omniture

China Kanghui Holdings Reports Second Quarter 2011 Financial Results

2011-08-16 04:07 942

CHANGZHOU, China, August 16, 2011 /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 financial results for the second quarter of 2011.

Second Quarter 2011 Highlights

  • Total net revenue for the second quarter of 2011 increased by 40.8% year-over-year to RMB81.8 million from RMB58.1 million for the second quarter of 2010.
  • Gross profit for the second quarter of 2011 increased by 49.5% year-over-year to RMB58.0 million from RMB38.8 million for the second quarter of 2010.
  • Operating income for the second quarter of 2011 increased by 25.6% year-over-year to RMB30.4 million from 24.2 million for the second quarter of 2010.
  • Net income for the second quarter of 2011 increased by 0.7% year-over-year to RMB27.9 million from RMB27.7 million for the second quarter of 2010.
  • Non-GAAP (1) net income for the second quarter of 2011 decreased by 4.5% year-over-year to RMB29.4 million from RMB30.8 million for the second quarter of 2010.

Mr. Libo Yang, the Company's Chief Executive Officer, stated, "We are very delighted China Kanghui Holdings again exceeded expectations and delivered another strong quarterly financial performance in the second quarter of 2011. We experienced strong growth across all product segments and markets, and in our important China domestic market, we continue to grow our brand and market share. I'm also very pleased with the integration process of our acquisition and strategic partnership, and I'm confident that Wei Rui Li and Consensus will contribute to our leadership position in joint reconstruction in China as they are expected to allow us to launch a full line of reconstruction products over the next three years."

Ms. Sarah Wang, Kanghui's Chief Financial Officer, said, "Our second quarter performance was primarily driven by strong domestic and OEM sales, as well as by a noticeable gross margin expansion. Benefiting from our strong gross profits and continued strong demand for our products, we took the opportunity to aggressively reinvest into our business and our people. We exceeded expectations in the first half of 2011, and we feel confident about our business and growth opportunities for the remainder of the year."

Second Quarter 2011 Financial and Operating Results

Net revenue increased by 40.8% to RMB81.8 million ($12.6 million) in the second quarter of 2011 from RMB58.1 million in the second quarter of 2010. Net revenue from trauma products increased by 23.7% to RMB47.5 million ($7.3million) from RMB38.4million in the corresponding period of the prior year. Net revenue from spine products increased by 74.2% to RMB26.3 million ($4.1 million) from RMB15.1 million in the corresponding period of the prior year. Net revenue from OEM products increased by 73.9% to RMB8.0 million ($1.2 million) from RMB4.6 million in the corresponding period of the prior year. Domestic sales of proprietary products increased by 47.3% year over year to RMB57.6 million ($8.9 million) from RMB39.1 million, while international sales of proprietary products increased by 12.6% year over year to RMB16.1 million ($2.5 million) from RMB14.3million.

In the second quarter of 2011, cost of revenue increased by 23.4% to RMB23.7 million ($3.7 million) from RMB19.2 million in the corresponding period of the prior year. Gross profit increased by49.5% to RMB58.0 million ($9.0 million) in the second quarter of 2011 from RMB38.8 million in the corresponding period of the prior year. Gross margin for the second quarter of 2011 was 71.0%, compared to 66.9% in the second quarter of 2010. Selling expenses increased by 107.0% to RMB11.8 million ($1.8 million) in the second quarter of 2011 from RMB5.7 million in the corresponding period of the prior year. General and administrative expenses increased by 83.1% to RMB14.1 million ($2.2 million) in the second quarter of 2011 from RMB7.7 million in the corresponding period of the prior year. Research and development expenses increased by 50.0% to RMB1.8 million ($278,000) in the second quarter of 2011 from RMB1.2 million in the corresponding period of the prior year.

Provision for income taxes in the second quarter of 2011 was RMB3.8 million ($0.6 million), representing an effective tax rate of 12.0%, compared to a tax benefit of RMB3.0 million in the corresponding period of the prior year.

Operating income increased by 25.6% to RMB30.4 million ($4.7 million) in the second quarter of 2011 from RMB24.2 million in the corresponding period of the prior year. Operating margin decreased to 37.2% in the second quarter of 2011 from 41.7% in the corresponding period of the prior year.

