China Clean Energy Inc (for Facebook page) June 1, 2011

China Clean Energy Inc. (OTC QB: CCGY)

(VIEW IN FULLSCREEN MODE)A US-listed, developer, manufacturer, and distributor of specialty chemicals and biodiesel, made

from renewable resources, doing business in the People’s Republic of China (“PRC”).

A well-known, public, US-based company in the same business: DOW Chemical (NYSE: DOW)

Website: http://www.ChinaCleanEnergyInc.com

CFO Contact: [email protected]

IR and Media Contact: [email protected]

Facebook: http://www.facebook.com/ChinaCleanEnergyInc.CCGY

Presentation By: William C. Steppacher. Jr.

Last Updated: June 1, 2011

http://www.chinacleanenergyinc.com/

mailto:[email protected]


http://www.facebook.com/ChinaCleanEnergyInc.CCGY


What does China Clean Energy (CCE) do? What do they sell? How do they make money?

CCE is a specialty chemicals company, similar to DOW Chemical, except that they are based in China and sell most of their products in China, and they develop their products through proprietary and patented processes using

clean, renewable resources. Their products such as monomer acid, dimer acid, polyamide resins, and polyamide hot melt adhesive are vital to many industrial and manufacturing processes. They also sell biodiesel, another type

of specialty chemical.

Otherwise known as the feedstock, the types of renewable resources that can be used to produce the chemicals are numerous. They include waste vegetable oil, waste grease, palm oil waste, cotton seed waste, and many

others. The company makes use of waste that otherwise would be discarded.

Unlike many clean tech companies, CCE, which was founded in 1995, is profitable and enjoys robust margins, real assets, and little debt.


•Revenue totaled $18.1 million, up 271% from $4.9 million for the fourth quarter in 2009

•Gross profit totaled $4.3 million, up 378% from $0.9 million in the fourth quarter of 2009

•Gross margin increased to 23.7%

•Operating income was $3.8 million, compared to $0.3 million in the fourth quarter 2009

•Adjusted net income (Non-GAAP) was $2.9 million, or $0.09 per fully-diluted share for Q4

Fourth Quarter 2010 Highlights

•Total revenue increased to $59.0 million, up 270% from $15.9 million for the full year 2009

•Gross profit totaled $12.2 million, up 260% from $2.9 million for the full year 2009

•Gross margin was 20.7%, up from 18.5% for the full year 2009

•Operating income was $10.2 million, up from $0.9 million for the full year 2009

•Adjusted net income (Non-GAAP) was $7.8 million, or $0.25 per fully-diluted share

•Cash and cash equivalents totaled $13.6 million at year end

Fiscal Year 2010 Highlights

China Clean Energy Inc. (OTC QB: CCGY)•1. Q1 2011 Results will be BETTER than the $0.09 reported for Q4

•2. They will acquire a feedstock supplier or suppliers in the second half of 2011 w/CASH ON HAND and this will increase gross margins by 3-5%

•3. They expect 2011 EPS of $0.36...this doesn't take into account a feedstock supplier acquisition or an increase in production capacity

•4. They plan on uplisting to the Amex or NASDAQ

•5. They are actively seeking and interviewing new independent directors which are required in order to list on senior exchange

•6. Because they are a clean tech company, they will likely receive a tax rate reduction from 25% to 15% for 2011 (this isn't included in the EPS forecast either)

Highlights from the Q4 2010 and Fiscal Year

2010 Conference Call on March 30, 2011


•Revenue totaled $19.0 million, up 77% from $10.7 million for Q1 2010

•Gross profit totaled $4.3 million, up 192% from $1.5 million in Q1 2010

•Gross margin was 22.9%, compared to 13.8% in the same period in 2010

•Operating income was $3.6 million, up 260% from $1.0 million in the Q1 2010

•Adjusted net income (Non-GAAP) was $2.7 million, or $0.09 per fully-diluted share for the first quarter of 2011, compared to $0.8 million or $0.03 per fully- diluted share in the comparable period of 2009.

•As of March 31, 2011, China Clean Energy had $17.7 million in cash, up from $13.7 million as of December 31, 2010. The Company also had approximately $18.5 million in working capital and $6.0 million of bank debt. Stockholders' equity as of the end of Q1 stood at $42.7 million, or approximately $1.36 per share.

