Nf Energy Saving (NASDAQ:NFEC)

Third Quarter 2011 Highlights

• Revenue was $2.6 million 
• Gross profit was $0.5 million, representing a gross margin of 19.18%
• Net income was $0.071 million.
• YOY EPS was $0.01 vs. $0.38

Adjustment of forecast result of fiscal year 2011

In early 2011, based upon the assumption that the Company would obtain $15 million in financing, the Company projected that total revenue and the net profit in 2011 would be between $30 million to $32 million and $6 million to $6.5 million, respectively.

However, the Company now expects that annual revenue for 2011 will be approximately $15 million and net income will be approximately $2 million, which is a decrease of approximately 40% and 50% compared to 2010, respectively.

The main reason for adjusting the financial forecast for 2011 is primarily due to (i) the delay of financing that caused a delay in completing construction of the new manufacturing facility and as a result, the Company has to subcontracting part of the manufacturing process to third parties which lead to a decrease in product revenue and net income; and (ii). the agreements for the Gaizhou Biomass Energy Project and Petrol-chemical System Pipeline Project did not receive the anticipated consents due to lack of resource and as a result the expected project revenue was not generated.

Second Quarter 2011 Results

• Total revenue of $4.9 million for the three months ended June 30, 2011, decreased 32.3% from $7.2 million in the same period of 2010. This decrease is mainly due to a decrease in product and service revenue, in turn due to the move to the Company's new factory being incomplete during the quarter.
• Income from operations was $0.7 million for the three months ended June 30, 2011, as compared to $1.8 million for the same period of 2010, a decrease of $1.1million or approximately 62.5%. This decrease is primarily due to lower revenue and gross margin and the increase in operating expenses.
• Net income for the second quarter was $0.5 million, or $0.09 per diluted share compared to net income of $1.4 million or $0.26 per diluted share in the same period of 2010.

"We continue to make progress in moving our operations to our new factory. However progress has been slower than originally expected due to the difficulty in obtaining the necessary financing. The rate of growth of operations and financial results going forward will depend to a great degree on the amount of additional financing we can obtain and when we can obtain it. With the capital markets in turmoil financing visibility is low. We will therefore no longer give guidance with respect to our 2011 full year results. We will keep investors informed of our progress and we remain very positive about the market for our products and the growth opportunities ahead," said Mr. Gang Li, the Company's Chief Executive Officer.

First Quarter Results:

• Revenues decreased 7.9% year-over-year to $2.6 million
• Gross profit increased 17.7% year-over-year to $0.8 million, representing a gross margin of 30.6%
• Net income was $0.3 million or $0.05 per diluted share, representing a net margin of 11.2%
• The Company's move to its new factory and development of the facilities on target for completion during the second quarter

"The first quarter is our slowest of the year and this year we used some capacity at our partially-completed facilities to manufacture profitable components for Shenyang's underground railway project, in addition to working on our core energy-saving flow control equipment.  As we near completion of the new factory during the second quarter we expect to be ready to begin work on the bulk of our core product orders in the third and fourth quarters.  We are on schedule with our 2011 plan and our outlook for the full year remains unchanged," said Mr. Gang Li, the Company's Chief Executive Officer.

NF Energy reiterates its guidance for the full fiscal year 2011 revenue to be in the range of $30 million to $32 million and net income to be in the range of $6.0 million to $6.5 million. Guidance excludes any possible additional expenses for potential future financing activities.

Fourth Quarter Results:

• Revenues increased 42.0% year-over-year to $7.3 million
• Gross profit declined 24.4% year-over-year to $1.3 million, representing a gross margin of 17.7%
• Net income was $0.5 million or $0.09 per diluted share, representing a net margin of 6.8%

"Looking at NF Energy's performance for the year as a whole we are satisfied with the Company's operations and the results that we have achieved," commented Mr. Gang Li, Chief Executive Officer of the Company. "Although the Company's total revenue and profitability for the second half of the year was adversely affected by our move to our new facility and this financial result was a disappointment to us, we weigh this against the potential of our new facility that has the ability to eventually triple our production capacity to 20,000 tons per year."

