China Kanghui Holdings Reports Second Quarter 2012 Financial Results 2Q12 Net Revenue Increased 23.6% Year-Over-Year

2Q12 Net Income Increased 24.7% Year-Over-Year

CHANGZHOU, China, Aug. 21, 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 second quarter of 2012.

Second Quarter 2012 Highlights

  • Total net revenue for the second quarter of 2012 increased by 23.6% year-over-year to RMB101.1 million from RMB81.8 million in the corresponding period of the prior year.
  • Gross profit for the second quarter of 2012 increased by 24.0% year-over-year to RMB71.9 million from RMB58.0 million in the corresponding period of the prior year.
  • Operating income for the second quarter of 2012 increased by 27.3% year-over-year to RMB38.7 million from RMB30.4 million in the corresponding period of the prior year.
  • Net income attributable to Kanghui for the second quarter of 2012 increased by 24.7% year-over-year to RMB34.8 million from RMB27.9 million in the corresponding period of the prior year.
  • Non-GAAP[1] net income for the second quarter of 2012 increased by 33.0% year-over-year to RMB39.1 million from RMB29.4 million in the corresponding period of the prior year.

Mr. Libo Yang, Chief Executive Officer of the Company, stated, "We are delighted that Kanghui's second quarter marked another strong performance. Growth from trauma and spine sales remained robust, and we further expanded our product offerings by launching our joint reconstruction product into the international markets, while adding another new spine product exclusively marketed in China.  Domestic sales were strong, as we continued to gain momentum throughout China. With unabated strong demand and promising new product launches, we believe we are well positioned for sustained success going forward."

Ms. Sarah Wang, Chief Financial Officer of Kanghui, commented, "I am proud that Kanghui delivered our eighth consecutive strong quarter since its initial public offering, with our first-ever quarter of recording over RMB 100 million in net revenue. Our outstanding growth in net revenue, along with double-digit growth in key operating metrics, exemplify the strength of our business model.  Benefiting from the strong domestic sales of our proprietary products, our gross profit margins continued to exceed expectations, and as we build on this positive momentum, we are incrementally more confident in outlook for the remainder of 2012."

Second Quarter 2012 Financial and Operating Results

Net revenue increased by 23.6% year-over-year to RMB101.1 million ($15.9 million)[2] in the second quarter of 2012 from RMB81.8 million in the corresponding period of the prior year. 

Net revenue by product category:

Net revenue from trauma products increased by 25.3% year-over-year to RMB59.5 million ($9.4 million) in the second quarter of 2012 from RMB47.5 million in the corresponding period of the prior year. Net revenue from spine products increased by 24.3% year-over-year to RMB32.7 million ($5.1 million) in the second quarter of 2012 from RMB26.3 million in the corresponding period of the prior year. Net revenue from OEM products increased by 11.3% year-over-year to RMB8.9 million ($1.4 million) in the second quarter of 2012 from RMB8.0 million in the corresponding period of the prior year. Joint Reconstruction products initialed sales in June, and generated net revenue of RMB102,000 ($16,000) in the second quarter of 2012.

Net revenue by geographic markets:

Domestic sales of proprietary products increased by 34.7% year-over-year to RMB77.6 million ($12.2 million) in the second quarter of 2012 from RMB57.6 million in the corresponding period of the prior year, while international sales of proprietary products decreased by 8.7% year-over-year to RMB14.7 million ($2.3 million) in the second quarter of 2012 from RMB16.1 million in the corresponding period of the prior year. The decrease in international sales was primarily attributable to the Company's strategic shift in production to fulfill the strong domestic orders, as well as lower sales in the Middle East due to the region's political instability.

In the second quarter of 2012, cost of revenue increased by 23.2% year-over-year to RMB29.2 million ($4.6 million) from RMB23.7 million in the corresponding period of the prior year. Gross profit increased by 24.0% year-over-year to RMB71.9 million ($11.3 million) in the second quarter of 2012 from RMB58.0 million in the corresponding period of the prior year. Gross margin for the second quarter of 2012 was 71.1%, compared to 71.0% in the corresponding period of the prior year. 

Selling expenses decreased by 1.7% year-over-year to RMB11.6 million ($1.8 million) in the second quarter of 2012 from RMB11.8 million in the corresponding period of the prior year. General and administrative expenses increased by 28.4% year-over-year to RMB18.1 million ($2.8 million) in the second quarter of 2012 from RMB14.1 million in the corresponding period of the prior year.  Research and development expenses increased by 88.9% year-over-year to RMB3.4 million ($0.5 million) in the second quarter of 2012 from RMB1.8 million in the corresponding period of the prior year.

