CHANGZHOU, China, May 25, 2012 /PRNewswire-Asia/ -- China Kanghui Holdings (NYSE: KH) ("Kanghui" or the "Company"), a leading domestic developer, manufacturer and marketer of orthopedic implants in China, today announced its unaudited financial results for the first quarter of 2012.
First Quarter 2012 Highlights
Mr. Libo Yang, Chief Executive Officer of the Company, stated, "We are very pleased that Kanghui once again delivered another strong quarterly financial performance in the first quarter of 2012, marking the seven consecutive strong quarter since our IPO. We focused strategically on growing our brand in the important China market, and thereby continued to expand our market share along with our robust domestic revenue growth in the first quarter of 2012. During the quarter, we successfully launched a new spine product that is seeing very good market uptake, and we experienced significant growth in both our trauma and spine segments."
Ms. Sarah Wang, Chief Financial Officer of Kanghui, commented, "Our strong first quarter financial results reflect our ability to consistently execute on our growth strategy. Leveraging our strong cash position and consistently positive cash flows, we further enhanced our competitive advantages by expanding our professional management team, domestic distribution network, and development of a broader product line. We are excited with having a very promising new product pipeline that we intend to launch during the remainder of 2012 and beyond."
First Quarter 2012 Financial and Operating Results
Net revenue increased by 21.6% year-over-year to RMB82.7 million ($13.1 million)[2] in the first quarter of 2012 from RMB68.0 million in the corresponding period of the prior year. Net revenue from trauma products increased by 22.9% year-over-year to RMB51.6 million ($8.2 million) in the first quarter of 2012 from RMB42.0 million in the corresponding period of the prior year. Net revenue from spine products increased by 34.9% year-over-year to RMB25.9 million ($4.1 million) in the first quarter of 2012 from RMB19.2 million in the corresponding period of the prior year. Net revenue from OEM products decreased by 23.5% year-over-year to RMB5.2 million ($0.8 million) in the first quarter of 2012 from RMB6.8 million in the corresponding period of the prior year. Domestic sales of proprietary products increased by 28.5% year-over-year to RMB64.4 million ($10.2 million) in the first quarter of 2012 from RMB50.1 million in the corresponding period of the prior year, while international sales of proprietary products increased by 18.0% year-over-year to RMB13.1 million ($2.1 million) in the first quarter of 2012 from RMB11.1 million in the corresponding period of the prior year.
In the first quarter of 2012, cost of revenue increased by 24.9% year-over-year to RMB24.1 million ($3.8 million) from RMB19.3 million in the corresponding period of the prior year. Gross profit increased by 20.3% year-over-year to RMB58.6 million ($9.3 million) in the first quarter of 2012 from RMB48.7 million in the corresponding period of the prior year. Gross margin for the first quarter of 2012 was 70.9%, compared to 71.6% in the corresponding period of the prior year.
Selling expenses increased by 40.0% year-over-year to RMB9.8 million ($1.6 million) in the first quarter of 2012 from RMB7.0 million in the corresponding period of the prior year. General and administrative expenses increased by 36.5% year-over-year to RMB14.2 million ($2.3 million) in the first quarter of 2012 from RMB10.4 million in the corresponding period of the prior year. Research and development expenses increased by 106.7% year-over-year to RMB3.1 million ($0.5 million) in the first quarter of 2012 from RMB1.5 million in the corresponding period of the prior year.
Operating income increased by 5.7% year-over-year to RMB31.5 million ($5.0 million) in the first quarter of 2012 from RMB29.8 million in the corresponding period of the prior year. Operating margin decreased to 38.1% in the first quarter of 2012 from 43.8% in the corresponding period of the prior year.
Income tax expense in the first quarter of 2012 was RMB6.3 million ($1.0 million), representing an effective tax rate of 17.7%, compared to an income tax expense of RMB9.0 million in the corresponding period of the prior year.
Net income was RMB29.7 million ($4.7 million) in the first quarter of 2012, representing a year-over-year increase of 35.0% from RMB22.0 million in the corresponding period of the prior year. On a diluted per ADS[3] basis, the Company reported net income per diluted ADS of RMB1.15 ($0.18) in the first quarter of 2012, compared to a net income per diluted ADS of RMB0.87 in the corresponding period of the prior year.
