Feihe International, Inc. (NYSE:ADY)

BEIJING--(Marketwired - Jun 28, 2013) - Feihe International, Inc. (NYSE: ADY) ("Feihe International" or the "Company"), one of the leading producers and distributors of premium infant formula, milk power and soybean, rice and walnut products in China, today announced the completion of the merger contemplated by the previously announced Agreement and Plan of Merger, dated March 3, 2013 (the "Merger Agreement"), by and among Diamond Infant Formula Holding Limited ("Holdco"), Platinum Infant Formula Holding Limited ("Parent"), Infant Formula Merger Sub Holding Inc. ("Merger Sub") and the Company. As a result of the merger, Merger Sub merged with and into the Company, with the Company continuing as the surviving company after the merger as a wholly owned subsidiary of Parent.

Under the terms of the Merger Agreement, which was approved by the Company's shareholders at a special meeting held on June 26, 2013, each share of Company common stock that was outstanding immediately prior to the effective time of the merger has been cancelled in exchange for the right to receive US$7.40 in cash without interest, except for (a) shares of Company common stock owned by Holdco, Parent, Merger Sub, the Company or any its subsidiaries immediately prior to the effective time of the merger, which shares were cancelled for no consideration at the effective time of the merger, and (b) all shares of Company common stock owned by Mr. You-Bin Leng, the Company's Chief Executive Officer and Chairman, Mr. Hua Liu, the Company's Vice Chairman and Chief Financial Officer, and Mr. Sheng-Hui Liu, a director of the Company and vice president of one of the Company's subsidiaries, which shares were contributed to Parent in exchange for newly issued shares of Holdco and cancelled for no consideration prior to the effective time of the merger. In addition, as of the effective time of the merger, each option to purchase Company common stock issued under the Company's 2003 Stock Incentive Plan and 2009 Stock Incentive Plan, then unexpired and unexercised, was cancelled and converted into the right of the former holder thereof to receive an amount in cash equal to the total number of shares of Company common stock underlying such option multiplied by the amount, if any, by which the per share merger consideration exceeds the exercise price payable per share of Company common stock issuable under such Company option.

Registered shareholders entitled to the merger consideration will receive a letter of transmittal and instructions on how to surrender their share certificates in exchange for the merger consideration, and should wait to receive the letter of transmittal before surrendering their share certificates.

The Company also announced today that it requested that trading of its common stock on The New York Stock Exchange (the "NYSE") be suspended. The Company also requested that the NYSE file a Form 25 with the Securities and Exchange Commission (the "SEC") to delist and deregister the Company's registered securities. The Company intends to terminate its reporting obligations under the Securities Exchange Act of 1934, as amended, by promptly filing a Form 15 with the SEC. The Company's obligation to file with the SEC certain reports and forms, including Form 10-K, Form 10-Q and Form 8-K, will be suspended immediately as of the filing date of the Form 15 and will cease once the deregistration becomes effective.

BEIJING--(Marketwired - Jun 26, 2013) -  Feihe International, Inc. (NYSE: ADY) ("Feihe International" or the "Company"), one of the leading producers and distributors of premium infant formula, milk powder and soybean, rice and walnut products in China, today announced that, at a special meeting of the shareholders of the Company held today, the Company's shareholders voted in favor of the proposal to approve the previously announced Agreement and Plan of Merger, dated March 3, 2013 (the "Merger Agreement"), by and among Diamond Infant Formula Holding Limited, Platinum Infant Formula Holding Limited ("Parent"), Infant Formula Merger Sub Holding Inc. ("Merger Sub") and the Company, pursuant to which Merger Sub will be merged with and into the Company, with the Company continuing as the surviving company after the merger as a wholly owned subsidiary of Parent (the "Merger"). The Merger Agreement was approved by approximately 74.8% of the outstanding shares of the Company common stock and approximately 57.1% of the total outstanding shares of the Company common stock not owned by the buyer group, satisfying the requirement in the Merger Agreement that at least a majority of the outstanding shares of the Company common stock not owned by the buyer group approve the Merger Agreement.

