China New Borun Corporation has announced its unaudited financial results for the third quarter of 2014.
Mr. Jinmiao Wang, Chairman and Chief Executive Officer of Borun, commented on the results, "We're pleased that this third quarter Borun reported revenue in line with our previously-stated guidance and more importantly earned positive net income for the seventeenth consecutive quarter since our IPO in June of 2010. Our ability to consistently earn positive net income was especially rewarding this quarter, as the industry experienced a severe inverse relationship between average selling price for edible alcohol, which declined 1.4% year-over-year, and spot corn prices, which increased 7.5% year-over-year during the period. We were able to temper our gross margin, as we continued to benefit from our advantageous sourcing strategy lower per ton of our corn cost compared to that of the spot price of corn.
We're also very pleased that this third quarter we generated healthy operating cash flows of RMB394.8 million. Furthermore, despite China's weakened macro-economics, we continued to make progress in ramping up our chlorinated polyethylene ("CPE") and foam insulation businesses, as the new businesses grew 15% sequentially and contributed RMB26.8 million, or 5% of total revenue during the quarter. It is encouraging that we will have ample opportunities to further enhance the profitability of these new businesses, as our production of foam insulation, although expanded by over 50% sequentially in the third quarter, is still running at below one third of its designed capacity. Looking ahead, we will continue to ramp up production and offerings of our new CPE and foam insulation businesses, while at the same time, focus our efforts in further lowering cost for our core edible alcohol business. We feel confident that we can sustainably earn positive net income in the foreseeable future."
Third Quarter 2014 Quick View
* Total revenue increased 2.2% to RMB529.2 million ($86.0 million[1]) from RMB518.0 million in the third quarter of 2013.
* Gross profit decreased 6.5% to RMB45.5 million ($7.4 million) from RMB48.7 million in the third quarter of 2013.
* Net income decreased 45.9% to RMB5.8 million ($0.9 million) from RMB10.8 million in the third quarter of 2013.
* Basic and diluted earnings per American Depositary Share ("ADS") were RMB0.23 ($0.04) for the quarter ended September 30, 2014. Each ADS represents one of the Company's ordinary shares.
Third Quarter 2014 Financial Performance
For the third quarter of 2014, revenue increased by 2.2% year-over-year to RMB529.2 million ($86.0 million) from RMB518.0 million in the same period of 2013. The increase in revenue was mainly attributable to the incremental revenue contribution from the Company's CPE and foam insulation businesses that were introduced in the fourth quarter of 2013.
Revenue breakdown by product lines is as follows:
* Revenue from edible alcohol decreased by 2.9% to RMB343.4 million ($55.8 million) in the third quarter of 2014, compared to RMB353.8 million in the third quarter of 2013. The sales volume of edible alcohol in the third quarter of 2014 decreased by 1.5% year-over-year to 66,960 tons, while the average selling price of edible alcohol decreased by 1.4% year-over-year to RMB5,128 per ton.
* Revenue from DDGS Feed decreased by 3.3% to RMB116.8 million ($19.0 million) in the third quarter of 2014, compared to RMB120.7 million in the third quarter of 2013. The sales volume of DDGS Feed in the third quarter of 2014 decreased by 2.7% year-over-year to 53,580 tons, while the average selling price decreased slightly by 0.6% year-over-year to RMB2,180 per ton.
* Revenue from liquid carbon dioxide decreased by 17.4% to RMB8.0 million ($1.3 million) in the third quarter of 2014, compared to RMB9.6 million in the third quarter of 2013. The sales volume of liquid carbon dioxide in the third quarter of 2014 increased slightly by 0.6% year-over-year to 24,147 tons, however the average selling price decreased by 17.8% year-over-year to RMB330 per ton.
* Revenue from crude corn oil increased by 1.5% to RMB34.2 million ($5.6 million) in the third quarter of 2014 compared to RMB33.7 million in the third quarter of 2013. The sales volume of crude corn oil in the third quarter of 2014 increased by 12.6% year-over-year to 5,017 tons, while the average selling price decreased by 9.9% year-over-year to RMB6,818 per ton.
* Revenue from CPE was RMB24.2 million ($3.9 million) in the third quarter of 2014, and the sales volume was 2,781 tons at an average selling price of RMB8,718 per ton. Revenue from foam insulation was RMB2.6 million ($0.4 million) in the third quarter of 2014, and the sales volume was 2,382 cubic meters at an average selling price of RMB1,094 per cubic meter.
During the third quarter of 2014, gross profit decreased by 6.5% to RMB45.5 million ($7.4 million) from RMB48.7 million in the same period of 2013. Gross margin for the third quarter of 2014 decreased to 8.6%, from 9.4% in the same period of 2013, which was primarily attributable to a decrease in average selling price of edible alcohol, combined with the increase in cost of corn, as well as lower gross margin from the new CPE and foam insulation businesses during its production ramp up.
Operating income decreased by 9.3% to RMB33.7 million ($5.5 million) in the third quarter of 2014, from RMB37.2 million in the same period of 2013, primarily due to lower gross profit earned.
Selling expenses were RMB1.1 million ($0.2 million) in the third quarter of 2014, decreased by RMB0.1 million, or 10.6% from RMB1.2 million in the same period of 2013.
General and administrative expenses increased by RMB0.4 million, or 4.0% to RMB10.7 million ($1.7 million) in the third quarter of 2014, from RMB10.3 million in the same period of 2013, mainly due to the increasing management cost for the Company's new CPE and foam insulation businesses.
Income tax expenses in the third quarter of 2014 were RMB1.9 million ($0.3 million), representing an effective tax rate of 25.0%.
Net income decreased by 45.9% to RMB5.8 million ($0.9 million) in the third quarter of 2014, compared to RMB10.8 million in the same quarter of 2013. In the third quarter of 2014, basic and diluted earnings per share and per ADS were RMB0.23 ($0.04), and the Company had 25.7 million weighted average basic and diluted shares outstanding.
As of September 30, 2014, cash and bank deposits of RMB586.9 million ($95.4 million) increased by RMB65.6 million, compared with RMB521.3 million as of December 31, 2013. Cash flows provided by operating activities for the third quarter of 2014 were RMB394.8 million ($64.2 million).
Financial Outlook
The Company estimates that its revenue for the fourth quarter of 2014 will be in the range of RMB654 million ($106.3 million) to RMB659 million ($107.1 million), a decrease of approximately 0.6% to an increase of 0.2% over the same quarter of 2013.
This guidance is based on the current market conditions and reflects the Company's current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.