Net income was RMB27.9 million ($4.3 million) in the second quarter of 2011, up 0.7% from RMB27.7 million in the second quarter of 2010. On a diluted per ADS (2) basis, the Company reported net income per diluted ADS of RMB1.09 ($0.17) in the second quarter of 2011, compared to a net income per diluted ADS of RMB0.03 in the corresponding period of the prior year. Non-GAAP net income, which excludes share based compensation expenses, decreased by 4.5% to RMB29.4 million ($4.5 million) from RMB30.8 million in the corresponding period of the prior year. The Company reported non-GAAP net income per diluted ADS of RMB1.11 ($0.17) in the second quarter of 2011. This compares to a non-GAAP net income per diluted ADS of RMB0.19 in the corresponding period of the prior year.

During the second quarter of 2011, the Company had a weighted average diluted share count of approximately 153.7million shares (equivalent to 25.6 million ADSs), compared to 67.0 million shares (equivalent to 11.2 million ADSs) in the second quarter of 2010.

Balance Sheet

As of June 30, 2011, the Company had cash and cash equivalents of RMB227.1 million ($35.1 million), compared to RMB262.5 million as of December 31, 2010. As of June 30, 2011, the Company held short-term investments of RMB198.9 million ($30.8 million), compared to RMB266.7 million as of December 31, 2010.

Business Outlook

Mr. Yang added, "While we remain focused on positioning Kanghui as a leader in the fast-growing spine and trauma segments, we are strategically moving to underserved joint reconstruction market in China. Reflecting on our strong second quarter performance and continued demand for all of our product lines, both domestically and internationally, we are increasing our revenue and net income guidance for full year 2011."

The Company anticipates revenue for full year 2011 will increase to the range of RMB303 million to RMB313 million, which represents year-over-year growth of 25% to 29%. This compares to the Company's previous 2011 revenue guidance of RMB292 million to RMB303 million. The Company estimates non-GAAP net income for full year 2011 will increase to the range of RMB122 million to RMB127 million, compared to its previous estimate of RMB121 million to RMB126 million.

Non-Cash Share-Based Compensation Expense Discussion

The Company recognized non-cash share-based compensation expenses of approximately RMB1.5 million ($237,000) in the second quarter of 2011.

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 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 conference call at 8:00 a.m. ET on August 16, 2011 to discuss second quarter results and answer questions from investors. A webcast of the call will be available at www.kanghui.com. Listeners may access the call by dialing:

US Toll Free:

1-866-271-0675

US Toll/International:

1-617-213-8892

Hong Kong Toll Free:

800-963-844

Hong Kong Toll:

852-3002-1672

South China Toll Free (China Telecom):

10-800-130-0399

North China Toll Free (China Telecom):

10-800-152-1490

South China Toll Free (China Netcom):

10-800-852-1490

China Toll:

86-400-881-1629

Passcode:

36909976



A replay of the webcast will be accessible through August 30, 2011 on www.kanghui.com or by dialing:

United States toll free:

+1-888-286-8010

International:

+1-617-801-6888

Passcode:

22164384



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. It has an extensive network of distributors for its products in China. In addition, Kanghui's products are distributed in 28 countries. Kanghui has strong research and development capabilities, focused on developing new proprietary products, including new product lines, extensions of existing product lines and enhancements of existing products. 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 2010 and anticipated operating results for 2011, the anticipated benefits of the Company's Consensus Orthopedics partnership and its acquisition of a majority stake in Wei Rui Li and the ability for the Company to realize its business plans for the remainder of 2011. 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 second quarter 2011 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 our beliefs regarding our strengths and strategies; our ability to expand our international business; our ability to develop and successfully market new products in China and internationally; our current expansion strategy, including our ability to expand our manufacturing and research and development facilities and capabilities and our future prospects, business development, results of operations and financial condition. 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 13 of Form 424(b) that we filed with the Securities and Exchange Commission on August 11, 2010, 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 - Second Quarter 2011

(RMB in thousands, except for share, ADS, per share data and per ADS data)



Three Months Ended
June 30,


Six Months Ended
June 30,


2010

2011


2010

2011


Unaudited

Unaudited


Unaudited

Unaudited

Net revenue

58,050

81,758


106,870

149,733

Gross profit

38,819

58,049


73,442

106,765

Non-GAAP gross profit

38,866

58,098


73,531

106,864

Operating income

24,221

30,374


45,064

60,178

Non-GAAP operating income

27,275

31,912


50,814

63,133

Net income

27,744

27,879


45,530

49,848

Non-GAAP net income

30,798

29,417


51,280

52,803

Earnings (Loss) per share - basic

0.01

0.20


(0.12)

0.36

Earnings (Loss) per ADS - basic

0.04

1.21


(0.71)

2.17

Non-GAAP earnings (loss) per share - basic

0.04

0.20


(0.02)