NF Energy reiterates its guidance for the full fiscal year 2011 revenue to be in the range of $30 million to $32 million and net income to be in the range of $6.0 million to $6.5 million. Guidance excludes any possible additional expenses for potential future financing activities.

As previously reported, on February 24, 2010 and March 4, 2010, NF Energy Saving Corporation  sold, through a private placement to two accredited investors, convertible promissory notes in the aggregate principal amount of $960,000 and warrants to purchase 160,000 (64,000 post reverse stock split) shares of the Company’s common stock.

The maturity date of each Note has been extended, as of February 24, 2011, to February 24, 2012. Furthermore, the investors have relinquished all of their claims in and to the Warrants and the shares of common stock underlying the Warrants.

SHENYANG, China, March 3, 2011 /PRNewswire-Asia/ -- NF Energy Saving Corp., today announced unaudited preliminary results for the fiscal year ended December 31, 2010. The Company will release full financial results on or before March 25, 2011.

• Total unaudited revenue for the fiscal year ended December 31, 2010 was approximately $25.3 million, an increase of 24.8% from the year ended December 31, 2009.
• Full year 2010 operating income increased 2% to $5.6 million.
• Full year 2010 unaudited net income was approximately $4.3 million, down 9.9% for the year ended December 31, 2009 due to a one-time non-cash, non-operating accounting charge related to convertible securities issued by the Company in 2010.  
• Although fourth quarter revenues were $7.3 million, an increase of 42.0% compared to the fourth quarter of 2009, net income dropped to $0.5 million compared with $1.3 million in the fourth quarter of 2009.  This was primarily due to a decline of gross margin from 33% in the fourth quarter of 2009 to 18% in the fourth quarter of 2010 that was caused by the Company transitioning production from its old facility to its newly constructed facility.

All the foregoing results are preliminary and subject to revision based upon review by the Company's independent auditor.

"We are happy with our overall performance in 2010," said Mr. Gang Li, Chairman and Chief Executive of the Company. He added "Our new facilities, to which we moved production in late 2010, will more than triple our available capacity and allow us to expand more rapidly in future years. In 2011, we expect continued strong revenue growth and a return to growth in profitability, driven by increased market demand for both our energy management services and our intelligent flow control systems."

The Company is providing initial guidance for fiscal year 2011 of revenues of between $30 million and $32 million and net income of between $6 million and $6.5 million.

SHENYANG, China, March 2, 2011 /PRNewswire-Asia/ -- NF Energy Saving Corporation today announced that it has filed a universal shelf registration statement on Form S-3 with the U.S. Securities and Exchange Commission ("SEC") for potential future financing.

"We do not have any immediate plans to offer or sell our securities under the registration statement," said Mr. Gang Li, Chairman and Chief Executive Officer of NF Energy. "However, the Board of Directors agreed that having a shelf registration in place was valuable for financial flexibility, given the opportunities for potentially high return capital projects that may be presented to us, including capacity expansion, development of low-carbon technologies and co-investments in energy-saving projects."

The shelf registration statement, when declared effective by the SEC, would give NFEC the ability to offer and sell up to $6,000,000 of its securities consisting of common stock, preferred stock, warrants, units or a combination thereof. The terms of any offering under the shelf registration statement would be established at the time of such offering and will be described in a prospectus supplement filed with the SEC prior to completion of any offering.

Rodman & Renshaw on Nf Energy Saving

Site Visit:We visited NFEC in Shenyang on October 15, 2010. We started the day at their new offices in down town Shenyang and then proceeded to their current and upcoming facilities located in Tieling City in Liaoning Province. The company’s existing facility manufactures energy-saving flow control equipment for China’s South-North Water Diversion Project and coal-fired power plants. We also saw finished and semi-finished products, primarily large industrial valves, ready to be shipped to Russia, India and Turkey. Mr. Jianwei Cui, general manager of Liaoning Nengfa Weiye Energy Technology, the Chinese subsidiary of NFEC, has been in charge of the daily valve manufacturing operation in the current facility. He gave us a brief tour of the factory and walked us through the production process for 3.6m, 4.3m, and 4.8m diameter energy saving valves. Mr. Cui also indicated that the company will expand on its manufacturing of high precision / automated energy saving equipment in the new facility in Tieling City’s new industrial zone. 

