Zhongpin Sees Profits Soar

CHINA - Chinese meat and food processor Zhongpin saw first quarter revenue grow by 41.5 per cent year on year to $153.8 million.
calendar icon 13 May 2009
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The company's gross profit increased by 34.9 per cent to $19.1 million with a gross margin of 12.4 per cent.

Net income increased by 33.7 per cent year-on-year to $9.7 million.

The group added 36 new retail outlets to its busines, bringing the total number of retail outlets to 3,097 and it started operations at a new chilled and frozen pork plant in Yongcheng City with an annual production capacity of 80,000 tonnes.

"We are very pleased to begin 2009 with solid financial results. Historically, consumers increase their consumption of pork products during the Chinese New Year holidays resulting in a strong seasonal demand for pork in the first quarter. Our ability to quickly ramp up capacity utilization at our newly added facilities enabled us to achieve double-digit growth in revenue and improved profitability, both on a year-over-year and sequential basis," said Xianfu Zhu, CEO of Zhongpin.

"Since the second half of 2008, our newly added production capacities have been running efficiently and we have achieved significant progress in upgrading our product line and distribution structure, therefore adding increased value at every stage of the supply chain."

Zhongpin's capacity expansion plans for 2009 include the new pork products facility in Tianjin City, as well as construction of a new prepared meat facility in Changge City.

This new facility will add annual prepared meat production capacity of 36,000 metric tons by the end of the fourth quarter of 2009. The new facility is expected to achieve its target utilization level by the end of the second quarter of 2010.

Capital expenditure for the next 12 months is expected to be $93.5 million, including the construction of the Company's new pork production facility in Tianjin City and new prepared meat facility in Changge City, as well as the acquisition of land use rights for the new facility in Tianjin which is expected to cost approximately $10 million.

Zhongpin believes it has adequate resources available to finance these projects, including anticipated positive cash flow from operations, an adequate cash balance and readily available bank lines of credit.

Zhongpin has reaffirmed its full year 2009 revenue expectations to be in the range of $780 million to $810 million with a gross margin of approximately 12.0 perc ent, net profit margin of at least six per cent and fully-diluted earnings per share in the range of $1.50 to $1.63, assuming a fully-diluted share count of 30.7 million shares outstanding.

"While the pork industry experienced a negative impact in April due to the recent H1N1 virus outbreak in North America, we believe this impact will be short-lived. In fact, as fears surrounding the virus have subsided and consumers are educated that the virus can not be contracted by consuming pork products, we have observed an increase in demand for pork and some firming of pork prices. As a result, we do not expect further negative impact from this issue on our revenue for the second quarter. More importantly, the increased consumer focus on food safety underscore the importance of high quality products and stringent testing procedures which form the basis of our modernized, safe, and hygienic processing facilities," said Mr Zhu.

"We believe that China's live hog prices and pork prices are close to their bottom and expect an upward trend in the second half of the year as the Chinese economy begins to recover. Our outlook for the long-term potential of China's meat processing industry remains very positive and we plan to continue to expand our distribution and processing plan to serve this market opportunity and build a leading brand position in the pork category," he added.

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