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out @ 2.67 for a McD lunch :)
Hit piece and video
http://www.scribd.com/CBEH-Alfred-Little/d/51714807
http://www.vimeo.com/channels/cbeh
I am out for now.
Many small cap china stocks have been hit with bad press for weeks, this is more of the same. Rumor is that another piece of fabricated bad press is coming, so folks are leaving. There is HUGE action in the options of this stock today, another clue that the 'bad guys' are lining up for another hit.
The entire sector is in turmoil right now and it is important to be watchful, both for opportunities and to control losses.
what does this mean?
People are selling with losses now... why?
Rumor of another hit piece coming here, and huge option activity on the put side, just watch carefully
possibly, but it is not a shock, so it may already be built into the price hopefully, because this appears to be a very solid company with great earnings potential going forward?
good luck
maybe but still brings more downside for CBEH
"have faith, not fear", as the time to get in is when all are selling, and that is what I did today
well guys i picked up a lil CBEH this morning in the form of april 5 calls at .40, so i dont have to babysit.........
Short Seller Attack on China Integrated Energy Is Different
http://seekingalpha.com/article/259895-short-seller-attack-on-china-integrated-energy-is-different
Last week, an anonymous short seller posted an instablog attacking China Integrated Energy (CBEH) that drove the shares down more than 30% within minutes. Admittedly, I wrote a favorable article about CBEH, based on the valuation I derived from its financial filings, when it was trading just south of $6 per share. I believe that the short term success of this attack on CBEH may be due to recent, though rare successes, of Muddy Waters “hit pieces” on RINO and China MediaExpress Holdings (CCME). I would like to outline a few key differences between what is happening to CBEH and what happened to RINO and CCME as it pertains to CBEH's valuation.
Though it is very early in the storyline for CBEH, there are a few key differences between the successful short attack on CCME and the attack currently taking place on CBEH. CBEH’s short attacker has experienced wild success in the short term unjustifiably due to his timely release of the report in close proximity to a rare succesful short attack CCME. In actuality there are many short attacks happening right now, probably in the realm of 30+, some highly visible, some not. Only two that I can recall in recent history have actually led to auditor resignations or de-listings. Both were from the same author, Muddy Waters Research.
Below I will break down the important differences between CCME via Muddy Water’s successful campaigns, and CBEH’s current short attacker.
First, the short seller behind CBEH is anonymous. CCME’s is not. This should raise some red flags for the short side of the table. The only recent successful short attacks that resulted in de-listings or auditor resignations were both from Muddy Waters Research.
Second, the CBEH report relies entirely on SAIC filings for the basis of its allegations. The successful Muddy Waters reports rely little on these filings, while instead conducting ground work, checking supplier and customer relationships and speaking to a lot of different people on the ground in China.
Many articles have recently been written outlining the fact that short sellers falsely cite SAIC filings as legitimate financial documents. They are not... Per the SAIC own website, its mission is in...
"...maintaining market order and protecting the legitimate rights and interests of businesses and consumers by carrying out regulations in the fields of enterprise registration, competition, consumer protection, trademark protection and combating economic illegalities."
SAIC filings are not audited. They are not used to calculate taxes. They are not meant to be used to analyze company's finances or value. No one except short sellers writing “hit pieces” would use the financial information in SAIC filings to analyze the company’s value. The SAIC office is for distributing business licenses, and its financial filings are simply a complimentary subcomponent to receive a license. The financials filed through the SAIC don’t even have a mandate to be updated by the company. Meanwhile the SAT office in China is responsible for taxation, yet this short seller makes no reference to these more relevant SAT filings.
The fact that this author relies solely on SAIC filings for nearly all these allegations, while doing no customer or supplier checks, should raise some more red flags with would-be-followers of this research.
Muddy Waters actually provides some form of evidence about CCME that its suppliers and customers relationships don’t exist or are inflated. CBEH’s attacker does none of this, but instead relies solely on unreliable SAIC filings.