Tieling City’s new industrial zone appears to be a part of a new development plan and is being built from scratch. There are numerous factories coming up in this area and most of them are in late stages of completion. 

We visited NFEC’s new facility during the second half of the day. The new factory will comprise of two buildings that approximately will have 10,000 sq. mt. floor space each. Mr. Zhao, the site manager showed us two newly purchased high precision automated processing machines, totaling RMB 30 MM~40 MM. It appeared some of this equipment were still being tested. This equipment should allow NFEC to be one of very few in Northeast China capable of producing/processing high precision energy saving flow control equipment. To finish the construction of the new facility, NFEC needs to invest additional $4 MM ~$5 MM. 

Key Takeaways: We met with the company’s management, including Mr. Gang Li, Chairman & CEO and Jessica Yang, VP of Finance. The key takeaways from the visit are (1) Construction in the new facility seems to be well underway (2) Opportunity from overseas remains promising (3) Management has a clear growth strategy. However, it will have to demonstrate its ability to execute (4) the company is also taking initiatives to comply with SOX 404 to improve internal control and potentially upgrading its auditor. 

3Q10 Preview: Management indicated that during 3Q10 they experienced a slight delay in product delivery to one customer from Russia due to postponed testing. Therefore revenue from this contract may be pushed to 4Q10. We are making adjustments to our financial model accordingly. We are now projecting revenue and net income of $8.1 MM and $2.0 MM, with diluted EPS of $0.38 compared to $9.8 MM, $2.0 MM, and $0.38 earlier. For full year FY10, we are maintaining our estimates of $28.6 MM, $5.6 MM, and $1.03 per share, respectively. Our FY11 estimates are unchanged at $35.7 MM, $7.5 MM, and $1.25.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

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Rodman & Renshaw on NFEC

Overview: We are initiating coverage on NF Energy Saving Corp. (NFEC) with a Market Outperform / Speculative Risk rating and a 12-month price target of $5.00. NFEC is a specialized energy saving solutions provider. The company’s senior management team led one of the pilot projects in China’s ESCO space when the World Bank jump started this industry in China in 1998. Since then the company has grown into manufacturing energy saving valves and flow systems in addition to providing energy efficiency related consulting services to industrial entities. 

Highlighting An Overlooked Opportunity: We view NFEC as an overlooked opportunity participating in a very relevant investment theme. China’s need for environmental remediation, we believe, is well documented and understood. Efficient energy and water consumption is one approach to arriving at a possible solution. Though the company came public in 2006 through a reverse merger, meaningful trading in the stock only began in mid 2009. The stock benefited from the market rally last year and touched a high of $7.75 at a time when other Chinese water plays and environmental remediation names were also outperforming. Since then the stock has suffered from an overall pull-back in small / micro cap China names and as a result liquidity has dried up. However, during this period the company has continued to demonstrate revenue and earnings growth (pls. see financial model). Lack of institutional ownership, absence of analyst coverage and an OTC BB listing has kept the story from being noticed by investors. We believe management is going to be pro-active in setting performance expectations and delivering on them as part of an effort to drive institutional interest in the story. 

We believe NFEC is still in the early stages of its growth strategy but has demonstrated its ability to maintain profitability. As a domestic energy services solution provider, we believe the company is already benefiting from highly favorable macro policies. We expect the upcoming Twelfth Five Year Plan to continue government policy and funding support for the energy efficiency and environmental remediation industry in China. The company’s existing partnerships and collaborations with major global players should allow it access to relevant technology to continue winning contracts.

