Sharp rise this morning in this Chinese oil refinery company. Tipped over the weekend in Small Company Share Watch to be the next ReneSola. Changes in the way pricing operates since China joined WTO is set to change the company dramatically, plus results in the coming weeks could surprise on the upside.

www.haikechemical.com

Quarter 1 update

First Quarter 2007 Highlights

- Total revenues increased by 28% to US$ (or '$') 73.9m (2006Q1: $57.9m)

- Petrochemical revenues increased by 15% to $56.1m (2006Q1: $48.6m)

- Speciality chemical revenues increased by 87% to $17.0m (2006Q1: $9.1m)

- Biochemical revenues increased by 300% to $0.8m (2006Q1: $0.2m)

- Gross margin improved to 12.1% (2006Q1: 7.2%) to $8.9m (2006Q1: $4.1m)

- Net profit after tax increased by 625% to $5.8m (2006Q1: $0.8m)

- Net profit (after minority interests) increased by 650% to $4.5m
(2006Q1: $0.6m)





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Nope, I threw myself under a train out of remorse over my lousy-stockpicking, but managed to get my timing wrong even there and when I fell off the platform it had already gone.

I didn't half feel like a twit having to pick myself up and walk back past all those commuters.

So I'm afraid I'm back to plague you :o)

LOL soul traders, never mind, you can do me a favour and buy axi, I missed the chance to top up this morning, so need them to drop back to 8p.

Another nice rise here so far this morning as general awareness starts to become greater.

I've decided to add another tranche here as I expect to see an earnings update before too long. Whether we see that before Q2 results I'm not sure.

Chart looking good for a retest of 205p now and a break there should signal new ground.

I think the AGM maybe tomorrow(?); may see an indication how Q2 is trading.

Fortune Oil will invest in new shares totalling 51 per cent of Green
Energy, which operates China's first commercial LNG liquefaction plant, CNG
stations and a fleet of LNG/CNG distribution vehicles.



Fortune Oil will provide RMB 71.4 million (4.7 million) of new equity to
Green Energy in cash in return for the new shares and will also provide a
loan to Green Energy of RMB 74.3 million (4.9 million). The funds will be
drawn from the loan facility signed in April 2007.



The funds will be used to finance new investments and to repay a RMB 90
million (6 million) loan to Sinopec.



Green Energy is one of the most significant centres of excellence for LNG
technology in China. For Fortune Oil this acquisition seals a major aspect
of the technology and resource required to develop a gas distribution
network in the world's second largest energy industry.





Prior to Fortune Oil's acquisition Green Energy was called Henan Zhongyuan Green
Energy Hi-Tech Co. Ltd. and was owned by its employees as a result of a recent
privatisation from Sinopec. After Fortune Oil's 51 per cent investment Green
Energy will be a sino-foreign joint venture with a minority 49 per cent held by
the 491 staff. These shareholders will be represented on the board of Green
Energy by two directors who had been instrumental in developing this LNG
business in Sinopec, Mr Zhang Kong Ming (Chairman) and Mr Xie Xin (previous
General Manager). Fortune Oil will appoint three directors to the board and it
is expected that Green Energy will be treated as a subsidiary of the Company for
accounting purposes.



Green Energy is based at Puyang in Sinopec's Zhongyuan oil and gas field in
Henan Province. The LNG production plant was constructed by Sinopec at Puyang
in 2002 and it was the first commercial LNG production plant operating in China.
The LNG is delivered by specialised road tankers to LNG storage tanks at end
users in cities such as Beijing and Qufu, where Fortune Oil first delivered LNG
from Puyang in 2004. Green Energy currently owns a fleet of 18 LNG and CNG
distribution trucks.



The LNG production plant has a design capacity of 55 million cubic metres per
year which is expected to be achieved after installation of new compressors in
July 2007. Green Energy also sells 34 million cubic metres per year of CNG from
its eight stations that supply natural gas fuel to a local user base of 5,000
buses and taxis. Green Energy has investments in another three CNG stations and
plans to develop further CNG stations in the Puyang area.



As a result of the employee privatisation from Sinopec, Green Energy benefits
from many government and Sinopec incentives, for example relating to taxation
and land rights. Sinopec has provided commitments on gas supply to Green Energy
from the Zhongyuan field that will enable the company to expand both its LNG and
CNG sales in the coming years. The employees have committed significant
financial support to Green Energy, demonstrating their confidence in the future
of their LNG technologies in China.



Fortune Oil expects that the existing assets of Green Energy will generate an
annual net profit of 1-2 million in the initial years and that the acquisition
will be earnings enhancing in 2007. Prior to the forthcoming increase in LNG
production capacity the LNG plant had been operating at a small loss because of
the low throughput. The pro forma gross assets of Green Energy were RMB 223
million (14.8 million) at end December 2006 and turnover for the year to
December 2006 was RMB 144 million (9.6 million) based on PRC accounting
standards. Fortune Oil plans to refinance its shareholder loan via local bank
financing in order to increase equity returns.