Non-GAAP net income, which excludes share based compensation expenses, increased by 39.7% to RMB32.7 million ($5.2 million) from RMB23.4 million in the corresponding period of the prior year. The Company reported non-GAAP net income per diluted ADS of RMB1.26 ($0.20) in the first quarter of 2012, compared to a non-GAAP net income per diluted ADS of RMB0.93 in the corresponding period of the prior year.
During the first quarter of 2012, the Company had a weighted average diluted share count of 155.0 million shares (equivalent to 25.8 million ADSs), compared to 150.9 million shares (equivalent to 25.2 million ADSs) in the corresponding period of the prior year.
Balance Sheet
As of March 31, 2012, the Company had cash and cash equivalents of RMB324.2 million ($51.5 million), compared to RMB380.1 million as of December 31, 2011. As of March 31, 2012, the Company held short-term investments of RMB111.9 million ($17.8 million), compared to RMB77.0 million as of December 31, 2011.
Business Outlook
Mr. Yang added, "The strong first quarter provides us with good momentum for the remainder of 2012. Following our successful launch of a new spine product in the first quarter, we are launching one additional spine product in the second quarter, and two new trauma products and three new joint products in the second half of 2012. With our new joint products in place, we expect to kick start our reconstructive joint segment in the second half of 2012, which we believe can become a major revenue driver of the Company going forward."
The Company reiterates that it anticipates revenue for full year 2012 will be in the range of RMB392 million to RMB403 million, which represents year-over-year growth of 20% to 23%. The Company also estimates its full year 2012 non-GAAP net income to be in the range of RMB146 million to RMB153 million.
Non-Cash Share-Based Compensation Expenses Discussion
The Company recognized non-cash share-based compensation expenses of RMB3.0 million ($0.5 million) in the first quarter of 2012.
The Company classified these non-cash share-based compensation expenses in its costs of revenue, selling expenses, general and administrative expenses as well as in research and development expenses. The break out of these expenses per line item is provided in the financial tables attached to this press release.
The Company has provided a non-GAAP presentation of results which excludes the non-cash share-based compensation expenses. Please refer to the non-GAAP presentation provided in the appendix for a year-over-year comparison of non-cash share-based compensation expenses. The Company believes that this non-GAAP presentation is a helpful tool for the Company to plan and forecast future periods and both management and investors benefit from referring to such non-GAAP presentation in assessing the performance of the Company.
Conference Call
Kanghui will hold a corresponding conference call and live webcast at 8:00 a.m. ET (8:00 p.m. Beijing Time) on Friday, May 25, 2012 to discuss first quarter 2012 results and answer questions from investors. Listeners may access the call by dialing:
US Toll Free: | 1-866-519-4004 |
US Toll/International: | 1-718-354-1231 |
Hong Kong Toll Free: | 800-930-346 |
Hong Kong Toll: | 852-2475-0994 |
China Toll Free: | 800-819-0121 |
China Toll Free (Mobile): | 400-620-8038 |
Conference ID: | 76263126 |
A replay of the webcast will be accessible through June 1, 2012 on http://ir.kanghui.com or by dialing:
United States toll free: | +1-866-214-5335 |
US Toll/International: | +1-718-354-1232 |
Passcode: | 76263126 |
About China Kanghui Holdings
Founded in 1997, Kanghui is a leading domestic developer, manufacturer and marketer of orthopedic implants in China. The Company offers a wide array of proprietary orthopedic implant products in trauma and spine, and has an extensive nationwide network of distributors for its products in China, as well as in 29 other countries. Kanghui has strong research and development capabilities, focused on developing new proprietary products and product lines, and enhancing existing products and product lines. For more information, please visit www.kanghui.com.
Use of Non-GAAP Financial Measures
The Company has included non-GAAP financial measures in this press release. Non-GAAP financial measures are defined as GAAP gross profit excluding non-cash share-based compensation expenses, operating income excluding non-cash share-based compensation expenses, net income excluding non-cash share-based compensation expenses, net margin excluding non-cash share-based compensation expenses, basic earnings per share and per ADS excluding non-cash share-based compensation expenses, and diluted earnings per share and per ADS excluding non-cash share-based compensation expenses. The Company believes that management and investors benefit from referring to the non-GAAP financial measures in assessing the performance of the Company and when planning and forecasting future periods. These non-GAAP operating measures are useful for understanding and assessing underlying business performance and operating trends. The use of non-GAAP financial measures has limitations and readers should not consider non-GAAP financial measures in isolation from or as alternatives to consolidated financial metrics prepared in accordance with U.S. GAAP. Readers are encouraged to refer to the reconciliation of non-GAAP measures to GAAP measures included herein.
