SDTH posted some pretty solid growth #’s today in its earnings release early this morning at 1am. Analysts were expecting .09eps for the quarter on $20m in revenues. SDTH beat the street posting .11eps on $22m in revenues. Price opened gapped up and has slid in these current unstable markets. Though with SDTH’s positive earnings and fore casted growth in the future suggesting double digit share prices i think its safe to say that we should be holding this stock in our portfolio. I re-established a position at 5.40 this morning.
Quoting my analysis from July 18th:
Fundamental Evaluation:
SDTH had a very strong first year reporting as a publicly traded company posting some impressive earnings. For fy 2006 they posted revenues of $72.6m with a 28% gross margin and minimal operating costs at just $3.9m SGA leaving them with net income of $17.5m on the year. SDTH’s financial condition was quite impressive as well when i looked over there balance sheet. Currently they’re sitting on $34.6m in cash with an outstanding current ratio of 4.38, 2 is optimal, 4.38 is very nice to see. On top of that SDTH is currently subject to zero long term debt so there financial condition is very healthy and look more that set to move forward with growth.
Industry Comparison:
SDTH looks very undervalued when comparing them to the industry averages. SDTH is trading at just 15.17x earnings compared to the Chemical Manufacturing average of 31.8x so we could expect SDTH’s price action to continue its bullish trend as it attracts more investors, especially since its currently holding a very low forward PE of just 9.53x earnings. The price to sales ratio is slightly above the industries with SDTH at 3.83x and the avg of 2.5x. But the P/S ratio is usually of not that much significance. I like to see it below but with SDTH’s PE ratios so undervalued its not of much importance. As i said before the current ratio of 4.38 is very attractive compared to the avg 2.6.
ShengdaTech, Inc. Reports Second Quarter 2007 Results
Thursday August 9, 1:00 am ET
TAIAN CITY, China, Aug. 9 /Xinhua-PRNewswire-FirstCall/ — ShengdaTech Inc. (”ShengdaTech”) (Nasdaq: SDTH - News), a leading manufacturer of nano precipitated calcium carbonate (NPCC) and coal-based chemical products manufacturer in the People’s Republic of China (”PRC”), today reported financial results for the second quarter ended June 30, 2007.
Second Quarter 2007 Highlights
– Revenue for the second quarter increased 58.7% year-over-year to $22.7
million
– Revenue from NPCC segment tripled year-over-year to $10.8 million
– Gross margin increased 580 basis points year-over-year to a record
33.8%, as higher margin NPCC products contributed to a larger
percentage of total revenue
– Net income for the second quarter increased 91% year-over-year to $6.0
million
– Began trading on the NASDAQ Capital Market
Revenues for the second quarter of 2007 increased to $22.7 million, up 58.7% from $14.3 million in the same quarter of 2006. The increase in revenues for the quarter was primarily driven by growth in the NPCC business. NPCC represented 47.7% of total revenues for the quarter with the remaining 52.3% generated by the chemical segment. Gross profit increased 91.5% year- over-year to $7.7 million from $4.0 million in the same period a year ago. Gross margin was a record 33.8% as a result of the increased contribution of NPCC products to revenue. Net income increased 91.0% to $6.0 million from $3.2 million in the second quarter of 2006. Fully diluted earnings per share for the second quarter of 2007 were $0.11 compared to $0.06 in the second quarter of 2006.
“We are very excited to see another strong quarter with increasing revenue contribution from our NPCC business. We continue to see strong demand for NPCC as a functional filler in a diversified number of applications. Both our NPCC facilities operated at full capacity during the quarter with over half of our sales derived from our long-term clients,” commented Mr. Xiangzhi Chen, President, CEO and Director of ShengdaTech. “Moreover, we successfully added seven new domestic clients and one Malaysian client, which marks our expansion into the international markets for NPCC.”
Revenue from the NPCC segment was $10.8 million for the second quarter 2007, up 207.8% from $3.5 million in the second quarter of 2006. The large year-over-year revenue growth is due to the addition of the new Xi’an, NPCC facility in Shaanxi Province, in September 2006 with 60,000 metric tons of NPCC capacity. On a sequential basis, revenue from the NPCC segment increased 20.6% from the first quarter of 2007. The sequential increase was derived from a 21% increase in volume, to 28,029 metric tons of NPCC sold from 23,164 metric tons of NPCC sold in the first quarter of 2007. NPCC for use in the production of tires and PVC remained the largest contributors to revenue representing 51.4% and 34.4% of total NPCC revenue, respectively. NPCC for use in latex and adhesives applications experienced the strongest growth in the second quarter of 2007, up 263.9% quarter-over-quarter, representing 8.5% of NPCC revenue compared to 2.8% of NPCC revenue in the first quarter of 2007. NPCC for use in printing ink and paints accounted for 5.7% of revenue in the second quarter of 2007.
Revenue from the chemical segment for the second quarter of 2007 was $11.9 million, up 10.0% from $10.8 million in the second quarter of 2006. On a sequential basis, revenue from the chemical segment was down 10.2% quarter- over-quarter due to a 15-day closure of the chemical factory to upgrade equipment in April 2007. The new equipment is expected to reduce raw material cost and improve operating efficiencies at the factory. For the second quarter of 2007, liquid ammonia generated $4.1 million, or 34.1%, of the total chemical revenue. Revenue from ammonium bicarbonate represented 30.2% of total chemical revenue while melamine and methanol represented 16.9% and 18.7% of total chemical revenue, respectively.
