Weekly Recap

Biostar Pharmaceuticals (BSPM): up 20.19% for the week, total return 32.98%
The Biostar story is just beginning to unfold. There is a nice article by Maj Soueidan on TheStreet.com that tells the story again with some new details.

China Agritech (CAGC): up 2.21% for the week, total return 38.54%
China agricultural stocks have been very strong in the past four weeks. After having exploded from below $19 to the low $30s this month, CAGC is currently consolidating its gains. The stock has been added to the IBD100 last weekend. On Friday China released economic numbers which point to inflation for the first time this year. This could give ag stocks in general a further boost.

China Architectural Engineering (CAEI): up 23.81% for the week, total return 21.50%
On Thursday CAEI was rebounding strongly on high volume based on technicals. Despite its currently weak fundamentals, remember that this is a world class engineering firm with a track record of many large and prestigious projects.

China Armco Metals (CNAM): down 3.08% for the week, total return -6.25%
China Armco didn't do anything this week. The company expects to launch operations in its steel recycling and scrap metal recycling business early in 2010. The recycling facility is expected to be capable of recycling one million metric tons of scrap metal per year which will position the Company as one of the top 10 largest recyclers of scrap metal in China.

China Biologic Products (CBPO): up 1.55% for the week, total return 15.00%
Despite having moved up to Nasdaq, trading volume is still low and there isn't much accumulation of the stock yet. CBPO is a value play in the Chinese healthcare sector that is still under the radar... we just have to be patient here.

China Kangtai Cactus (CKGT): up 22.73% for the week, total return 42.94%
Strong week for China Kangtai which brought a new 52-week high at Friday's close. And all that on no news from the company. My price target for the stock is still far away and shows room for a further double from current levels.

China North East Petroleum (NEP): up 20.18% for the week, total return 35.11%
I have totally underestimated this stock, to be honest. Despite a strong dollar and weak oil dropping below $70 this week, NEP has skyrocketed above the previous high of the year and scratched the $7 mark already. I had only added a quarter position to the China portfolio for concerns about falling oil prices dragging NEP down but that is apparently not happening. If you had bought more of the stock in the $5 area or below, congratulations.

I am doubling my position in the China Portfolio here. I am ADDING 500 NEP for Friday's close at $6.85. I am also raising the target price from $7.50 to 8x 2010e EPS of $1.28 to $10.20.

China Recycling Energy (CREG): up 24.10% for the week, total return 21.91%
China Recycling successfully raised $26.75 million to finance phase 2 and 3 of the Erdos TCH power generation project. And this financing happened without any dilution to shareholders. With a little delay the stock jumped to a new 52w-high on Friday.

China Sun Group (CSGH): down 5.33% for the week, total return 3.23%
Nothing happened this month so far, this is a sit and wait value play which might start to take off at any given moment. Fundamentals, story and outlook are unchanged from my initial profile.

GC China Turbine (GCHT): down 11.56% for the week, total return -20.73%
This is a very speculative stock in the China Portfolio and for that reason I have only added a quarter position so far. GCHT is a start-up manufacturer of wind turbines. The company currently has the capability to produce an average of 30 wind turbines per month which allows it to fulfill its initial orders of 150 wind turbines, worth in excess of US$ 128 million within one year. The company has yet to post revenues and profits, will likely have to invest a lot of money into more production facilities and the development of the planned 3.0MW utility scale turbines, and there are many risks involved in this plan incl. dilution and government policy changes. I consider this to be a very promising story but associated risks demand to keep the portfolio position small for the time being.

Gulf Resources (GFRE): up 3.60% for the week, total return 17.06%
This Friday, Gulf Resources raised $25 million in a private placement. The new shares were sold at $8.50, a 16% discount to Thursday's closing price. While the stock initially traded down to $9 on the news it steadily climbed higher and ended the day in positive territory. I view this as a very positive sign for the performance of the stock in the coming weeks.

Lotus Pharmaceuticals (LTUS): down 4.55% for the week, total return 9.49%
After a failed break-out attempt in early December we are now still waiting for the real move higher. For that to happen LTUS has to break resistance at $1.12 and trade above that level for two days with volume. Fundamentally this stock is worth $5 so it doesn't matter if it sits in the 90 cents or slightly above $1, the real move has yet to come and it should be mind-blowing. I will double the China Portfolio position as soon as the break-out scenario unfolds.

New Energy Systems (NEWN): down 3.72% for the week, total return -1.43%
NEWN successfully completed the acquisition of fellow Li-ion battery manufacturer Anytone this week. 3.6 million new shares have been issues on an average stock price of $6.60 per share. While this acquisition at 5.0x 2010 projected net income for Anytone could be considered a steal, the stock currently sits at a level even lower than the $6.60 acquisition price. At current levels, I consider NEWN to be one of the lowest risk positions in the China Portfolio and a core holding for 2010.

Orient Paper (ORPN): up 0.54% for the week, total return -1.58%
In a filing with the SEC on Friday afternoon, Orient Paper indicated that the listing of their common stock on NYSE Amex is imminent. No PR has been released yet so there is a chance to accumulate the stock before this news breaks. I expect ORPN to trade above $10 with such a press release and to hold this level with the uplisted to Amex. I do already have a full position of ORPN in the China Portfolio which I can't raise by the rules set for this model portfolio.