Safe-Harbor Statement
This press release contains statements of a forward-looking nature, including, among other things, the Company's unaudited operating results for 2012, new product introductions and the respective timetable, the demand for joint reconstruction products in China, future prospects of the Company and the ability for the Company to realize its business plans for 2012. These forward-looking statements are not historical facts but instead represent only the Company's belief regarding expected results and events, many of which, by their nature, are inherently uncertain and outside of the Company's control. The actual results and other circumstances of the Company may differ, possibly materially, from the anticipated results and events indicated in these forward-looking statements. Announced results for the first quarter of 2012 are preliminary, unaudited and subject to audit adjustment. Adjustments to the financial statements may be identified when audit work is performed for the year-end audit, which could result in significant differences from this preliminary unaudited financial information. These statements are made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. These forward-looking statements may include, but are not limited to, statements containing words such as "may," "could," "would," "plan," "anticipate," "believe," "estimate," "predict," "potential," "expects," "intends" and "future" or similar expressions. These forward-looking statements speak only as of the date of this press release and are subject to change at any time. These forward-looking statements are based upon management's current expectations and are subject to a number of risks, uncertainties and contingencies, many of which are beyond the Company's control that may cause actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. The Company's actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including the Company's beliefs regarding its strengths and strategies; the Company's ability to expand its international business; the Company's ability to develop and successfully market new products in China and internationally; the Company's current expansion strategy, including its ability to expand its manufacturing and research and development facilities and capabilities and the Company's future prospects, business development, results of operations and financial condition. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 20-F for the fiscal year 2011, as filed with the Securities and Exchange Commission on April 30, 2012, and are available on the Securities and Exchange Commission's website at www.sec.gov. For additional information on these and other important factors that could adversely affect our business, financial condition, results of operations, and prospects, please see "Risk Factors" that begins on page 6 of the Company's annual report for fiscal year 2011 and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission, which can be found on the Company's website at www.kanghui.com or at www.sec.gov.
Contact Information
China Kanghui Holdings Investor Relations Department
+1-888-321-2558
Asia Bridge Capital Limited
Carene Toh
+86-186 1835 6339
carene.toh@asiabridgegroup.com
China Kanghui Holdings | ||
Summary - First Quarter 2012 | ||
(RMB in thousands, except for per share data and per ADS data)
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Three Months Ended | ||
2011 | 2012 | |
Unaudited | Unaudited | |
Net revenue | 67,975 | 82,713 |
Gross profit | 48,716 | 58,572 |
Non-GAAP gross profit | 48,766 | 58,605 |
Operating income | 29,804 | 31,486 |
Non-GAAP operating income | 31,221 | 34,447 |
Net income attributable to China Kanghui Holdings | 21,969 | 29,709 |
Non-GAAP net income | 23,386 | 32,670 |
Earnings per share -basic | 0.16 | 0.21 |
Earnings per share -diluted | 0.15 | 0.19 |
Earnings per ADS -basic | 0.96 | 1.27 |
Earnings per ADS -diluted | 0.87 | 1.15 |
Non-GAAP earnings per share -basic | 0.17 | 0.23 |
Non-GAAP earnings per share -diluted | 0.16 | 0.21 |
Non-GAAP earnings per ADS -basic | 1.03 | 1.40 |
Non-GAAP earnings per ADS -diluted | 0.93 | 1.26 |
- Revenue By Product Category | ||
