Wednesday, April 28, 2010

China Trip: China Wind Systems

By Eric Jackson

RealMoney Contributor

4/26/2010 1:32 PM EDT

Three weeks ago, I met with Ryan Hua, vice president at China Wind Systems (CWS - commentary -Trade Now), at his corporate offices in Wuxi, China. The company has attracted attention because it produces components for large windmills that generate alternative energy. It is one of the only Chinese-based, U.S.-listed public companies operating in that space. Overall, I like the company a lot for the long term, but any potential investor should be aware of some potential short-term challenges to the stock.

Wuxi, the headquarters of China Wind, is about an hour and a half northwest of Shanghai, up the Yangtze River. Most Americans would have a hard time finding it on a map. Yet it's a city of about 5 million -- larger than the city of Los Angeles -- that's home to many industrial and tool companies with a lot of wealth.

China Wind Systems was founded in 1995 by the current CEO, Jianhu Hua, as a heavy machinery and dyeing company. The company developed a cheaper way of dyeing fabrics in large vats. This older business still exists today, and although it is declining in revenue in comparison with the wind systems business, Ryan Hua told us that the dyeing business has shown some renewed strength over the last couple of quarters, compared with the post-Lehman days when business dried up. Besides this legacy dyeing business, China Wind Systems also sells industrial equipment used in the coal power industry.

In fact, to this day, when you walk into the China Wind Systems corporate offices, the legacy company name, Wuxi City Huayang Dyeing & Finishing Machines Co., is displayed on the building prominently.

From Dyeing to Going Green

Most investors in the business are attracted not to these legacy businesses but to the wind power component. The origins of this business date back to 2005, when CWS began to manufacture "green" equipment that was environmentally friendly, for sale to the coking and coal-powered industries in China. By April 2007, things were going well, and Jianhu Hua recognized that the wind power industry would be significant in the years to come in China. Remember, the company had been operating in the clean coal industry. China's power usage comes predominantly from coal power, which, although plentiful in China and relatively cheap, is highly polluting. Citizens of Beijing and Shanghai count the number of "blue sky days" they get annually, because they are so rare.


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