Kanghui fourth quarter total net revenue increases 33.6% to RMB96.6M

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 fourth quarter and full year 2011.

Fourth Quarter 2011 Highlights

• Total net revenue for the fourth quarter of 2011 increased by 33.6% year-over-year to RMB96.6 million from RMB72.3 million in the corresponding period of the prior year.
• Gross profit for the fourth quarter of 2011 increased by 32.3% year-over-year to RMB69.2 million from RMB52.3 million in the corresponding period of the prior year.
• Operating income for the fourth quarter of 2011 increased by 17.0% year-over-year to RMB35.8 million from RMB30.6 million in the corresponding period of the prior year.
• Net income for the fourth quarter of 2011 increased by 53.8% year-over-year to RMB42.3million from RMB27.5 million in the corresponding period of the prior year.
• Non-GAAP net income for the fourth quarter of 2011 increased by 57.4% year-over-year to RMB44.4 million from RMB28.2 million in the corresponding period of the prior year.

Full Year 2011 Highlights

• Total net revenue for the full year 2011 increased by 34.7% year-over-year to RMB327.0 million from RMB242.8 million for the full year 2010.
• Gross profit for the full year 2011 increased by 36.8% year-over-year to RMB234.5 million from RMB171.4 million for the full year 2010.
• Operating income for the full year 2011 increased by 22.5% year-over-year to RMB132.3 million from RMB108.0 million for the full year 2010.
• Net income for the full year 2011 increased by 21.5% year-over-year to RMB121.1 million from RMB99.7 million for the full year 2010.
• Non-GAAP net income for the full year 2011 increased by 19.3% year-over-year to RMB128.5 million from RMB107.7 million for the full year 2010.

Mr. Libo Yang, Chief Executive Officer of the Company, stated, "We are very pleased that Kanghui once again exceeded expectations and delivered another strong quarterly financial performance in the fourth quarter of 2011. We continued to expand our market share in China, while further penetrated our existing international sales channels at the same time.  Our fourth quarter success concluded a very successful 2011 for Kanghui. With our sustainable advantages, a proven product line, and an exciting new product pipeline, we believe we are well positioned to deliver another successful year in 2012."

Ms. Sarah Wang, Chief Financial Officer of Kanghui, commented, "Our strong fourth quarter financial results reflect our ability to consistently execute on our growth strategy.  During the fourth quarter, we experienced strong sales growth across all product segments and markets, driven by the strong demand for our existing product lines.  For 2012, we intend to continue with the solid momentum and foundation that we had built in 2011 and to launch additional new products throughout the year to further establish Kanghui as a leading international provider of innovative and diversified orthopedic products."

Fourth Quarter 2011 Financial and Operating Results

Net revenue increased by 33.6% year-over-year to RMB96.6 million ($15.3 million) in the fourth quarter of 2011 from RMB72.3 million in the corresponding period of the prior year.  Net revenue from trauma products increased by 45.4% year-over-year to RMB63.7 million ($10.1 million) in the fourth quarter of 2011 from RMB43.8 million in the corresponding period of the prior year. Net revenue from spine products increased by 28.4% year-over-year to RMB28.5 million ($4.5 million) in the fourth quarter of 2011 from RMB22.2 million in the corresponding period of the prior year. Net revenue from OEM products decreased by 30.2% year-over-year to RMB4.4 million ($0.7 million) in the fourth quarter of 2011 from RMB6.3 million in the corresponding period of the prior year. Domestic sales of proprietary products increased by 26.8% year-over-year to RMB70.0 million ($11.1 million) in the fourth quarter of 2011 from RMB55.2 million in the corresponding period of the prior year, while international sales of proprietary products increased by 105.6% year-over-year to RMB22.2 million ($3.5 million) in the fourth quarter of 2011 from RMB10.8 million in the corresponding period of the prior year.

In the fourth quarter of 2011, cost of revenue increased by 36.5% year-over-year to RMB27.3 million ($4.3 million) from RMB20.0 million in the corresponding period of the prior year. Gross profit increased by 32.3% year-over-year to RMB69.2 million ($11.0 million) in the fourth quarter of 2011 from RMB52.3 million in the corresponding period of the prior year. Gross margin for the fourth quarter of 2011 was 71.6%, compared to 72.3% in the corresponding period of the prior year. 