Third, the CBEH report attacks absolutely everything under the sun, while CCME's attack was focused on its relationships with its customers. When so much is attacked ranging from its profitability in every single segment, to its cash balance, to its M&A deals, to its capital raises, to its old auditor, to its ownership structure, and more, readers should seriously consider the possibility of a biased smear campaign.
Wholesale Segment
CBEH’s short attacker does not even make an attempt to debunk CBEH’s relationship with its suppliers and customers in its wholesale business. Instead it vaguely calls into question the economics of the dealings as unfavorable to Shaanxi Yanchang Group, China Petroleum (SNP) and SINOPEC (SHI), all high profile and visible government owned entities.
“We find it hard to believe that the two largest oil companies would engage in such trading arrangements…” with CBEH.
The line above is the sole basis for claiming fraud on CBEH’s wholesale segment. He provides nothing to say the sales and relationships don’t exist. Instead he provides a vague opinion that the wholesale oil business adds no value to refiners and it shouldn’t exist at all. Of course this is an asinine observation, as there are many oil wholesalers and distributors in China and around the world. It is a viable business segment with a long history.
Given the public nature of CBEH’s suppliers and customers, which are the largest and most visible state owned oil companies in China, it should be much easier to prove those relationships don’t exist than with small, not-visible companies with which Muddy Waters has had to deal. Readers should question why there is no attempt to debunk these relationships.
Biodiesel Segment
This author provides no evidence that the biodiesel segment is not profitable. There are no calculations, no models, and no attempt at any sort of P&L analysis. There is no refuting of CBEH’s relationships with its customers or suppliers in this segment either. There is no evidence presented that the sales don't exist. The only thing this author does is provide purported conversations with Gushan Environmental Energy, another biodiesel producer in China.
“We asked Gushan management whether it was possible to use Chinese Prickly Ash as a feedstock. They only responded saying that they are trying to use jatropha and castor bean oils as feedstocks in small quantities.” (source)
If you read this purported line from Gushan’s management, it doesn’t even support the author’s uneducated claim that you can’t use Chinese Prickly Ash as an input. This author has no education about bioediesel production, and is instead trying to put words in Gushan management's mouth that aren't even supporting his argument.
Additionally, the references to Gushan and another biodiesel producer failing to list CBEH as a competitor is misleading. He is citing a full year 2008 filed 10-k. CBEH has ramped up its biodiesel segment more recently, so why is this author citing a 2008 competitor report?
Beyond what I perceive to be misleading competitor references, the main argument directed toward the biodiesel segment is that CBEH’s margins are far greater than Gushan’s.
This argument is weak for three reasons. One, Gushan shut down several of its plants due to disputes with local tax authorities during 2009 and 2010. It is producing a small fraction of its sales volumes, while depreciation eats away at its margins. You cannot compare CBEH’s margins, a company operating at full capacity, with Gushan’s margins, which hardly operates at all.
Second, Gushan itself-- the very same company he is citing here to argue against biodiesel being a profitable business-- has openly said in recent months that it is planning to reopen its biodiesel plants. Gushan itself said through a recent Q&A with management that I actually conducted, that it expects to be profitable under current market conditions. At the same time this author is claiming biodiesel is not profitable, the source it uses to make this same claim has openly contradicted this sentiment.
Third, this author fails to recognize the differences between GU and CBEH’s production processes, which on top of the fact that GU is not even operating right now, would lead to different margins.
Retail Gas Segment
Without exception, this entire argument is based on SAIC filings from the acquired gas stations. He claims the SAIC filings don’t show as much income as CBEH reports to the SEC.
SAIC filings should not be relied on for financial information. They are not consolidated financial statements, are not used for taxation, are not audited, and are not even updated by the company. Meanwhile, its SEC filings are consolidated filings that are audited by KPMG. This author is using an age old short selling modus operandi of telling readers to assume the SAIC filings are correct, while the SEC filings are wrong.
