China Kanghui Holdings Reports First Quarter 2012 Financial Results

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 millionfrom 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 millionfrom 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 Sheet

As 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 Outlook

Mr. 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 Discussion

The 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 Call

Kanghui 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: