A-Power Energy (APWR) Earnings/Guidance Remain in Line - Wind Business On Track

A-Power Energy Generation (APWR) will disappoint the "momentum" crowd today as it simply reported in line numbers for its quarter and did not raise guidance any further. So I'd expect a rash of them to exit to move on to the next gamble Tuesday morning. This remains a 2009-2010 story as the wind business looks to be on track and to add meaningful revenue at that point, while their core business remains firm. Backlog did dip from $700M to $650M, but the increase from December 07 to April 08 was so immense ($400M to $700M) this is predictable as this is still quite a small company with lumpy type of contract signings. This is over a year and a half worth of business and I expect more contract announcements over the next 6-9 months. But this is a market of 6-9 hours, if not 6-9 minutes so the stock most likely won't do much. All in all solid, but not enough to get the type of excitement necessary to draw in any hot money.

Ironically if there was a profitable American "future wind" company such as this, it would probably trade 3x the valuation on hype alone. We do see what appears to be a temporary hit to gross margins due to what stage they are in current projects and some increased expenses for hiring and listing on US stock exchange.

EDIT: on conference call guidance of $2.00 (with upside to $2.50) for 2009. Excellent CFO. Very conservative guidance the $300M Thai contract is NOT in their backlog as stated today. They really should put this stuff into the press releases because it's where most people get their info. Even more bullish after this call.

• For the three months ended June 30, 2008, A-Power’s revenue was $65.7 million, an increase of 21.5% from $54.1 million for the three months ended June 30, 2007. The increase was due to continued growth in A-Power’s core distributed power generation business and the relatively larger size of projects under construction compared with the prior period.
• Gross margin decreased during the three months ended June 30, 2008 to 12.1% from 14.5% in the same period of the prior year. The decrease in gross margin was primarily due to costs that were incurred in the construction phase of projects during the second quarter. Once these projects progress to equipment delivery and installation phases, gross margin should return to approximately 14%.
• Net income for the three months ended June 30, 2008 amounted to $6.2 million, an increase of 3.9% compared to $6.0 million for the three months ended June 30, 2007. Excluding a stock option charge of $280,000, net income stood at approximately $6.5 million with a net profit margin of approximately 10% and EPS of approximately $0.20.
• General and administrative expenses amounted to approximately $2.0 million for the three months ended June 30, 2008, an increase of approximately $1.1 million compared to approximately $0.9 million in the same period of the prior year. This increase was primarily due to the addition of key technical and managerial talent and direct expenses associated with being a publicly listed company in the U.S.

Holds guidance firm

• Mr. Jinxiang Lu, A-Power’s Chairman and CEO commented, “As expected, our financial results continued to accelerate during the second quarter and based on the projected timelines associated with our ongoing distributed power generation projects and wind turbine production, we are on-track to make our 2008 earnings guidance of $35 to $45 million.

Update on wind business

• In July, we completed the construction of our 310,000 square foot facility in Shenyang, China and announced our plan to commence construction in October of this year on our second wind turbine production facility – a 290,000 square foot facility strategically located in Bayan Nur City, in the heart of Inner Mongolia’s wind belt. We expect to complete the construction of this facility in July 2009.
  
• These two facilities will have a combined annual capacity to produce over 1,800 MW of wind turbines. With this capacity, our licensed foreign technology and our strong government support, we expect to become one of the leading wind turbine producers in China.

Component sourcing

• I am also excited to report that we successfully sourced all of the components necessary to produce the 2.5 MW and 750 kW wind turbines from suppliers based in China and Europe. We are currently in the process of finalizing agreements with these suppliers and are having components for the first ten 2.5 MW wind turbine components shipped to our facility in Shenyang. As a result, we expect to begin producing the 2.5 MW and 750 kW wind turbines at our Shenyang facility in the fourth quarter of 2008.
  
• We also expect to begin turning our previously announced LOIs for 380 of the 2.5 MW wind turbines into firm purchase orders and will make announcements as soon as these purchase orders are received.

China's energy situation

• During the first six months of 2008, power supply shortages continued throughout China and Southeast Asia and widespread blackouts and brownouts occurred even more frequently than in the previous periods. This reflects the need now, more than ever, for local power generation to create an efficient and cost-effective power supply throughout China and Southeast Asia. With this substantial market opportunity and our proven success in China, and now in the international market, we feel our distributed power generation business will continue to accelerate.

Long A-Power Energy in fund and personal account