Yuhe International, Inc. Announces Third Quarter 2010 Results

WEIFANG, Shandong, China. Nov. 15, 2010 /PRNewswire-Asia-FirstCall/ -- Yuhe International, Inc. (Nasdaq: YUII) ("Yuhe" or "the Company"), a leading supplier of day-old chicken raised for meat production, or broilers, in the People's Republic of China ("PRC"), today announced its financial results for the quarter ended September 30, 2010.

Third Quarter 2010 Highlights

• Net revenue increased 62.4% to $21.4 million year-over-year
• Sales volume increased 34.2% to 40.3 million birds
• Gross profit increased 67.6% to $8.7 million
• Gross margin increased 130 basis points to 40.4%
• Operating income increased 73.9% to $7.4 million
• Operating margin increased 230 basis points to 34.6%
• Net income increased 75.7% to $7.3 million
• Diluted EPS increased 73.1% to $0.45
• Yuhe purchased five breeder farms in Liaoning Province, with a total production capacity of 430,000 sets of parent breeders, and Yuhe became the largest supplier of day-old broilers in China in terms of production capacity.

"Our strong third quarter sales growth was driven by an increase in both volume and average selling prices," commented Mr. Zhentao Gao, Chairman and Chief Executive Officer of Yuhe. "We are particularly pleased with our gross margin performance which benefited from higher average selling prices and our ability to optimize our input costs by locking in favorable fixed prices for external eggs when the market was not as strong as it is today. Yuhe's management team, based on its many years of experience and industry expertise, correctly forecast the current supply shortage and took action to capitalize on the opportunity.  As a result, we are benefiting from a situation where average selling prices are rising at a faster rate than our input costs.  The current average selling price of day-old-broilers is approximately RMB 3.4 and we expect this favorable supply/demand imbalance to persist into at least the first half of next year."    

Third Quarter 2010 Results

Net revenue for the third quarter of 2010 increased 62.4% to $21.4 million, compared to $13.2 million for the same period last year. The increase was mainly driven by a 34.2% gain in sales volume of day-old broilers to 40.3 million from 30.1 million in the comparable period last year. The average selling price per broiler was RMB 3.28 in the third quarter of 2010, up 15% from RMB 2.85 in the same period last year.  Sales of broilers accounted for $19.5 million or 90.8% of the Company's net revenue.

Gross profit increased 67.6% year over year to $8.7 million, compared to $5.2 million in the same period last year. Gross margin increased 130 basis points to 40.4% from 39.1% in the same quarter last year.  The increase in gross margin was mainly attributable to the increase in the average selling price per broiler compared to the same period last year.  

Operating income increased 73.9% to $7.4 million, compared to $4.3 million in the same period of 2009. Operating margin increased 230 basis points to 34.6%, compared to 32.3% in the same quarter of 2009.  The increase was primarily due to operating leverage from higher sales.    

Net income increased 75.7% to $7.3 million from $4.1 million in the same period last year.  Diluted earnings per share increased 73.1% to $0.45 from $0.26 in the prior year period.  

Nine Month Results

In the nine months ended September 30, 2010, Yuhe reported net revenues increased 34.5% to $45.7 million, from $34.0 million in the nine months ended September 30, 2009. Gross profit grew 38.7% year-over-year to $16.7 million, with a gross margin of 36.5%, as compared to 35.4% in the same period of 2009. Operating income rose 41.3% to $13.5 million, with an operating margin of 29.6%. Net income increased 45.0% to $13.3 million, or $0.82 per diluted share, compared to $9.2 million, or $0.57 per diluted share, in the same period of 2009.

Financial Condition

As of September 30, 2010, the Company held $27.4 million in cash and cash equivalents, as compared to $14.0 million at year-end 2009. Working capital was $16.4 million with a 1.8:1 current ratio. The Company had $73.2 million in shareholders' equity compared to $55.3 million at year-end 2009. Yuhe generated $16.1 million in operating cash flow in the nine months ended September 30, 2010.

Recent Developments

• In October and November 2010, Yuhe sold 4,140,000 shares of its common stock in aggregate in a public offering at $7.00 per share for aggregate gross proceeds of approximately $29.0 million.  The Company intends to use the net proceeds from the sale of the common stock for future acquisitions, capital expenditures and general corporate and working capital purposes.