Of course this makes little sense, as the SAIC filings are not used by any one for financial purposes, while the SEC filings are used exactly for financial purposes while being audited by KPMG for reliance by the investment community.
Summary
This report is nothing new. It uses an age old SAIC versus SEC filings argument as its base, which is very different than Muddy Water and its recent successes. The CBEH provides no customer or supplier checks of any kind, when I would argue-- given the high profile nature of CBEH’s relationships-- this should have been provided as evidence. The fact that someone went to this much trouble and could not debunk CBEH’s customers, suppliers or sales actually gives me slightly more confidence on this topic. I think the timing of this report near a successful CCME report has given it too much credence.
The company has initiated an internal review. In my opinion, this may lead to sell-side analyst suspensions until the review is complete. I believe that so long as KPMG remains on as the auditor, CBEH will enjoy price recovery in the short term. I think it is very early in this process for CBEH and I can’t predict the future, though I do believe this specific short seller report is very weak. It does not provide real investigation or ground work in China, but rather relies solely on SAIC filings that we know are not for financial or valuation purposes.
I have a small position in the company and I am eager to see how it plays out.
Disclosure: I am long CBEH.
While I think there is a legitimate place for short sellers in the market, those who publish hit pieces that alledge fraud and such based upon fabricated conclusions without doing proper DD about the company should be held with their heels to the fire.
I've had 16 hours of prelaw classes so I'm not expert by any means but I see a tort occuring a cause de the short sellers hit piece and I'd really love to see a lawsuit filed by CBEH against this anonymous author if grounds exist.
Anyone know for sure if a company can sue an author who used false information to blatantly profit in a short sell position? If all allegations turn out to be false, which I have always assumed is the case here, then that seems to be a necessary course of action and especially necessary to snuff out these types of very irresponsible and unscrupulous actions IMO.
malc.
They are doing it right. The independent audit committee is investigating to verify what the CEO wrote.
I am also in! I'll hope I didn't make 'again' a stupid conclusion! this seems me a great manipulation of a short interestgroup! who the hell invented 'short interest'? so stupid
I'm with you Josh S. Staying long and added shares. I can't understand how the stock is tanking after the response by mgmt, but then again I can't understand anything regarding China sentiment and I do fully realize that the herd mentality controls the day to day PPS. I expect to profit nicely by buying in the midst of the cannonfire on this one, I am prepared to wait it out, especially after reading the well thought and presented response by mgmt to the hit piece by unknown author.
When the market values the word of someone hiding in anonymity like a spineless internet poster over a Nasdaq listed company with its books signed off on by KPMG (not resigning as in the case of other stocks berated with allegations of fraud) there really isn't any logical justification for that that I can come up with.
malc
UPDATE! Lettre for shareholders from cbeh!
check http://content.stockpr.com/chinaintegratedenergyinc/media/86d3ac41ef560dbee711de68b3bb816b.pdf
Allegation against CBEH by Sinclair Upton and ZeroHedge reports
1) Try to google Sinclair Upton : found nothing except for the reports on CBEH
2) ZeroHedge: a one man show. Can you take seriously an anonymous author who wrote more 900 articles in less than 2 years?
3) ZeroHedge + Sinclair = not trustworthy
In the other hand (CBEH)
1) CBEH makes Asia's Best Under A Billion list by Forbes: http://www.forbes.com/lists/2010/24/asia...
2) “CBEH is now one of the largest biodiesel manufacturers in China and his new refinery in Tongchuan City should increase capacity by another 50 per cent in the next few years.” By FT (Financial Times)
http://www.ft.com/cms/s/2/fa1d9e26-c5ea-...
3) Mr. Junrong Guo( Independent Director of CBEH) awards: Shaanxi New Century Talent, Shaanxi Scientific & Technological Progress Award from 2005 to 2008, Professional Researcher in 2006 and Shaanxi Agricultural in 2008.
Source (Reuters): http://www.reuters.com/finance/stocks/co...
