Leading specialty chemical company, China XD Plastics, Co. (NASDAQ:CXDC), announces financial results for Q3, 2016.
China XD Plastics Company Limited (CXDC) (“China XD Plastics” or the “Company”), one of China’s leading specialty chemical companies engaged in the development, manufacture and sale of polymer composite materials primarily for automotive applications, today announced its financial results for the third quarter ended September 30, 2016.
Third Quarter 2016 Financial Highlights
Revenue was $331.8 million, an increase of 38.8% YoY
Gross profit was $69.6 million, an increase of 137.5% YoY
Gross margin of 21.0%, an increase of 870 basis points YoY
Net income was $20.2 million, an increase of 236.7% YoY
EBITDA was $46.1 million, an increase of 71.4% YoY
Total volume shipped was 108,633 metric tons, up 33.0% YoY
Book value per share was $9.54 as of the end of the third quarter 2016
“We are pleased by the financial results of the third quarter which benefited from a continued improvement in macroeconomic conditions in the auto industry, our increased production capacity and an escalation in international sales,” said Jie Han, Chairman of the Board of Directors and Chief Executive Officer. “According to the China Association of Automobile Manufacturers, the number of automobiles manufactured in China increased by 14.7% for the first nine months of 2016 as compared to first nine months of 2015. An improvement in macroeconomic conditions through the first nine months of 2016 has resulted in improved business conditions and eased pricing pressures which have resulted in stronger company profit margins.”
Mr. Han continued, “Key elements of our growth plan include elevating the sales of our high-end products, optimizing our increased production capacity, and increasing our overseas sales in order to reduce our concentration in the Chinese market. We are beginning to see the results of this strategy as we increased overseas sales significantly from the overseas market in the third quarter as compared to the same period last year. As anticipated, the steady recovery in operating conditions coupled with the focused execution of our strategic plan has resulted in a marked improvement in key financial metrics such as sales volume, average selling price and profitability margins.”
“The commissioning of our Sichuan campus in the current quarter is an important milestone as it will ultimately add 300,000 metric tons of annual production to our domestic capacity, for a total domestic capacity of 690,000 metric tons. The Sichuan facility substantially expands the footprint of our auto business in China and while we expect that automotive applications will continue to be our core business, the new facility includes precision equipment which will enable us to diversify our product platform into such high-growth verticals as ships, high-speed rail, airplanes, bio-degradable materials, medical-grade materials and food packaging which will propel the company’s growth.”
“Our Sichuan plant has been designed with the highest production specifications with state-of-the-art equipment and extends our geographical reach beyond our established Northeast base in Harbin as the China’s Southwest is rapidly becoming an important economic region. We anticipate having production capacity of 60,000 metric tons as operational by year-end 2016,” continued Mr. Han.
“In addition to our new Sichuan campus, our manufacturing facility in Dubai will also extend our specialized high-tech products into important new markets. We are planning to complete Phase 2 of our build-out by the end of this year which will constitute installing an additional 14,000 metric tons of annual production capacity, bringing total production capacity in Dubai to 16,500 metric tons. The Dubai facility will target high-end products for the overseas market and will ultimately enable more active inroads into the markets of Europe, the Middle East and other international regions.”
“We view our ability to innovate combined with our utilization of state-of-the art equipment as a technical and competitive edge in the marketplace. China XD is committed to creating value for all of our stakeholders through our commitment and dedication to our customers. We remain confident in our business model and anticipate that our expansion in Sichuan and the completion of our Dubai plant this year will result in improved market positioning, a diversified base of customers, higher-end sales and an expansion into new verticals. We anticipate that the year’s steady improvement in our sector will continue into 2017 and we reiterate our current financial guidance at this time,” Mr. Han concluded.
