Guanwei Recycling (GPRC): A 'New China' trade

by Keith Fitz-Gerald, editor The New China Trader

Have you ever wondered where all your recyclable plastic junk actually ends up?

Based on statistics, there is a good chance your plastic water bottle ends up on a ship headed for China, which is the recipient of roughly 70% of the world's exported recyclable plastic.

In addition to recycling 70% of the world's waste plastic, China recycles about nine million tons of domestic waste as well (based on 2008 statistics). And that makes China the world's largest recycled plastics market.

Even in the face of a global recession, plastics consumption in China is far outpacing domestic production. Recycled plastics have helped to fill this gap, accounting for 24% of the plastics consumed in China in 2008 and 2009.

Guanwei Recycling (GPRC) is the largest producer of recycled low-density polyethylene (LDPE) in China, supplying nearly 300 customers in 10 different industries, including building and construction products.

GPRC is one of the few recycling operations in China licensed by the Chinese government.

To keep up with the German certification, Guanwei's production process and waste disposal are regularly monitored to ensure they meet the highest "green" standards - and that's important, because it demonstrates the company is operating at an internationally recognized level of clean efficiency.

The company receives the majority of its recyclable plastic waste from Germany and other European countries (like Holland and Spain).

That means the plastic meets Western quality standards. This plastic comes directly from the source - cutting out the need for costly middlemen - resulting in lower production costs.

In 2009, the company increased sales by roughly 86%, to $47.26 million, compared to $25.43 million in 2008. That's even better than the 61% sales increase the company achieved from 2007 to 2008.

On May 17th, 2010, the company announced net income in its first quarter ending March 31st, 2010, increased by 73.4%, to $2,204,604, compared with $1,271,586 in the same period a year ago.

Recently, I had the opportunity to meet face-to-face with Chen Min, CEO of Guanwei, in San Francisco at the Global Hunters Conference. I really liked him and found him to be a very smart manager with a great grasp of his company and his industry.

By most metrics, GPRC is a micro-cap, with 20 million shares outstanding and a market cap of roughly $76.6 million. Also, the company is pretty thinly traded, so we're going to keep a close eye on the stock.

Based its market cap and volume, GPRC represents one of the most speculative positions we've recommended in some time - but it has all the characteristics of a company poised to profit from the factors we're following (growing GDP, consumer spending, and government initiatives).

Because the company is speculative, I must remind you not to do anything crazy, like plop all of your money down on the position.

As always, follow the time-tested investment strategy of only investing what you can afford to lose. With that in mind, we recommend GPRC under $4.36 and plan on holding for 12 months.

There's no doubt in my mind that China's plastic consumption (and subsequent use of recycled plastic) will be increasing right alongside of the country's GDP - and more importantly, Chinese consumers. And we'll be there with GPRC to profit all the way.

Learn more about this financial newsletter at Keith Fitz-Gerald's The New China Trader.