Business Overview and History
Smart Powerr Corp. (NASDAQ:CREG) is a leading provider of energy-saving solutions and services in the People's Republic of China (PRC). The company has undergone a transformative journey, transitioning from its roots in waste heat recycling to emerging as a prominent player in the rapidly growing energy storage market. With a strategic focus on diversifying its offerings and capitalizing on the burgeoning demand for sustainable energy technologies, CREG is poised to navigate the energy storage revolution with resilience and innovation.
CREG was originally incorporated in 1980 as Boulder Brewing Company in Colorado. In 2001, the company changed its state of incorporation to Nevada and changed its name to China Digital Wireless, Inc. In 2007, it was rebranded as China Recycling Energy Corporation. The company's current business operations began in 2004 when it started providing energy saving solutions and services, including selling and leasing energy saving systems and equipment to customers in the PRC.
In 2009, CREG formed a joint venture with Erdos Metallurgy Co., Ltd. to recycle waste heat from Erdos' metal refining plants and generate power and steam for sale back to Erdos. This joint venture, known as Inner Mongolia Erdos TCH Energy Saving Development Co., Ltd. (Erdos TCH), currently operates two power generation systems in Phase I with a total capacity of 18 MW, and three power generation systems in Phase II with a total capacity of 27 MW. In 2013, Xian TCH Energy Technology Co., Ltd., a wholly-owned subsidiary of CREG, became the sole owner of this joint venture.
The company has faced several challenges in recent years. In May 2019, the Erdos TCH subsidiary ceased operations due to renovations and furnace safety upgrades at Erdos. The resumption of operations was further delayed by the government's mandate for Erdos to lower its energy consumption per unit of GDP. Additionally, the company has been involved in various legal proceedings, including a lawsuit filed by Beijing Hongyuan Recycling Energy Investment Center in 2019 to compel the company's Xian TCH subsidiary to repurchase certain stock.
Despite these challenges, CREG has continued its operations in the PRC, providing energy saving solutions and services through its network of subsidiaries. The company's organizational structure includes several wholly-owned and partially-owned subsidiaries, each with a focus on different aspects of the company's business activities. In 2022, the company changed its name to Smart Powerr Corp. to better reflect its evolving business strategy and focus on energy storage solutions.
Financial Overview
CREG's financial performance has been impacted by the ongoing transformation of its business model. For the nine months ended September 30, 2024, the company reported a net loss of $952.28K, compared to a net loss of $518.07K for the same period in 2023. The increase in net loss was primarily due to higher operating expenses, decreased interest income, and a loss on note conversion, which was partially offset by decreased interest expense and lower income tax expense.
For the most recent quarter (Q3 2024), CREG reported no revenue, consistent with the prior year quarter. The net loss for Q3 2024 was $262,731, an increase of $82,011 compared to the same period in 2023. This increase was primarily due to a $41,420 increase in operating expenses, a $68,070 decrease in other income, and a $20,590 decrease in interest income, partially offset by a $34,650 decrease in income tax expense.
Financials
As of September 30, 2024, CREG had cash and equivalents of $69.12 million, working capital of $113.51 million, and a current ratio of 5.00. The company's total assets stood at $137.65 million, while its total liabilities amounted to $27.42 million, resulting in a debt-to-equity ratio of 0.25.
Liquidity
CREG's liquidity position remains strong, with a debt-to-equity ratio of 0.045 and a current ratio of 5.73. The company's quick ratio is also 5.73, indicating a strong ability to cover short-term liabilities with liquid assets. It's important to note that the company's cash flow forecast indicates it will have sufficient cash to fund its operations for the next 12 months from the date of issuance of the financial statements.
However, CREG's management intends to raise additional funds through private or public offerings, or by obtaining loans, to support the company's transition into the energy storage integration business. This indicates a proactive approach to ensuring adequate funding for future growth initiatives.
Transitioning to Energy Storage
CREG's strategic shift towards the energy storage market is a key focus area for the company. In June 2023, the company entered into a purchase agreement with Hubei Bangyu New Energy Technology Co., Ltd. for the acquisition of energy storage battery systems, totaling $595 million. This move is aligned with CREG's goal of transforming and expanding into an energy storage integrated solution provider business.
To support this transformation, CREG made a prepayment of $68.17 million (RMB 476 million) to Hubei Bangyu New Energy Technology Co., Ltd. in 2023 for the purchase of energy storage battery systems. This significant investment underscores the company's commitment to building its energy storage integration capabilities.
The company is actively seeking and exploring opportunities to apply energy storage technologies to new industries or segments with high growth potential, including industrial and commercial complexes, large-scale photovoltaic and wind power stations, remote islands without electricity, and smart energy cities with multi-energy supplies. This diversification strategy aims to capitalize on the growing demand for sustainable energy solutions and position CREG as a key player in the energy storage revolution.
Business Segments
CREG currently operates in two main business segments:
1. Energy Storage Integration Solutions Business: This segment represents the company's future focus and growth strategy. CREG is actively pursuing opportunities to apply energy storage technologies in various high-growth potential areas, as mentioned earlier.
2. Discontinued Power Generation Projects: Prior to its transformation, CREG's primary business was providing energy saving solutions and services, including constructing, selling, and leasing energy saving systems and equipment to customers. The company has since disposed of all its power generation systems, except for five systems held through its Erdos TCH subsidiary. These systems are currently not producing electricity due to the suspension of operations in May 2019. Erdos is compensating Erdos TCH RMB 1 million ($145,460) per month during this period, but CREG has not recognized any income due to the uncertainty of collection.
Risks and Challenges
CREG's operations in the PRC are subject to specific considerations and risks, such as those associated with the political, economic, and legal environments, as well as foreign currency exchange. The company's ability to repatriate profits and transfer cash from its PRC subsidiaries to the parent company may be restricted by PRC regulations.
Additionally, the company's transformation and expansion into the energy storage market pose certain risks and challenges. The successful execution of its strategy will depend on the company's ability to secure necessary funding, establish strategic partnerships, and navigate the competitive landscape in the energy storage industry.
The company's lack of revenue generation in recent quarters and its accumulated deficit of $61.45 million as of September 30, 2024, also present financial challenges that need to be addressed as CREG continues its business transformation.
Conclusion
Smart Powerr Corp. (NASDAQ:CREG) is a company in transition, leveraging its expertise in energy-saving solutions to carve out a prominent position in the burgeoning energy storage market. With a strategic shift towards diversifying its offerings and capitalizing on the growing demand for sustainable energy technologies, CREG is poised to navigate the energy storage revolution with resilience and innovation.
While the company faces specific risks associated with its operations in the PRC and its ongoing transformation, its strong financial position and strategic focus on the energy storage market present promising opportunities for long-term growth and value creation for shareholders. The significant prepayment for energy storage battery systems demonstrates CREG's commitment to its new business direction.
However, investors should carefully consider the company's current lack of revenue generation and the challenges associated with its business transformation. The success of CREG's strategic shift will depend on its ability to effectively execute its plans in the energy storage market and return to profitability in the coming years.