Thursday, 29 November 2012



SINGAPORE LISTED China stocks or s-chips as they are popularity known have been battered over the past couple of years and now suffer from poor liquidity and virtually no interest. This is arguably understandable given the various governance scandals associated with this segment.

There is however, one China stock that is strictly speaking not an S-chip. While it has manufacturing facilities in China, its roots are wholly Singaporean. Its headquarters are not in Bermuda, the British Virgin Islands or some obscure Chinese province but instead Jurong and its main shareholders, chairman, chief executive and most senior management are all Singaporean.

The company is China Auto Corp (CAC) which investors with memories stretch back 20 years might recall was Acma Ltd whose shares at one time in the mid-1990s traded as high as $14. Now China Auto Corp (CAC) with its subsidiary Neftech is researching with Russian scientists on how it can help shipping company save at least 10% of fuel cost with the aim of reducing emissions in the midst of global warming.

Since January 2012, Neftech has begun installing cavitation technology equipment on 20 ships owned and operated by APL, a wholly-owned subsidiary of global container shipping, terminals and logistics group Neptune Orient Lines Limited (NOL). At a joint briefing last week, the companies said the technology, developed by Russian scientists, uses a fuel emulsification process that adds water to heavy fuel oil to produce a superior emulsified fuel for ships. HFO is the low-grade fuel used for powering the engines of ocean-going vessels. Cheng Wai Keung, NOL chairman, said: “In today’s highly challenging business landscape, reducing costs, increasing efficiency and lessening the environmental impact of our operations are among the biggest challenges we face. Neftech offers a strong value proposition.” Under the terms of the agreement, Neftech will bear the cost of installating its fuel-saving equipment on-board the 20 ships, with payment terms to be in the form of fuel savings and carbon credits to be shared with APL in an agreed ratio based on proven and documented cost savings. The installation programme is expected to be completed over the next 12 months.

In February 2012, China Auto Corp announced its intention to increase its stake in Neftech to 48.9% by acquiring another 25% of Neftech. The Company views this latest announcement by Neftech as another positive development in the expansion of its business potential. This acquisition is subject to various shareholder approvals to be obtained at an extraordinary general meeting to be convened.

 In  April 2012, Neftech Pte Ltd has signed an agreement with Pacific International Lines(“PIL”) to install our fuel saving system on the main engine of one of their L Class/4250 TEU (Twenty foot Equivalent Units) container ships. PIL is the 19th largest container ship operator in the world and operates a fleet of 140 vessels which cover most of the international shipping routes. There are 17 L Class ships in the PIL fleet. The agreement gives PIL the option to purchase Neftech main engine systems for their L Class ships subject to a minimum of four ships. Neftech is pleased to add another major shipping line with which it has agreed to install its systems. Current customers are CMA CGM, the third largest container line in the world and American President Lines, the sixth largest in the world.

 In May 2012, Neftech has signed an agreement between Viswa Labs Corp, based in Houston, Texas, to collaborate on technical and analysis work on emulsion fuel produced by Neftech’s proprietary technology. Dr R Vis, founder and President of Viswa Labs, is one of the world’s foremost authority on bunker fuel technology and Neftech will draw on his expertise to develop conclusions on the beneficial effects of its cavitated fuel in reducing fuel costs for ships. Neftech has sold and installed its fuel saving systems on six container ships to date and it has signed current agreements with a further potential of another 27 ships. The tie up with Viswa Labs whosetechnical expertise is recognized by most of the major shipping lines will provide Neftech with an additional layer of technical support in marketing our systems to selected customers.

In May 2012 again, Neftech has signed an agreement with Colben Energy (Singapore) Pte Ltd and Colben Energy (Cambodia) Ltd (hereinafter referred to as Colben) have to install a Neftech fuel saving unit in their plant. Colben is an Independent Power Producer. It operates two power stations in Cambodia, one in Phnom Penh and the other in Sihanoukville. Each plant runs three electricity generating sets. The agreement with Colben requires Neftech to install its equipment on one of the generating sets in Phnom Penh. Subject to satisfactory savings and subject to mutual agreement, Neftech will install its equipment on the other five sets after the first trial.Both parties will share the savings in an agreed ratio.

This agreement marks the first step for Neftech in moving into the land based power plant industry. There are several thousand of these independent power producers world wide, with many of them using heavy fuel oil to generate electricity. Neftech has successfully installed its fuel saving equipment on several ships.

In June 2012, Neftech has received a Letter of Intent from MISC Berhad (“MISC”) regarding the installation of our fuel saving equipment for testing on one of its ships. MISC is one of the world’s largest shipping companies, operating over 100 ships.

Mr Levin said he expects Neftech, which has started marketing the technology to other shipping companies and the power industry, to make annual revenue of around US$1 billion. Justifying this ambitious target, Lim How Teck, a Neftech shareholder and former NOL deputy CEO, said the company will make a strong case for fuel savings with the shipping industry which spends more than US$160 billion a year on fuel. This is based on their use of nearly 370 million tons of fuel a year at an average cost of US$450 per tonne.

With all the positive developments in 2012, Neftech and CAC are not just plays on a turnaround in world-wide shipping, they are now potential regional infrastructure plays. With market preoccupied with European debt worries as well as the USA fiscal cliffs has not needed this signal, but it be interesting to see what happens when sentiment improves and the fuel-saving business starts to have an appreciable impact on CAC’s bottom line.

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