omniture

China Kanghui Holdings Reports Third Quarter 2011 Financial Results

2011-11-10 05:08 1286

CHANGZHOU, China, November 10, 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 third quarter of 2011.

Third Quarter 2011 Highlights

  • Total net revenue for the third quarter of 2011 increased by 26.9% year-over-year to RMB80.7 million from RMB63.6 million in the corresponding period of the prior year.
  • Gross profit for the third quarter of 2011 increased by 28.0% year-over-year to RMB58.5 million from RMB45.7 million in the corresponding period of the prior year
  • Operating income for the third quarter of 2011 increased by 12.3% year-over-year to RMB36.4 million from 32.4 million in the corresponding period of the prior year.
  • Net income for the third quarter of 2011 increased by 8.6% year-over-year to RMB28.9 million from RMB26.6 million in the corresponding period of the prior year.
  • Non-GAAP(1) net income for the third quarter of 2011 increased by 11.0% year-over-year to RMB31.3 million from RMB28.2 million in the corresponding period of the prior year.

Mr. Libo Yang, Chief Executive Officer of the Company, stated, "We are very pleased that Kanghui once again exceeded expectations and delivered another strong quarterly financial performance in the third quarter of 2011. We continued to benefit from strong growth in our domestic sales, as we further enhanced our brand recognition and market share in China. We believe our new manufacturing facilities, new product introductions and the smooth integration of our recent acquisitions have laid a strong foundation for our future growth. In short, the third quarter of 2011 was another successful milestone that supported our growth strategy.

Ms. Sarah Wang, Chief Financial Officer of Kanghui, commented, "Our strong third quarter performance demonstrates the resiliency of Kanghui's balanced and diversified revenue model, pursuant to which the decrease in our international sales were fully covered by our strong growth in domestic and OEM sales. We continued to benefit from firm pricing in our proprietary products and achieved strong gross profits. Considering the strong demand for our products and our increasing market share, we feel confident about our future prospects for the remainder of 2011 and beyond."

Third Quarter 2011 Financial and Operating Results

Net revenue increased by 26.9% year-over-year to RMB80.7 million ($12.7 million) in the third quarter of 2011 from RMB63.6 million in the corresponding period of the prior year. Net revenue from trauma products increased by 22.8% year-over-year to RMB48.5 million ($7.6 million) in the third quarter of 2011 from RMB39.5 million in the corresponding period of the prior year. Net revenue from spine products increased by 34.4% year-over-year to RMB25.4 million ($4.0 million) in the third quarter of 2011 from RMB18.9 million in the corresponding period of the prior year. Net revenue from OEM products increased by 30.8% year-over-year to RMB6.8 million ($1.1 million) in the third quarter of 2011 from RMB5.2 million in the corresponding period of the prior year. Domestic sales of proprietary products increased by 36.5% year-over-year to RMB64.0 million ($10.0 million) in the third quarter of 2011 from RMB46.9 million in the corresponding period of the prior year, while international sales of proprietary products decreased by 13.9% year-over-year to RMB9.9 million ($1.6 million) in the third quarter of 2011 from RMB11.5 million in the corresponding period of the prior year.

In the third quarter of 2011, cost of revenue increased by 23.5% to RMB22.1 million ($3.5 million) from RMB17.9 million in the corresponding period of the prior year. Gross profit increased by 28.0% to RMB58.5 million ($9.2 million) in the third quarter of 2011 from RMB45.7 million in the corresponding period of the prior year. Gross margin for the third quarter of 2011 was 72.5%, compared to 71.9% in the corresponding period of the prior year. Selling expenses increased by 50.9% to RMB8.3 million ($1.3 million) in the third quarter of 2011 from RMB5.5 million in the corresponding period of the prior year. General and administrative expenses increased by 72.6% to RMB10.7 million ($1.7 million) in the third quarter of 2011 from RMB6.2 million in the corresponding period of the prior year. Research and development expenses increased by 88.2% to RMB3.2 million ($502, 000) in the third quarter of 2011 from RMB1.7 million in the corresponding period of the prior year.

Provision for income taxes in the third quarter of 2011 was RMB11.1 million ($1.7 million), representing an effective tax rate of 27.9%, compared to an income tax expense of RMB4.3 million in the corresponding period of the prior year.