Operating income increased by 27.3% year-over-year to RMB38.7 million ($6.1 million) in the second quarter of 2012 from RMB30.4 million in the corresponding period of the prior year. Operating margin increased to 38.3% in the second quarter of 2012 from 37.2% in the corresponding period of the prior year.

Income tax expense in the second quarter of 2012 was RMB6.5 million ($1.0 million), representing an effective tax rate of 15.8%, compared to an income tax expense of RMB3.8 million, and an effective tax rate of 12.0% in the corresponding period of the prior year.

Net income attributable to China Kanghui Holdings was RMB34.8 million ($5.5 million) in the second quarter of 2012, representing a year-over-year increase of 24.7% from RMB27.9 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 RMB1.33 ($0.21) in the second quarter of 2012, compared to a net income per diluted ADS of RMB1.09 in the corresponding period of the prior year.                                                                              

Non-GAAP net income, which excludes share-based compensation expenses, increased by 33.0% to RMB39.1 million ($6.2 million) from RMB29.4 million in the corresponding period of the prior year. The Company reported non-GAAP net income per diluted ADS of RMB1.50 ($0.24) in the second quarter of 2012, compared to a non-GAAP net income per diluted ADS of RMB1.11 in the corresponding period of the prior year. 

During the second quarter of 2012, the Company had a weighted average diluted share count of 156.3 million shares (equivalent to 26.1 million ADSs), compared to 153.7 million shares (equivalent to 25.6 million ADSs) in the corresponding period of the prior year.

Balance Sheet

As of June 30, 2012, the Company had cash and cash equivalents of RMB432.1 million ($68.0 million), compared to RMB380.1 million as of December 31, 2011. As of June 30 2012, the Company held short-term investments of RMB10.3 million ($1.6 million), compared to RMB77.0 million as of December 31, 2011.

Business Outlook

Mr. Yang added, "Our solid performance in the first half of 2012 and the recent successful new product launches have set the stage for continued success in the remainder of 2012, providing us with greater comfort in our top line forecast. Moreover, reflecting on our strong gross margins and continuing discipline in optimizing operations and controlling overhead costs, we are slightly raising our full year 2012 guidance for Non-GAAP net income."

The Company narrows its total net revenue outlook for full year 2012 to be in the range of RMB395 million to RMB403 million, which represents year-over-year growth of 20.8% to 23.3%.  The Company raises its full year 2012 non-GAAP net income to a range of RMB149 million to RMB154 million, from its prior expectation of RMB146 million to RMB153 million.

This guidance is based on the current market conditions and reflects the Company's current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.

Non-Cash Share-Based Compensation Expenses

The Company recognized non-cash share-based compensation expenses of RMB4.4 million ($0.7 million) in the second 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 Wednesday, August 22, 2012 to discuss second 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:                                                           

12464049

A replay of the webcast will be accessible through August 29, 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:                                                       

12464049

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, spine and joint reconstruction, and has an extensive nationwide network of distributors for its products in China, as well as in 29 other countries, as of June, 30, 2012. 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, expected new product introductions, the demand for orthopedic 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 second 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.

Investor Relations Contact Information

Asia Bridge Capital Limited
Wendy Sun
Tel: 86-10-8556-9033 (China)
     1-888-321-2558 (U.S.)
Email: wendy.sun@asiabridgegroup.com

 