Green Energy has unique skills in China to design and implement gas distribution
technologies, given its background as Sinopec's LNG base. Green Energy has
already been providing technical assistance in the development of other LNG
liquefaction plants now operating or under construction in China. These plants
enable gas to be trucked to end-users that are not otherwise accessible by
pipeline. As more independent gas fields are developed, for example at Fortune
Oil's Liulin coal bed methane block, there will be an increasing demand for
small-scale LNG plants to monetise the gas.





Mr Qian Benyuan, Chairman of Fortune Oil, commented:



'This is a major step for Fortune Oil, acquiring not only assets to produce and
distribute LNG and CNG, but also acquiring the best LNG expertise in China. For
many of China's recent gas developments such as coal bed methane, LNG offers the
most economic way of transporting gas to end-users, as it will be many years
before the country's pipeline infrastructure can be fully developed. Green
Energy's assets and expertise fit very well with our coal bed methane and gas
distribution companies as we create China's first independent integrated gas
company.'

Nothing new out of the AGM but good to see reaffirmed that HaiKe sees:

continued growth for 2007

strong demand for products

cracking facility on track, production to commence Dec07

and confident of expansion plans

Two good AGM statements at the same time Greyhound, axi just posted as well!

Few sellers taking the price a bit lower with general market malaise. Volume low and pretty insignificant. Bound to be fairly large percentage swings up and down. Nice buying opportunity for some no doubt.

Something I was posting on another thread....

The HaiKe placing document makes interesting reading albeit almost 100 pages. Here are some abbreviated bullets points taken from the report:

High barriers to entry, which help to strengthen the Group's position, including:

Regulatory environment - strict regulation, new entrants subject to series of approval processes and certification.

Capital Expenditure - Group has significant production facilities and significant investments in plant and equipment making it difficult for new entrants to replicate without capital expenditure

Labour - Group has skilled technicians. Directors believe it would be difficult for market entrants to obtain similarly high calibre workforce.


Large customer base. No reliance on individual distribution channel. Hi Tech Chem's 5 largest customers accounted for only 14.4% of revenue in 2005, 28% in 2006.

HaiKe operates 1000 acre salt field with a 3rd party. Production capacity is over 50k tonnes of salt - abundant raw material for production process.

Group has established an office in Zhejiang Province and developed relationships in Hebei Province in order to expand sales outside Shandong Province.

The Group has installed various types of anti-pollution equipment in its facilities to reduce, treast and where feasible recycle waste generated in the manufacturing process. The Group has a number of certificates from government environmental agencies and the Directors believe the Group complies with all applicable environmental laws and regs.

Intellectual prop. In collaboration with an academic inst. in China, HaiKe developed a new method for producing isopropyl alcohol. In Jan 04 Group signed a technology transfer contract with Dalian Inst. of Chem. Physics which grants it the right to use this method for 5 years. The method can significantly increase production, reduce the consumption of energy and lower costs (thereby increasing margin).

That's enough for today - maybe more to follow if I can maintain enthusiam!

RSI fallen to its lowest, think we'll see this heading higher now.

I'm not too sure about that...resistance has been breached.

Had a good chat with the CFO this morning, catching him in HongKong. Very positive and approachable. Obviously it's difficult to try and get hold of anything new, but I get the impression Q2 has gone well. Q2 is possibly one of the lower quarters with Q4 traditionally being the best. I also get the impression that the new capacity facilities are running slightly ahead of schedule. Specialty chemicals margins quite wide, somewhere between 10-20%. Discussions regarding oil pricing are ongoing and naturally it's all something we would like to see progressed but again I get the impression it's nothing untoward just local bureaucracy. Results Sep. Looking overdone to me here but I'm not concerned.

After a long profit taking stretch, we're seeing gains two days running. The RSI turns bullish and we jump 8% today. Still believe this is very undervalued.

Results only a few weeks away and this is picking up again after these topsy-turvy days we're experiencing.

I had another chat with our CFO as well and whilst naturally there's nothing new, he remains very postive and I believe all is running to schedule for the capacity expansion. We talked about the oil price and the removal of pricing restrictions in China. I understand that Petrofina and Sinopec are also petitioning the government but these things take time. I guess it could happen any day or be months away. That said we wait until 7/9 for the Q2 results and hopefully any pressure being experienced on the petro side will be offset by the high performing specialty chems.

Another good set of results today coming out of HaiKe. Good all round improvement with excellent gains coming from specialty/bio chemicals. The Petro revenues were better than I had expected but we didn't see the highest crude prices during early Q2.

This stock is now looking very undervalued to me and perhaps we can look to some broker update soon.

and it's chinese too!!!