ShengdaTech Reports Blow-Out Quarter
Singular Research recent sent a note to clients on ShengdaTech's (SDTH) Q2 earnings (see conference call transcript). Key excerpts follow:
Earnings Summary
ShengdaTech reported strong revenue growth of 75.7% to $39.9 million from $22.7 million in Q2:07.
Nano-Materials segment revenues grew 76.4%, from $10.8 million to $19.1 million. Chemical segment revenues grew 74.6%, from $11.9 million to $20.7 million.
Gross margin for Q2:08 was 36.8%. Chemical segment gross margin was 33.1%, up from 25.7% in Q2:07, due to strong selling prices for liquid ammonia, methanol, melamine and ammonia bicarbonate. Nano-Materials segment gross margin was 40.8%, down from 42.7%, due to higher average coal prices, which were partially offset by increases in the NPCC selling price.
Operating profit increased 92.9%. Operating margin was 31.9%, compared to 29% in Q2:07. SG&A expenses were 4.9% of total revenues.
Net income increased 66.3% to $10 million. EPS increased 63.6% to $0.18. The company reported a higher diluted share count from the recently issued convertible note.
The company reported ramping up NPCC production at the new 60,000 metric ton facility completed at the end of Q1:08. Production levels for the new facility were 70% of capacity at the end of Q2:08, and is currently operating at 100% of capacity. Total annual NPCC capacity is currently 190,000 metric tons.
The company achieved a significant product breakthrough during the quarter in applying NPCC to automobile undercoating paints. SDTH reported six new domestic NPCC customers and four new international customers.
The company issued $115 million in convertible senior notes in Q2:08. Funds will be used for land acquisition, plant construction and equipment for an additional 60,000 metric ton of NPCC capacity. The new plant will be in Zibo, Shandong Province, and is expected to be completed by July 2009. An additional 60,000 metric ton facility is planned to open by the end of 2009, for a total capacity of 310,000 metric tons.
Funds from the convertible senior notes will also be used for the acquisition of Jinan Fertilizer, expected to close by the end of September. The company plans to move its existing chemical operations to existing Jinan site. After closing the acquisition and moving equipment, SDTH expects the revenue run rate for the Chemicals segment to be three times 2007 revenues.
Company guidance remains unchanged, with revenues for 2008 of $132 – 134 million and EPS of $0.62 – 0.65, representing revenue growth of 31 – 33%, and EPS growth of 24 – 30%. We believe this is conservative given the potential Jinan acquisition and NPCC capacity growth.
We maintain our BUY rating on SDTH and will update our estimates and price target once the 10Q is filed.
Disclosure: none
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