First Quarter 2011 Highlights

China Clean Energy Inc. (OTC QB: CCGY)•1. CCGY reported $0.09 EPS for Q1 and reiterated guidance of $0.36 a share for FY2011

•2. CCGY announced the authorization of a $1Million Share Repurchase Program

•3. The appointment of two new independent directors should be announced by end of Q2

•4. Once the new directors are appointed, the company will qualify to list on a senior exchange in all areas except for the stock price.

•5. The company will likely receive research coverage from Global Hunter Securities and/or Roth Capital in the near future.

•6. They should complete the acquisition of a feedstock supplier in Q3 (w/cash on hand).

•7. After a supplier acquisition, they will focus on increasing their production capacity. They can add 5k tons of (annual) SC production for $2Million. At their existing structure, they can add 10k-20k tons. 1/3 of their land is currently unused, which could house a 50k ton capacity building.

Highlights from the Q1 2011 Conference Call on

May 16, 2011

China Clean Energy Inc. (OTC QB: CCGY)•Acquire an upstream feedstock supplier or suppliers in order to prevent supply disruptions, gain pricing power over their other feedstock suppliers, and increase gross margins 3-5%. They are also acquiring a feedstock supplier in anticipation of expanding capacity. The acquisition(s) will be funded with cash-on-hand which prevents dilution and shows management’s commitment to shareholders and their belief that the stock is significantly undervalued. (An acquisition wasn’t factored into their FY 2011 Guidance of $0.36)

Plans for 2011: Acquiring an upstream feedstock

supplier or suppliers

China Clean Energy Inc. (OTC QB: CCGY)•As I mentioned before, the reasons and benefits of acquiring a feedstock supplier are numerous. The effect on the bottom line should be immediate. Based on management stating that a supplier acquisition would increase gross margins by 3-5% and the likelihood that their tax rate is reduced from 25% to 15% (they applied for a clean tech tax rate for their new plant...their old plant was approved before)...I think the quarterly run rate will be around 12.5 cents.

I kept revenue the same (though prices should increase), input $800k for operating expenses, and increased the overall gross margin by 5%. I expect that the gross margin is going to increase quarter over quarter anyway due to an increase in production of their higher margin products, so I think 5% is fair and maybe even conservative. I'm really factoring in a 3% benefit from the supplier acquisition and a 2% benefit from the change in product mix.

Effects on the EPS after acquiring an upstream feedstock supplier (part

1 of 2)

China Clean Energy Inc. (OTC QB: CCGY)•The quarterly run rate of 12.5 cents assumes that specialty chemical production remains at or near their full production capacity of 10k tons a quarter and that they receive a reduced tax rate of 15% for 2011. It also assumes biodiesel production remains at 2.5k tons a quarter which is 20% of their 12.5k ton quarterly biodiesel production capability. If they were producing 12.5k tons of biodiesel a quarter (running at full capacity), the quarterly run rate would be at a minimum of 15 cents based on the current price per ton of biodiesel ($824) and its gross margin (12.2%). So, the point is that any increase in biodiesel production will increase the EPS further and that there is easily another 3 cents worth of earnings (a quarter) possible with their current production capabilities. But, I think 12.5 cents is a good baseline for what can be expected, after a supplier acquisition, if SC and biodiesel production were to remain the same as in Q1.

Effects on the EPS after acquiring an upstream feedstock supplier (part

2 of 2)

China Clean Energy Inc. (OTC QB: CCGY)•Expand capacity at their existing plant and/or start construction of a new plant in order to take advantage of the ever-expanding specialty chemical market growing at 15% per annum, and the growing acceptance and push for clean and renewable fuels such as biodiesel. The company won’t raise money at a stock price this undervalued, but they are generating significant cash every quarter adding to the approximately $18 Million on their balance sheet, and there are 6.2 Million warrants exercisable at $2 which would immediately inject $12.4 Million into the company and certainly help it act on its growth plans quicker. The company also has very strong banking relationships and access to credit. The importance of this cannot be understated. I will address this further in the coming slides, but I will first discuss their expansion opportunities, cost, and expected return on capital.

Plans for 2011: Expand capacity at their existing

plant and/or start construction of a new

plant

China Clean Energy Inc. (OTC QB: CCGY)•One of the reasons the company is acquiring a feedstock supplier is to position themselves for future expansion. The company’s specialty chemical production is now running at full capacity (10k tons a quarter). The company was able to expand their sales from 2.5k tons a quarter to now 10k tons a quarter, in less than a year. They are constantly developing new products as well, and with specialty chemical demand growing at 15% a year in China, it shouldn’t be difficult to expand their sales quite quickly provided that their production can meet the demand. From my discussions with management, the company can add 10k-20k tons of (annual) specialty chemical production at their existing facility. The cost would be about $2Million per 5k tons. Now let’s examine the numbers a little further… Every 10k ton increase in capacity and production would add roughly 3 cents to the bottom line based on the shares outstanding remaining at 31.5M and assuming a 15% tax rate and the increased margins from a supplier acquisition.

