SmartHeat (HEAT): Energy savings

"SmartHeat (NASDAQ: HEAT), is a play on saving money, increasing energy efficiency, less pollution, and China’s stimulus," says small cap expert Tom Bishop in BIResearch.

"Installing more efficient heating and heat transfer products can save money by saving energy and by burning less energy per unit of heat, this helps to reduce pollution and thus is right up there on the list for China’s $586 billion stimulus package.

"Proposed spending in China's stimulus package includes $58 billion for funding of rural and urban infrastructure and energy efficiency projects. There have been a number of developments that have pushed the stock up 47% since my initial recommendation in December.

"First the company reported earnings. Q1 is a slow quarter for the company in part due to the Chinese New Year, but SmartHeat made $0.05 a share in Q1 vs. $0.03 last year and grew revenues 102% to $6.2 million.

"Earnings of $0.60 or better now seem very doable this year, up from $0.31 in 2008. That would be 100% EPS growth.

"However, word that orders were up 5 fold over 2008’s Q1 was music to investors’ ears. This certainly adds credence to the company’s projection that sales will more than double this year.

"All the drivers that I have been expecting are continuing to drive sales growth: saving money, saving energy, less pollution, and China’s stimulus package adds wind to its back.

"Also it is interesting to note that the analyst from Rodman who follows the stock has raised his estimates 3 times now in as many months.

"Most recently after the company announced the $10 million acquisition of one of the largest manufacturers of plate heat exchangers in China. Located in Siping -- not far from SmartHeat’s existing facilities -- the company expects this will be immediately accretive adding $1.8 million, or $0.07 a share, to 2009 EPS.

"While SmartHeat makes the plate heat exchangers, the acquired company also makes the plates allowing SmartHeat to vertically integrate this important upstream component, for at least part of its plate heat exchangers.

"This acquisition also gives the company a much bigger foot in the door with the chemical and petroleum industries and even the electric power industry, big markets.  The PE on 2009 EPS is a still modest 12 and the the stock continues to earn our BI Rank of 'buy'."
 

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