Valuation: At current levels NFEC is trading at P/E multiples of ~6.3x and ~5.2x to our FY10 and FY11 earnings estimates. These multiples are well below industry averages of 14x and 12x. We are comfortable assigning NFEC a $5.00 price target, which translates into P/E multiples of 12x and 10x to our estimates for FY10 and FY11. We believe these are reasonable multiples given that historically clean technology and environmental remediation companies have traded within a range of 8x to 25x on a P/E basis. 

Investment Risks: (1) Revenue Collection & Accounts Receivable Issue (2) Customer Concentration (3) Volatility In Raw Material Cost (4) Highly Competitive Industry (5) Risks Associated With International Relationship


This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Second Quarter 2010 Highlights

• Revenues increased 38.3% year-over-year to $7.2 million.
  
• Gross profit rose 32.7% year-over-year to $2.0 million, representing a gross margin of 28.0% compared to 29.2% in the year ago period.
  
• Operating income grew 89.3% year-over-year to $1.8 million.
  
• GAAP net income increased 69.4% year-over-year to $1.4 million, representing a net margin of 19.0% compared to 15.5% a year ago.
  
•  Net income per diluted share was $0.10 compared to $0.06 in the same period last year

"We are pleased to report a strong second quarter performance for 2010, which we believe will continue through the remainder of this year," commented Mr. Gang Li, Chief Executive Officer of NF Energy Saving Corporation. "In addition to the strong financial performance, we have begun the expansion of our new manufacturing facility which we anticipate will be completed in September, 2010, increasing annual capacity to 20,000 tons of flow control equipment from our current capacity of 6,000 tons. We have also begun to achieve a change in our business mix towards energy conservation service projects, growing this segment's top line by 440.2% compared to the prior year period. We expect that with the increase in production capacity, coupled with steadily growing market demand, we are well positioned to gain market share, further strengthening the Company's leadership in the PRC intelligent energy efficient flow control market."

Guidance and Business Outlook

NF Energy expects full fiscal year 2010

• Revenue to be in the range of $28 million to $30 million.
  
• Net income to be in the range of $5.6 million to $6.0 million. The estimate does not include any possible additional expenses arising from the Company's upgrade to a major exchange or financing expense.

The Company's performance is expected to follow its typical pattern of a stronger third and fourth quarter due to favorable weather conditions at many of its customer sites, absence of holidays and stronger seasonal customer ordering patterns. In order to meet the expected increase in demand for energy efficiency as a result of the passage of China's Energy Conservation Law, NF Energy plans to increase capacity to 20,000 tons of flow control equipment per year by completing the construction of its new energy manufacturing facility in September 2010. Successful on time completion is also assumed in the aforementioned financial guidance.

"A series of policies related to energy conservation projects and tax benefits issued by the Chinese government associated with those projects indicate that low carbon emission and clean energy targets will be a new impetus for economic development, driving construction of innovative industrial systems," commented Mr. Gang Li, Chief Executive Officer of NF Energy. "In order to capitalize on these trends, NF Energy will further develop energy conservation projects to significantly grow all of its lines of business for the remainder of 2010."

Added to the GeoSpecial list on July 28, 2009 @ 3.30 adjusted for a 1 for 3 reverse split.
 
Catalyst: Hot sector; Appeared to be on the verge of an EPS break out; Significant contract wins;
Peak performance: Reached a high of $20.00 on August 26, 2009.
Current Price: $2.50

Current road block:  The company did not live up to our EPS expectations during the 2010 first quarter; First quarter EPS was flat which the company attributed to a non-cash expense, when in reality this only accounted for a reduction in EPS of $0.004; Margins have not improved with increases in revenue; Did not reiterate guidance in its 2010 first quarter release; Delay in the installation and operational testing of a number of products; Needs to raise more money to meet revenue targets, which could lead to dilution.