0.38

Non-GAAP earnings (loss) per ADS - basic

0.22

1.23


(0.11)

2.30

Earnings (Loss) per share-diluted

0.01

0.18


(0.12)

0.33

Earnings (Loss) per ADS - diluted

0.03

1.09


(0.71)

1.96

Non-GAAP earnings (loss) per share - diluted

0.03

0.18


(0.02)

0.35

Non-GAAP earnings (loss) per ADS - diluted

0.19

1.11


(0.11)

2.08







- Revenue By Product Category






Trauma

38,313

47,452


70,980

89,482

Spine

15,114

26,260


27,105

45,454

OEM

4,623

8,046


8,785

14,797

- Revenue by Business Sector






Domestic

39,099

57,633


80,525

107,742

International

14,328

16,079


17,560

27,194

OEM

4,623

8,046


8,785

14,797




China Kanghui Holdings

Consolidated Balance Sheets

Expressed in thousands




As of December 31,
2010


As of June 30,
2011



RMB


RMB

US$



Unaudited


Unaudited

Unaudited

Assets






Current assets:






Cash and cash equivalents


262,476


227,141

35,142

Bills receivable


8,163


10,975

1,698

Short-term investments


266,673


198,921

30,776

Accounts receivable, net


55,131


78,026

12,072

Inventories, net


86,266


94,869

14,678

Prepayments and other current assets


11,693


17,516

2,710

Deferred tax assets


12,134


15,448

2,390

Amount due from related parties


644


623

96

Total current assets


703,180


643,519

99,562







Non-current assets:






Property, plant and equipment, net


107,237


220,256

34,077

Intangible assets, net


46,995


64,263

9,942

Prepaid land lease payments


23,298


23,055

3,567

Goodwill


131,527


155,341

24,034

Long-term investments


-


26,486

4,098

Deposits for non-current assets


37,507


7,137

1,104

Deferred tax assets


2,436


2,632

407

Other long-term assets


-


461

71

Total non-current assets


349,000


499, 631

77,300

Total assets


1,052,180


1,143,150

176,862







Liabilities and equity






Current liabilities:






Accounts payable


15,086


14,002

2,166

Accrued expenses and other liabilities


47,433


54,418

8,419

Income tax payable


2,830


5,962

922

Deferred revenue


289


289

45

Uncertain tax positions


8,004


11,994

1,856

Amount due to related parties


4,040


3,637

563

Deferred tax liabilities


-


378

58

Total current liabilities


77,682


90,680

14,029







Non-current liabilities:






Deferred government grants


5,511


5,310

822

Deferred tax liabilities


11,700


16,029

2,480

Total non-current liabilities


17,211


21,339

3,302

Total liabilities


94,893


112,019

17,331


Commitments and contingencies












Equity:






Ordinary shares (par value of US$0.001 per share; 1000,000,000 shares authorized as of December 31, 2010 and June 30, 2011 (unaudited); 136,821,600 shares issued and outstanding as of December 31, 2010 and 140,351,094 shares issued and outstanding as of June 30, 2011 (unaudited))


999


1,022

158

Additional paid-in capital


892,298


908,386

140,541

Accumulated other comprehensive loss


(16,737)


(17,211)

(2,663)

Statutory reserves


31,247


31,247

4,834

Retained earnings


49,480


99,328

15,368

Total China Kanghui Holdings shareholders' equity

957,287


1,022,772

158,238

Non-controlling interests


-


8,359

1,293

Total equity


957,287


1,031,131

159,531

Total liabilities and equity


1,052,180


1,143,150

176,862










China Kanghui Holdings

Consolidated Statements of Operations

Expressed in thousands, except share and per share data



Three Months Ended June 30,


Six Months Ended June 30,


2010

2011


2010

2011


RMB

RMB

US$


RMB

RMB

US$


Unaudited

Unaudited

Unaudited


Unaudited

Unaudited

Unaudited









Net revenue

58,050

81,758

12,649


106,870

149,733

23,166

Cost of revenue

(19,231)

(23,709)

(3,668)


(33,428)

(42,968)

(6,648)

Gross profit

38,819

58,049

8,981


73,442

106,765

16,518









Operating expenses








Selling expenses

(5,722)

(11,750)

(1,818)


(11,487)

(18,738)

(2,899)

General and administrative expenses

(7,694)

(14,126)

(2,186)


(14,859)

(24,548)

(3,798)

Research and development costs

(1,182)

(1,799)

(278)


(2,032)

(3,301)

(511)