The Company currently anticipates closing the transaction this week. Completion of the Merger is subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, and the Company will work with the buyer group to satisfy all other conditions precedent to the Merger set forth in the Merger Agreement and complete the Merger as quickly as possible. If and when completed, the Merger will result in the Company becoming a privately held company and the shares of Company common stock will no longer be listed on the New York Stock Exchange.

BEIJING--(Marketwired - May 20, 2013) - Feihe International, Inc. (NYSE: ADY) ("Feihe" or the "Company"), one of the leading producers and distributors of premium infant formula, milk power andapprove the previously announced Agreement and Plan of Merger, dated March 3, 2013 soybean, rice and walnut products in China, today announced that the Company has called a special meeting of the shareholders (the "Special Meeting"), to be held on June 26, 2013, at 10:30 a.m. (Beijing time), at Star City International Building, 10 Jiuxianqiao Road, C-16th Floor, Chaoyang District, Beijing, China, 100016, to consider and vote on the proposal to  (the "Merger Agreement"), by and among Diamond Infant Formula Holding Limited, Platinum Infant Formula Holding Limited (the "Parent"), Infant Formula Merger Sub Holding Inc. (the "Merger Sub") and the Company.

Under the terms of the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company continuing as the surviving company after the merger as a wholly owned subsidiary of Parent (the "Merger"). If completed, the proposed Merger will result in the Company becoming a privately-held company and the common stock of the Company will no longer be listed on the New York Stock Exchange. The Company's board of directors, acting upon the unanimous recommendation of the special committee formed by the board of directors, approved the Merger Agreement and resolved to recommend that the Company's shareholders vote to approve the Merger Agreement.

First Quarter 2013 Financial Results:increase of $16.9 million or 26.9% from $62.9 million

• Revenue was $79.8 million in 1Q 2013, an  in 1Q 2012, and a sequential increase of $4.3 million or 5.7% from $75.5 million in 4Q 2012.
• Gross profit was $45.3 million, up $11.3 million or 33.2% from $34.0 million in 1Q 2012, and sequentially up $12.1 million or 36.4% from $33.2 million in 4Q 2012.
• Gross profit margin was 56.8% vs. 54.0% in 1Q 2012.
• Net income was $10.6 million in 1Q 2013, increased $2.3 million or 27.7% from $8.3 million in 1Q 2012, and increased $11.0 million from net loss of $0.4 million in 4Q 2012.
• Diluted net income per share of common stock ("EPS") was $0.53 in 1Q 2013 vs. $0.40 in 1Q 2012 and a loss per share of $0.02 in 4Q 2012.

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are pleased to issue our first quarter 2013 financial results today. The increased sales of Feihe branded milk powder, our higher margin products, demonstrate better market recognition and brand awareness. This is a good start for the next fifty years for Feihe International, Inc. We will continue to concentrate on producing premium quality milk powder from secured raw milk sources."

Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "We are pleased with our first quarter financial results. Our net income and EPS demonstrate our efforts to expand sales of higher margin products and improve the efficiency of our distribution network. In particular, sales of milk powder was $76.4 million compared to $59.4 million in the same period of last year and sales of our Feifan series was $49.3 million compared to $38.0 million in the first quarter of 2012. We will continue to focus our efforts on the sales of higher margin products."

BEIJING--(Marketwire - Nov 7, 2012) - Feihe International, Inc. (NYSE: ADY) ("Feihe" or the "Company"), one of the leading producers and distributors of premium infant formula, milk powder, and soybean, rice and walnut products in China, today announced that its board of directors has formed a special committee (the "Special Committee"), comprised of three independent directors of the Company, Mr. Kirk Downing, Mr. David Dong and Ms. Xiaofei Ren, to consider the previously announced non-binding proposal (the "Proposal") received by the Company's board of directors on October 3, 2012 from the Company's Chairman and Chief Executive Officer, Mr. You-Bin Leng ("Mr. Leng"), and an affiliate of Morgan Stanley Private Equity Asia ("MSPEA"), the private equity arm of Morgan Stanley. The Special Committee has retained Oppenheimer & Co. Inc. ("Oppenheimer") as its financial advisor and O'Melveny & Myers LLP ("O'Melveny") as its international legal counsel to assist it in considering the Proposal.