China Kanghui Holdings

Summary - Second Quarter of 2012

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






Three Months Ended
June 30,


Six Months Ended
June 30,


2011

2012


2011

2012


 Unaudited

 Unaudited


 Unaudited

 Unaudited

Net revenue

81,758

101,101


149,733

183,814

Gross profit

58,049

71,882


106,765

130,454

Non-GAAP gross profit

58,098

72,034


106,864

130,639

Operating income

30,374

38,721


60,178

70,207

Non-GAAP operating income

31,912

43,087


63,133

77,534

Net income attributable to China Kanghui Holdings

27,879

34,766


49,848

64,475

Non-GAAP net income

29,417

39,132


52,803

71,802

Earnings per share –basic

0.20

0.25


0.36

0.46

Earnings per share –diluted

0.18

0.22


0.33

0.41

Earnings per ADS –basic

1.21

1.48


2.17

2.75

Earnings per ADS –diluted

1.09

1.33


1.96

2.49

Non-GAAP earnings per share –basic

0.20

0.28


0.38

0.51

Non-GAAP earnings per share -diluted

0.18

0.25


0.35

0.46

Non-GAAP earnings per ADS –basic

1.23

1.67


2.30

3.06

Non-GAAP earnings per ADS -diluted

1.11

1.50


2.08

2.77







- Revenue By Product Category






Trauma

47,452

59,450


89,482

111,022

Spine

26,260

32,686


45,454

58,579

OEM

8,046

8,863


14,797

14,111

Joint Reconstruction

-

102


-

102







- Revenue by Business Sector






Domestic

57,633

77,561


107,742

141,877

International

16,079

14,678


27,194

27,827

OEM

8,046

8,862


14,797

14,110


 

China Kanghui Holdings

Consolidated Balance Sheets

(Expressed in thousands)








As of December
 31, 2011


As of

June 30,
 2012



RMB


RMB

US$



 Audited


 Unaudited

 Unaudited

Assets






Current assets:






Cash and cash equivalents


380,092


432,055

68,008

Bills receivable


5,873


4,130

650

Short-term investments


76,998


10,300

1,621

Accounts receivable, net


87,578


136,619

21,505

Inventories, net


110,907


134,280

21,136

Prepayments and other current assets


13,428


13,521

2,131

Deferred tax assets


9,090


12,124

1,908

Amount due from related parties


5,672


4,189

659

Total current assets


689,638


747,218

117,618







Non-current assets:






Property, plant and equipment, net


259,825


316,325

49,791

Intangible assets, net


62,026


59,857

9,422

Prepaid land lease payments


22,812


22,569

3,552

Goodwill


155,341


155,341

24,452

Long-term investments


25,204


25,412

4,000

Deposits for non-current assets


4,731


5,598

881

Deferred tax assets


2,444


2,335

368

Other assets, non-current


257


34

5

Total non-current assets


532,640


587,471

92,471

Total assets


1,222,278


1,334,689

210,089







Liabilities and equity






Current liabilities:






Accounts payable


19,278


23,812

3,748

Accrued expenses and other liabilities


65,388


98,626

15,524

Income tax payable


5,800


8,594

1,353

Uncertain tax positions


4,197


4,727

744

Amount due to related parties


1,137


1,312

207

Total current liabilities


95,800


137,071

21,576







Non-current liabilities:






Deferred government grants


6,409


3,827

602

Deferred tax liabilities


14,857


14,474

2,278

Total non-current liabilities


21,266


18,301

2,880

Total liabilities


117,066


155,372

24,456







Commitments and contingencies












Equity:






Ordinary shares (par value of US$0.001 per share;
1,000,000,000 shares authorized as of December 31, 2011 and June 30, 2012 (unaudited); 140,401,842 shares issued and outstanding as of December 31, 2011 and 141,204,612 shares issued and outstanding as of June 30, 2012 (unaudited))


1,022


1,027

162

Additional paid-in capital


912,972


922,625

145,227

Accumulated other comprehensive loss


(19,604)


(18,954)

(2,983)

Statutory reserves


45,417


45,417

7,149

Retained earnings


156,387


220,862

34,765

Total China Kanghui Holdings shareholders' equity


1,096,194


1,170,977

184,320

Non-controlling interests


9,018


8,340

1,313

Total equity


1,105,212


1,179,317

185,633

Total liabilities and equity


1,222,278


1,334,689

210,089


 

 

China Kanghui Holdings



Consolidated Statements of Comprehensive Income



Expressed in thousands, except for number of shares and per share data








 Three Months Ended June 30,


 Six Months Ended June 30,


2011

2012


2011

2012


 RMB

 RMB

 US$


 RMB

 RMB

 US$


 Unaudited

 Unaudited

 Unaudited


 Unaudited

 Unaudited

 Unaudited









Net revenue

81,758

101,101

15,914


149,733

183,814

28,933

Cost of revenue

(23,709)

(29,219)

(4,599)


(42,968)

(53,360)

(8,399)

Gross profit

58,049

71,882

11,315


106,765

130,454

20,534









Operating expenses








Selling expenses

(11,750)

(11,648)

(1,833)


(18,738)

(21,408)

(3,370)

General and administrative expenses

(14,126)

(18,131)

(2,854)


(24,548)

(32,338)

(5,090)