4) 14 March 2011: Equities research analysts at Zacks Investment Research upgraded shares of CBEH (NASDAQ: CBEH)
5) 21 March 2011: Roth Capital Parchina downgraded CBEH because of the allegation but still put a targe price of 5.50$ (before allegation : 8$)
Etc......
I'm long CBEH
Josh S.
whas it a false plan of short-interest funds? could that be possible?
The Law Firm of Levi & Korsinsky, LLP Launches an Investigation into Possible Securities Laws Violations by CBEH
Posted for Levi & Korsinsky, LLP by jagan mohan on March 22nd 2011 and filled under Business
Levi & Korsinsky is investigating China Integrated Energy, Inc. (Nasdaq: CBEH) to determine whether it has violated federal securities laws by issuing false and misleading statements.
New York, NY, March 22, 2011 -- Levi & Korsinsky is investigating China Integrated Energy, Inc. (“China Integrated” or the “Company”) (Nasdaq: CBEH) to determine whether it has violated federal securities laws by issuing false and misleading statements. On March 16, 2011, Sinclair Upton Research issued a reported alleging that China Integrated concealed numerous “fraudulent acquisitions” between the Company’s directors and officers. Furthermore, the report alleges that the Company misrepresented its financial performance, including “fabricating its SEC financial statements.” In response to the news, on March 17, 2011 shares of China Integrated dropped over 24% to close at $3.77 per share.
If you own China Integrated stock and wish to obtain additional information about the investigation and your legal rights, please contact Joseph E. Levi, Esq. either via email at jlevi@zlk.com or by telephone at (212) 363-7500, toll-free: (877) 363-5972, or visit http://www.zlk.com/china-integrated-energy-cbeh.html.
Since I was reading the 10K here is the reply to the first point, when they said the Son Bo received the money.
I put the key part in bold.
In October 2010, we acquired 100% equity interests in Chongqing Tianrun of that most significant assets consist of a 50,000-ton biodiesel production plant, for a cash consideration of approximately $16.5 million. The acquisition cost was paid from our available cash. At beginning of 2009, the former owners of Chongqing Tianrun approached Mr. Gao, Chairman and CEO, to express the intention to sell the entire equity interests of the company. After a preliminary due diligence performed on Chongqing Tianrun, we determined that we would acquire Chongqing Tianrun only after its former owners expanded production capacity of the facility to 50,000 tons. To secure this acquisition opportunity and to demonstrate our intent to follow through with the acquisition , Mr. Gao agreed to deposit RMB10.5 million ($1.6 million) of his personal funds with the former owners as a good faith demonstration of his intent that we would consummate the acquisition if the expansion was done. Mr. Gao received 51% equity interests of Chongqing Tianrun in return as a security of his deposit. Upon completion of the facility expansion, the entire cash amount used for security deposit was returned and the 51% equity interests were rescinded in September 2009, before we acquired the biodiesel facility in October 2010. We believe that we can achieve synergies and cost reduction from this acquisition. Chongqing Tianrun is subject to a 25% corporate income tax rate.
what do you think about this pr?
I hope they PR that letter when it's out officially being as this is a very big deal to us shareholders.
I can understand it taking a few days to get a proper response together in this case.
What I really hope is to hear KPMG stand up and defend their client as well in this shareholder letter.
If KPMG is found to have been inept or even worse in the unraveling of the truth in this whole matter it bodes very very bad for them and for investor confidence in all China companies, even those who have hired Top 4 auditors to improve public perception.
malc
XI'AN, China, March 21, 2011 /PRNewswire-Asia/ -- China Integrated Energy, Inc. (Nasdaq: CBEH), a leading non-state-owned integrated energy company in the People's Republic of China, today announced that it will make available on its investor website a detailed letter to shareholders from its CEO, Mr. Gao Xincheng, on or before Wednesday, March 23, 2011.
The letter will comment in response to the recent negative post to provide additional information and background on the Company's business and accounting practices. This will include a point-by-point response to assertions made by the author concerning China Integrated Energy's acquisitions of biodiesel plants and retail gas stations, interest income on cash on the balance sheet, Variable Interest Entity (VIE) corporate structure, profit margins for biodiesel business and wholesale distribution business, and the recent capital raises.