As authorized by the Company's board of directors, the Special Committee, with the assistance of Oppenheimer and O'Melveny, shall exclusively evaluate and, if appropriate, negotiate the Proposal on behalf of the Company, which contemplates Mr. Leng, MSPEA and any other members of their buyer consortium acquiring all of the outstanding shares of common stock of the Company not currently owned by Mr. Leng (and possibly other rollover shareholders) in a going private transaction for $7.40 per share of common stock in cash, subject to certain conditions (the "Proposed Transaction"). Oppenheimer and O'Melveny will also, if appropriate, assist the Special Committee in reviewing and evaluating additional proposals that may be made by Mr. Leng, MSPEA or other parties, if any.

The Special Committee has not set a definitive timetable for the completion of its evaluation of the Proposed Transaction or any other alternative transaction (if any) and does not currently intend to announce developments unless and until an agreement has been reached. However, there can be no assurance that any definitive offer will be made, that any agreement will be executed or that the Proposed Transaction or any other transaction will be approved or consummated.

BEIJING and LOS ANGELES, CA--(Marketwire - Oct 3, 2012) - Feihe International, Inc. (NYSE: ADY) ("Feihe" or the "Company"), one of the leading producers and distributors of premium infant formula, milk powder, and soybean, rice and walnut products in China, today announced that its Board of Directors has received a preliminary, non-binding proposal letter dated October 3, 2012 from Mr. You-Bin Leng ("Mr. Leng"), the Company's Chairman and Chief Executive Officer, and an affiliate of Morgan Stanley Private Equity Asia, the private equity arm of Morgan Stanley ("MSPEA"), to acquire all of the outstanding shares of common stock of the Company not currently owned by Mr. Leng (and possibly other rollover shareholders) in a going private transaction for $7.40 per share of common stock in cash, subject to certain conditions.

According to the proposal letter, an acquisition vehicle will be formed for the purpose of completing the acquisition, and the acquisition is intended to be financed through a combination of debt and equity capital. Mr. Leng currently owns 45.34% of the Company's common stock. The proposal letter states that MSPEA has received a "highly confident" letter from Wing Lung Bank Limited with respect to $50 million in debt financing, and definitive commitments for the required debt and equity funding are expected to be in place, subject to the terms and conditions set forth therein, when the definitive agreements with respect to the acquisition are signed. Please refer to the enclosed Exhibit A for a copy of the proposal.

Feihe's Board of Directors intends to form a special committee of independent directors (the "Special Committee") to consider this proposal. The Special Committee will retain a financial advisor and legal counsel to assist it in its work. The Board of Directors cautions the Company's shareholders and others considering trading in its securities that the Board has just received the non-binding proposal from Mr. Leng and MSPEA and that no decisions have been made by the Special Committee with respect to the Company's response to the proposal. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated.

Second Quarter 2012 Financial Highlights:

• Revenue increased $0.5 million, or 0.8%, to $63.4 million in 2Q12 vs. $62.9 million in 2Q11:
  • Revenue from branded milk powder products was $60.7 million in 2Q12, up $6.6 million, or 12.2%, from $54.1 million in 2Q11, and up $1.3 million, or 2.2%, sequentially from $59.4 million in 1Q12
  • Revenue from raw milk powder was $30,000 in 2Q12, compared to $5.2 million in 2Q11 and $0.9 million in 1Q12
• Gross profit increased $5.8 million, or 19.7%, to $35.3 million in 2Q12 vs. $29.5 million in 2Q11, and up $1.3 million, or 3.8%, sequentially from $34.0 million in 1Q12
• Gross margin was 55.7% in 2Q12 vs. 47.0% in 2Q11, up from 54.0% in 1Q12
• Net income attributable to the common shareholders of the Company increased $0.6 million, or 11.5%, to $5.8 million in 2Q12 vs. $5.2 million in 2Q11
• Diluted net income from continuing operations per common share ("EPS") was $0.29 in 2Q11 vs. $0.25 in 2Q10.

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are extremely pleased with our second quarter results. Our sales of branded milk powder products increased 12.2% compared to the previous quarter, and this continues to be an area of strategic focus for us. We will continue our efforts to expand our sales of higher margin products and strengthen our premium quality brand awareness, while improving the efficiency of our distribution network."