Current Expansion Opportunities, Cost, and

Expected Return on Capital (part 1 of 2)

China Clean Energy Inc. (OTC QB: CCGY)•The production facility that CCGY currently has takes up two-thirds of the available land at their plant. The other third of the land could be used to house a new 50k ton specialty chemical or biodiesel facility. While it will take some time to construct a new facility, the benefits of it being right next to their existing facility are quite enormous. And if they choose to first max out their production capacity at their current facility by adding 10k-20k tons, this will be able to be done fairly quickly and cheaply. Again, $2M per 5k tons. Whether expansion or future facilities will be funded from cash from operations, bank debt, or the money generated from the warrants at $2 a share, who knows, but I’m guessing it’ll be a combination of the three. As far as the warrants go, at the end of Q2 2011, they will have 1.5 years left to be exercised. If they are exercised, and assuming the money is used for expansion, the roughly $12M would add a minimum of 30k tons of production and 9 cents in earnings a quarter. Exercising the warrants would add ~20% to the shares outstanding and thus reduce the overall EPS by ~20%, but the point is that the warrants would still be accretive to earnings, if they are exercised.

Current Expansion Opportunities, Cost, and

Expected Return on Capital (part 2 of 2)

China Clean Energy Inc. (OTC QB: CCGY)•No shareholder wants to see a company raise money by selling stock especially when the shareholder believes the stock is undervalued and the company keeps touting how undervalued its stock is. You have to ask yourself, if the company’s earnings are real and the stock really is undervalued, why would they go and sell stock. Why not go and take on debt or use their cash to grow? Yes, it’s going to become harder and harder to get credit from a Chinese bank, and I’m sure there are healthy companies that have trouble getting credit, but if a Chinese company that is seemingly wildly profitable can’t get credit from a Chinese bank, you should start questioning what’s really going on. Maybe the books they’d have to show to a Chinese bank tell a different story than what’s being reported to investors? I can show example after example of companies that issue shares left and right as if their stock is an ATM. Now maybe they aren’t very shareholder friendly and don’t care about diluting themselves and stockholders, but I’ve seen these same companies then continue to tout how undervalued their stock is…doesn’t make sense does it?

The Importance of Growing Using Cash

Generated from Operations and Bank

Debt (part 1 of 2)

China Clean Energy Inc. (OTC QB: CCGY)• CCE has a very clean capital structure. They haven’t issued stock, except for executive stock options, since a PIPE almost 3.5 years ago. The company doesn’t need to issue stock to grow or when it’s in need of capital. CCE has very strong banking relationships and access to credit, and their Chairman and CEO has personally guaranteed all of their loans, so I think this is a very good indication of the health of this company. As a long-term holder of this stock, I hope and expect that in the future they continue to grow using internally generated cash, and when necessary, bank debt (or other forms of corporate debt), as they have been doing, rather than issuing stock and diluting shareholders.

The Importance of Growing Using Cash

Generated from Operations and Bank

Debt (part 2 of 2)

China Clean Energy Inc. (OTC QB: CCGY)• Just as if you’d have to question why a company would sell stock if its earnings were real and its stock really was undervalued, you also have to question why a healthy and growing company wouldn’t start a repurchase program if it could buy shares in itself at a 1 or 2 P/E. CCE recently announced a $1M Share Repurchase Program… Normally share buybacks aren’t a staple of fast-growing, small companies. But, some unique circumstances have sent every stock in the sector to extraordinary low multiples, so at a P/E this low and undervalued, I think it’s a good use of some of their cash. And it helps put a bid in the stock, reassures shareholders, and should lead to research coverage from Global Hunter Securities.

