China XD Plastics said third quarter revenue rose 7% year on year to US$315.7m, gross profit fell 0.5% to $65.4m and net income was up 5.1% to $43.2m. Total volume shipped was up 5.2% to 95,204 tonnes.

"Strong sequential growth confirms our view that business would accelerate over the course of the year," said chairman and CEO Jie Han.

"Revenue growth was fueled by strong domestic demand, success in our geographic diversification efforts outside of China, and improved average selling prices resulting from our strategic shift to higher-end products."

The greater sales volume was driven by strong demand for polymer composite materials in China and Asia, higher penetration in east and southeast China as well as marketing efforts to develop new customers. Market demand in general is the result of an increasing appetite for middle and high-end automobiles by Chinese consumers, continuing substitution of imported polymer composite materials by domestic suppliers, and an increase in per-vehicle plastic content. The adoption rate of advanced polymer parts is highest in luxury automobile models, which is a rapidly expanding segment. The increase in average RMB selling price was mainly due to the shift of product mix toward higher-end products.

The decrease in gross profit was primarily due to higher cost of sales, as the company used some raw materials in the production of PA6 and PA66 that were originally purchased for R&D projects and were left over after the projects were completed.

The increased cost of sales was offset by a shift in product mix with higher-end products (mainly PA6, PA66, POM, PPO and plastic alloy) accounting for 75.5% of total revenue in the third quarter.

Operating income for the third quarter of 2014 was $54.7m, or 17.3% of revenue, a decrease of 2.1% from $55.9m, or 19.1% of revenue, in the same period a year ago.

Outlook

Based on strong performance during the quarter and positive outlook for growing customer demand in the fourth quarter, the company reiterated its revenue guidance for 2014. It expects full-year sales to range between $950m and $1.05bn and net income to range between $100m to $120m.

Show the press release

China XD Plastics Announces Third Quarter 2014 Financial Results

-- Revenue Up 20% Sequentially --

-- Gross Margin Expansion up 25% Sequentially --

-- Confirms Confidence In 2014 Guidance --

HARBIN, China, Nov. 13, 2014 /PRNewswire/ -- China XD Plastics Company Limited (NASDAQ: 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, 2014.

 

Third Quarter 2014 Financial Highlights:

 

 

    --  Revenue was $315.7 million, an increase of 7.7% YoY and 19.5%

        sequentially

    --  Gross profit was $65.4 million, a decrease of 0.5% YoY but up 25.4%

        sequentially

    --  Gross margin of 20.7% declined YoY but was up 100 basis points

        sequentially

    --  Net income was $43.2 million, an increase of 5.1% YoY and 126%

        sequentially

    --  Total volume shipped was 95,204 metric tons, up 5.2% YoY

"Strong sequential growth confirms our view that business would accelerate over the course of the year," said Jie Han, Chairman of the Board of Directors and Chief Executive Officer of China XD Plastics. "Revenue growth was fueled by strong domestic demand, success in our geographic diversification efforts outside of China, and improved average selling prices resulting from our strategic shift to higher-end products."

 

Mr. Han continued, "Looking forward, we continue to see numerous opportunities to grow our business, and are acting accordingly. With the future contribution from the Southwest Campus, we will be able to effectively cover all major markets in China, while products from our Dubai plant will cover overseas markets including Asia, the Middle East, Russia and Europe. Our success in product development this year has broadened our product portfolio from six to now eleven categories. Through our R&D efforts, we have added 3D printing and biodegradable materials to our portfolio. With automobile applications continuing to be our core business, we plan to gradually diversify our product offering to include products for applications in high-speed rail, ships, aircrafts as well as biodegradable and electronics applications."

 

Third Quarter 2014 Results

 

Revenues for the third quarter of 2014 were $315.7 million, representing a year-over-year increase of 7.7% from $293.1 million in the third quarter of 2013. The increase in revenues was due to a 4.1% increase in sales volume and 3.9% increase in the average RMB selling price.

 

The greater sales volume was driven by strong demand for polymer composite materials in the China and Asian markets, higher penetration in the East China and Southeast China markets, as well as marketing efforts to develop new customers. Market demand in general is the result of an increasing appetite for middle and high-end automobiles by Chinese consumers, continuing substitution of imported polymer composite materials by domestic suppliers, and an increase in per-vehicle plastic content. The adoption rate of advanced polymer parts is highest in luxury automobile models, which is a rapidly expanding segment. The increase in average RMB selling price was mainly due to the shift of product mix toward higher-end products.

