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Friday, November 09, 2007

Shengda Tech (SDTH) Q3 results

I first looked at them here. Bought it, then sold it at a 20% profit two weeks later. Then I bought it again when the price dropped.

Q3 results:

Wow, cash went up to $41 million from $28 million last quarter.
AR held steady. Inventory up a bit.
The $4.8 million receivable from related party is all but gone.

PP&E is up very slightly from Q2.
Total assets increased to $92 million from $82 million.

AP increased somewhat.
Current liabilities is up a bit.
Net cash is $28 million out of $92 million total assets. Power.
84% equity.

Revenues increased to $27 million from $22.7 million in Q2 and $18.8 million prior year, but this was largely due to the drop in the dollar. Volumes increased, but price per ton decreased for both chemical and nano-materials. The nano-materials margins were helped by the lower cost new Shaanxi facility.
35.5% gross margin vs only 29.7% prior year, 33.8% in Q2.
Operating margin is 31% vs 25.5% prior year, 29% in Q2.
Net margin is 28.7% vs 25.5% prior year, 26.6% in Q2.
14 cents per share diluted vs 9 cents prior year, 11 cents Q2

Cash flow from operations is a little above earnings, AP and AR roughly offset each other.
Capex was huge due to the expansion.
Not much on the financing front.
Net story: Operations generated $22 million, $16 million went into expansion, leaving an extra $6 million in cash on the balance sheet.

No post-delivery liabilities with products sold.
Shipping and handling costs and charges are included in COGS and revenue.

The PP&E breakdown makes sense.
Depreciation schedule:
building: 15-25 years
Plant, machinery, equipment: 10-17 years (a bit high?)
vehicles: 5-10 years (a bit high?)
office equipment: 3-5 years

30%+3% tax rate in China only. Tax holiday for two profitable years, then 50% rate for 3 years.

10 million preferred shares authorized, none issued.

Segment results:
chemical revenues: up 19%
nano-materials revenues: up 21% (this is the good stuff)

chemical operating margin: 23%
nano-material operating margin: 35%

Of the revenues, 52% is chemical, 48% is nano-material.
In Q2, it was roughly the same ratio.
Last year it was 71% chemical and only 29% nano-material.
We increased our annual manufacturing capacity of NPCC to 90,000 metric tons as of December 31, 2006 and 130,000 metric tons as of September 30, 2007. We plan to add an additional 60,000 metric tons of capacity in 2007.
For example, with respect to tire and PVC building materials, the pricing of NPCC products is principally affected by the cost saving benefit our customers realize by replacing some of the relatively expensive carbon black and PVC. With respect to paper, the pricing of NPCC is principally affected by comparable imports. In the next few years, we may reduce the selling price in order to compete with relatively small competitors. However, we still remain confident in retaining the current gross profit margin level because our unit costs of products are reduced by achieving economies of scale.
But our chemical factory is located in the residential district. With the strong China governmental security and environment protection standards, it is possible the government will order us to shut down the factory or move to another location. As of September 30, 2007, we haven’t received any such order or notice from the government.
They lowered sales commission from 5% to 3% and plan to hire more sales staff.

The tax holidays for two facilities have expired and are now taxed at 50% of full rate.


I continue to hold onto this, but it's a small position. I figure it's worth $10. Probably more.

I lost a damn good employee today in my day job. Adios.

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