China Environmental (PINK:CNVP)

	Recent 52-week high
	30% Earnings Per Share (EPS) growth rate
	10% revenue growth year over year
	Strong balance sheet
	15% minimum return on equity (ROE)
	8% minimum pre-tax margins
	Under 50 million shares outstanding
	High insider ownership
	Limited institutional ownership
	P/E at least 1/2 of EPS growth rate

China Environmental filed its 2010 second quarter filing yesterday evening. We were pleasantly surprised by the results:

Other highlights from the filing:

The increase in our revenue was attributable to the following

• In the same period of the prior year, we were focused on equipment sales, rather than on equipment-bundled installation projects which normally have a 5% to 10% higher profit margin than ordinary equipment sales. Starting in 2009, our business has transitioned from traditional equipment sales to a greater emphasis on the equipment installation projects
• The market demand in China for high-quality waste water treatment equipment we believe is growing substantially as more old waste water treatment plants throughout China are undergoing improvement or upgrades, as required by many local governments
• Experience in our industry and well-known brand has helped us obtain new and retain existing clients
• We own several patents which helped to increase our voting power in the contract bidding process to successfully acquire customer orders, because our equipments with such patents enable us to provide higher quality products and comprehensive technical supports to customers than our competitors do.
• We have established good relationships with many local engineering design institutes and their decisions normally play an important role to affect many clients in the project bidding process.

The increase in our net income was primarily attributable to our

• Increased revenue for the three months ended March 31, 2010
• Higher profit margin on the contracted projects versus sales of equipments in prior years, as our business continued to transition.

CNVP's trailing EPS is now $0.61 giving it a P/E of 9.8 on its previous day ask price of $6.00.

We have attempted to contact CNVP management on several occasions, but to no avail. We need to be aware that the company will now have to go up against touger quarters in the second half of its 2011 fiscal year ending september. EPS over the past four quarters has been in a tight range so we are not sure EPS growth will continue into the second half of 2010. We are assuming that the company may be operating at full capacity, necessitating the need for a capital raise despite the following comments in its filing:

"To date, we have financed our operations primarily through cash flows from operations and borrowings from PRC banks. As of March 31, 2010, we had $4,192,190 in working capital. Based on our current operating plan, we believe that our existing resources, including cash generated from operations as well as our bank loans, will be sufficient to meet our working capital requirement for our current operations over the next 12 months. To fully implement our business plan and continue our growth, however, we believe we will require additional capital. We currently have no agreement and/or commitment to obtain any such additional capital."

We will provide an update once we have contacted management.

Disclosure: Long CNVP