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China Kanghui Holdings Reports First Quarter 2012 Financial Results
Date:5/24/2012

CHANGZHOU, China, May 24, 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

  • Total net revenue for the first quarter of 2012 increased by 21.6% year-over-year to RMB82.7 million from RMB68.0 million in the corresponding period of the prior year.
  • Gross profit for the first quarter of 2012 increased by 20.3% year-over-year to RMB58.6 million from RMB48.7 million in the corresponding period of the prior year.
  • Operating income for the first quarter of 2012 increased by 5.7% year-over-year to RMB31.5 million from RMB29.8 million in the corresponding period of the prior year.
  • Net income for the first quarter of 2012 increased by 35.0% year-over-year to RMB29.7 million from RMB22.0 million in the corresponding period of the prior year.
  • Non-GAAP[1] net income for the first quarter of 2012 increased by 39.7% year-over-year to RMB32.7 million from RMB23.4 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 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 SheetAs 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 OutlookMr. 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 DiscussionThe 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 CallKanghui 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:

    1-866-519-4004US Toll/International:

    1-718-354-1231Hong Kong Toll Free:

    800-930-346Hong Kong Toll:

    852-2475-0994China Toll Free:

    800-819-0121China Toll Free (Mobile):

    400-620-8038Conference ID:

    76263126A replay of the webcast will be accessible through June 1, 2012 on http://ir.kanghui.com or by dialing:

    United States toll free:

    +1-866-214-5335US Toll/International:

    +1-718-354-1232Passcode:

    76263126About China Kanghui HoldingsFounded 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 MeasuresThe 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 StatementThis 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 InformationChina Kanghui Holdings Investor Relations Department 
    +1-888-321-2558

    Asia Bridge Capital Limited
    Carene Toh
    +86-186 1835 6339
    carene.toh@asiabridgegroup.comChina Kanghui HoldingsSummary -
    FirstQuarter 2012(RMB in thousands, except for per share data and per ADS data)

     Three Months Ended
    March 31,20112012 Unaudited

     Unaudited Net revenue

    67,975

    82,713Gross profit

    48,716

    58,572Non-GAAP gross profit

    48,766

    58,605Operating income

    29,804

    31,486Non-GAAP operating income

    31,221

    34,447Net income attributable to China Kanghui Holdings

    21,969

    29,709Non-GAAP net income

    23,386

    32,670Earnings per share -basic

    0.16

    0.21Earnings per share -diluted

    0.15

    0.19Earnings per ADS -basic

    0.96

    1.27Earnings per ADS -diluted

    0.87

    1.15Non-GAAP earnings per share -basic

    0.17

    0.23Non-GAAP earnings per share -diluted

    0.16

    0.21Non-GAAP earnings per ADS -basic

    1.03

    1.40Non-GAAP earnings per ADS -diluted

    0.93

    1.26- Revenue By Product CategoryTrauma

    42,030

    51,572Spine

    19,194

    25,893OEM

    6,751

    5,248- Revenue by Business SectorDomestic

    50,109

    64,316International

    11,115

    13,149OEM

    6,751

    5,248 China Kanghui HoldingsConsolidated Balance Sheets(Expressed in thousands)As of December
     31, 2011As of March 31,
     2012RMBRMB