The Company believes that this letter will provide transparency to its shareholders and other interested investors along with a better understanding of its operations and the competiveness of China Integrated Energy's business model.
The letter will be available at the "Investors" section of China Integrated Energy's website, www.ChinaIntegratedEnergy.com.
yep, cbeh isn't mentioned anymore in HC International
last week they cbeh had a roadshow in US...
but what says KPMG?????
Hi guys, read this post. Joe is very credible.
joenatural Member Profile joenatural Member Level Share Thursday, March 17, 2011 12:38:31 PM
Re: None Post # of 75679
CBEH - just spoke with Matt Hayden at HC international. Pretty scary conversation. He's now going to walk away from CBEH, as he's very stressed out about yesterday's report and doesn't want to hurt his reputation. Translation ? I think we can pretty much forget about a CEO rebuttal to the "hit piece" as was promised yesterday.
Private Reply | Keep | Public Reply | View Replies (1) | Mark as Last Read
Thanks, you too, have to be especially with our CCME adventure going on lol.
just becareful.
Wish you the best. Good luck =)
Hey, I was actually waiting for the audit sign off to buy in. It's good that KPMG signed off on the 2010 financials and also the internal controls. I haven't fully looked into the hit piece though. Might buy in if it goes lower.
Are you still a long holder ?
KMPG signed of the audit it seems. However, the management has not full counter the allegations. I am still going to wait it out before i get back in. I hope you bought protection if you are still in!
Good luck =)
Statement of CBEH!
Mr. Gao Xincheng, CEO of China Integrated Energy said, "We are now pleased to have KPMG, an experienced and very qualified firm, complete the audit of the company's fourth quarter and full year 2010 financial results and internal controls. We will provide a detailed explanation to address the negative research report issued earlier today through a letter to our shareholders. We are committed to sound corporate governance and internal controls as we continuously strive to maintain our financial integrity."
http://ir.stockpr.com/chinaintegratedenergyinc/press-releases/detail/643
I read the article and I read the 10K. Nice bold disclaimer in the hit piece about the author taking short positions and standing to profit if share price falls.
As we have seen way too often in the recent past, fear is a stronger motivator than any of the other myriad of human emotions.
When discrepencies about CCME financial activities and reporting were discovered, Deliotte resigned and trading halted. Just yesterday CBEH puts out a great 10-K that KPMG signed off on. Until I hear of KPMG resigning due to misrepresentations by mgmt or fraud by mgmt, which is alleged in the hit piece I will hold my shares.
Does no one see that this is likely just a last ditch bear attempt to profit on the backs of anothers pain? God, I hate short sellers who employ these tactics. If all this turns out to be an unwarranted malicious attack I hope CBEH sues the hell out of them.
After the 10-K came out yesterday signed off on by KPMG it appeared that the market was ready to shoot this directly back up, so what happens this morning? News about lawyers "investigating" filing a class action fraud suit against CBEH. It shouldn't take a genius to figure out what very well may be happening here - No class action suit has been filed and probably never will be - To file such a lawsuit would be akin to saying that KPMG is either very inept in their accounting reviews or is in cahoots with mgmt to cover up fraud.
Its more like the POS lawyers who put out that news this morning are in cahoots with the POS hit piece author who won't even reveal his name. Hell, I post my opinions on this blog space daily and I'm not afraid to reveal my name... What gives?
When the smoke from all this clears I will be shocked if it does turn out true that fraud has been committed and KPMG either missed it or condoned it. I suspect the exact opposite is true.
God Bless those of us still holding. I exited my entire position in ENHD at the sound of cannonfire because in that case I could see the cannonball behind the shot. In this case all I see is a bunch of short sellers smoke..... Spineless bastards.
malc
i have sold. Good luck to people who are still in. Cannot take anymore hits. Already in CCME debacle :/
posting the hit piece here in case any longs want to read it.
http://www.zerohedge.com/article/china-integrated-energy-cbeh-latest-alleged-chinese-fraud-true-value-076share
Good luck
so, it seems you are convinced about the allegations write down in the report?