Removing from the GeoSpecial list.  Placed  on GeoSpecial on the Radar list. This is a stock we will not be purchasing anytime soon, unless we see a better margin showing in future quarters and/or we gain more clarity on financing needs. Although Revenue guidance is still bullish, the fact that the company has not issued net income guidance may leave investors, including us, in limbo.  

Nf Energy Saving cotempates enacting a reverse split:

To our Stockholders:

Enclosed please find an information statement providing information to you regarding an action taken by some of our stockholders to authorize a reverse stock split of NF Energy Saving Corporation’s outstanding common stock at a ratio resulting in a reduction of the aggregate number of shares of outstanding common stock from anywhere between 10% (i.e. 10:9) to 500% (i.e. 5:1), as decided by the Board of Directors of NF Energy Saving Corporation in its discretion, to take effect at such time within three months of the date hereof as determined by the Board of Directors in its discretion. These actions were approved by written consent in lieu of a meeting of stockholders by those stockholders holding a majority of our issued and outstanding common stock entitled to vote on the record date.

the Company expects revenue for the fiscal year ending December 31, 2010 to be in the range of $27-30 million, a 33%-48% increase over revenue of $20.3 million for the fiscal year ended December 31, 2009.

Source: PR Newswire (April 20, 2010)

Valuation Scenarios

Added to GeoSpecial list on the radar list on July 28, 2009. ($1.10). 

Data Inputs:

Fiscal Year Ends in December

^a NFES is not paying a full U.S. tax rate.  Therefore, all EPS numbers have been adjusted by the GeoTeam® to reflect a tax rate of 36%.

^b EPS figures are non-GAAP. Non-GAAP EPS Figures exclude certain non-operating gains and losses as well as certain non-cash items. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . For a more complete explanation of the company's definition of non-GAAP please refer to its financial press releases. The GeoTeam® non-GAAP figures may, from time to time,  differ from company supplied figures.

^c Data adjusted for 1 for 3 reverse stock split

Short-Term Valuation Scenarios

Harbinger Research Report

We anticipate we will need additional working capital in 2009 and in the future to fund our company’s new business plans to help the company to establish a manufacturing base for new energy equipment, to develop comprehensive energy saving infrastructure projects for municipalities, and to maintain our lead position in flow control equipment manufacturing. We may decide to pursue additional investments or debt financing to obtain additional cash resources to fund our company’s new business and other future developments.

Source: SEC Filing 10Q ( For the Quarterly Period Ended March 31, 2009, page 30)

On July 28, 2009, the GeoTeam coded Nf Energy Saving Corp America (OTCBB:NFES) as a GeoSpecial at $1.10. The Nf Energy Saving Corp America story is easy to understand supported by industry fundamentals that should drive growth into the foreseeable future. We are particularly impressed with the information provided in the company's 10K filings which thoroughly address the various product/service lines as they relate to ever-changing industry dynamics.  It ultimately remains to be seen if Nf Energy will rise to the challenge posed by China's increased emphasis on clean/efficient energy solutions. We urge interested parties to peruse the company's filings and website to gain a taste of the opportunities present for Nf Energy Saving Corp America.

Understanding Nf Energy Saving Corp:  NF Energy Saving Corp of America is a China-based provider of integrated energy conservation solutions. 

Nf Energy's products address some fundamental deficiencies present in China's aging industrial infrastructure.  Seventy percent of the Company's sales revenues come from it's major customers involved with large-scale electricity generation and commodity supply, industry's that need efficient processes when producing and distributing their products and services. 

The country's energy saving goals can be solved by a Nf Energy's capabilities to address energy conservation and emissions through the modernization of industrial boilers and furnaces, steam thermal systems, motor drive systems, lighting lamps, wind power equipment components, heat recovery systems and flow control systems.  Each component of the Company's focus plays an integral part in contributing to a large picture of optimizing the output of various systems and supporting the idea of sustainable energy as China enters an industrial boom.  In breaking down Nf Energy as a company, it can be categorized into four major business directions, all of which provide the company market opportunity.

