XI’AN, China, Dec. 3, 2010 /PRNewswire-Asia-FirstCall/ — China Integrated Energy, Inc. (Nasdaq: CBEH), a leading non-state-owned integrated energy company in China, today provided an update regarding its biodiesel production business.
Since commencing production in its 100,000 metric ton (MT) biodiesel production facility in October 2007, China Integrated Energy has grown its biodiesel business steadily. During the third quarter ended September 30, 2010, revenue generated from the Company’s production and sale of biodiesel was $20.3 million, or 19.0% of total sales, with gross margins of 29.8%. With the recent acquisition of the 50,000 MT biodiesel production facility in Chongqing City and the upcoming completion of a new 50,000 MT biodiesel production facility in Tongchuan City, the Company will double its biodiesel production capacity to 200,000 MT per annum.
The Company believes that it has five primary competitive advantages that have contributed to higher and more stable margins in its biodiesel business: 1) a national license to distribute both heavy oil and finished oil including gasoline, petro-diesel and biodiesel; 2) a proprietary and patented production process that enables its existing 100,000-ton production plant to mix a variety of feedstock interchangeably at any ratio to achieve a high conversion rate from the feedstock and to produce high-quality biodiesel, resulting in the efficient usage of the least expensive feedstocks; 3) long-term relationships with local suppliers that have resulted in the Company’s ability to secure a steady source of raw materials, including non-edible seed oil, waste cooking oil and vegetable oil residue; 4) certified Chinese B-100 grade of biodiesel, which enables the Company to sell its biodiesel near parity with petro-diesel market prices; and 5) economies of scale.
National Distribution License
China Integrated Energy is one of the only four non-state-owned companies in Shaanxi province licensed to distribute both finished oil and heavy oil nationwide. Furthermore, to the Company’s knowledge, China Integrated Energy is the only biodiesel manufacturer in China that has a distribution license. It is required by law that biodiesel, which is defined as a finished oil product, has to be distributed by a vendor that has a distribution license. The Company’s distribution channels and sales network, established over the past 10 years, have contributed significantly to the sales generated in its biodiesel segment. The Company has, and will continue to leverage this distribution license advantage across the entire 200,000 MT of its production capacity. This early-mover distribution license advantage is one factor that the Company believes allows its biodiesel products to realize superior margins.
During the first nine months of 2010, China Integrated Energy sold approximately 64,800 tons of biodiesel to power plants, marine transportation companies, next-tier distributors and retail gas stations. Its two largest customers are Da Tang Shaanxi Power Generation Co. Ltd. and Hua Neng Tongchuan Power Generation Co., Ltd. These two power plant customers purchase biodiesel from the Company for usage in their coal combustion system. Due to inconsistency in the quality of coal, the Company’s power plant customers inject diesel in the combustion system to meet peak power production demands. These customers use biodiesel as a replacement or supplement to petro-diesel to reduce carbon dioxide emissions.
Flexible Production Process for The First Generation Biodiesel Production Facility
As a result of five years of research and development in partnership with top universities, China Integrated Energy has developed and received patents for its proprietary flexible production process that has been used in its existing 100,000-ton facility in Tongchuan City.
With four patents awarded, five patents pending approval, and two other applications submitted, all of which relate to the production process for its first generation of biodiesel production plant, the company is able to mix a variety of raw materials interchangeably at any ratio to produce the same high-quality biodiesel. As a result, the Company is able to make the most use of even the least expensive feedstock, which has allowed the Company to maintain consistent margins.
In addition, the Company’s proprietary production process enables a high conversion rate from feedstock into biodiesel and also enables the Company to recycle its biodiesel by-product back into the production process for fueling purposes. Since the existing 100,000 ton biodiesel production plant was completed in the fourth quarter 2007 and is in excellent operating condition, the regular maintenance cost is at a minimum.
For more information on the Company’s biodiesel technology and all its patents, visit: http://www.chinaintegratedenergy.com/operations/intellectual-property
Local Feedstock Supplier Agreements
China Integrated Energy has a large and diverse supply of raw material from local suppliers. The Company has established long-standing arrangements with local non-edible seed oil producers. Shaanxi Province, where its existing 100,000 MT biodiesel facility is located, has approximately 240,000 acres of non-edible biodiesel feedstock plants, capable of supporting approximately 430,000 tons of biodiesel production. The Company is not aware of any other biodiesel producers in Shaanxi Province who utilize non-edible seed oil. Moreover, the Company has long-standing contracts with waste cooking oil disposition centers to purchase waste cooking oil, and has also secured vegetable oil residue supply from manufacturers producing edible vegetable oil.
