China Growth Stocks

[southacresdave]

CNAM...I just spoke with Investor Relations...

I spoke with Lillian Wong to get a better assessment of what the power shutdown is all about. She explained that China promised the world the would increase their energy efficiency in 2005 and instituted a 5 year plan. We are now approaching the end of that plan and the country has not reached their targeted goal. Up to 18 provinces have now instituted power reduction for the rest of 2010 to meet these goals.

Jiangsu province (one of the first provinces to start to make cuts) targeted the largest users of energy (a lot of steel mills), how long they have been using power in the last 5 years, the amount used, and from that determined what level of blackout a company shall receive. CNAM has been targeted with a 15 day straight shutdown of power. They have been told after that they will be ok.

Why the reduction in earnings estimate of $40M in revenue and $2M in net for just 15 days? Management is very cognitive of the fact that they just reduced estimates in early August in their last earnings report. This latest reduction makes strike two in the eyes of investors and their confidence in management. And so they decided to do the worst case scenario (namely, Jiangsu province comes back for more shutdowns before the end of 2010) and factored that into their estimate already. The company knows that they can't afford a strike three and miss estimates no matter what.