• Between May and July 2010, Yuhe signed a series of supply contracts with two suppliers to purchase external eggs to be produced by 420,000 sets of parent breeders at fixed prices of between RMB 1.45 and RMB 1.50 per egg.  

• In July 2010, Yuhe announced that its wholly owned subsidiary, Weifang Yuhe Poultry Co., Ltd., entered into an asset purchase agreement with Liaoning Haicheng Songsen Stock Farming and Feed Company Limited to purchase five breeder farms in Haicheng City, Liaoning Province. The payment included RMB 21.3 million (approximately $3.2 million) in cash and approximately 300,000 restricted shares of Yuhe common stock calculated at a price of $10 per share. The restricted shares are subject to a six-month lock-up period. The five breeder farms have a total production capacity of 430,000 sets of parent breeders.  

Outlook

Mr. Gao added, "We are pleased to announce that we began to generate revenues from the new parent breeders that we purchased in Shangong Province in 2009 and early 2010.  Of the 13 farms purchased, nine have begun operations and the other four farms are expected to commence operations by the end of the first quarter of 2011.  We also completed the construction of our new hatchery in September 2010.  Given our increased capacity and the higher average selling prices in the market, we believe our full year 2010 broiler output and net income will surpass our previously provided forecast.  For 2011, we continue to expect broiler output of approximately 250 million.  

"Our acquisition of the five breeder farms in Liaoning Province provides us with a production base outside of Shandong Province and is an important milestone in our path toward becoming the leading company in the national broiler market in China.  We are in the process of upgrading the facilities and training the employees at these farms and plan to put the first four farms into production by the end of the first quarter of 2011 and the fifth farm into production by the end of the second quarter of 2011.  Upon full operations of all of our acquired farms, we expect to have in total 430,000 sets of hatchers with a hatching capacity of 43 million broilers per year.

"The capital we raised in our recent financing, combined with our internally generated cash resources, provides us with flexibility to capitalize on potential acquisition opportunities within our industry.  We continue to view this as a very attractive time to make acquisitions and are currently evaluating additional targets that represent a total capacity of between 1.0 million and 1.2 million sets of parent breeders.  We are committed to delivering sustainable growth in shareholder value and keeping this principle foremost in our mind when evaluating any potential future acquisitions."  

Conference Call

The Company will host a conference call at 9:00 a.m. EST on Tuesday, November 16, 2010, to discuss financial results for the third quarter of 2010. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (877) 509-7549. International callers should dial (706) 902-4287. When promoted, enter the conference passcode: 21983505.

A replay will be available for 30 days beginning on Tuesday, November 16, 2010 at 10:00 a.m. EST. To access the replay, dial (800) 642-1687. International callers should dial (706) 645-9291. When prompted, enter the conference passode: 21983505.

About Yuhe International, Inc.

Founded in 1996, Yuhe is the largest day-old broiler breeder in China. The Company's main operations involve breeding, as all broilers are sold within a day of hatching. Headquartered in Weifang, Shandong Province, the Company has modern facilities and is led by an experienced team which includes experts in chicken breeding, disease prevention and animal husbandry science. Yuhe has two operational subsidiaries, Weifang Yuhe Poultry Co. Ltd. and Weifang Taihong Feed Co. Ltd., which largely supplies the Company's internal demand for chicken feed. Currently, 90% of the Company's sales of day-old broilers are in Shandong province through 28 local agents. There are 10 other sales agents in adjacent provinces. The Company has imported state-of-the-art equipment from the United States, Germany and Japan and has passed ISO9001 certification, allowing it to adhere to international standards of operation. For more information on the Company and its products, please visit http://www.yuhepoultry.com.

Cautionary Statement

This press release contains forward-looking statements concerning the Company's business, products and financial results. The Company's actual results may differ materially from those anticipated in the forward-looking statements depending on a number of risk factors including, but not limited to, the following: general economic and business conditions, development, shipment, market acceptance, additional competition from existing and new competitors, changes in technology, and various other factors beyond the Company's control. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement and the risk factors detailed in the Company's reports filed with the Securities and Exchange Commission. The Company undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of this release.

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