Gross profit increased to $7.7 million in the second quarter of 2007, up 91.5% from $4.0 million in the same quarter of 2006. Gross margin for the quarter was a record 33.8% compared to 28.0% in the same quarter a year ago. Gross margin was favorably impacted by the increased in NPCC products as a percentage of overall product mix and from higher gross margin realized from the new Xi’an factory when compared to the original factory, 46.1% versus 36.0%, respectively. The higher gross margins at the Xi’an factory were due to the use of the company’s proprietary membrane dispersion technology combined with lower raw materials and labor costs, which together lowered the overall cost of goods sold at the Xi’an factory by 30% compared to the original factory.
Selling expenses were $355,855, or 1.6% of revenue, in the second quarter of 2007 compared to $204,449, or 1.4% of revenue, in the second quarter of 2006. General and administrative (”G&A”) expenses were $722,280, up 11.4% from $648,416 in the second quarter of 2006 primarily due to expenses incurred as a result of being a publicly listed company (NASDAQ). As a percentage of revenue, G&A expenses decreased to 3.2% in the second quarter of 2007, down from 4.5% in the second quarter of 2006 due to increased cost efficiencies as the Company has grown in scale.
Operating income for the second quarter of 2007 was $6.6 million, up 109.2% from $3.1 million in the same period a year ago. Operating margin was 29.0% in the second quarter of 2007, up from 22.0% in the second quarter of 2006.
Net income for the second quarter of 2007 was $6.0 million, up 91.0% from $3.2 million in the second quarter 2006. Net income for the second quarter includes a tax provision of $618,404, as the tax holiday on income generated from the original factory ended on December 31, 2006. Fully diluted earnings per share for the second quarter of 2007 were $0.11 compared to fully diluted earnings per share of $0.06 in the second quarter of 2006.
Six Month Financial Results
For the first six months of 2007, total revenue was $44.9 million, up 46.5% from the first six months of 2006. Revenue from the chemical business was $25.1 million, up 7.3% from $23.3 million in the same period a year ago, representing 55.8% of total revenue. The NPCC business comprised the balance of 44.1% of revenue at $19.8 million, up 172.5% from $7.3 million in the first six months of 2006. Total gross profit for the first six months of 2007 was $14.6 million, up 80.1% from gross profit of $8.1 million in the comparable period a year ago. Total gross margin was 32.6% compared to 26.5% for the first six month of 2007 and 2006, respectively. Income from operations for the period was $12.6 million, up 94.0% from $6.5 million in the first six months of 2006. Net income for the first six months of 2007 was $11.4 million, up 72.0% from $6.7 million in the first six months of 2006. Fully diluted earnings per share were $0.21 for the first six months of 2007 compared to $0.13 in the first six months of 2006.
Financial Condition
As of June, 2007, ShengdaTech had $27.6 million in cash and cash equivalents, no long-term debt and $30.2 million in working capital. Shareholders‘ equity stood at $70.0 million up from shareholders’ equity of $57.1 million at December 31, 2006. The company generated $13.8 million in cash flow from operating activities in the first half of 2007.
Business Outlook
In July 2007, ShengdaTech completed the addition of 40,000 metric tons of NPCC capacity. The new lines are expected to be at full capacity by November, 2007. The Company also plans on completing instillation of an additional 60,000 metric tons of capacity by year end 2007. Total NPCC capacity, once all lines are completed, will be 190,000 metric tons. Capital expenditure for the year 2007 is expected to be $54 million, of which $16.2 million has already been spent. Of the balance of $37.8 million, approximately $33.0 million is intended to be used for the construction of the additional NPCC capacity. ShengdaTech reaffirms its guidance for full year 2007 for revenue to be in the range of $96 million to $98 million and net income to be in the range of $23.0 million to $24.4 million with fully diluted earnings per share of $0.43 to $0.45.
“We are rapidly expanding our market share as we build our leadership position in the NPCC market in China. Currently, we are in the testing process with a number of potential new customers, including 12 PVC manufacturers, 20 tire manufacturers, 15 latex makers, 25 adhesive producers, and four paper makers. We expect to add five to six new clients in the third quarter 2007. In addition, we recently doubled our sales team to 60 sales agents,” commented Mr. Chen. “Overall, we expect to see continued strong growth in our NPCC products as we bring on additional capacity and increase our marketing efforts.”
Conference Call
ShengdaTech will host a conference call at 10:00 am EST on Thursday, August 9, 2007, to discuss the second quarter 2007 financial results. Joining Mr. Xiangzhi Chen, ShengdaTech’s Chief Executive Officer on the call will be Ms. Anhui Guo, the Chief Financial Officer, Mr. Crocker Coulson, President of CCG Elite, and Ms. Leslie Richardson, Financial Writer at CCG Elite. The company plans to release its earnings earlier that same day. To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 800-688-0796. International callers should dial 617-614-4070. The pass code for the call is 766 800 26. If you are unable to participate in the call at this time, a replay will be available on Thursday, August 9, 2007 at 11:00 AM ET through Thursday, August 16, 2007. To access the replay, dial 888-286-8010, international callers should dial 617-801-6888. The conference passcode is 12151592. This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.shengdatechinc.com . Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90 day replay will be available shortly after the call by accessing the same link.