Operating income increased by 12.3% to RMB36.4 million ($5.7 million) in the third quarter of 2011 from RMB32.4 million in the corresponding period of the prior year. Operating margin decreased to 45.1% in the third quarter of 2011 from 50.9% in the corresponding period of the prior year.

Net income was RMB28.9 million ($4.5 million) in the third quarter of 2011, representing a year-over-year increase of 8.6% from RMB26.6 million in the corresponding period of the prior year. On a diluted per ADS(2) basis, the Company reported net income per diluted ADS of RMB1.12 ($0.18) in the third quarter of 2011, compared to a net income per diluted ADS of RMB0.73 in the corresponding period of the prior year. Non-GAAP net income, which excludes share based compensation expenses, increased by 11.0% to RMB31.3 million ($4.9 million) from RMB28.2 million in the corresponding period of the prior year. The Company reported non-GAAP net income per diluted ADS of RMB1.21 ($0.19) in the third quarter of 2011, compared to a non-GAAP net income per diluted ADS of RMB0.81 in the corresponding period of the prior year.

During the third quarter of 2011, the Company had a weighted average diluted share count of approximately 155.2 million shares (equivalent to 25.9 million ADSs), compared to 112.3 million shares (equivalent to 18.7 million ADSs) in the corresponding period of the prior year.

Balance Sheet

As of September 30, 2011, the Company had cash and cash equivalents of RMB340.4 million ($53.4 million), compared to RMB262.5 million as of December 31, 2010. As of September 30, 2011, the Company held short-term investments of RMB93.2 million ($14.6 million), compared to RMB266.7 million as of December 31, 2010.

Business Outlook

Mr. Yang added, "Taken into account our strong third quarter performance and the continued demand for all of our product lines, we are once again increasing our revenue and net income guidance for full year 2011."

The Company anticipates revenue for full year 2011 to increase to the range of RMB313 million to RMB318 million, which represents a year-over-year growth of 29% to 31%. This compares to the Company's previous 2011 revenue guidance of RMB303 million to RMB313 million. The Company estimates non-GAAP net income for full year 2011 will increase to the range of RMB124 million to RMB128 million, compared to its previous estimate of RMB122 million to RMB127 million.

Non-Cash Share-Based Compensation Expense Discussion

The Company recognized non-cash share-based compensation expenses of approximately RMB2.4 million ($376, 000) in the third 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 corresponding conference call and live webcast at 8:00 a.m. ET on Thursday, November 10, 2011 (9:00 p.m. Beijing time on Thursday, November 10, 2011) to discuss the third quarter 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:

400-620-8038

Conference ID:

20863271



A replay of the webcast will be accessible through November 24, 2011 on http://ir.kanghui.com or by dialing:

United States toll free:

+1-866-214-5335

US Toll/International:

+1-718-354-1232

Passcode:

20863271



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 expected growth driven by the Company's new manufacturing facilities, new product introductions and the smooth integration of its recent acquisitions, the continued demand for the Company's products, the Company's ability to increase its market share, future prospects of the Company 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 third 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 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 20F for the fiscal year 2010, as filed with the Securities and Exchange Commission on June 3, 2011, 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 5 of the Company's annual report for fiscal year 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 - Third Quarter 2011

