SmartHeat Inc. (HEAT)

SmartHeat Inc. designs, manufactures, sells, and services plate heat exchangers (PHE) and related systems used in the industrial, residential, and commercial markets in the People’s Republic of China. The company’s products and systems are used in various applications, including energy conversion for heating, ventilation, and air conditioning; and industrial use in petroleum refining, petrochemicals, metallurgy, food and beverage, and chemical processing.

Offering a full line of products customizable to customer specification, the company sells PHEs under the Taiyu and Sondex names, and PHE units under the Taiyu name. SmartHeat markets its products through its sales force, as well as through a network of 26 national distributors. Notable clients of SmartHeat include Motorola, Dalkia, Veolia, BeijingInternationalAirport, Sinopec, and ACIC Air and many others.

In just 5 years of operations, the company’s team of engineers and researchers has developed 6 key national patents used across various product lines. SmartHeat’s PHE Units help industrial and commercial users save energy, decrease costs, and control temperatures, whether for industrial processing or for commercial and home use, while helping China meet its 21st century energy needs.

Currently trading at a P/E of only 3.5 and P/S of 0.32, the company is considered severely undervalued when compared to other publicly traded companies in the same industry. Also notable, SmartHeat’s market price is far below the company’s book value per share of $3.92 and the average analyst price target is more than triple the current stock price.

Key statistics (9/6/11):

Market cap: $33.19 Million
P/E Ratio: 3.5 versus industry average of 14.7
P/S Ratio: 0.32 versus industry average of 1.34
Price/Cash Flow Ratio: 4.20 versus industry average of 10.00

Debt/Equity Ratio: 0.11 versus industry average of 0.53
Current Ratio: 4.9 versus industry average of 2.0
Quick Ratio: 3.5 versus industry average of 1.3
Book Value/Share: $3.92 versus current market price of $0.86

Return on Equity: 5.7% versus industry average of 20.2%
Return on Assets: 4.8% versus industry average of 8.7%
Return on Capital: 5.6% versus industry average of 11.9%
Inventory Turnover: 2.3 versus industry average of 6.1