First Quarter 2012 Financial Highlights:

• Revenue of $62.9 million in 1Q 2012 vs. $67.7 million in 1Q 2011:
  • Revenue from branded milk powder products was $59.4 million, or 94.4% of total sales, in 1Q 2012 vs.$47.9 million, or 70.8% of total sales, in 1Q 2011
  • Revenue from raw milk powder was $0.9 million, or 1.4% of total sales, in 1Q 2012 vs. $16.1 million, or 23.8% of total sales, in 1Q 2011, and $24.8 million, or 28.5% of total sales in 4Q 2011
• Gross profit increased to $34.0 million, or 39.3%, in 1Q 2012 vs. $24.4 million in 1Q 2011, and up from$30.9 million in 4Q 2011
• Gross margin was 54.0% in 1Q 2012 vs. 36.0% in 1Q 2011, up from 35.5% in 4Q 2011
• Income from operations was $9.7 million in 1Q 2012 vs. $5.0 million in 1Q 2011, and up significantly from a loss of $3.8 million in 4Q 2011
• Net income was $8.3 million in 1Q 2012 vs. $4.7 million in 1Q 2011, and up significantly from a loss of $10.5 million in 4Q 2011
• Diluted net income (loss) from continuing operations per common share ("EPS") was $0.40 in 1Q 2012 vs.$0.23 in 1Q 2011, and up significantly from $(0.31) in 4Q 2011

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are extremely pleased with our first quarter results. Our high margin and strongly improved net income demonstrated the effectiveness of our decision to concentrate on the sales of our premium branded infant formula products. In particular, sales of AstroBaby grew 203.2% and Feifan grew 74.6% compared to the first quarter of 2011. Net income improved 179.0% in the first quarter of 2012 compared with the fourth quarter of 2011. We will remain focused and committed to expanding sales of our premium infant formula."

Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "We are pleased to report our first quarter 2012 financial results today. Given our strong growth, we are very confident in our business going forward. In addition, we completed the redemption of all of Sequoia's redeemable common stock in April 2012. We are continuing our plan of focusing on sales of premium products and look forward to bringing value to consumers and our shareholders."

BEIJING and LOS ANGELES, April 30, 2012 /PRNewswire-Asia-FirstCall/ -- Feihe International, Inc. (NYSE: ADY; "Feihe International" or the "Company"), one of the leading producers and distributors of premium infant formula, milk powder and soybean, rice and walnut products in China, today announced that the Company paid $16.4 million to Sequoia Capital China Growth Fund I, L.P. and certain of its affiliates (collectively, "Sequoia") in redemption of the final tranche of 656,250 shares (the "Redemption"), pursuant to its redemption agreement with Sequoia.

Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "We are extremely pleased that we completed the redemption of shares and are confident in our business going forward."

BEIJING and LOS ANGELES, April 30, 2012 /PRNewswire-Asia-FirstCall/ -- Feihe International, Inc. (NYSE: ADY; "Feihe International" or the "Company"), one of the leading producers and distributors of premium infant formula, milk powder and soybean, rice and walnut products in China, today announced that it has introduced the Product Inquiry System ("PIS") for infant formula products and launched Super Feifan, a new super premium infant formula series.

PIS was soft-launched in January and officially started running in March 1, 2012. Feihe International is the first Chinese dairy company using such an advanced system. Consumers can enter the system by inputting the tracing number at the bottom of each can packaged AstroBaby, Feifan and Super Feifan product and will be able to obtain important information regarding the particular product they purchased such as the product's milk producing region, production factory, production date, production batch, testing point and testing date. Consumers can also view the production process from the system.

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are extremely pleased to launch our Product Inquiry System. The system is based on our vertical integration model and embodies our core competency. It is also requires advanced information and management systems. We keep our production procedures transparent to our consumers because we understand the challenges that Chinese dairy companies face today. The fact that we have not had any quality issues in our 50 years demonstrates our foremost focus on quality. We will continue to raise awareness of the premium quality of our products to consumers."

Super Feifan continues the Company's product line of premium infant formula. Super Feifan was specially designed for Chinese babies and meets the nutritional needs of infants at three different stages of development, focusing on intelligence, immunity, sleeping and digesting systems, and optimizing protein proportions.

