Investing to Wealth

China Technology Development Group Corporation (Nasdaq: CTDC)

China Technology Development Group Corp. (CTDC) provides solar energy products and solutions focusing on amorphous silicon (a-Si) thin film technology in the People’s Republic of China. It offers SnO₂ transparent conductive oxides base plates, which represent substrates used as an electrode of amorphous thin film solar modules to help trap light into the amorphous silicon layer and maximize its efficiency.

The Company sells its products through direct sales personnel. CTDC was founded in 1995 and is headquartered in Central, Hong Kong. The Company’s major shareholders include China Merchants Group, a state-owned conglomerate in China, and Beijing Holdings Limited, the largest offshore subsidiary established by Beijing Municipal Government.

Source: Reuters.com, SEC Filings.

Financial Summary

The global economic recession in 2008 and 2009 resulted in the closing of many CTDC’s customers that manufacture downstream solar products. Accordingly, the demand for the Company’s SnO₂ products has been weak for the first half of 2009 and CTDC generated no revenue from its solar energy operations during the 2009 period.

General and administrative expenses increased 26.0% from $1,380,000 in the first half of 2008 to $1,739,000 in the 2009 period. This increase was primarily due to a $203,000, or 27.5%, increase in salaries and benefits expense, a $157,000, or 115.8%, increase in legal and other professional fees and a $46,000, or 31.7%, increase in depreciation charges, partially offset by a $30,000 decrease in audit fees and a $10,000 decrease in rental charges. As a result, the Company reported a net loss of $1,352,000 for the first half of 2009 as compared to a net loss of $1,418,000 in the 2008 period.

As of June 30, 2009, the Company’s cash and cash equivalents were $8,599,000, representing an increase of $7,607,000 from $992,000 at the beginning of the year. The increase was primarily due to the proceeds from the issuance of convertible note in May 2009.

Analyst Consensus

No consensus recommendations data available.

Investment Highlights

In January 2009 the Company and Qinghai New Energy Group Co. Ltd (QNE) signed an agreement with local government of Qinghai Haixi Mongolian-Tibetan Autonomous Region to build a 30MW on-grid solar power station in Qaidam Basin of northwestern China. Under the agreement, CTDC and QNE will design, construct and manage the solar power station. The local government of Haixi Region will provide strong support to CTDC and QNE, such as helping them obtain various local and central government backed incentives and providing land. The installed power-generating capacity of the first phase of Qaidam solar power station come to 30 MW and the total long-term objective of the project up to 1GW. The Qaidam solar power station, the first of kind in China to integrate crystalline silicon and thin-film solar modules, will be the largest on-grid solar power station in China after fully completion.

In March 2009, representatives of CTDC reported to Chinese President Hu Jintao on the Company’s solar projects in Beijing. Hu Jintao listened to the Company’s project briefing in March in Beijing with great interest and praised CTDC’s endeavor in solar plant development.

Recently, the Company’s management has adopted resolutions to implement its merger and acquisition strategy in the green energy industry. According to the new strategy, CTDC has been contacting and negotiating with several acquisition targets and plan to close four to six acquisitions of solar product manufacturers by 2010.

In late October, the Company entered into a Stock Purchase Agreement with China Technology Solar Power Holdings Limited (CTSPHL Group) and its direct and indirect shareholders to acquire a 51% equity interest and become the major shareholder of CTSPHL Group. CTSPHL Group, through its wholly-owned subsidiary, is developing a 100MW grid-connected solar power plant project located in Delingha City of Qaidam Basin in Qinghai Province, Northwestern China. Upon closing of the acquisition, the Company and CTSPHL Group will jointly develop the Delingha 100MW Solar Project. CTSPHL Group has obtained a 25-year operating license from the Qinghai Provincial Development and Reform Commission for the first phase of the Delingha 100MW Solar Project, consisting of 10MW. Construction commenced on the first phase September 28, 2009, and is expected to be completed by the end of 2010.

The Company’s development in the next generation thin film technology is carried through the partnership with Hong Kong Polytechnic University, and has submitted grant application to the “Shenzhen & Hong Kong Innovation Circle,” which is sponsored by Shenzhen and Hong Kong governments. CTDC is also partnering with Guangzhou Institute of Energy Conversion, Chinese Academy of Sciences and Hong Kong Polytechnic University on the R&D project of key thin film equipment, and has applied to the “Strategic Cooperation Plan of Guangdong Academy Sciences,” supported by Guangdong provincial government.

Global energy demand is expected to increase substantially with demand for electricity forecast to double from 17,408 TWh to 33,750 TWh by 2030, according to EIA. China is aiming for an installed solar power capacity of 2 GW by 2011, nearly a 15-fold jump from the 140 MW capacity it had at the end of last year. According to some studies, the demand in China for new solar modules could be as high as 232 MW each year from now on until 2012. The Chinese government has been very supportive of the development of renewable energy. The government has announced plans to expand the installed capacity to 1,800 MW by 2020. In September 2009, President Hu Jintao reiterated China’s goal of reaching 15% renewable energy by 2020 at the UN climate summit in New York. Over the long-term, China’s power demand is projected to grow 6.6% to 7.0% annually over the next 10 years.

In April 2009, CTDC and its wholly owned subsidiaries, China Green Industry Group Ltd. and China Green Holdings Ltd. (CGHL), entered into a Subscription Agreement with CMTF Private Equity One. Pursuant to the Subscription Agreement, CGHL issued to CMTF Private Equity One a convertible note in the principal amount of $10 million. The note has a three-year maturity and an interest rate equal to the Hong Kong Prime Rate. The China Green Holdings Limited intends to use the net proceeds of the note offering for the expansion of solar business, especially for the development of Qaidam solar plant project.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

CTDC is trading above its 13-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

The MACD for the Company currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0 which implies that the underlying moving averages are trending higher.

CTDC’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility. Additionally, CTDC is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Comparative Analysis

Becoming a controlling shareholder of CTSPHL Group marks a significant step that CTDC has made to enter into the solar power station arena and become one of the first overseas listed Chinese companies to hold an operating license from Chinese government to operate on-grid solar power stations in China. In addition, CTDC’s co-development of the Delingha 100MW Solar Project and the plans to build the 30MW Qaidam solar power plant could further its goal of becoming an integrated solar company with strong capabilities in designing, building and operating solar power plants.

Source: Thomson Financial, Yahoo! Finance, Analyst estimates.

Insider Trading Activity

Net Share Purchase Activity

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