approximately one hundred and ninety-five million dollars. The company also signed a letter of agreement with National Power Supply Company, a subsidiary of Advance Agro Pacific, to explore the potential for a 600-megawatt, three-hundred-million-dollar power system in Thailand’s Chachoengsao province. If the deal is approved, this would be A-Power’s largest contract to date.

Power generation in India and China is a growth industry and it’s going to stay a growth industry for decades to come. I’d keep an eye on this small company. I don’t think it’s going to stay small for very long. 

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Profit Confidential AuthorMitchell is a Senior Editor at Lombardi Financial specializing in small-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Penny Stock Reporter, Micro-Cap Stocks, and Monster Profits. Mitchell, who has been with Lombardi Financial for thirteen years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. While Mitchell is not working he enjoys fly fishing, motorcycling and tending to his hobby farm.

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