• Energy Saving Reconstruction Projects
• Production and sales of energy-saving valves, intelligent valves and flow control equipment
• Comprehensive energy conservation and emission reduction services for municipalities
• Equipment Manufacturing for Wind Power Plants

I Energy Saving Reconstruction Project

• Refurbishing of industrial energy producing systems
• Installation of new modern energy efficient systems
• Other initiatives to renew and recover various forms of energy

Industrial Boilers 

The source of heat for a boiler is combustion of any of several fuels, such as wood, coal, oil, or natural gas.  In the case of China, 95% of the total burners in the country are coal-fired.  Boilers have many applications. They can be used in stationary applications to provide heat, hot water, or steam for domestic use, or in generators and they can be used in mobile applications to provide steam for locomotion in applications such as trains, ships, and boats. Using a boiler is a way to transfer stored energy from the fuel source to the water in the boiler, and then finally to the point of end use. (Source:Wikipedia:boiler) Furnaces, explained later, are sometimes a component of boilers that supply the heat needed to maintain a constantly flowing process.

Problem - Boiler Inefficiency

• Due to the mechanism of operation, 60% of boilers in China are below current efficiency standards.
• The use of old and inefficient boiler equipment and associated components leads to small capacities and incompatible coal use. 
• The reliance of higher grade/expensive coal to operate boilers.
• Loss of potential energy due to inefficient systems.

Nf Energy Solutions to Boiler Inefficiency

• Retrofit old boilers with modern equipment and improve the efficiency of the boiler operating mechanism.
• Constructing new efficient boilers for its customers, further limiting energy loss.

Opportunity within the Boiler Market

• In light of boilers not meeting efficiency standards, the opportunity for Nf Energy is immense as companies race to meet code. 
• Companies that contract with Nf Energy Saving Corp to improve boiler operating systems will be able to refurbish old boilers or construct new boilers that will meet new standards. Added benefits to these companies will be increased margins through the use of cheaper coal, less energy loss and the ability to capture lost heat/energy that occurs in the combustion process.

Industrial Furnaces

China's industrial furnaces are mainly used in high energy consumption industries, accounting for 10% of China's total energy use.  An industrial furnace or direct-fired heater, is a piece of equipment used to provide heat for processes such as those used in the iron and steel, metallurgy, building materials, machinery manufacturing and chemical industries. Furnace designs vary with the intended function, heating duty, type of fuel and method of introducing combustion air. However, most process furnaces have common features. Source:(Wikipedia:furnace)

Problem - Archaic Furnace Design

• Equipped with backward technology
• Outdated equipment
• Experiencing serious waste of energy.

Nf Energy Solution to Archaic Furnace Design

• Use existing technology to reconstruct furnace structure, its heat source system, combustion system and control system.

Opportunity within the Furnace Market

• Half of the enterprises that utilize furnaces experience problems.

Steam Thermal Systems

The main goal of steam thermal systems is to transfer heat resulting in the energy needed to drive a process.  The flow of heat from point to point in a thermal system is usually related to the temperatures at various locations within the system.    When the energy is extracted from the steam, the steam condenses into a low-temperature reservoir, where it can be reused as feed water to make more steam.

Problem - Inefficient Steam Thermal Systems

• Inefficient systems lead to energy leakage

Nf Energy Solution to Steam Thermal System Inefficiency

• Reconstruct thermal systems
• Eliminate leakage losses
• Recovery condensed water to be used as energy.

Opportunity with Steam Thermal Systems

• Companies can benefit from efficient steam trap designs and other components that help to make the systems more self sufficient.  Their bottom lines will be positively affected as a result of the containment of reusable resources.

Motor Drive Systems

A motor drive system is comprised of an electric motor and other parts of a mechanical system for operating a machine or machines.

Problem - Excessive Power Consumption

• China's motor drive system power consumption accounts for 2/3 of total electricity consumption of the country.

Nf Energy Solution

• Reconstruct an efficient  motor drive system with modern equipment.