I can tell you I just sell 90% of all my shares
fucking casino capitalism...
but I find it strange that the autor of the report doesn't want to give his name...
so, it seems you are convinced about the allegations write down in the report?
I can tell you I just sell 90% of all my shares
fucking casino capitalism...
but I find it strange that the autor of the report doesn't want to give his name...
Well I am involved in yet another class action lawsuit. Great.. I am out of this stock watching from the sidelines licking my wounds! GL to all the longs...A very sad day...
Hit piece, imagine that, followed by a great 10-K. This could be another exciting day around here tommorrow.
malc
I have no idea what happened today but I do know that I happened to come home today for lunch, turned on the streaming, and things started getting ugly real fast. I don't think I could have kept up on my Iphone lol.... Not much good for real fast realtime moves...
10x volume today on nothing that I've seen. I'd like to know what happend to justify this dumpage but I'm also rather hoping it was just market mentality.
I took a new position in a trading account today at 4.50 on the falling knife side of the action, thinking that was bottom for a second lol.
Then I doubled down my IRA five minutes later at 4.25 and have my average shares now at 5.02. Quite happy about that actually, although if I had waited longer I could have obviously gotten all shares much cheaper, but catching falling knives is not really my game, laugh at myself....
Nonetheless, I'm pretty happy about those moves and I think this will be another case of those with the stones prevail. Off to do some reading up to see if there is anything of weight behind this sell-off today. I suspect just a side product of the overall market "black cloud" sentiment at this time.
malc
10-k fillings are in by SEC! already almost +10% after market-close!!
Rodman and Renshaw gives today a new target of 12,50$
We believe the stock's recent weakness is in sympathy with other small cap China names that are under auditor and 10K / 10Q filing related scrutiny. We believe pressure should abate once the company files its 2010 10K with the SEC. We expect this to happen by March 15, 2011.
FY11 Guidance: Management is now guiding for revenue and earnings of $588.1 MM and $72.2 MM for full year 2011, representing 34% growth in both top-line and bottom-line.
Revising 1Q11 Estimates: We are now expecting CBEH to generate top-line, bottom-line, and diluted EPS of $124.5 MM, $15.0 MM, and $0.29, respectively. For the full year numbers, our projections are in line with the company's guidance, with $587.5 MM in revenue, $72.9 MM in earnings, and $1.41 in diluted EPS.
Valuation: At current levels CBEH is trading at a P/E multiple of ~4.0x to our FY11 earnings estimates. We maintain our Market Outperform rating and highlight CBEH as a vehicle to participate in China's increasing energy consumption. At our PT of $12.50, CBEH will be trading at ~8.9x FY11 earnings, still significantly lower than its peer group.
http://www.fixyou.co.uk/tracker_details.php?s=CBEH&analysts=1
well, it seems we're all together in a dark space... is it a strategy of some shortinterest-butheads to create negative sentiments on chinese small caps?
now there is a rapport with disaster allegations against cbeh... but the writer doesn't want to give his name... what kind of bullshit is that?
I stay cool, wont panic (but I do) and hopes this is just a scarry nightmare
http://www.zerohedge.com/article/china-integrated-energy-cbeh-latest-alleged-chinese-fraud-true-value-076share?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
another bloody fraud case perhaps.. getting fckn riduculous.. down approx $40,000 on these gd chinese mergers. fckn auditors are useless, sec is useless , no fckn information, companies don't stand up and issue statements , and all these fckn investment companies pushing these chinese shit holes , auditors should be held accountable for frauds if they sign off. is kpmg their auditor. i see no mention of it anywhere, just one fckn statement a while back saying they were appointing kpmg but did it actually happen. Emailed kpmg to verify as such. fckn bastards all of them. i hope they choke on their rice!!!
what? whats going on????? can anybody tell me what happen? anybody has an overview how many short-interest there is?