Selling expenses increased by 29.2% year-over-year to RMB14.6 million ($2.3 million) in the fourth quarter of 2011 from RMB11.3 million in the corresponding period of the prior year. General and administrative expenses increased by 50.0% year-over-year to RMB13.2 million ($2.1 million) in the fourth quarter of 2011 from RMB8.8 million in the corresponding period of the prior year.  Research and development expenses increased by 229.4% year-over-year to RMB5.6 million ($0.9 million) in the fourth quarter of 2011 from RMB1.7 million in the corresponding period of the prior year.

Operating income increased by 17.0% to year-over-year RMB35.8 million ($5.7 million) in the fourth quarter of 2011 from RMB30.6 million in the corresponding period of the prior year. Operating margin decreased to 37.1% in the fourth quarter of 2011 from 42.3% in the corresponding period of the prior year.

Income tax benefit in the fourth quarter of 2011 was RMB0.3 million ($54,000), compared to an income tax expense of RMB2.6 million in the corresponding period of the prior year.

Net income was RMB42.3 million ($6.7 million) in the fourth quarter of 2011, representing a year-over-year increase of 53.8% from RMB27.5 million in the corresponding period of the prior year. On a diluted per ADS basis, the Company reported net income per diluted ADS of RMB1.65 ($0.26) in the fourth quarter of 2011, compared to a net income per diluted ADS of RMB1.10 in the corresponding period of the prior year.                                                                                                                                             

Non-GAAP net income, which excludes share based compensation expenses, increased by 57.4% to RMB44.4 million ($7.1 million) from RMB28.2 million in the corresponding period of the prior year. The Company reported non-GAAP net income per diluted ADS of RMB1.72 ($0.27) in the fourth quarter of 2011, compared to a non-GAAP net income per diluted ADS of RMB1.12 in the corresponding period of the prior year. 

During the fourth quarter of 2011, the Company had a weighted average diluted share count of 154.3 million shares (equivalent to 25.7 million ADSs), compared to 150.6 million shares (equivalent to 25.1 million ADSs) in the corresponding period of the prior year.

Full Year 2011 Financial and Operating Results

For the full year ended December 31, 2011, net revenue increased 34.7% year-over-year to RMB327.0 million ($52.0 million) from RMB242.8 million for the prior year. Net revenue from trauma products increased 30.7% year-over-year to RMB201.6 million ($32.0 million) from RMB154.3 million for the prior year. Net revenue from spine products increased 45.6% year-over-year to RMB99.3 million ($15.8 million) from RMB68.2 million for the prior year. Net revenue from OEM products increased 28.6% year-over-year to RMB26.1 million ($4.1 million) from RMB20.3 million for the prior year. The increase in revenue for full year 2011 also reflects international revenue growth of 48.6% and domestic revenue growth of 32.4%, on a year-over-year basis.

Gross profit for the full year 2011 increased 36.8% year-over-year to RMB234.5 million ($37.3 million) from RMB171.4 million in the prior year. Operating income for full year 2011 increased 22.5% year-over-year to RMB132.3 million ($21.0 million) from RMB108.0 million for the prior year.

Net income for the full year 2011 increased by 21.5% year-over-year to RMB121.1 million ($19.2 million) from RMB99.7 million for the prior year. This is equivalent to RMB4.72 ($0.75) per diluted ADS in the full year 2011. Non-GAAP net income for the full year 2011, which excludes share-based compensation expenses, increased by 19.3% year-over-year to RMB128.5 million ($20.4 million) from RMB107.7 million for the prior year. This is equivalent to RMB5.01 ($0.80) per diluted ADS in the full year 2011.

The weighted average number of diluted shares outstanding was 154.0 million, equivalent to 25.7 million ADSs, for the year ended December 31, 2011, compared to a weighted average of 100.3 million diluted shares outstanding, equivalent to 16.7 million ADSs, for the year ended December 31, 2010.

Balance Sheet

As of December 31, 2011, the Company had cash and cash equivalents of RMB380.1million ($60.4 million), compared to RMB262.5 million as of December 31, 2010. As of December 31, 2011, the Company held short-term investments of RMB77.0 million ($12.2 million), compared to RMB266.7 million as of December 31, 2010.

Business Outlook

Mr. Yang added, "Our progress in 2011 has laid a solid foundation for our continued growth in 2012, as we are focused on further penetrating both our existing domestic and international markets while expanding into new growth opportunities. As we successfully obtained FDA approvals for TGM's Helicon™ Hip System ("HHS"), Milestone Knee System ("MKS") and related surgical instruments, we intend to launch these products this year to kick start our reconstructive joint segment.  We have a good start in 2012 and will continue to position Kanghui as a leader in product quality in the fast-growing and relatively underserved joint reconstruction market in China."

The Company 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.

SOURCE China Kanghui Holdings