August 18, 2010

 

China's Yuhe posts 51% surge in Q2 operating income

 

 

Second quarter 2010 highlights include net revenue increased 26.9% to US$12.5 million year-over-year, while sales volume increased 34.4% to 34.6 million birds.

 

Gross profit rose 47.1% to US$4.1 million, and gross margin increased 450 basis points to 33.0%. Operating income was 51.1% higher at US$3.1 million, and operating margin increased 400 basis points to 24.9%. Net income was US$3.1 million, an increase of 46.1%. Diluted earnings per share increased 46.2% to $0.19

 

In the six months ended June 30, 2010, Yuhe reported net revenues increase of 16.8% to US$24.2 million, from US$20.7 million in the same period last year.

 

Gross profit grew 16.9% year over year to US$8.0 million, with a gross margin of 33.1%, flat with the same period of 2009. Operating income rose 15.1% to US$6.1 million, with an operating margin of 25.1%.

 

Net income increased 19.5% to US$6.0 million, or US$0.37 per diluted share, compared to US$5.0 million, or US$0.32 per diluted share, in the same period of 2009.

 

Earlier in July, Yuhe announced that its wholly owned subsidiary, Weifang Yuhe Poultry Co., Ltd., had 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 RMB21.3 million (US$3.1 million) in cash and approximately 300,000 restricted shares of Yuhe common stock calculated at a price of US$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.

 

As of August 13, 2010, six of the 13 breeder farms that were purchased in 2009 and 2010 have begun operation and the other seven farms are expected to commence operations by the end of 2010.

 

Meanwhile, the company expects sales volume and net income to rise in the second half of the year, given the seasonality of the business and the fact that the new parent breeders that were purchased in 2009 and 2010 will begin to generate revenue in the fourth quarter of 2010. Therefore, the company re-affirms its previously issued guidance for 2010 with production of 150 million broilers in total and net income of approximately US$17 million.

 

Considering the contribution of the five newly acquired breeder farms, Yuhe also expects the output of broilers in 2011 to reach 250 million. The company plans to build sales networks gradually around those production facilities outside Shandong province to provide pre-sales services, marketing, and after-sales support.

 

The construction of Yuhe's new hatchery was, to some extent, affected by the recent hot weather as the Chinese government enforces shorter working hours for construction workers on high temperature days. The new hatchery is set to commence operations in September 2010.