 

Gross profit was $65.4 million, down slightly from $65.7 million in the third quarter of 2013. The slight decrease in gross profit was primarily due to higher cost of sales, as the Company utilized some raw materials in the production of PA6 and PA66 that were originally purchased for R&D projects and were left over after the projects were completed. The increased cost of sales was offset by a shift in product mix, with higher-end products (mainly PA6, PA66, POM, PPO and plastic alloy) accounting for 75.5% of total revenue in the third quarter, as compared to 70.7% during the prior year period. Additionally, the average sales discount lower-end products (PP and ABS) in the quarter was 1.2%, as compared to 6.5% during the third quarter of 2013. Gross margin was 20.7%, compared to 22.4% in the same period of the prior year and 19.8% in the second quarter of 2014.

 

General and administrative (G&A) expenses were $5.4 million in the quarter, compared to $4.4 million in the same period in 2013, representing an increase of 22.7%, or $1.0 million. The increase is primarily due to a $1.0 million increase in non-income taxation due to the expansion of the business.

 

R&D expenses were $5.1 million during the quarter, unchanged from the same period in 2013, reflecting the Company's consistent R&D activities. R&D expense is primarily a result of consumption of raw materials for various experiments to develop both new automotive and non-automotive applications. The consumption of raw materials for these projects accounted for 90% of total R&D expenses for the quarter. As of September 30, 2014, the number of ongoing research and development projects was 128.

 

Operating income for the third quarter of 2014 was $54.7 million, or 17.3% of revenue, a decrease of 2.1% from $55.9 million, or 19.1% of revenue, in the same period a year ago.

 

Net interest expenses was $8.8 million for the quarter, compared to net interest expenses of $2.8 million in the same period of 2013, primarily due to (i) an increase of $4.6 million in interest payments resulting from the Notes issued on February 4, 2014; and (ii) an increase of $1.8 million in interest payments resulting from the bank loans used to fund capacity expansions in Southwest China and Dubai. The average balance of short-term and long-term bank loans during the quarter was $107.8 million as compared to $63.6 million during the third quarter of 2013.

 

Net income for the third quarter of 2014 was $43.2 million, compared to a net income of $41.1 million for the same period of the prior year. Basic and diluted earnings per share were $0.66 and $0.62, respectively, compared to $0.64 per basic and diluted share in the third quarter of 2013.

 

Average number of shares used in computation of basic and diluted earnings per share for the three months ended September 30, 2014 were 49.1 million and 49.2 million, respectively, compared to 47.8 million in the same period of the prior year.

 

EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) for the third quarter of 2014 was $64.3 million, an increase of 0.2% from EBITDA of $64.2 million in the same period of the prior year. 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.

 

Financial Condition

 

As of September 30, 2014, the Company had $62.7 million in cash and cash equivalents, $222.4 million in time deposits with commercial banks, $445.3 million in working capital (current assets minus current liabilities) and a current ratio (current assets divided by current liabilities) of 2.5. Stockholders' equity as of September 30, 2014 was $492.8 million, compared to $412.3 million as of December 31, 2013.

 

Compared to December 31, 2013, Inventories increased by 70.6% due to raw materials stock-up at attractive prices and the anticipation of the increase of customer demand in the following quarters. Long-term prepayments to equipment suppliers increased by 16,300.0% due to the advance for equipments to be used in Dubai and Southwest China facilities. Other non-current assets increased by 1,238.9% due to a long-term restricted time deposit to secure a three-year loan.

 

The Company paid down short-term loans as it utilized more long-term bank loans to support future capacity expansion in Southwest China and Dubai. As a result, short-term bank loans decreased by 56.6% while long-term bank loans increased by US$167.8 million. The aggregate short-term and long-term bank loans decreased by 3.2% due to the overall consideration of existing lines of credit and maintaining a healthy asset to liability ratio. The Company has been improving its capital structure by replacing its short-term debts with longer tenures in order to maintain its operation stability and support its capacity expansion. Recognized by leading financial institutions for its creditworthiness, the Company has obtained long-term credits from the largest state-owned banks in China as well as well known international banks. Bills payable increased by 68.0% due to the increase of purchases from our domestic raw material suppliers. As of September 30, 2014, notes payable was US$148.6 million due to the issuance of 11.75% guaranteed senior notes due in 2019, net of discount.

 

Business Outlook and Guidance

 

Based on the Company's strong performance during the quarter and positive outlook for growing customer demand in the fourth quarter, the Company reiterates its revenue guidance for 2014. The Company expects full-year sales to range between $950 million and $1.05 billion and net income to range between $100 million to $120 million. This forecast is based on constant exchange rates and the anticipated interest expense associated with both its long and short-term debt, and reflects the Company's current and preliminary view, which is subject to change.

Original source: China XD Plastics

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