A-Power (Nasdaq:APWR) Pullback Represents More Buying Opportunity in Our Opinion

Jul 08, 2008
Author: SCP Editor

July 8, 2008 – We are pounding the table this morning on A-Power Energy. Amidst broader market weakness the stock has pulled back to close at $21.08 in yesterday’s session, down about 7% since we initially recommended it to our readers on May 16. The company continues to execute its plan and is extremely well positioned in the China wind sector, which is seeing growth to hit national targets well ahead of expectations. Here are the reasons we think the stock is hugely oversold at current levels:

·         The cost of wind is competitive, at about $0.08 per kilowatt hour (kwh). Coal is cheaper, at about $0.05 but when you factor in that coal companies will have to meet mandates for emission reduction, coal prices per kwh will rise.  

·         In April the National Development and Reform Commission recently revised its eleventh 5-year plan to double China’s installed wind capacity target to 10GW by 2010 (expectations are that China is going to hit this number by the end of this year).          

·         China’s current target for wind energy is 30GW by 2020, but experts (the Global Wind Energy Council) think given current policies, its installed capacity of wind energy could reach between 50GW (about 4% of installed capacity) and as much as 122GW (about 10% of installed capacity) over that period.  

·         The technically exploitable wind resource in China is 1,000GW.  

·         By the end of 2007, China’s cumulative installed wind capacity was 6GW (so even at an anticipated target 30GW in 2020, this is 400% growth, or 13% CAGR. At the end of 2006, the number of wind turbines installed was 3,311 distributed over 100 wind farms across 16 provinces.

A-Power is, relatively speaking, new to the wind industry business. That being said, it has quickly secured a backlog of $700 million in orders into China, with plans to begin producing its own wind turbines by the third quarter this year. Again, we have made the case for the stock on a financial and fundamental basis elsewhere, but we just wanted to remind our readers of the rising tide that will lift A-Power through 2020.

Our target trading range for the stock remains in the $32 to $42 range.

Disclosure Note: SCPEditor has a LONG position in APWR.