Research and development expenses

(1,799)

(3,382)

(532)


(3,301)

(6,501)

(1,023)

Operating income

30,374

38,721

6,096


60,178

70,207

11,051

Interest income

2,529

3,274

515


4,248

7,141

1,124

Government grants

484

132

21


3,190

283

45

Other income

848

477

75


993

962

151

Other expenses

(511)

(1,471)

(232)


(908)

(1,828)

(288)

Foreign exchange (loss) gain

(2,333)

25

4


(5,341)

(146)

(23)

Income before income taxes

31,391

41,158

6,479


62,360

76,619

12,060

Income taxes

(3,779)

(6,498)

(1,023)


(12,761)

(12,822)

(2,018)

Net income

27,612

34,660

5,456


49,599

63,797

10,042

Net loss attributable to non-controlling interests

267

106

17


249

678

107

Net income attributable to China Kanghui Holdings

27,879

34,766

5,473


49,848

64,475

10,149









Earnings per share








Basic

0.20

0.25

0.04


0.36

0.46

0.07

Diluted

0.18

0.22

0.04


0.33

0.41

0.07









Shares used in earnings per share computation








Basic

138,702,487

140,757,363

140,757,363


137,770,862

140,598,892

140,598,892

Diluted

153,748,894

156,262,908

156,262,908


152,290,642

155,615,320

155,615,320









Other comprehensive (loss) income, net of tax[4]








Foreign currency translation adjustments

(271)

692

109


(474)

650

102

Total other comprehensive (loss) income, net of tax

(271)

692

109


(474)

650

102

Comprehensive income attributable to
China Kanghui Holdings

27,608

35,458

5,582


49,374

65,125

10,251









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















Cost of revenue

49

152

24


99

185

29

Selling expenses

109

468

74


221

604

95

General and administrative expenses

1,330

3,604

567


2,537

6,366

1,002

Research and development expenses

50

142

22


98

172

27

Total

1,538

4,366

687


2,955

7,327

1,153

 

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,



2011

2012


2011

2012



 Unaudited

 Unaudited


 Unaudited

 Unaudited








Net revenue


81,758

101,101


149,733

183,814








Non-GAAP net income


29,417

39,132


52,803

71,802

   Non-GAAP net margin


36.0%

38.7%


35.3%

39.1%

Share-based compensation


(1,538)

(4,366)


(2,955)

(7,327)

GAAP net income


27,879

34,766


49,848

64,475

   GAAP net margin


34.1%

34.4%


33.3%

35.1%








Non GAAP earnings per share -basic


0.20

0.28


0.38

0.51

Non GAAP earnings per share -diluted


0.18

0.25


0.35

0.46

Non GAAP earnings per ADS -basic


1.23

1.67


2.30

3.06

Non GAAP earnings per ADS -diluted


1.11

1.50


2.08

2.77








GAAP earnings per share -basic


0.20

0.25


0.36

0.46

GAAP earnings per share -diluted


0.18

0.22


0.33

0.41

GAAP earnings per ADS -basic


1.21

1.48


2.17

2.75

GAAP earnings per ADS -diluted


1.09

1.33


1.96

2.49








Shares used in computation of:







Basic earnings per share


138,702,487

140,757,363


137,770,862

140,598,892

Diluted earnings per share


153,748,894

156,262,908


152,290,642

155,615,320

Basic earnings per ADS


23,117,081

23,459,561


22,961,810

23,433,149

Diluted earnings per ADS


25,624,816

26,043,818


25,381,774

25,935,887








Non-GAAP operating income


31,912

43,087


63,133

77,534

   Non-GAAP operating margin


39.0%

42.6%


42.2%

42.2%

Share-based compensation


(1,538)

(4,366)


(2,955)

(7,327)

GAAP operating income


30,374

38,721


60,178

70,207

   GAAP operating margin


37.2%

38.3%


40.2%

38.2%








Non-GAAP gross profit


58,098

72,034


106,864

130,639

   Non-GAAP gross margin


71.1%

71.2%


71.4%

71.1%

Share-based compensation


(49)

(152)


(99)

(185)

GAAP gross profit


58,049

71,882


106,765

130,454

   GAAP gross margin


71.0%

71.1%


71.3%

71.0%


[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]  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 June 30, 2012 were made at the noon buying rate of RMB6.3530 to $1.00 on June 29, 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.

 

[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.

 

[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 the translation 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.

SOURCE China Kanghui Holdings



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