Mr. Leng continued, "We will continue to provide more premium infant formula products for Chinese babies to improve our footprint as a leading infant formula company."

Fourth Quarter 2011 Results

• Sales increased 42.1% to $87.0 million from $61.2 million in 4Q 2010
• Net loss attributable to the Company for the fourth quarter of 2011 was $10.5 million, or diluted EPS per common share of $(0.51), a decrease from net income attributable to the Company of $0.8 million, or diluted EPS per common share of $0.10, in the fourth quarter of 2010.

Mr. Liu Hua, the Company's Vice Chairman and Chief Finance Officer, stated, "Our continued growth demonstrates that we are increasing our footprint in the Chinese infant formula industry.  Our results of $87.0 million for the fourth quarter with $60.3 million from branded milk products for 4Q are excellent indications of our continued growth in higher margin branded products.  In particular, sales of AstroBaby grew 890.2% and Feifan grew 110.1% compared to the fourth quarter of 2010.  Although we had a net loss in the fourth quarter, the loss was due to loss in long term tax liabilities, loss from discontinued operations, and loss from the sale of wholesale milk powder.  Sales from our branded infant formula products continue to increase quarter over quarter and we are confident that it will continue to grow in the future."  Mr. Liu continued, "2012 is the Company's 50th year anniversary and the fact that we have never had any product quality issues speaks to our strength in this industry.  We will continue to strive to be one of the leading infant formula producers and we look forward to another 50 years."

BEIJING and LOS ANGELES, December 24, 2011 /PRNewswire Asia-FirstCall/ -- Feihe International, Inc. (NYSE: ADY; "Feihe International" or the "Company"), one of the leading producers and distributors of premium infant formula, milk powder and soybean, rice and walnut products in China, today announced that it has engaged Crowe Horwath (HK) CPA Ltd. ("CHHK") as the Company's independent registered public accounting firm, effective immediately.

Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "After careful consideration by our Audit Committee, we decided to dismiss Deloitte Touche Tohmatsu CPA Ltd. ("DTTC") and chose CHHK as our independent auditor. CHHK will perform our annual audit for our fiscal year 2011. There was no disagreement between the Company and DTTC regarding any accounting principles or practices, financial statement disclosures, or auditing scope or procedure during its service period. CHHK is a member firm of Crowe Horwath International and we believe its experienced team will provide us critical support, expertise and cost-efficiency and thus to generate value for our shareholders." Mr. Liu also noted, "We appreciate DTTC's hard work and contribution."

Third Quarter 2011 Results

SHANGHAI, July 21, 2011 /PRNewswire/ -- Cognizant (NASDAQ:CTSH - News), a leading provider of information technology, consulting, and business process outsourcing services, today announced the successful deployment of an integrated food safety solution at Feihe International, Inc. (NYSE:ADY - News), formerly known as American Dairy, Inc., one of the leading producers and distributors of premium infant formula, milk powder, and soybean, rice and walnut products in China.

This innovative end-to-end solution was developed by Cognizant in collaboration with Heilongjiang LiGao High-Tech Development Co. Ltd., a high-technology services company, and FoodlogiQ, a leading provider of traceability, food safety, and sustainability software. The solution enables Feihe International to trace foods, feeds, ingredients, and food-producing animals through all stages of production, processing, and distribution.

First Quarter Results:

• Revenue of $76.4 million in 1Q11 vs. $81.4 million in 1Q10, up 22.6% sequentially from $62.3 million in 4Q10:         
• Gross profit of $27.9 million in 1Q11 vs. $38.4 million in 1Q10, up 46.8% sequentially from $19.0 million in 4Q10;
• Gross margin was 36.5% in 1Q11 vs. 47.2% in 1Q10, up from 30.5% in 4Q10;
• Net income of $4.7 million in 1Q11 vs. net income of $5.5 million in 1Q10, up 487.5% from $0.8 million in 4Q10; and
• Diluted EPS per common share was $0.26 in 1Q11 vs. $0.25 in 1Q10, up significantly from $0.08 in 4Q10.