    US$ Audited  Unaudited

     Unaudited AssetsCurrent assets:Cash and cash equivalents380,092324,202

    51,481Bills receivable5,8733,052

    485Short-term investments76,998111,862

    17,763Accounts receivable, net87,578110,445

    17,538Inventories, net110,907126,007

    20,009Prepayments and other current assets13,42813,763

    2,185Deferred tax assets9,09010,583

    1,681Amount due from related parties5,6726,803

    1,080Total current assets689,638706,717

    112,222Non-current assets:Property, plant and equipment, net259,825319,232

    50,692Intangible assets, net62,02660,889

    9,669Prepaid land lease payments22,81222,690

    3,603Goodwill155,341155,341

    24,667Long-term investment25,20425,190

    4,000Deposits for non-current assets4,7316,331

    1,005Deferred tax assets2,4442,465

    391Other  assets, non-current257135

    21Total non-current assets532,640592,273

    94,048Total assets1,222,2781,298,990

    206,270Liabilities and equityCurrent liabilities:Accounts payable19,27821,220

    3,370Accrued expenses and other liabilities65,388105,321

    16,724Income tax payable5,8008,378

    1,330Uncertain tax positions4,1974,152

    659Amount due to related parties1,1371,312

    208Total current liabilities95,800140,383

    22,291Non-current liabilities:Deferred government grants6,4096,290

    999Deferred tax liabilities14,85714,666

    2,329Total non-current liabilities21,26620,956

    3,328Total liabilities117,066161,339

    25,619Equity: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)) 1,0221,023

    162Additional paid-in capital912,972916,316

    145,505Accumulated other comprehensive loss(19,604)(19,646)

    (3,120)Statutory reserves45,41745,417

    7,212Retained earnings156,387186,096

    29,551Total China Kanghui Holdings shareholders' equity1,096,1941,129,206

    179,310Non-controlling interests9,0188,445

    1,341Total equity1,105,2121,137,651

    180,651Total liabilities and equity1,222,2781,298,990

    206,270 China Kanghui HoldingsConsolidated Statementsof Comprehensive IncomeExpressed in thousands, except for number of shares and per share data Three Months Ended March 31, 20112012 RMB

     RMB

     US$  Unaudited

     Unaudited

     Unaudited Net revenue67,975

    82,713

    13,134Cost of revenue

    (19,259)

    (24,141)

    (3,833)Gross profit48,71658,5729,301Operating expensesSelling 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 income29,80431,4865,000Interest income

    1,719

    3,867

    614Government grants

    2,706

    151

    24Other income

    145

    485

    77Other expenses

    (397)

    (357)

    (57)Foreign exchange loss

    (3,008)

    (171)

    (27)Income before income taxes30,96935,4615,631Income taxes

    (8,982)

    (6,324)

    (1,004)Net income21,98729,1374,627Net (income) loss attributable to non-controlling interests

    (18)

    572

    91Net income attributable to China Kanghui Holdings21,96929,7094,718Earnings per share Basic0.16

    0.21

    0.03Diluted0.15

    0.19

    0.03Shares used in earnings per share computationBasic

    136,828,869

    140,440,413

    140,440,413Diluted

    150,864,399

    155,007,387

    155,007,387Other 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 Holdings21,76629,6674,711Share-based compensation charges incurred during the period related to:Cost of revenue

    50

    33

    5Selling expenses

    112

    136

    22General and administrative expenses

    1,207

    2,762

    439Research and development expenses

    48

    30

    5Total1,4172,961471 

     

    China Kanghui HoldingsReconciliations of Non-GAAP Results o GAAP Results of Operations(RMB in thousands, except for share, ADS, per share data and per ADS data)

      Three Months Ended
    March 31, 20112012 Unaudited

     Unaudited Net revenue67,975

    82,713Non-GAAP net income23,386

    32,670 Non-GAAP net margin34.4%

    39.5%Share-based compensation(1,417)

    (2,961)GAAP net income21,969

    29,709 GAAP net margin32.3%

    35.9%Non GAAP earnings per share -basic0.17

    0.23Non GAAP earnings per share -diluted0.16

    0.21Non GAAP earnings per ADS -basic1.03

    1.40Non GAAP earnings  per ADS -diluted0.93

    1.26GAAP earnings per share -basic0.16

    0.21GAAP earnings per share -diluted0.15

    0.19GAAP earnings per ADS -basic0.96

    1.27GAAP earnings per ADS -diluted0.87

    1.15Shares used in computation of:Basic earnings per share136,828,869

    140,440,413Diluted earnings per share150,864,399

    155,007,387Basic earnings per ADS22,804,812

    23,406,736Diluted earnings per ADS25,144,067

    25,834,565Non-GAAP operating income31,221

    34,447 Non-GAAP operating margin45.9%

    41.6%Share-based compensation(1,417)

    (2,961)GAAP operating income29,804

    31,486 GAAP operating margin43.8%

    38.1%Non-GAAP gross profit48,766

    58,605 Non-GAAP gross margin71.7%

    70.9%Share-based compensation(50)

    (33)GAAP gross profit48,716

    58,572 GAAP gross margin71.7%

    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.

     [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.

     [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 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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