$1M Stock Repurchase Program

China Clean Energy Inc. (OTC QB: CCGY)•Uplist to a senior exchange such as the AMEX or Nasdaq. Uplisting to a senior exchange would increase awareness of the stock and open the stock up for investment by a lot of passive money and institutional investors that are prevented from owning shares in an OTC stock. This would certainly expand the P/E multiple. Management is actively seeking and interviewing persons to fill two independent director positions on their board. An independent board is one of the requirements for listing on a senior exchange. They had filled these 3 positions in January 2011, but two of the directors resigned abruptly due to factors unrelated to the company. The first resigned due to a severe illness, and the second, Mr. Mudd, resigned due to the problems at ShengdaTech (NASDAQ: SDTH), a company where he is the lead independent director. Expect to see the two independent director positions to be filled by the end of Q2. Once these positions are filled, the company will qualify to list on a senior exchange in all areas, except for the stock price.

Plans for 2011: Uplist to the AMEX or Nasdaq


•Stock Price as of 5/31/2011: $0.65

•P/E Ratio, based on the last four quarters EPS ($0.30): ~2.15

•Forward P/E Ratio, based on FY 2011 EPS company-issued guidance ($0.36): ~1.8


•Stock Price as of 5/31/2011: $36.13

•P/E Ratio, based on the last four quarters EPS ($1.85): 19.52

•Forward P/E Ratio, based on FY 2011 EPS analyst expectations ($2.57): ~15

Dow Chemical (NYSE: DOW)


A Note About the AuditorSince looking at the auditor and its reputation is one of the first things you

should do when considering investing in a small, US-listed Chinese stock, we thought it was important to point out that CCE has one of the top-rated auditors in the world. Friedman LLP, (friedmanllp.com) is the auditor for China Clean

Energy, Inc. Recently, Friedman LLP ranked number three among auditors serving Chinese-based SEC registrant companies, according to an analysis by Audit Analytics published in the February 18, 2011 issue of Accounting News Report (ANR). The analysis was based on registrant filings. According to the

analysis, Friedman LLP precedes Big Four firms KPMG LLP and Ernst & Young LLP, and follows Deloitte & Touche and PricewaterhouseCoopers LLP. Keep in mind there are 100’s of auditors of SEC registrant companies, and many Chinese-

based companies use auditors that aren’t even ranked in the top 100.


A Note About the ValuationWe’ve shown how undervalued CCE is compared to a large cap, US-listed, well-known

company in the same business, Dow Chemical. But when you compare it to fast growing, Chinese-listed and based, small caps, it’s even more so.

The average P/E for the 500 Chinese companies that make-up the China Smallcap Index, the CSI Smallcap 500 Index (SH000905:IND) , is 28.3. CCE is trading right around a 2 P/E! Where would the stock be trading if it had a 28 P/E? Right around $7! What if you put

that multiple on their estimated FY 11 EPS of $0.36? Right around $10! The only difference is that CCE is US-listed and not listed on an Asian exchange. Yes…small,

unknown, US-listed Chinese companies have generally traded at a modest discount to their Asian-listed peers, in recent years. But, that discount is small and decreasing, and

should continue to decrease as US investors move more and more money back into equities and look outside of the US for growth.


A Note About the Valuation (continued)Every US-listed Chinese stock that went public through a reverse merger is facing

increased scrutiny from investors. There is a shadow of doubt overhanging the earnings reports of every one of these companies due to the various forms of fraud that have

occurred within many of them. This has caused the entire sector to experience a drop in valuation. Many of these companies are now trading at very low multiples. But, you

have to ask yourself, what is going to happen when the bad apples are shaken out and this cloud of doubt is lifted? Are the good companies going to start trading again at a

more traditionally normal valuation? I think so… The trouble is obviously finding these companies, but I think we have one here. They have done everything right and

continue to do so. Buying stock in a solid company in March 2009 was a great move. You had a chance to buy stock in great companies at a significant discount to where

they should be trading. I think you have the same opportunity here.


A Note About Their Listing on the OTC QBThere has been some confusion regarding their listing status due to the change in the suffix from CCGY.OB to CCGY.PK. They are

NOT listed on the Pink Sheets. They are listed on the OTC QB exchange which is a market tier for U.S. listed companies that are in compliance with their SEC reporting obligations. This change was made on Feb. 23, 2011. For years, .PK was a sign of a

speculative, non-compliant company, or maybe a company that had just been delisted, but now there are three different tiers that companies can be in with a .PK suffix. So, in order to prevent the negative reaction usually associated with a change to a .PK suffix, the company issued a press release on March 2, 2011 to try and prevent any misunderstandings. Because new investors may still

automatically think it’s a Pink Sheet stock when they see a .PK suffix, I thought it was best to point this out. The entire press release can be found on their website (ChinaCleanEnergyInc.com). An excerpt is below:

“China Clean Energy Inc. (OTC QB: CCGY)…announced today that the Company began trading on the OTCQB, a marketplace developed by the OTC Markets Group, as of February 23, 2011 under the ticker symbol CCGY.