Operating income

24,221

30,374

4,699


45,064

60,178

9,310

Interest income

350

2,529

392


650

4,248

657

Government grants

30

484

75


30

3,190

494

Other income

326

848

131


444

993

154

Other expenses

(91)

(511)

(79)


(277)

(908)

(140)

Foreign exchange loss

(135)

(2,333)

(361)


(181)

(5,341)

(826)









Income before income taxes

24,701

31,391

4,857


45,730

62,360

9,649

Income tax benefit /(expense)

3,043

(3,779)

(585)


(200)

(12,761)

(1,974)









Net income

27,744

27,612

4,272


45,530

49,599

7,675

Net loss attributable to non-controlling interests

-

267

39


-

249

41

Net income attributable to China Kanghui Holdings

27,744

27,879

4,311


45,530

49,848

7,716









Accretion of redeemable convertible preferred shares








Series A

(3,129)

-

-


(6,089)

-

-

Series B

(22,837)

-

-


(44,011)

-

-

Series B-1

(1,182)

-

-


(2,277)

-

-

Net income (loss) attributable to ordinary shareholders

596

27,879

4,311


(6,847)

49,848

7,716









Earnings (loss) per share








Basic

0.01

0.20

0.03


(0.12)

0.36

0.06

Diluted

0.01

0.18

0.03


(0.12)

0.33

0.05









Shares used in earnings (loss) per share computation








Basic

57,714,400

138,702,487

138,702,487


57,714,400

137,770,862

137,770,862

Diluted

66,988,870

153,748,894

153,748,894


57,714,400

152,290,642

152,290,642










Share-based compensation charges incurred during the period related to:














Cost of revenue

47

49

7


89

99

15

Selling expenses

116

109

17


228

221

34

General and administrative expenses

2,846

1,330

205


5,347

2,537

388

Research and development expenses

45

50

8


86

98

15

Total

3,054

1,538

237


5,750

2,955

452




















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
June 30,


Six Months Ended
June 30,


2010

2011


2010

2011


Unaudited

Unaudited


Unaudited

Unaudited







Net revenue

58,050

81,758


106,870

149,733







Non-GAAP net income

30,798

29,417


51,280

52,803

Non-GAAP net margin

53.1%

36.0%


48.0%

35.3%

Share-based compensation

(3,054)

(1,538)


(5,750)

(2,955)

GAAP net income

27,744

27,879


45,530

49,848

GAAP net margin

47.8%

34.1%


42.6%

33.3%







Non GAAP earnings (loss) per share -basic

0.04

0.20


(0.02)

0.38

Non GAAP earnings (loss) per share -diluted

0.03

0.18


(0.02)

0.35

Non GAAP earnings (loss) per ADS -basic

0.22

1.23


(0.11)

2.30

Non GAAP earnings (loss) per ADS -diluted

0.19

1.11


(0.11)

2.08







GAAP earnings (loss) per share -basic

0.01

0.20


(0.12)

0.36

GAAP earnings (loss) per share -diluted

0.01

0.18


(0.12)

0.33

GAAP earnings (loss) per ADS -basic

0.04

1.21


(0.71)

2.17

GAAP earnings (loss) per ADS -diluted

0.03

1.09


(0.71)

1.96







Shares used in computation of:






Basic earnings (loss) per share

57,714,400

138,702,487


57,714,400

137,770,862

Diluted earnings (loss) per share

66,988,870

153,748,894


57,714,400

152,290,642

Basic earnings (loss) per ADS

9,619,067

23,117,081


9,619,067

22,961,810

Diluted earnings (loss) per ADS

11,164,812

25,624,816


9,619,067

25,381,774







Non-GAAP operating income

27,275

31,912


50,814

63,133

Non-GAAP operating margin

47.0%

39.0%


47.5%

42.2%

Share-based compensation

(3,054)

(1,538)


(5,750)

(2,955)

GAAP operating income

24,221

30,374


45,064

60,178

GAAP operating margin

41.7%

37.2%


42.2%

40.2%







Non-GAAP gross profit

38,866

58,098


73,531

106,864

Non-GAAP gross margin

67.0%

71.1%


68.8%

71.4%

Share-based compensation

(47)

(49)


(89)

(99)

GAAP gross profit

38,819

58,049


73,442

106,765

GAAP gross margin

66.9%

71.0%


68.7%

71.3%









(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.

(2) 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.

(3) 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 June30, 2011 were made at the noon buying rate of RMB6.4635 to USD1.00 on June 30, 2011 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.

Source: China Kanghui Holdings
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