As a result of long-standing partnerships with these suppliers, the Company significantly reduced its raw material inventory in 2009.
Certified Grade of Biodiesel
The Company produces a certified B100-rated grade of biodiesel in accordance with the Standardization Administration of the People’s Republic of China (SAC), which allows it to be sold at market prices that are comparable to petro-diesel prices. The average wholesale guidance price in China, as the maximum selling price of petro-diesel, in the third quarter of 2010 was approximately $895 per ton and the average wholesale selling price of the Company’s biodiesel was $832 per ton during the same period. With demand for diesel being twice as much as that for gasoline in China over the past decade, the Company believes that the pricing outlook for China Integrated Energy’s high-quality biodiesel remains favorable, since the biodiesel can be used as a replacement or supplement to petro-diesel.
Economies of Scale
The Company generated approximately $53.7 million of revenue and $16.3 million of gross profit from its existing 100,000-ton biodiesel facility for the nine months ended September 30, 2010, driven by a 12.1% increase in volume to approximately 64,800 tons, and a 19.3% increase in the average selling price of the Company’s biodiesel from the same period in 2009. Due to its vertically integrated model, the Company currently enjoys full capacity utilization.
New 50,000 MT Biodiesel Facility With the Second Generation of Technology
The Company is constructing a new biodiesel facility in Tongchuan City, Shaanxi Province, adjacent to its existing 100,000 MT biodiesel production facility. The Company anticipates spending $15 million to construct the facility. In the first three quarters of 2010, the Company spent approximately $12.7 million as an initial payment for the purchase of equipment and infrastructure cost, and will spend the remaining balance of the budget in the fourth quarter of 2010.
The Company’s advanced production technology at its second-generation 50,000 MT biodiesel facility is estimated to reduce production costs by 20%. The new second-generation facility can utilize an even further diverse supply of raw materials, such as crop straw, agricultural waste, as well as organic waste, providing China Integrated Energy with better input cost controls while ensuring optimal capacity utilization. The Company has two patents relating to the second-generation technology that are pending approval. For more information on these two pending patents, visit: http://www.chinaintegratedenergy.com/operations/intellectual-property.
Biodiesel Facility Grand Tour
As previously announced on October 20, 2010, management hosted a grand tour of its biodiesel production facilities in Tongchuan City on November 18, 2010 after the 2010 annual stockholder meeting. Major shareholders, partners, investors and industry analysts attended the events.
In addition, on September 24, 2010, Financial Times published an article after author David Stevenson‘s visit to the Company, please visit:
The Company and the Board recognize the market’s sensitivity to the Company’s auditor selection process. Our Board places exceptional emphasis on high corporate governance standards. We have been actively reviewing our auditor selection process in the near future.
Financial Outlook for 2010
The Company reaffirms the newly updated 2010 guidance with revenue of $435 million and net income of $53.5 million representing an increase of 50.2% and 41.2%, respectively, from 2009.
China‘s National Energy Administration (NEA) has formulated a development plan for the clean energy industry, which includes wind, solar, biodiesel and nuclear energy, to receive direct investments totaling $738 billion from 2011 to 2020 to promote the development of clean energy industries in order to meet the carbon emissions reduction targets set by the PRC government by 2020.
About China Integrated Energy, Inc.
China Integrated Energy, Inc. is a leading non-state-owned integrated energy company in China engaged in three business segments: the production and sale of biodiesel, the wholesale distribution of finished oil and heavy oil products, and the operation of retail gas stations. The Company operates a 100,000-ton biodiesel production plant located in Tongchuan City, Shaanxi Province and a 50,000-ton plant in Chongqing City, China. The Company expects to increase the total biodiesel production capacity to 200,000 tons upon completion of the construction of a new 50,000-ton production facility adjacent to the 100,000-ton plant in Tongchuan City. The Company utilizes an extensive distribution network to distribute traditional petroleum products, and operates thirteen retail gas stations in China. For additional information on the Company please visit http://www.chinaintegratedenergy.com.
An online investor kit including a company presentation, press releases, current price quotes, stock charts and other valuable information for investors is available at http://www.chinaintegratedenergy.com. To subscribe to future releases via e-mail alert, visit http://www.chinaintegratedenergy.com/alerts.
Safe Harbor Statement
This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. For example, statements about the future use of the proceeds are forward looking and subject to risks. China Integrated Energy, Inc. may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 10-K, 10-Q and 8-K, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Company’s beliefs and expectations, are forward-looking statements. Forward- looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, risks outlined in the Company’s filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law.