Trauma | 42,030 | 51,572 |
Spine | 19,194 | 25,893 |
OEM | 6,751 | 5,248 |
- Revenue by Business Sector | ||
Domestic | 50,109 | 64,316 |
International | 11,115 | 13,149 |
OEM | 6,751 | 5,248 |
China Kanghui Holdings | |||||
Consolidated Balance Sheets | |||||
(Expressed in thousands) | |||||
As of December | As of March 31, | ||||
RMB | RMB | US$ | |||
Audited | Unaudited | Unaudited | |||
Assets | |||||
Current assets: | |||||
Cash and cash equivalents | 380,092 | 324,202 | 51,481 | ||
Bills receivable | 5,873 | 3,052 | 485 | ||
Short-term investments | 76,998 | 111,862 | 17,763 | ||
Accounts receivable, net | 87,578 | 110,445 | 17,538 | ||
Inventories, net | 110,907 | 126,007 | 20,009 | ||
Prepayments and other current assets | 13,428 | 13,763 | 2,185 | ||
Deferred tax assets | 9,090 | 10,583 | 1,681 | ||
Amount due from related parties | 5,672 | 6,803 | 1,080 | ||
Total current assets | 689,638 | 706,717 | 112,222 | ||
Non-current assets: | |||||
Property, plant and equipment, net | 259,825 | 319,232 | 50,692 | ||
Intangible assets, net | 62,026 | 60,889 | 9,669 | ||
Prepaid land lease payments | 22,812 | 22,690 | 3,603 | ||
Goodwill | 155,341 | 155,341 | 24,667 | ||
Long-term investment | 25,204 | 25,190 | 4,000 | ||
Deposits for non-current assets | 4,731 | 6,331 | 1,005 | ||
Deferred tax assets | 2,444 | 2,465 | 391 | ||
Other assets, non-current | 257 | 135 | 21 | ||
Total non-current assets | 532,640 | 592,273 | 94,048 | ||
Total assets | 1,222,278 | 1,298,990 | 206,270 | ||
Liabilities and equity | |||||
Current liabilities: | |||||
Accounts payable | 19,278 | 21,220 | 3,370 | ||
Accrued expenses and other liabilities | 65,388 | 105,321 | 16,724 | ||
Income tax payable | 5,800 | 8,378 | 1,330 | ||
Uncertain tax positions | 4,197 | 4,152 | 659 | ||
Amount due to related parties | 1,137 | 1,312 | 208 | ||
Total current liabilities | 95,800 | 140,383 | 22,291 | ||
Non-current liabilities: | |||||
Deferred government grants | 6,409 | 6,290 | 999 | ||
Deferred tax liabilities | 14,857 | 14,666 | 2,329 | ||
Total non-current liabilities | 21,266 | 20,956 | 3,328 | ||
Total liabilities | 117,066 | 161,339 | 25,619 | ||
Equity: | |||||
Ordinary shares (par value of US$0.001 per share; 1,000,000,000 shares authorized as of December 31, 2011 and March 31, 2012 (unaudited); 140,401,842 shares issued and outstanding as of December 31, 2011 and 140,569,926 shares issued and outstanding as of March 31, 2012 (unaudited)) | 1,022 | 1,023 | 162 | ||
Additional paid-in capital | 912,972 | 916,316 | 145,505 | ||
Accumulated other comprehensive loss | (19,604) | (19,646) | (3,120) | ||
Statutory reserves | 45,417 | 45,417 | 7,212 | ||
Retained earnings | 156,387 | 186,096 | 29,551 | ||
Total China Kanghui Holdings shareholders' equity | 1,096,194 | 1,129,206 | 179,310 | ||
Non-controlling interests | 9,018 | 8,445 | 1,341 | ||
Total equity | 1,105,212 | 1,137,651 | 180,651 | ||
Total liabilities and equity | 1,222,278 | 1,298,990 | 206,270 | ||
China Kanghui Holdings | |||
Consolidated Statements of Comprehensive Income | |||
Expressed in thousands, except for number of shares and per share data | |||
Three Months Ended March 31, | |||
2011 | 2012 | ||
RMB | RMB | US$ | |
Unaudited | Unaudited | Unaudited | |
Net revenue | 67,975 | 82,713 | 13,134 |
Cost of revenue | (19,259) | (24,141) | (3,833) |
Gross profit | 48,716 | 58,572 | 9,301 |
Operating expenses | |||
Selling expenses | (6,988) | (9,760) | (1,550) |
General and administrative expenses | (10,422) | (14,207) | (2,256) |
Research and development expenses | (1,502) | (3,119) | (495) |
Operating income | 29,804 | 31,486 | 5,000 |
Interest income | 1,719 | 3,867 | 614 |
Government grants | 2,706 | 151 | 24 |
Other income | 145 | 485 | 77 |
Other expenses | (397) | (357) | (57) |
Foreign exchange loss | (3,008) | (171) | (27) |
Income before income taxes | 30,969 | 35,461 | 5,631 |
Income taxes | (8,982) | (6,324) | (1,004) |
Net income | 21,987 | 29,137 | 4,627 |
Net (income) loss attributable to non-controlling interests | (18) | 572 | 91 |
Net income attributable to China Kanghui Holdings | 21,969 | 29,709 | 4,718 |
Earnings per share | |||
