China Power Equipment, Inc (CPQQ)

[morokoy]

Future prospects are based on -
1)
From 10Q - 09/30/09
Investing activities:
Net cash used in investing activities was $1,758,301 for the nine months ended September 30, 2009. It was attributable to the capital expenditures of $872,341 on construction in progress for the new 5000 tons capacity plant, $236,982 on intangible asset and automobile and deposit for equipment of $767,420 also for the new plant, partially offset by the dividend of $43,860 received from the 20% equity investment and repayment from related parties of $74,582.

2)
From 10K - 12/31/08
a) They have taken steps to ensure raw material supplies
b) Based on the new plant, they will then have 6000 tons capacity, which will be more than No 2 (where they already compete with a 3000 ton supplier,"BZ" and their sales are 80% of BZ's, and they will be equal in terms of tonnage, at 6000, with No 1, "SZ".

Raw Materials And Principal Suppliers Of Zhongxi

Zhongxi’s amorphous alloy cores have three main raw materials: amorphous alloy ribbon, silicon steel sheet and epoxy resin. Except for amorphous alloy ribbon these materials are currently readily available in its domestic or the international market.

The current supplier of raw amorphous alloy strip for manufacturing amorphous alloy core is Hitachi Metals Co., Ltd., which is the biggest manufacturer of amorphous alloy strip in the world. Zhongxi has taken steps to build a strong relationship with Hitachi, in order to be able to purchase sufficient amounts of the product to meet its needs. Notwithstanding the fact that the supply of Hitachi's amorphous alloy strip is exceeded by the global demand for its product, we believe our relationship with Hitachi will generally permit us to purchase sufficient amounts of material to keep up with our demand. We expect that a new source of amorphous alloy ribbon will soon be available from China An Tai Technology Co., Ltd. We have signed an agreement with China An Tai Technology, where we have been given priority to purchase amorphous alloy ribbon products.

COMPETITION OF ZHONGXI

While many manufacturers are capable of producing traditional transformers, fewer than 20 manufacturers in China have the technology to produce amorphous alloy core transformers and only four are capable of large scale production. As for the production of amorphous alloy cores, Zhongxi is one of only three major manufacturers in China. The other two are Shanghai Zhixin Electric Co., Ltd. and Beijing Zhong Ji Lian Gong Co., Ltd.


Comparative data for Zhongxi and our two main competitors in the amorphous and steel core business is set forth in the table below:

China Power // Shanghai Zhixin Electric Co.Ltd // Beijing Zhong Ji Lian Gong Co., Ltd.
Time of Establishment 2004 // 1998 // 2005
Sales revenues of 2008 (RMB) (1) 65,406,798 // 1,000,000,000 // 82,541,025
Sales revenues of 2008 (U.S. dollar) 9,394,491 // 143,631,728 // 11,855,510
Sales area national national national
Annual production capacity 1000 ton 6000 ton 3000 ton

(1) 2008 sales revenues for Shanghai Zhixin Electric Co.Ltd were estimated based on its sales revenue data up to June 30, 2008 because their audited year-end of 2008 financial statements have not been yet made available.



While Zhongxi’s competitors are larger than it, we believe it has a number of advantages over its competition. Its patented Consecutive Anneal Stove For AMDT Core, permits it to produce its cores at a lower cost than its competitors which we believe will permit it to price its product lower than competitors but keep higher margins. In addition, we believe that its experience as a transformer manufacturer will permit it to offer better service and products that are better designed to meet its customer's needs. Zhongxi’s management also believes that its competitors are totally dependent on imported amorphous alloy ribbon as raw materials while it has taken steps to learn how to use amorphous alloy ribbon obtained from domestic sources which will relieve the supply shortage and reduce a bottleneck to our manufacturing process which Zhongxi’s management expects will continue to plague its competitors.