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



Three Months Ended
September 30,


Nine Months Ended
September 30,


2010

2011


2010

2011


Unaudited

Unaudited


Unaudited

Unaudited

Net revenue

63,599

80,659


170,469

230,392

Gross profit

45,701

58,514


119,143

165,279

Non-GAAP gross profit

45,755

58,563


119,286

165,427

Operating income

32,355

36,371


77,419

96,549

Non-GAAP operating income

33,939

38,773


84,753

101,906

Net income

26,648

28,885


72,178

78,733

Non-GAAP net income

28,232

31,287


79,512

84,090

Earnings per share -basic

0.14

0.21


0.09

0.57

Earnings per share -diluted

0.12

0.19


0.08

0.51

Earnings per ADS -basic

0.81

1.23


0.56

3.41

Earnings per ADS -diluted

0.73

1.12


0.49

3.08

Non-GAAP earnings per share -basic

0.15

0.22


0.20

0.61

Non-GAAP earnings per share -diluted

0.14

0.20


0.17

0.55

Non-GAAP earnings per ADS -basic

0.91

1.34


1.17

3.64

Non-GAAP earnings per ADS -diluted

0.81

1.21


1.02

3.29







- Revenue By Product Category






Trauma

39,493

48,444


110,473

137,926

Spine

18,869

25,372


45,974

70,826

OEM

5,237

6,843


14,022

21,640

- Revenue by Business Sector






Domestic

46,835

63,909


127,360

171,651

International

11,527

9,907


29,087

37,101

OEM

5,237

6,843


14,022

21,640




China Kanghui Holdings

Consolidated Balance Sheets

Expressed in thousands




As of December
31, 2010


As of September 30,
2011



RMB


RMB

US$





Unaudited

Unaudited

Assets






Current assets:






Cash and cash equivalents


262,476


340,418

53,374

Bills receivable


8,163


4,927

772

Short-term investments


266,673


93,238

14,619

Accounts receivable, net


55,131


84,448

13,241

Inventories, net


86,266


105,238

16,500

Prepayments and other current assets


11,693


19,288

3,023

Deferred tax assets


12,134


16,214

2,542

Amount due from related parties


644


1,388

218

Total current assets


703,180


665,159

104,289







Non-current assets:






Property, plant and equipment, net


107,237


246,551

38,657

Intangible assets, net


46,995


63,122

9,897

Prepaid land lease payments


23,298


22,933

3,596

Goodwill


131,527


155,341

24,356

Long-term investments


-


26,486

4,153

Deposits for non-current assets


37,507


6,137

962

Deferred tax assets


2,436


2,805

440

Other long-term assets


-


352

55

Total non-current assets


349,000


523,727

82,116

Total assets


1,052,180


1,188,886

186,405







Liabilities and equity






Current liabilities:






Accounts payable


15,086


18,672

2,928

Accrued expenses and other liabilities


47,433


61,214

9,598

Income tax payable


2,830


6,529

1,024

Deferred revenue


289


119

19

Uncertain tax positions


8,004


16,925

2,654

Amount due to related parties


4,040


2,266

355

Deferred tax liabilities


-


378

59

Total current liabilities


77,682


106,103

16,637







Non-current liabilities:






Deferred government grants


5,511


5,210

817

Deferred tax liabilities


11,700


15,750

2,469

Total non-current liabilities


17,211


20,960

3,286

Total liabilities


94,893


127,063

19,923

Commitments and contingencies












Equity:






Ordinary shares (par value of US$0.001 per share; 1,000,000,000 shares authorized as of December 31, 2010 and September 30, 2011 (unaudited); 136,821,600 shares issued and outstanding as of December 31, 2010 and 140,401,842 shares issued and outstanding as of September 30, 2011 (unaudited))


999


1,022

160

Additional paid-in capital


892,298


910,954

142,828

Accumulated other comprehensive loss


(16,737)


(17,833)

(2,796)

Statutory reserves


31,247


31,247

4,899

Retained earnings


49,480


128,213

20,102

Total China Kanghui Holdings shareholders' equity

957,287


1,053,603

165,193

Non-controlling interests


-


8,220

1,289

Total equity


957,287


1,061,823

166,482

Total liabilities and equity


1,052,180


1,188,886

186,405




China Kanghui Holdings

Consolidated Statements of Operations

Expressed in thousands, except share and per share data



Three Months Ended September 30,


Nine Months Ended September 30,


2010

2011


2010

2011


RMB

RMB

US$


RMB

RMB

US$


Unaudited

Unaudited

Unaudited


Unaudited

Unaudited

Unaudited









Net revenue

63,599

80,659

12,646


170,469

230,392

36,123

Cost of revenue

(17,898)

(22,145)

(3,472)


(51,326)

(65,113)

(10,209)

Gross profit

45,701

58,514

9,174


119,143

165,279

25,914









Operating expenses








Selling expenses

(5,470)

(8,261)

(1,295)


(16,957)

(26,999)

(4,233)

General and administrative expenses

(6,150)

(10,664)

(1,672)


(21,009)

(35,212)

(5,521)

Research and development costs

(1,726)

(3,218)

(505)


(3,758)

(6,519)

(1,022)