Basic | 0.16 | 0.21 | 0.03 |
Diluted | 0.15 | 0.19 | 0.03 |
Shares used in earnings per share computation | |||
Basic | 136,828,869 | 140,440,413 | 140,440,413 |
Diluted | 150,864,399 | 155,007,387 | 155,007,387 |
Other comprehensive loss, net of tax[4] | |||
Foreign currency translation adjustment | (203) | (42) | (7) |
Total other comprehensive loss, net of tax | (203) | (42) | (7) |
Comprehensive income attributable to China Kanghui Holdings | 21,766 | 29,667 | 4,711 |
Share-based compensation charges incurred during the period related to: | |||
Cost of revenue | 50 | 33 | 5 |
Selling expenses | 112 | 136 | 22 |
General and administrative expenses | 1,207 | 2,762 | 439 |
Research and development expenses | 48 | 30 | 5 |
Total | 1,417 | 2,961 | 471 |
China Kanghui Holdings | |||
Reconciliations of Non-GAAP Results to GAAP Results of Operations | |||
(RMB in thousands, except for share, ADS, per share data and per ADS data)
| |||
Three Months Ended | |||
2011 | 2012 | ||
Unaudited | Unaudited | ||
Net revenue | 67,975 | 82,713 | |
Non-GAAP net income | 23,386 | 32,670 | |
Non-GAAP net margin | 34.4% | 39.5% | |
Share-based compensation | (1,417) | (2,961) | |
GAAP net income | 21,969 | 29,709 | |
GAAP net margin | 32.3% | 35.9% | |
Non GAAP earnings per share -basic | 0.17 | 0.23 | |
Non GAAP earnings per share -diluted | 0.16 | 0.21 | |
Non GAAP earnings per ADS -basic | 1.03 | 1.40 | |
Non GAAP earnings per ADS -diluted | 0.93 | 1.26 | |
GAAP earnings per share -basic | 0.16 | 0.21 | |
GAAP earnings per share -diluted | 0.15 | 0.19 | |
GAAP earnings per ADS -basic | 0.96 | 1.27 | |
GAAP earnings per ADS -diluted | 0.87 | 1.15 | |
Shares used in computation of: | |||
Basic earnings per share | 136,828,869 | 140,440,413 | |
Diluted earnings per share | 150,864,399 | 155,007,387 | |
Basic earnings per ADS | 22,804,812 | 23,406,736 | |
Diluted earnings per ADS | 25,144,067 | 25,834,565 | |
Non-GAAP operating income | 31,221 | 34,447 | |
Non-GAAP operating margin | 45.9% | 41.6% | |
Share-based compensation | (1,417) | (2,961) | |
GAAP operating income | 29,804 | 31,486 | |
GAAP operating margin | 43.8% | 38.1% | |
Non-GAAP gross profit | 48,766 | 58,605 | |
Non-GAAP gross margin | 71.7% | 70.9% | |
Share-based compensation | (50) | (33) | |
GAAP gross profit | 48,716 | 58,572 | |
GAAP gross margin | 71.7% | 70.8% | |
[1] All non-GAAP measures exclude share-based compensation expenses. For further details on non-GAAP measures, please refer to the reconciliation tables and a detailed discussion of the Company's use of non-GAAP information set forth elsewhere in this press release.
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[2] This announcement contains translations of certain Renminbi ("RMB") amounts into US dollars ("$") at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to US dollars as of and for the quarter ended March 31, 2012 were made at the noon buying rate of RMB6.2975 to $1.00 on March 30, 2012 in the City of New York for cable transfers in Renminbi per US dollar as certified for customs purposes by the Federal Reserve Bank of New York. The Company makes no representation that the Renminbi or US dollar amounts referred to in this press release could have been or could be converted into US dollars or Renminbi, at any particular rate or at all.
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[3] Each of the Company's American Depositary Shares ("ADS"), which are traded on New York Stock Exchange, represents six of the Company's ordinary shares.
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[4] Beginning in the first quarter 2012, in accordance with Accounting Standards Update 2011-05, the Company is presenting other comprehensive income and its components in the unaudited condensed consolidated Statement of Comprehensive Income. Other comprehensive income mainly consists of currency translation adjustments relating to translating some of our subsidiaries' financial statements from their functional currency to our reporting currency, which is in the United States dollar. The functional currency of our main subsidiaries in China is the RMB.
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