Public (SHA: 600969)

Company Facts:

Hunan Chendian International Development Share-holding Limited Company (Chendian International) is one of the earliest established large-scale local electricity generation and independent power distribution enterprise in China (mainland). The company is located in Chenzhou region, Southeast of Hunan province, where geographically the region, best suits the purpose, as it contains fertile small hydropower resources.

Chendian International was approved by People’s Government of Hunan Province, and initiated in year 2000 by United Nations Small Hydropower Centre and 4 local national-owned Hydropower Companies from Yizhang County, Linwu County, Rucheng County, and Yongxing County.

The discovering and utilizing of clean and renewable resource, such as hydropower, is greatly supported by Chinese government’s sustainable developing policies. The company, being eco-friendly electricity generating and distributing company, therefore, has been secured with stable market and considerable profit margin.

Moreover, the company has made its strategic movement to enter the industrial gas supply field by investing USD 3 million to purchase 45.5% shares of Changzhou Zhongtianyi Gas Co. Ltd and thus become the holding company. The company’s new project in Tangshan, Hebei province has started operation and increasingly contributes profits. Meanwhile, another new project in Xinyu region of Jiangxi Province has also started construction.

Financial Overview

Related companies: (Name, relationship, and percentage of ownership/rights & interests):

Chenzhou City People’s Government National-owned Assets Regulatory Committee, Holding Shareholder, percentage of rights and interests: 19.39%

Hunan Huiyin International Investment Co. Ltd. Shareholding subsidiaries, percentage of rights and interests: 99.18%

Hunan Chendian International Hydropower Investment Co. Ltd, Shareholding subsidiaries, percentage of rights and interests: 98.72%,

Yizhang Runfeng Resource Development Co, Ltd. Shareholding subsidiaries, percentage of rights and interests: 81%

Chenzhou Huihuang e-Media Co. Ltd. Collaboration, percentage of rights and interests: 45%

Chenzhou Wanguo Grand Hotel Limited Liability Company, Collaboration, percentage of rights and interests: 17.60%

Chenzhou Chendian Technology Co. Ltd. Collaboration, percentage of rights and interests:  49%

Chenzhou City People’s Government, Actual Controller.

Stock Health:

Highest in past 52 weeks: 12.39

Lowest in past 52 weeks:    4.16

As on 29 July, 2008

Open: 5.13     High: 5.46   Low: 5.08    Close: 5.46    Vol.:  12,290,662              

Business Performance:

           Unite: RMB 10,000

Daily Stats (last one month):

52 weeks       highest: 12.39                 Lowest: 4.16

The company’s eco-friendly hydropower project not only is supported by government’s policy but also will bring more profits to the company once the electricity price is being raised in the near future. However, the generation of small hydropower totally depends on the natural conditions, hence, when self-generated electricity is not sufficient, the company will have to purchase electricity to compensate its electricity supply. The rising electricity price has increased pressure in the company’s operation.

Nevertheless, the company’s strategy is getting clearer and business structure is also getting sounder. It started to make profits in year 2007. Unfortunately, the company has suffered major loss of RMB 278 million Yuan caused by the snow storm in the first quarter of year 2008. The snow storm has damaged many infrastructures in effected areas, it left the electricity distributing networks no exception. Although the company has received a compensation of RMB 23 million Yuan from the Beijing Government as purpose of rebuilding the electricity networks, it will not able to change its financial situation in a short time as the company suffered double loss from the damage of power distributing infrastructures and income loss due to large-area electricity cut.

I personally assume that, within a year or two, the company will remain within the red line, and also bank loan payment will make it even harder to control the financial risks. It has been reported that the company’s business performance ranked the third from top out of 44 listed companies in year 2007, dropped to the bottom in the first quarter of year 2008’s industrial performance ranking.

To conclude, from single product – electricity supply, to enter industrial gas supply field, the company has made its commitment. However, the natural disaster has changed the company’s overall situation and put it into extreme high financial risks and difficulties in its operation. The company is facing ever hard circumstances with respect to recover itself from the massive damage caused by natural disaster. Personally, I would not recommend investors to undertake middle or long term investment. 

I would like to throw some lights on the abnormality in the last trading session, which investors are suggested to pay good attention to. The volume has been enlarged more than 6 times and stock price also went up notably, while there was no outside motivation, hence, I consider this as a sign of big players inserting capital. I assume that once individual investors following up, the big players will immediate withdrawn capital with pocket profits in short time. Therefore, investors should not be confused and blindly follow up while existing shareholders should make a quick exit.

Theoretically, this stock is on high-risk segment, and current stock price is higher than its market value.  It is predicable that it will take relatively long time for the company to get back into the game. Therefore, existing shareholders are suggested to cut the stock and look for more compensation elsewhere rather than holding and waiting. Investors should not blindly follow the current trend and make their investment decision, as there are very slim chances for individual investors to gain and the risk is too high to bid on.