Cleantech Solutions' Q2 Results Point to Challenges in Sector

With an immense population and a pressing need to develop efficient, environmentally friendly energy solutions, China is a world leader in cleantech innovation.
However, the industry had a difficult second quarter, with tough economic conditions impeding growth in the Asian nation in particular.

China CleanTech index in decline

The China CleanTech index saw a 12.2-percent loss in July, underperfoming on all three of its global benchmarks, and falling from 65.07 to 57.1 over the course of the month.
While some companies — such as China Sun Group High Tech (OTCMKTS:CSGH) and China Clean Energy (OTCMKTS:CCGY) — did see share price gains during this period, many suffered. Key companies on the index, such as China Industrial Waste Management (OTCMKTS:CIWT), Zhongshan Public Utilities Group (SHE:000685) and Sinovel Wind Group Company (SZSE:601558), saw large drops in share price.
Their performance, and by extension that of the index, is part of a larger period of decline for the Chinese cleantech industry. Over the past three months, the index has seen a 23.4-percent decline.

Cleantech Solutions publishes disappointing Q2 results

Cleantech Solutions International (NASDAQ:CLNT), which is based in China, but is not part of the China CleanTech index, is a manufacturer of metal components and assemblies that are used in a wide variety of cleantech, manufacturing, textile, petroleum and chemical industries. This past Friday, it published its Q2 2015 results.
In keeping with the challenging market conditions, the company reported revenues of $15.2 million, a 13.3-percent decrease from $17.5 million in the year-ago quarter. Meanwhile, its gross profit decreased by 34.1 percent, sinking from $4.1 million in the second quarter of 2014 to $2.7 million.

Detailed breakdown

Cleantech Solutions saw a decrease in sales of forged rolled rings and related components to customers in the wind power industry, with revenues plummeting by 61 percent as compared to Q2 2014. Revenues from dyeing and finishing equipment also decreased, coming to only $8.6 million, as opposed to $9.7 million during the same period the previous year. The company has attributed this decline to fluctuations in overall capital expenditures in the region, coupled with lower oil and coal prices and widely available credit.
Furthermore, it saw softer demand for its low-emissions airflow dyeing machines due to the fact that many potential customers purchased this technology the previous year and did not yet require upgrades. While that might sound reasonable, during a conference call, Matthew Larson of Morgan Stanley (NYSE:MS) questioned why the product’s customer base is not expanding, as customers in general are seeking more ecologically sound technology.

Promise for the future

All in all, Cleantech Solutions’ difficulties this past quarter appear to illustrate the difficulties that the cleantech industry is currently facing in China, in addition to the rest of the world.
That said, Jianhua Wu, the company’s chairman and CEO, remains positive. He commented, “sales to customers in the petroleum and chemical equipment, particularly the major contract we received from a large state-owned enterprise for parts and equipment to be used on a major chemical project in Xinjiang, made a meaningful contribution to revenue and partially offset the sales decline in other segments. We remained profitable, generated positive cash flow and closed the quarter with a stronger balance sheet.”
At close of day Friday, the company’s share price was sitting at $1.98, down 13.94 percent. Year-to-date, its share price is down 39.47 percent.
 

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