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Published: December 9, 2009
An unprecedented level of industrial
expansion during the past two decades has not only made China
wealthy. It's made the country really dirty.
Now comes the clean up.
Years of industrial growth, largely powered by coal, have left
China choking in smog. Cities smolder in grey skies and many
rivers have become too dirty to even use for irrigation. Earlier
this decade, the World Bank estimated that of the world's 20
most polluted cities, 16 were in China.
The Chinese government has made some attempts to clean up the
pollution in the past. But now, they're getting serious.
During the boom years of last decade, with industries firing on
all cylinders, the government was reluctant to interrupt
production for environmental upgrades. But excess industry
capacity in the recession combined with massive stimulus
spending on infrastructure has provided a perfect catalyst for
the Chinese to unleash a serious effort to tackle the problem.
How serious?
Late last month the Chinese government announced that it will
spend $454 billion on environmental protection in the five-year
period through 2015, more than double what's being spent in the
current five-year period. That's a lot of money, even for the
Chinese. To put it in perspective, China's $586 billion stimulus
package was regarded as massive and is often credited with
revitalizing its economy as well as the rest of Asia. Now, $454
billion will be spent on pollution alone.
One of the main targets is the Chinese steel industry. In 1996,
China became the world's largest steel producer and today
accounts for one third of the world's steel production. Steel
manufacturing is also a major polluter. In 2007, the industry
accounted for 10% of the nation's industrial wastewater, 15% of
industrial dust and 10% of sulfur dioxide emissions. And, steel
plants tend to be located near densely populated areas.
RINO International Corporation (Nasdaq: RINO)
provides pollution control equipment for the iron and steel
industry in China. RINO designs, manufactures, install and
services wastewater treatment and exhaust emissions
desulphurization equipment principally for use in iron and steel
plants. The company also makes anti-oxidation products and
equipment designed for use in the manufacture of hot rolled
steel plate products.
Business is booming.
In 2008, revenues rose +119% from the year before to $139
million. For the first nine months of 2009, revenues have risen
+42% from the year-ago period. Net income rose +111% between
2007 and 2008 to $21.3 million, and is up +94% for the first
nine months of this year.
As for the stock price, RINO has soared a mind-boggling +690%
year-to-date. The stock moved from the pink sheets to a Nasdaq
listing on July 31. Since then, shares have almost doubled. Even
after this year's performance, RINO is still selling at just
more than 14 times 2009 projected earnings, a cheap price for
this level of growth.
Through the haze, RINO's outlook is bright. On July 21, the
Chinese Ministry of Industry and Information Technology
published a formal plan in which it prioritized flue gas
desulphurization (FGD) installation and set specific guidelines
and targets for companies while offering government funding.
Flue gas desulphurization screens the sulfur pollutants from
industrial smoke stacks. RINO called this the single most
important regulatory event in the company's history, and said
the new mandates should double the number of FGD systems
installed annually through 2011. This will significantly help
RINO, as FGD systems have accounted for 63.8% of company sales
so far in 2009.
In order to keep up with the rising pace of business, RINO just
completed a $100 million capital raise, offering 3.25 million
shares at $30.75. The offering will not be significantly
dilutive as the company already has more than 25 million shares
outstanding. With $167 million in total assets as of September
30, the additional $100 million will give the company a huge
funding boost and enable it to expand to meet the escalating
demand. This represents a low cost of funding for a company that
is virtually debt free already.
Clearly pollution control is not going away in China. The
country desperately needs to clean up and become more energy
efficient. RINO is in an ideal situation to benefit.
-- Tom Hutchinson
Staff Writer
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