Third Quarter 2016 Results
Revenues were $331.8 million in the third quarter ended September 30, 2016, an increase of $92.7 million or 38.8% compared to $239.1 million in the same period of last year. This was due to a 33.0% increase in sales volume and a 10.0% increase in the average RMB selling price of our products, offset somewhat by a 6.0% negative impact from the exchange rate due to a weakening RMB against the US dollar. Overseas sales was $37.0 million in the third quarter of 2016 compared to $7.3 million in the same period of 2015 due to sales overseas.
Premium products (PA66, PA6, Plastic Alloy, PLA, POM and PPO) in total accounted for 82.8% of revenues, compared to 77.6% in the prior year period. The Company continued to shift its production mix from traditional polymer materials to higher-end products due to (i) the greater growth potential of advanced modified plastics in luxury automobile models in China, (ii) the stronger demand as a result of promotion by the Chinese government for clean energy vehicles and (iii) better quality from end consumer recognition of higher-end cars made by automotive manufacturers from Chinese and Germany joint ventures, and U.S. and Japanese joint ventures, which manufacturers tend to use more and higher-end modified plastics in quantity per vehicle in China.
Gross profit was $69.6 million in the third quarter ended September 30, 2016, compared to $29.3 million in the same period of 2015, an increase of $40.3 million or 137.5%. Gross margin increased to 21.0% during the quarter ended September 30, 2016 from 12.3% during the same quarter of 2015 primarily due to a greater contribution from higher-margin products sold overseas.
General and administrative (G&A) expenses was $8.4 million in the quarter ended September 30, 2016, compared to $5.8 million in the same period of 2015, an increase of $2.6 million or 44.8%. This increase was primarily due to the increases in salary due to the increase in the number of management and general staffs from supporting departments, and expenses associated with the commissioning ceremony in the current quarter of its new Sichuan manufacturing facility and rental expenses.
Research and development (R&D) expenses were $7.9 million in the quarter ended September 30, 2016 compared with $5.8 million during the same period in 2015, an increase of $2.1 million or 36.2%. This increase reflected our enhanced efforts in research and development activities on new products primarily for industrialized applications from automotive to other advanced fields such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics, and medical devices. As of September 30, 2016, we were engaged in 196 ongoing R&D projects.
Total operating income was $53.1 million in the third quarter ended September 30, 2016 compared to $17.3 million in the same period of 2015, an increase of $35.8 million or 206.9%. This increase is primarily due to a higher gross margin, partially offset by the higher general and administrative and research and development expenses.
Net interest expense was $9.7 million in the three-month period ended September 30, 2016, compared to net interest expense of $8.3 million in the same period of 2015, primarily due to (i) the decrease of interest income which was caused by the decrease of the average interest rate to 1.4% for the three month period ended September 30, 2016 compared to 2.5% for the same period of 2015, which was partially offset by an increase in the average deposit balance in the amount of $355.8 million for the three months ended September 30, 2016 compared to $306.8 million for the same period of 2015; and (ii) the increase of interest expense which was caused by the increase of short-term and long-term loans in the amount of $666.3 million for the three months ended September 30, 2016 as compared to $368.0 million of prior year, which was partially offset by the decrease of the average interest rate to 4.5% for the three months ended September 30, 2016 as compared to 5.2% for the three months ended September 30, 2015.
Loss on debt extinguishment resulted in a charge of $19.0 million as the Company fully redeemed all of its $150 million principal amount 11.75% guaranteed senior notes due 2019 plus the applicable premium and unpaid interest up to the redemption date of August 29, 2016.
The effective income tax rate for the three-month periods ended September 30, 2016 and 2015 was 20.8% and 35.5%, respectively. The decrease in the current quarter was primarily due to the increase of $17.4 million profits generated in tax-exempted Dubai Composites for the three-month ended September 30, 2016 as compared to the same quarter of 2015. This was partially offset by a $19.0 million loss on the Company’s redemption of its $150 million principal amount 11.75% guaranteed senior notes due 2019 in the third quarter which is exempted from income taxes. The effective income tax rate for the three-month period ended September 30, 2016 differs from the PRC statutory income tax rate of 25% primarily due to the preferential tax rate of Sichuan Xinda, the effect of tax rate differential on entities not subject to PRC income tax, super deduction of R&D expense and partially offset by the effect of non-deductible expenses.