Half Position: Worldwide Energy and Manufacturing (WEMU)

Worldwide Energy and Manufacturing USA is a U.S.-based solar module technology and China manufacturing company specializing in products for customers in the industries of solar energy, aerospace, wireless telecommunications, medical equipment and automotive industries. The company has two main business segments which are both profitable: Contract Manufacturing and Solar Modules. As Amerisolar, the Solar Divison, was responsible for 83% of sales in the most recent quarter, there is no reason not to consider WEMU a 'solar company', despite its clumsy name.

Last week, WEMU held a presentation at the RedChip Shanghai Conference which included 2010 guidance that was more detailed than just "we expect 2010 to be a year of double-digit earnings and revenue growth," in the Q3 earnings press release. WEMU guided for 2010 expected revenue of $100 million and net income of $5.75 million.

I've put these numbers in a spreadsheet to compare them to the company's peers in the solar industry:



WEMU is priced with a 2010e multiple of 3.45, the next cheapest on the list is priced with a multiple of 12.31. The screen turned out to be very clear: the market leaders (YGE, STP, FSLR) are all priced with a higher multiple in the 20xEPS range. That's normal and probably well-deserved although I do not see much upside from here in the short term. All the smaller players in the industry are priced with multiples between 12 and 14, and there is room for further appreciation as the outlook will probably further improve from here given the analyst action in the past few weeks.

WEMU is totally disconnected from its peers' valuation. This might be related to WEMU missing estimates for Q2 this year. But given the very positive news released on Dec 1 and Dec 3, and the CEO's promise to avoid earlier mistakes and guide more conservatively to surely meet estimates in the future, there is a good chance the company will deliver for the current quarter.

Investment Thesis:

I am adding a half position of WEMU to the China Portfolio. Unless there are problems I am not aware of now, I don't see any reason why WEMU should not play catch up to its peers' multiples in the 12xEPS10 range which would make this a $15-20 stock. And this should happen near term, triggered by further positive news - as more details about the company's uplisting plans - or at the latest with meeting Q4 estimates. My initial target for this position is $15.00.

Half Position: China Recycling Energy (CREG)

China Recycling Energy
Ticker: CREG (OTCBB)
Share Price: $2.78
Market Capitalization: $107.80 million
Cash: 5.27% of Market Capitalization
EPS: $0.31
P/E: 8.96

CREG provides environmentally friendly waste-to-energy technologies to recycle industrial byproducts for steel mills, cement factories and coke plants in China. Byproducts include heat, steam, pressure, and exhaust to generate large amounts of lower-cost electricity and reduce the need for outside electrical sources. The Chinese government has adopted policies to encourage the use of recycling technologies to optimize resource allocation and reduce pollution. Currently, recycled energy represents only an estimated 1% of total energy consumption and this renewable energy resource is viewed as a growth market due to intensified environmental concerns and rising energy costs as the Chinese economy continues to expand.

Recent Developments:

- CREG Reports Record 3rd Quarter Results and Reached Full-year 2009 Guidance

"We are very pleased to announce a record quarter for CREG, based on a combination of product sales, delivery of systems servicing a new customer and increasing recurring revenues from our portfolio of existing waste-energy recovery projects. This quarter we have both expanded the scope of our business industry sector as well as taken on larger projects. We are fully confident that we will continue to be a leader in build, operate and transfer (BOT) energy recovery projects in China and will deliver increasing value to our customers and shareholders."

- New 10-Year Contract With Shenmu (Coking Industry)

"CREG expects to recognize approximately $18.3 million in revenue at September 30, 2009 (the delivery date) with a related cost of goods sold of $14.1 million. After the inception of the lease, CREG anticipates that it will recognize a total amount of $38.4 million as interest income from this sale-type lease over the 10-year term, on a monthly accumulative basis as it receives the monthly installment payments from Shenmu."

"This is CREG's first project in the coking industry, one of the most energy intensive sectors in China. This project is expected to reduce annual coal consumption by 52,000 tons, equivalent of 130,000 tons of CO2 emissions. We are excited about the substantial growth in our Company as we take on ever larger projects with waste gas-to-energy solution."

Investment Thesis:

CREG is a renewable energy play. The idea is to convert waste from coking, steel, cement and other energy-heavy industries back to energy. This will subsequently create value for CREG's customers and greatly reduce emissions. CREG will directly benefit from China's subsidies in the space, its target to reduce emissions and support renewable energy companies.

What makes China Recycling especially interesting is the recurring revenue model. After the inital product sale to a new customer, the company will earn multi-year recurring revenues in the form of monthly lease and interest payments for these projects. I expect this segment to grow rapidly over the coming years and financing to be secured by favorable government policies.

I am adding a half position of CREG to the China Portfolio. As of today, CREG has a relatively small number of customers and - while looking very promising - the success of the recurring revenue model depends on adding many more customer from additional industries. I will likely increase the position with the next customer announcement. I also see CREG as a likely candidate for a 2010 uplisting to Nasdaq or NYSE Amex. My initial target for CREG is $4.50 based on expected 2010 EPS of 0.45.