The OTC Markets Group is a leader in using technology to bring positive changes to the OTC market, and many broker-dealers are now exclusively using its platform to quote OTC securities. In the past week certain market makers have stopped issuing quotes on the OTC Bulletin Board in favor of the OTCQB. As a result of the lack of quotation activity on the OTCBB, China Clean Energy is now quoted on the OTCQB. The OTCQB is a market tier for U.S. listed companies that are in compliance with

their SEC reporting obligations. The Company wishes to confirm that China Clean Energy remains current with the Securities and Exchange Commission reporting requirements and that its fillings can

be found at http://www.sec.gov.”

For accurate price and volume information regarding China Clean Energy on the OTCQB marketplace please visit: http://www.otcmarkets.com/stock/CCGY/quote

http://www.sec.gov/

http://www.otcmarkets.com/stock/CCGY/quote


Why Invest in this Company for the Long-Term?

This is an opportunity to purchase shares in a vastly undervalued, quickly growing, proven and highly profitable company that benefits from high oil prices and the push towards clean and renewable

products. (And they will even benefit from a strengthening Yuan)

Everyone knows that the 21st century will belong to China, and this stock gives you an opportunity to invest in China and its rapid growth yet still be protected by the strict regulations and reporting

requirements of the US markets. Quarter after quarter they continue to prove themselves and exceed expectations. The growth has been fast and stable and there is no reason to expect that to change in the near future. The chemicals market in China is expanding rapidly as industrial and manufacturing growth continues at a breakneck pace. This company is perfectly positioned to take advantage of it. The stock is off-the-radar, but that will certainly change when they move to a senior exchange, if not

sooner.


Investment Thesis:

Tremendous Growth Potential

Vastly Undervalued

Top-Rated Auditor

Plans to List on the Nasdaq or AMEX

Benefits from China’s Robust Domestic Growth

Benefits from High Oil

Benefits from a Strengthening Yuan and Even Inflation

Benefits from a Push Towards Clean Energy and Products

Sound Expansion and Growth Plans

Numerous Catalysts for Stock Price Appreciation

Invest in China’s Growth with the Peace of Mind of Buying a US Security

Little Debt, Strong Balance Sheet

Trading Well Below Book Value

China Clean Energy Inc. (OTC QB: CCGY)•CCE’s TTM EPS as of the end of Q1 2011 is $0.30. They are now comfortably earning $0.09 a quarter. CCE is forecasting 2011 EPS of $0.36 which I believe will be easily attained.

•Assuming a feedstock supplier acquisition happens in Q3, and a 15% tax rate, I believe that in Q4 we might see a 12 or 13 cent quarter. Any increase in biodiesel production will increase this further. I don’t see any reason why 12-13 cents shouldn’t be the baseline starting in Q4, or Q1 2012 at the latest.

•Once the company completes a supplier acquisition, they have stated that they plan on expanding their specialty chemical capacity. If they first expand at their existing facility, I believe they can add at least 10k tons of capacity by the end of the year or sometime in Q1 2012. With the numbers I was presented, 10k tons should cost around $4M which could be funded with cash on hand or bank debt. I anticipate every 10k tons in additional capacity to be worth 3 cents a quarter, after the feedstock supplier acquisition and with 31.5M shares outstanding. Because of this, I think 15 cent quarters will be attainable early in 2012.

EPS Estimates


You have questions…we have answers!

Join the discussion on our Facebook page. Feel free to post your questions or comments on our “Wall” or on the newly created “Discussion Board” found amongst the other tabs in the

upper left of our page.

You can also contact management directly by emailing the CFO at [email protected] . Unlike the CFOs of many US-listed Chinese stocks, he is very accessible and is quick to respond to any questions. He is NY-based, so large and

institutional investors would be well-served to contact him and schedule a face-to-face meeting.

This brief presentation was put together by William C. Steppacher, Jr. a shareholder in the company. You can also view the company’s corporate presentation by visiting their website at ChinaCleanEnergyInc.com. Previous Press Releases, Earnings Releases, Conference Calls,

and Transcripts, are also available on the company’s website.


Economy & Finance

China Clean Energy Inc (for Facebook page) June 1, 2011