Net income was $20.2 million in the third quarter ended September 30, 2016, compared to $6.0 million for the same period of 2015, an increase of $14.2 million or 236.7%. Basic and diluted earnings per share were $0.31, compared to $0.09 per basic and diluted share in the third quarter of 2015.
The average number of shares used in the computation of basic and diluted earnings per share for the three months ended September 30, 2016 was 49.5 million compared to 49.3 million in the prior year period.
Earnings before interest, tax, depreciation and amortization (EBITDA) was $46.1 million for the third quarter of 2016 compared to EBITDA of $26.9 million in the same period of 2015, representing an increase of $19.2 million or 71.4%. For a detailed reconciliation of EBITDA, a non-GAAP measure, to its nearest GAAP equivalent, please see the financial tables at the end of this release.
As of September 30, 2016, the Company had $100.1 million in cash and cash equivalents, $130.4 million in time deposits with commercial banks, $151.3 million in working capital (current assets minus current liabilities) and a current ratio (current assets divided by current liabilities) of 1.17. Stockholders’ equity as of September 30, 2016 was $625.1 million, an increase of 8.1% as compared to $578.0 million as of December 31, 2015.
Inventories increased by 40.9% from fiscal year end 2015 as a result of more purchases made by the Company to take advantage of the lower purchase price of the raw materials and our strategy to stock up on inventory for increasing demand from the Sichuan plant. Property, plant and equipment net increased by 43.3% from fiscal year end 2015 due to the delivery of equipment at Dubai Xinda at the beginning of 2016.
On August 22, 2016, a wholly owned subsidiary of the Company, Xinda Holding (HK) Company Limited, entered into an agreement for a loan facility in an aggregate amount of $180 million with a consortium of banks and financial institutions led by Standard Chartered Bank (Hong Kong) Limited. Pursuant to the agreement, the proceeds of the loan facility shall be applied primarily to the previously approved redemption of the $150 million principal amount 11.75% guaranteed senior notes due 2019 (the “Senior Notes”). On August 29, 2016, the Company fully redeemed the Senior Notes. The aggregate amount paid was $166.6 million consisting of $150 million of principal, the applicable premium of $15.4 million and accrued and unpaid interest of $1.2 million to the redemption date. This resulted in a one-time non-operating charge of $19.0 million as a loss on debt extinguishment in the third quarter of 2016.
The aggregate short-term and long-term bank loans increased by 34.2% from fiscal year end 2015 as the result of utilization of existing lines of credit, among which proceeds of $180 million bank loans with a consortium of banks and financial institutions were used to redeem the Senior Notes. We believe our current debt level is manageable. We define the manageable debt level as the sum of aggregate short-term and long-term loans, and notes payable over total assets.
On June 28, 2016, AL Composite Materials FZE (“AL Composites”), a subsidiary of the Company, signed a purchase agreement pertaining to approximately 20,206 square meters of property, and on September 21, 2016, AL Composites signed a second purchase agreement pertaining to approximately 22,324 square meters of property. Both properties are located in JAFZA (the Jebel Ali Free Economic Zone) in Dubai, UAE. The properties include a warehouse and an office building.
On July 8, 2016, the Company announced that it held a commissioning ceremony on July 7, 2016 at its new Sichuan manufacturing facility. Over 700 participants attended the event which showcased the new fully automated facility. The Sichuan campus will diversify the Company’s product platform into additional high-growth verticals such as ships, high-speed rail, airplanes, bio-degradable materials, medical-grade materials and food packaging. The plant has been designed at state-of-the-art production specifications so as to maintain the highest and most consistent standards in quality control and batch consistency.