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China Integrated Energy, Inc. is a leading non-state-owned, integrated energy company in China engaged in three business segments: the wholesale distribution of finished oil and heavy oil products, the production and sale of biodiesel, and the operation of retail gas stations.
Oil Distribution - We are a high-volume distributor, selling primarily gasoline, diesel, and heavy oil in fourteen provinces and municipalities through seven sales offices located in various regions of China. read more
Biodiesel Production and Sales - We operate a 100,000-ton biodiesel production plant located in Tongchuan City, Shaanxi Province and a 50,000-ton plant in Chongqing City, China. We will increase our total production capacity to 200,000 tons by constructing a new 50,000-ton production facility, adjacent to our 100,000-ton plant in Tongchuan City. read more
Retail Gas Stations - We operate seven retail gas stations located in Xi’an City and other areas in Shaanxi Province with plans for expansion. read more
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Wholesale Distribution of Finished Oil and Heavy Oil Products
Oil Distribution
We wholesale a variety of oil products including gasoline, diesel, and heavy oil. Gasoline and diesel represent the majority of oil products consumed in China due to automobile and truck usage. Diesel is also used in agricultural farming machines and power generation. Heavy oil is for further refinery into finished oil products, and also broadly used as fuel for ship boilers, industrial furnaces and heating purposes. Wholesale distribution of finished oil and heavy oil products accounted for approximately 67.6% of our total sales in 2009, and approximately 66.3% of our total sales in 2008.
We purchased approximately 65.5% of our gasoline and diesel oil products from our top five suppliers in 2009. During 2009, we purchased approximately 30.8% of our gasoline and diesel oil products from Shaanxi Yanchang Group, the fourth largest oil company in China, with whom we have had a strong long-term relationship. While Shaanxi Yanchang Group supplies most of our gasoline and oil, we are actively seeking other sources as well.
Wholesale Oil Distribution Photo Gallery
Click the image below to view photos.
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Oil Storage
We use four oil storage depots, which in the aggregate have the capacity to store approximately 59,000 m3 of oil products. Two of the state-owned depots are located on railways that provide us convenient access for distributing our products. We also have access to a 2.65-kilometer railway track connecting the oil storage depots located within our biodiesel production facility to the main railway in Tongchuan City, Shaanxi Province.
Oil Sales and Marketing
We have developed a stable sales network for our products in fourteen provinces and municipalities. We now employ thirty-six full-time salespersons, and as our business grows, we intend to further expand our network and develop more sales channels. For our wholesale distribution of finished and heavy oil, we will distribute to two additional provinces in the next eighteen months, adding additional salespersons and establishing more regional sales offices. We plan to increase our sales volume through enhancing our distribution footprint, and further penetrating our existing customer base and business territories.
Our Customers
We currently sell our finished oil and heavy oil products to regional distributors in China that supply to retail service stations, and directly to end users through our retail gas stations. We have adopted different terms for payment based upon the financial strength of the customer. For example, we have entered into agreements with PetroChina, SINOPEC, and other state-owned enterprises whereby we deliver products to agreed-upon locations, and these customers agree to pay us after delivery. However, we require partial pre-payment and cash on delivery from our customers that operate distributorships, or own and operate private gas stations, typically 10% to 15% of the total purchase price. We have not experienced any uncollectible accounts receivable or bad debt write-offs during the past three years.
In 2008 and 2009, our top five customers purchased approximately $49.3 million and $113.2 million of our products, representing approximately 22.8% and 39.1% of our sales during that period, respectively. China Petroleum and Chemical Corporation Chuanyu Trading Co., Ltd., our largest customer, accounted for approximately 26.6% of our sales in 2009.