Operating income

32,355

36,371

5,702


77,419

96,549

15,138

Interest income

1,207

6,295

987


1,857

10,543

1,653

Government grants

330

-

-


360

3,190

500

Other income

34

941

147


478

1,934

303

Other expenses

(36)

(970)

(152)


(313)

(1,878)

(294)

Foreign exchange loss

(2,900)

(2,783)

(436)


(3,081)

(8,124)

(1,274)









Income before income taxes

30,990

39,854

6,248


76,720

102,214

16,026

Income tax expense

(4,342)

(11,108)

(1,742)


(4,542)

(23,869)

(3,742)









Net income

26,648

28,746

4,506


72,178

78,345

12,284

Net loss attributable to non-controlling interests

-

139

22


-

388

61

Net income attributable to China Kanghui Holdings

26,648

28,885

4,528


72,178

78,733

12,345









Accretion of redeemable convertible preferred shares:








Series A

(1,483)

-

-


(7,572)

-

-

Series B

(10,977)

-

-


(54,988)

-

-

Series B-1

(567)

-

-


(2,844)

-

-

Net income attributable to ordinary shareholders

13,621

28,885

4,528


6,774

78,733

12,345









Earnings per share








Basic

0.14

0.21

0.03


0.09

0.57

0.09

Diluted

0.12

0.19

0.03


0.08

0.51

0.08









Shares used in earnings per share computation








Basic

100,380,949

140,358,000

140,358,000


72,092,871

138,642,708

138,642,708

Diluted

112,329,330

155,152,302

155,152,302


82,816,965

153,254,979

153,254,979









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















Cost of revenue

54

49

8


143

148

23

Selling expenses

120

108

17


348

329

52

General and administrative expenses

1,356

2,195

344


6,701

4,732

742

Research and development expenses

54

50

8


142

148

23

Total

1,584

2,402

377


7,334

5,357

840




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
September 30,


Nine Months Ended
September 30,



2010

2011


2010

2011



Unaudited

Unaudited


Unaudited

Unaudited








Net revenue


63,599

80,659


170,469

230,392








Non-GAAP net income


28,232

31,287


79,512

84,090

Non-GAAP net margin


44.4%

38.8%


46.6%

36.5%

Share-based compensation


(1,584)

(2,402)


(7,334)

(5,357)

GAAP net income


26,648

28,885


72,178

78,733

GAAP net margin


41.9%

35.8%


42.3%

34.2%








Non GAAP earnings per share -basic


0.15

0.22


0.20

0.61

Non GAAP earnings per share -diluted


0.14

0.20


0.17

0.55

Non GAAP earnings per ADS -basic


0.91

1.34


1.17

3.64

Non GAAP earnings per ADS -diluted


0.81

1.21


1.02

3.29








GAAP earnings per share -basic


0.14

0.21


0.09

0.57

GAAP earnings per share -diluted


0.12

0.19


0.08

0.51

GAAP earnings per ADS -basic


0.81

1.23


0.56

3.41

GAAP earnings per ADS -diluted


0.73

1.12


0.49

3.08








Shares used in computation of:







Basic earnings per share


100,380,949

140,358,000


72,092,871

138,642,708

Diluted earnings per share


112,329,330

155,152,302


82,816,965

153,254,979

Basic earnings per ADS


16,730,158

23,393,000


12,015,479

23,107,118

Diluted earnings per ADS


18,721,555

25,858,717


13,802,828

25,542,496








Non-GAAP operating income


33,939

38,773


84,753

101,906

Non-GAAP operating margin


53.4%

48.1%


49.7%

44.2%

Share-based compensation


(1,584)

(2,402)


(7,334)

(5,357)

GAAP operating income


32,355

36,371


77,419

96,549

GAAP operating margin


50.9%

45.1%


45.4%

41.9%








Non-GAAP gross profit


45,755

58,563


119,286

165,427

Non-GAAP gross margin


71.9%

72.6%


70.0%

71.8%

Share-based compensation


(54)

(49)


(143)

(148)

GAAP gross profit


45,701

58,514


119,143

165,279

GAAP gross margin


71.9%

72.5%


69.9%

71.7%




(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 September 30, 2011 were made at the noon buying rate of RMB6.3780 to USD1.00 on September 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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