Business Outlook and Guidance
The Company reiterates its financial guidance for fiscal 2016 with revenue to range between $1.0 billion and $1.1 billion and net income to range between $100.0 million to $110.0 million. This is based on the anticipation of the continued steady recovery throughout the Chinese automotive supply chain, the Company’s belief in its ability to secure new customers and a stabilization of crude oil pricing and its impact on polymer composite materials in 2016. This forecast also assumes contributions from the Sichuan plant, which started production in the second half of 2016. It also assumes a relatively stable exchange rate of the US dollar to RMB and excludes certain non-cash and non-operational items. This financial guidance reflects the Company’s view of its business outlook for the remainder of fiscal 2016 and is subject to revision based on changing market conditions at any time. The Company currently plans to provide financial guidance for fiscal 2017 later this year.
China XD Plastics’ management will host a conference call at 9:00 a.m. ET on Wednesday, November 9, 2016, to discuss its third quarter 2016 financial results. The conference call can be accessed by dialing +1 (855) 298-3404 (for callers in the U.S.), +86-4001-200-539 (for mainland China callers) or +852 5808 3202 (for Hong Kong callers) and entering pass code 2323876.
A recording of the conference call will be available through November 16, 2016, by calling +1 (866) 846-0868 (for callers in the U.S.) and entering pass code 2323876.
A live webcast and replay of the conference call will be available on the investor relations page of the Company’s website at http://www.chinaxd.net.
About China XD Plastics Company Limited
China XD Plastics Company Limited, through its wholly-owned subsidiaries, develops, manufactures and sells polymer composites materials, primarily for automotive applications. The Company’s products are used in the exterior and interior trim and in the functional components of 28 automobile brands manufactured in China, including without limitation, Audi, Mercedes Benz, BMW, Buick, Chevrolet, VW Passat, Golf and Jetta, Mazda, and Toyota. The Company’s wholly-owned research center is dedicated to the research and development of polymer composites materials and benefits from its cooperation with well-known scientists from prestigious universities in China. As of September 30, 2016, 390 of the Company’s products have been certified for use by one or more of the automobile manufacturers in China. For more information, please visit the Company’s English website at http://www.chinaxd.net, and the Chinese website at http://www.xdholding.com.
China XD Plastics, Co. (NASDAQ:CXDC) shares are moving +5.81% on the news today and have traded in the range of $4.35 – 5.05 during the current trading session. A number of brokerage analysts have recently weighed in on the stock, providing price target projections. The covering firms currently have a consensus one-year price target of $7.00 on the stock. This is according to brokerage analysts polled by Thomson Reuters First Call. This is the average number from the individual targets provided by the firms. Analysts are projecting earnings per share of $0.00 for the next fiscal quarter. For the current year, analysts are predicting earnings of $1.73 per share according to First Call.
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In looking at where China XD Plastics Company Limit is trading on a technical level, the stock is trading +1.46% away from its 50-day moving average of $4.48. Based on the most recent available data, the equity is -22.62% off of its 52-week high of $5.88 and +79.84% away from its 52-week low which is $2.53.
In taking a look at the company’s valuation, the firm’s price to earnings ratio stands at 3.87. Today, the stock opened at $5.00 and the last bid at the time of writing stood at $4.55. During the session thus far, the equity dipped down to $4.35 and touched $5.05 as the high point. China XD Plastics, Co. (NASDAQ:CXDC) has a market cap of $224.80M and has seen an average daily volume of 29,494 over the past three months.
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Disclaimer: The views, opinions, and information expressed in this article are those of the authors and do not necessarily reflect the official policy or position of any company stakeholders, financial professionals, or analysts. Examples of analysis performed within this article are only examples. They should not be utilized to make stock portfolio or financial decisions as they are based only on limited and open source information. Assumptions made within the analysis are not reflective of the position of any analysts or financial professionals.