Production and Sales of Biodiesel
Biodiesel Production
In 2006, we built a 10,000 square meter biodiesel production facility with an annual design capacity of 100,000 tons in Tongchuan City, Shaanxi Province. Our achievable utilization rate, after taking into account national holidays and required periodic maintenance, is 90%. In October 2010, we acquired a 50,000-ton plant in Chongqing City, China. By the end of 2010, we will increase our total production capacity to 200,000 tons by constructing a new 50,000-ton production facility, adjacent to our 100,000-ton plant in Tongchuan City.
Biodiesel Facilities Photo Galleries
Click the images below to view photos of our biodiesel facilities.
Biodiesel Proprietary Production Technology
First Generation Technology
We have been awarded three patents relating to the use of multiple feedstock interchangeably in biodiesel production. Our biodiesel feedstock includes non-edible seed oil, waste cooking oil and vegetable oil residue, most of which have limited alternative uses. We have submitted eight additional patent applications, of which six have passed the preliminary examination and the other two have been accepted for review.
We maintain a flexible procurement model in which we adjust the relative quantities of each type of raw material we purchase, depending on their respective purchase prices, to minimize our raw material costs. In 2009, non-edible seed oil, vegetable oil residue and waste cooking oil accounted for approximately 40%, 43% and 17% of our raw material costs relating to our biodiesel production, respectively.
Our first-generation biodiesel meets the Chinese Biodiesel Standard B100. Our biodiesel can be blended with regular petro-diesel and used by existing diesel engines with no change in engine performance.
Second Generation Technology
The new 50,000-ton second-generation biodiesel production facility, adjacent to our 100,000-ton first-generation production facility, is estimated to reduce production costs by 20%. In addition to the feedstock used in the first-generation facility (i.e. non-edible seeds, waste cooking oil, vegetable oil residue), the new second-generation facility can utilize a diverse supply of raw materials, such as crop straw (wheat straw, corn straw, cotton straw, weed, etc.), agricultural waste (tree branches, tree leaves), as well as organic waste, providing us with better input cost controls while ensuring optimal capacity utilization.
Furthermore, the new technology is able to recycle unused feedstock and water used in the production process, meeting our environmental goals while delivering further cost reductions. China currently produces 1.3 billion tons in organic waste annually.
Our second-generation biodiesel meets Europe IV fuel standards and can be mixed with both diesel and first-generation biodiesel at any ratio.
Biodiesel Raw Material Supply
We have access to a range of biodiesel raw materials. Besides non-edible seed oil, we can also use waste cooking oil and vegetable oil residue for biodiesel production. We have signed raw material purchasing contracts with local associations, some of which are governmental entities. These associations organize local farmers to plant and harvest oil plants. The purchasing contracts obligate most of the associations to first offer to sell the feedstock to us.
Shaanxi Province is one of the largest cultivators of Chinese prickly ash, an oil plant, in China. Together, the local farmers in Shaanxi Province have planted approximately 240,000 acres of Chinese prickly ash, 857,000 acres of cornel, and 10,000 acres of Chinese pistache. Although we could satisfy all of our current feedstock demands solely with Chinese prickly ash, we continue to diversify our feedstock supply to lower input costs. The abundant supply of feedstock currently available in Shaanxi Province is sufficient for our current needs, and should be sufficient for our expanded demands for raw material once we expand our biodiesel production facility or acquire a new facility.
Biodiesel Sales and Marketing
We are the only non-state owned biodiesel producer with a nationwide distribution license. We continue to leverage our distribution infrastructure to sell our biodiesel to existing customers and to acquire new ones. The main advantages of biodiesel over petro-diesel are pricing, efficiency, safety (due to a higher flash point), and the fact that biodiesel is environmentally friendly. Our targeted markets are power plants, marine transportation companies, seaport operations, and other industrial customers which consume large volumes of diesel fuel.
Operation of Retail Gas Stations
We sell all grades of gasoline and diesel at our seven retail gas stations. Our customers include automobile, bus, and truck drivers.
Our advantages are:
Retail Gas Station Photo Gallery
Click the images below to view photos of our retail gas stations.
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