A-Power Energy - Waiting for the Right Announcement

Chinese company A-Power Energy Generation Systems (NASDAQ: APWR) keeps making new announcements - a $279 million contract for a hydro-electric power plant in Jilin province; a deal to supply four 200 MW power generating plants, as part of a $597 million project in Inner Mongolia; a $36.5 million heat and power co-generation system in the Dalian development zone; a $43 million contract housing development in the company's home city of Shenyang, in north-eastern China; a $30.5 million contract to develop a biomass power plant in Shandong province; and more.

All these were announced in the past seven months.

Unfortunately, the announcement the company doesn't make is the one that investors are really waiting to hear - its 2010 fourth-quarter and full-year financial results.

The results were originally due on March 29th, with a conference call scheduled for that morning. But, just one day before, the company abruptly announced a postponement to "a later date in 2011."

A-Power insists that the delay results from a prolonged auditing process, and is not due to accounting irregularities. But investors are less sure, and the stock continues to slide to new lows.

The 2010 results are not the only uncertainty that is swirling around the company. In 2009 it announced an agreement with GE Drivetrain Technologies, a unit of GE Transportation, to establish a joint venture partnership for a wind turbine gearbox assembly plant. But a month ago it revealed that GE Transportation has issued a demand for arbitration against A-Power, for alleged unresolved breaches of certain terms of a gearbox sales contract.

A-Power is also part of a group that is aiming to construct the 615 MW Spinning Star wind energy farm in Texas, and it expected to supply the turbines. But this project has generated political controversy over the fact that US Energy Department stimulus funds were to be used to purchase Chinese-made turbines, and its future is in doubt.

So it is difficult to see A-Power's stock doing much while the outlook remains so cloudy, which is a shame, as the company has a lot going for it.

It is the Chinese leader in the niche business of supplying small-scale (25 MW to 400 MW) distributed generation power systems, and it has been expanding this business into South-East Asia.

It has built China's largest wind turbine plant, with an annual capacity of 1,125 MW, and it is now tapping into the booming Chinese wind energy market.

It has acquired Evatech, a Japanese designer and manufacturer of industrial devices for the production of amorphous-silicon photovoltaic panels and liquid crystal displays, and has begun supplying the burgeoning Chinese market for this equipment.

It is part of a group looking to construct a major new wind turbine plant in Nevada.

So, once the uncertainty is dispelled, A-Power stock has the potential to soar. At least one analyst has a 12-month target price of $15. It is certainly a stock to watch. But for the time being it is one that is best avoided by all but the most high-risk investor.

* Learn more on the Chinese wind sector in the ebook Investing in Chinese Wind Energy.

April 12th, 2011

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