China Biodiesel makes biodiesel from waste oil. This waste oil is collected by suppliers and includes old cooking oil, expired oil from grain depots and waste oil from animal fats. The Chinese government is keen that the waste oil is put to a good use. China Biodiesel has its own technology to convert waste oil to biodiesel. Its competitors use new vegetable oil to produce biodiesel. Once the waste oil is processed the resulting biodiesel is sold to chemical companies or to distributors which supply petrol stations in the area.
Biodiesel is sold at a 5% discount to standard diesel. Although the standard diesel price is kept below the world market rate by the authorities it is rising and this has a beneficial effect on China Biodiesel’s revenues.
Although the majority of revenues come from biodiesel around one-quarter ofrevenues come from materials that are left over which are sold to make phosphate-free detergents and toxin-free plastic packaging.
In the year to December 2005 China Biodiesel generated revenues of RMB 68m (?4.6m) and profit before tax of RMB 27m (?1.84m). Because the business is deemed to be a foreign owned enterprise it won’t pay any tax in 2006 and 2007 and will probably pay a reduced rate after that. House broker Evolution Securities estimates that profits will rise to ?2.6m on revenues of ?8.4m in 2006. That assumes an increase in the amount of biodiesel sold from 17,000 tonnes to 27,000 tonnes.