Opportunity with Motor Drive Systems

• Companies will view the NFES solution as a way to consume less energy when powering machinery.

Green Lighting Project

Funded by the China State Economic and Trade Commission (SETC) and the Global Environment Facility, the China Green Lights Project began its expanded implementation in September 2001. The primary objective of the project is to, by 2010, reduce lighting energy use in China by ~10%.  This involves the optimization of power distribution and how it is used by the overall system.

Problem - Overload on Lighting

One of the fastest growing sectors of electricity growth is in lighting energy consumption.

• Annual growth in electrical consumption by lighting was 15% for much of the 1990s.
• Lighting currently accounts for approximately 12% of lighting energy use in China.

Nf Energy Solution

Given the predominant reliance on coal as a generation fuel, serious health and environmental problems can be reduced if the use of coal is curtailed by way of smart processes and higher quality products.

• The Company accommodates the project through the manufacture of energy efficient green light products, renewing the lighting power supply, rational distribution of lamps, improving the quality of power supply and on-demand control.

Green Lighting Project Opportunity

The project will set minimum efficiency standards for lighting products and designs.

• Those who supply the most efficient products will rise to the top.
• Companies can outsource product manufacturing to NFES.
• As the government continues to implement its green light project demand for related products should increase.
• Because the project is in its infancy, NFES can garner a favorable reputation as one of the original contributors if the project's goals are met.
• NFES is the only commercial distributor of energy efficient lighting lamps in Liaoning Province where the provincial government is targeting 2.5 million bulb installations for 2009.

Recovery of Residual Heat

Problem - Lost Energy

In the various industries that Nf Energy serves, residual heat is created during energy creation and can be considered a source of lost energy.

Nf Energy Solution

The company has developed reliable methods to recover and utilize residual heat from a variety of different sources.

Residual Heat Opportunity

• There is the potential for Nf Energy to generate contracts with companies that see the Company's recovery methods as a competitive advantage.

II Production and Sales of Energy Flow Control Equipment

Complex Valves and flow control system equipment regulate the transportation of water, oil, heat and gas within the pipeline infrastructure network beneath the cities.  The valves installed within the pipeline are integral to the system's proper function and are considered to be the most important component of the network. This has been the Company's main product line.

Problem-  Inefficient Pipeline Systems

Inefficient pipeline systems can result in less than desirable commodity flows within the infrastructure network within what is referred to as the energy highway.

Nf Energy Solution

• Nf Energy state-of-the-art flow control equipment will reduce energy consumption by 20%. Valve and flow control equipment is the key to energy efficiency and conservation in the pipeline transportation of commodities.

Flow Control Equipment Opportunity

• Nf Energy can capitalize on its 10 years of solid reputation to maintain its leading market share position in related flow control markets.
• Its technology was awarded "Number One Energy Saving Value of China" by the Chinese Energy Conservation Association.
• Again, companies that wish to increase margins will value the 20% reduction in energy consumption through the application of NFES products.
• It is widely used in the fields of electric power, water power, petroleum, natural gas and etc.
• An insignificant amount or revenues is generated from outside China.

III Comprehensive Energy Conservation & Emission Reduction Services for Municipalities

The China State Council, in its 11th Five-Year Plan for 2005 to 2010, has set energy conservation and emission reduction targets to be achieved by local governments and industries. The Central government has set aside 7 billion RMB to support the top 10 key energy saving projects.

Problem - Standards Must Be Met

• In the scramble to meet standards and share in 7 billion RMB to support the top 10 key energy saving projects, municipalities require project management help from reputable firms.

Nf Energy Solution

• The Company's municipal comprehensive energy conservation and emission reduction projects focus on comprehensive energy conservation and emission reduction planning and project implementation for an entire city.
• The goals of these plans are to reduce per unit energy consumption and green house gas emission.

Opportunity in Emission Reduction Services

• NFES has embarked on developing project management initiatives and will offer this new service to municipalities in 2009.
• Project management will serve as a new source of revenue.

