SDTH: gleanings from last earnings report & recent guidance:
this SEC filing includes a transcript of their Q3 conference call:Final Transcript SHENGDA TECH: Q3 Earnings Conference Call November 12, 20072, 2007/9:00 a.m. EST
" Over the past year, Shengda Tech has increased our MPCC production capacity from 30,000 metric tons to 130,000 metric tons. In September of 2006, we added 60,000 metric tons of MPCC capacity, which reached 100% utilization by December of 2006. In July we completed construction of another 40,000 metric tons of MPCC capacity, which was at 80% utilization at the end of the third quarter and is expected to reach 100% utilization by the end of this current month. Our expanded capacity coupled with strong demand resulted in 144.8% increase in MPCC revenues in the third quarter as compared to the prior year. In September, we began construction of another 60,000 metric tons of capacity and we expect these lines to begin production in the first quarter of 2008. Once completed, this will bring our total annual production capacity to 190,000 metric tons.
We’re continuing to make progress in MPCC applications for polyethylene and polypropylene. Our estimates show that China produces about 14 million tons of polyethylene and polypropylene each year. Theoretically, MPCC can replace between 3% to 4% of this product. One of the specific polyethylene products we’re researching is MPCC for use in bioactually oriented polypropylene in film, or BOPP. As you may know, BOPP has become one of the most popular high-growth films in the world. Its uses are almost a limitless array of flexible packaging applications, pressure sensitive tapes, labels, stationary, consumer products and a wide variety of non-packaging uses. It’s rapidly replaced cellulose film in applications such as snack, confectionary and tobacco packaging. Recently, use of BOPP film has expanded in the new markets such as pasta and noodle packaging, mold labels, bakery and flour and bouquet packaging. Global production of BOPP was over 5 million tons in 2005 according to AMI Consulting.
Now I’d like to briefly touch on our chemical business where revenues increased 4.4% during the quarter and demand remains stable. Earlier this year we upgraded our equipment use in our chemical factory resulting in operating efficiencies, which more than offset a slight decline in chemical prices during the quarter and resulted in record gross margin of 28% for this segment during the quarter
[Note: transcript uses MPCC, a translation error for NPCC: nano-precipitated calcium carbonate. Also, D. Lee is actually a Senior China Equity Analyst with Roth Capital, not Ross Capital]
Our revenue … is now 48% from the MPCC segment and 51% from the chemical segment compared to 28% and 71% respectively in the third quarter of 2006. Our revenue from the MPCC segment was $30 million for the third quarter of 2007, up 144% from $5.4 million in the third quarter of 2006. Increase in year-over-year revenue is attributed to the addition of 60,000 metric tons of MPCC capacity in September of 2006 and the 40,000 metric tons … Total volume of MPCC sold during the third quarter of 2007 was 34,267 metric tons. MPCC use in tires and PVC contributed to $0.46 and near 37% of MPCC revenue respectively.
Gross margin for the MPCC segment was 43% compared to 36% in the same quarter a year ago. Increasing gross margin for our MPCC segment is attributed to a larger percentage of our MPCC products produced at our new Xiang factory, which has about 30% lower production cost than the older factory in Chan City.
“Our record revenue and net income this quarter demonstrates the strong demand we continue to experience for our NPCC products. Over 70% of our new capacity was sold to current customers who increased their orders,” commented Mr. Xiangzhi Chen, President, CEO and Director of ShengdaTech. “Moreover, we added nine new domestic customers and three new international customers, primarily for NPCC in producing PVC, tires and paint.”
SDTH recently (1/23/08) filed an 8K with some updated guidance: " What is the schedule for ramping up production for the new 60,000 metric tons? A) We expect our ramp- up process will be as follows: 40% capacity in April, 50% capacity in May, 70% capacity in June, 80% capacity in July and 100% capacity in August
8. How do you anticipate your product mix to change in 2008? A) We expect our product mix will increase for adhesive, paper and paint applications. We also expect to add polyethylene to our product mix.
9. Will you increase your exports during 2008? A) We expect that our exports will increase from approximately 1% of revenue to approximately 10% of revenue.
Takeaway: SDTH appears to be utilizing their increased capacity with rapidity, they are expanding markets with moves into poly, paper, and exports. They announced an effort in November in the area of NPCC use in paper and recently filed an 8K re. their initiatives in this area:
Replacing higher buck titanitum [dioxide?] with NPCC filler that improves "whiteness, brightness, opacity, smoothness, and rate of ink absorption while enhancing the strength of paper" seems like a potentially very large market opportunity. "Our R&D Center is also working closely with major paper mills in North America in an effort to expand our international market penetration." "
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