Bullish on Tri-Tech (TRIT)

Tri-Tech Holdings (TRIT) is a player in the fast growing Chinese environmental protection industry. Since 2002 it provides solutions for wastewater treatment and odor control and also systems for the management of natural waterways and water resources in general. Its customers are mostly local and regional governments and Tri-Tech already has implemented projects in all of China's regions and provinces (excl. Tibet) which makes it well-positioned for further contract wins.

China has a huge environmental problem and the government is actively putting more and more funds into getting this under control. The government has dedicated an estimated 1.35% of its gross domestic product, or approximately $205 billion, to environmental protection.

According to the 2009 Chinese Government Annual Report announced by Primer Wen Jiabao, the Chinese government will continue to focus its efforts on environmental protection in 2010. To improve its environmental management, and municipal sewage and solid waste treatment in key areas, China will increase its daily sewage treatment capacity by 15 million cubic meters and its daily solid waste treatment capacity by 0.06 million tons in 2010. Based on an average construction unit cost of RMB 1300 per cubic meter of treatment capacity, we believe that total spending on sewage treatment will reach RMB 19.5 billion.

(Source: TRIT 10-K)

Tri-Tech and peers like RINO International (RINO) are set to record huge and sustainable growth for several years. Additionally to the municipal and government business Tri-Tech is now also targeting heavy industry customers with an Industrial Pollution Control segment:

We intend to strengthen our company’s industrial pollution services by penetrating adjacent industry verticals such as the power generation, oil and petrochemical industries. While we have previously implemented air pollution control systems for the petrochemical industry, we believe that there is significant opportunity to further develop this portion of our business.

Strong Growth

Last night the company filed their annual report, at the time of writing there has been no press release issued but I would expect that to happen later today. Tri-Tech reported FY2009 revenues of $16.8 million (up 98.8% from 2008) and net income of $3.85 million (up 127.0% from 2008).

Strong Guidance

Somewhat hidden in the 10-K filing we find a very bullish revenue and income guidance for the current fiscal year. I would expect this to create significant awareness of the stock when it's been revealed to a greater audience via press release.

For 2010, we anticipate that our revenues will range between $40.6 million and $50.5 million. We anticipate our net income will likely reach between $7.0 million and $9.2 million. We expect that we will be able to reach these revenue and net income projections without receiving further financing.

• Revenues: $40.6 - 50.5 million (up 142-200% from 2009)
• Net Income: $7.0 - 9.2 million (up 87-139% from 2009)

If we take the midpoint of TRIT's net income guidance we get a forward EPS of $1.54 (5.255 million shares outstanding) and at yesterday's close ($13.90) the stock was trading at a 2010e P/E of 9 and a P/E/G of about 0.1. Back in January the stock has already traded in the mid-$20 range which back then looked expensive based on trailing earnings and no guidance. That picture changed last night as TRIT looks like a huge bargain here given its high growth prospects and very attractive industry. Please not the important fact that the company explicitly stated in their guidance that the 2010 projections can be reached without further financing. I wouldn't be surprised if TRIT goes back to the $20's near term.