China: Pollution Emission Targets

China is growing by leaps and bounds and so is India. Both countries are expected to have more than 8% GDP. It is a revolution in itself. That is the good story, but no one talks about the bad story. Both these countries have failed to meet with the pollution emission targets, especially China.

Eric W. Orts, professor of legal studies and business ethics at Wharton, says that
Pollution in China, if left unchecked, will drag down the country’s economic growth and result in huge healthcare costs. In addition, China’s pollution will, over time, erode its competitive position in the global economy.”

Lets go through some facts:

I found some interesting facts about China thanks to financial analyst Himanshu Pandya

  • According to the World Bank, 16 cities in the world with the worst air pollution are located in China.
  • The country’s Ministry of Science and Technology has estimated that 50,000 newborn babies a year die from the effects of air pollution.
  • China’s emissions of carbon dioxide, the most important global warming gas, are expected to surpass those of the United States in 2009, according to the International Energy Agency.
  • At a recent Marathon, the pollution Index read 149 (> 100 is considered unhealthy).
  • Pollution in Beijing could be a major issue for the upcoming Olympics in 2008 if left unchecked.

What China is doing

  • Beijing has relocated, or plans to relocate, more than 100 chemical, steel and pharmaceutical factories outside the city and replace 300,000 polluting taxis and buses with lesser-polluting vehicles.
  • They intend to replace coal furnaces with natural gas furnaces and rushing builders to finish construction before the Olympic games so that dust from the building projects has a chance to settle.
  • In 1998, Beijing recorded only 100 blue sky days with acceptable pollution. By 2005, the capital had tallied 244 Blue Sky days.

Conclusion: This means that companies operating in China who help overcome environmental issues will get a nod from the government with huge contracts for some players. So who these players. Lets find out.

Recommendation:

  1. Fuel Tech Inc FTEK is a technology company active in the air pollution control and specialty chemical business. They focus on technologies to reduce nitrogen oxide and FUEL CHEM processes. Last week, the company was awarded $2.8 M contract by China. President and CEO, John F. Norris, added, “With China diligently preparing for the Olympics, efforts to reduce air pollution are taking center stage in Beijing and other Olympic venues. We believe this announcement will likely influence decisions made by other power plants”. Fuel Tech is not only a great China play but also a great domestic play. Currently, Fuel-Tech equipment is used by less than 2% of the more than 1,500 coal-fired plants in the United States. So there is plenty of growth left in the United States as well.
    Technically their numbers are good with EPS = 0.33, a bit higher P/E = 74.86, Market Cap = $540M, Analyst recommendation = 2.1 and respectable institution investor presence makes this stock a good buy.
  2. Suntech Power Holdings STP is a solar energy company that designs, develops, manufactures and markets a variety of photovoltaic cells and modules. It’s one of the biggest pure play solar companies in the world. It also provides photovoltaic system integration services in China. The company has already won the contract to provide 130KW solar energy system for Beijing’s Bird’s Nest Stadium for the Olympics. China recently announced plans to build the world’s largest solar plant. There is strong possibility that Suntech Power will play a vital role in this solar plant. Technically their numbers also look very impressive with EPS = 0.56, P/E = 62.06, Market Cap = $5.23 B, PEG = 0.91, Analyst recommendation = 1.9 and 100 major institution investor holding their stocks.
  3. There are a number of other companies that can benefit from Chinese spending to fix its air quality. General Electric Company GE will also play a role on many fronts. They can help with Nuclear Plants, Coal Plants and Wind Turbines. Another Wind Energy play would be American Semiconductor AMSC.
  4. ADA-ES Inc. ADES develops and implements environmental technology and provides specialty chemicals for coal-fueled power plants to enhance air pollution control equipment. However i dont like their current numbers and i would recommend to stay away from this one.

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