IV Equipment Manufacturing for Wind Power Plants

Problem - Equipment Shortages

• China's tremendous demand for wind power generation has led to a global shortage of wind power equipment components.

Nf Energy Solution

• Those manufacturers that are well capitalized, have sufficient capacity, offer cutting-edge technology and are able to provide superior service should enjoy a tremendous growth in China.

Wind Power Opportunity

• Government in its 11th Five Year Plan of 2006 emphasized the development of wind power among energy resource development. The backlog of orders will not be filled until 2012 and presents a predictable and growing source of potential revenue for NFES. At the present time, the demand greatly exceeds the supply in the wind power equipment components market.

As stated in Nf Energy's July 8, 2009 press release:

'We have seen tremendous customer demand for wind equipment since last year,' commented Mr. Li Gang, Chairman and CEO of NF Energy. 'NF Energy will speed up its development of wind power capacity to capitalize on this fast growing market. We have started construction of a new energy base in Tieling City of Liaoning province in Q1 of 2009, which will dramatically expand the Company's manufacturing capacity for wind power equipment to meet growing domestic demand.' Total wind power generating capacity in China is currently 12GW but the country, which is growing at the fastest rate among all the economies in the world, wants to raise it to 20GW by 2010. China expects to have an annual wind power growth rate of 20 percent. In May 2009, China increased its goal for wind power generation capacity by 2020 to 100GW, from the original 30GW that the Chinese government set in 2007. China is currently the fourth largest producer of wind energy in the world, after the United States, Germany and Spain and is aiming to have 40 percent of all its energy originate from renewable energy sources by 2050. According to the Global Wind Energy Council, China will become the biggest growth market for wind power generating capacity this year, ahead of the United States.'

In a nutshell, Nf Energy participates in an industry with favorable growth trends due to traditional demand/supply factors and government regulation. China's energy consumption is currently growing at 5 % a year, with the consumption of electricity slated to grow even more rapidly well into the future.  Even if regulation is put aside, Nf Energy's products and services can give its client companies a competitive advantage while at the same time increase their profit margins. The Company's participation in the wind and green projects should give it an avenue of margin-friendly revenues. Additionally, the Company's long standing  position in the valve technology market and its involvement with municipal projects that require continual oversight provides it with  a reliable revenue stream.

NFES shares have risen sharply from $0.20 to its current levels. As many of our readers may know by now, the GeoTeam® prefers to construct valuation scenarios on a fully taxed basis. Doing so yields potential valuation scenarios that may still offer upside to NFES shares.

However, we feel that the dynamics of China's industrial efficiency goals along with Nf Energy's reputation and projected manufacturing capacity provides the company with an excellent chance to exceed street expectations and attain P/E multiples higher than we portrayed in our potential valuation scenarios.  In fact, since May 28, 2009, when Nf Energy announced a 2009 revenue backlog figure of $21.5 million, the Company has already approximately booked an additional $11.0 million in contracts.  At current margins this would equate to a pre-tax earnings per share figure of $0.21 ($0.13 fully taxed). 

Harbinger analyst estimates: 
Revenue estimate:  $22.1 million,
Earnings per share:  $0.127 (~ $0.08 fully taxed).

Current Catalyst Financial Resources estimates:
Revenue estimate:  $27.6 million,
Earnings per share:  $0.16 (~ $0.10 fully taxed).

Note: Nf Energy plans on affecting a reverse split in the near future.

Nf Energy liquidity needs:

"We anticipate we will need additional working capital in 2009 and in the future to fund our company’s new business plans to help the company to establish a manufacturing base for new energy equipment, to develop comprehensive energy saving infrastructure projects for municipalities, and to maintain our lead position in flow control equipment manufacturing. We may decide to pursue additional investments or debt financing to obtain additional cash resources to fund our company’s new business and other future developments."

Nf Energy is also being placed on the GeoBargain on the Radar list.  

The GeoTeam® will delve into the NFES story more diligently in the coming weeks.

Source: GeoInvesting.com