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are extremely pleased with our first quarter results.  Our results of $76.4 million in revenue and $4.7 million in net income demonstrate the progress we have made the last few months in strengthening our brand and market position, and our footprint in the competitive Chinese milk powder industry.  With strong profits in the past few quarters, we plan to continue improving our operations across all functions, including improving the cost effectiveness of our selling expenses and increasing sales at existing retail sales points to drive greater profitability.  We remain committed to being one of the leading infant formula providers in China and we believe that we are well positioned to execute our strategic initiatives to grow sales at existing retail sales points throughout 2011 and capitalize on market opportunities."  

Mr. Liu Hua, the Company's Vice Chairman and Chief Financial Officer, stated, "We are pleased to report our first quarter 2011 financial results today.  As we approach the middle of the second quarter of 2011, we would like to reiterate our revenue guidance of approximately $290 million and net income guidance of approximately $22 - $24 million for the full year of 2011."

BEIJING and LOS ANGELES, April 28, 2011 /PRNewswire-Asia/ -- Feihe International, Inc. (NYSE: ADY; "Feihe International" or the "Company") (formerly known as American Dairy, Inc.), one of the leading producers and distributors of premium infant formula, milk powder and soybean, rice and walnut products in China, today announced that the Company paid $16.1 million to Sequoia Capital China Growth Fund I, L.P. and certain of its affiliates (collectively, "Sequoia") in redemption of 656,250 shares (the "Redemption"), pursuant to its redemption agreement with Sequoia.  The redemption was required by April 30, 2011, and three additional redemptions are scheduled to occur in the next 12 months.

Roger Liu Hua, Vice Chairman and Acting Chief Financial Officer of Feihe International, stated, "We are pleased with our redemption agreement with Sequoia, which allows us to improve our capital structure and save money for the Company.  We are confident in our ability to pay down the other three installments when due."

Rodman and Renshaw on ADY                                          3/22/2011

ADY – Inline 4Q10 EPS results; Stabilizing topline; Above-expectation outlook

Feihe International (NYSE: ADY), yesterday morning, reported 4Q10 EPS of $0.04 (vs. $1.34 LY), essentially inline with the consensus of $0.04 (based on two EPS estimates of $0.03 and $0.04). Higher than expected sales and government subsidy were offset by a lower than expected gross margin and improving, but still-high operating cost base. Note that 4Q10 results included the $1.4MM asset impairment (~$0.05 after-tax EPS impact assuming 25% marginal tax rate) at Shanxi Feihe and ~$900k income (~$0.04 EPS impact) allocated to ADY’s redeemable common stock, which we view as non-core charges. (See page 2 for 4Q10 in detail)

FY 2011 guidance above our expectation. Importantly, the 2011 revenue and net income guidance of $290MM and $22-24MM, respectively, were meaningfully above our previous expectation of $280.8MM and $13.6MM. We are more comfortable with topline guidance rather than the net income guidance given the reduced subsidies and gross margin pressure as input prices continue to climb. In 2011, Feihe will attempt to limit low-GM raw milk powder to ~20% of sales. The company will also restrict selling & marketing expenses to 30-32% of revenues (vs. 38.7% in 2010). Government subsidies are anticipated at ~$10MM (vs. $20.9MM in 2010) as roughly half of the subsidies received in 2010 were attributable to construction projections (including capacity expansion) that should not repeat in 2011. That said, the core subsidy of $8MM tax refund in 2010 (proportional to pre-tax earnings) is expected to continue. In terms of quarterly complexion, government subsidies, which tend to experience a true-up in 4Q, may drive earnings to be more back-end loaded.

Maintaining our 2011 EPS estimate. We are maintaining our 2011 EPS estimate of $0.63, with gross margin being the wild card. Our sensitivity analysis suggests that every 100 bps of margin equates to ~$0.12 in annual EPS. For 1Q11, we are expecting ADY to report $0.13.

Maintaining Market Outperform Rating and $14 PT. While 2010 was marked by the achievement of topline stabilization, 2011 will be centered on setting the platform for long-term growth through deep-seated adjustments in its biological asset management practices and expansion strategy. On the sales & marketing front, both shortening the distribution chain and focusing on improving sell-through at existing retail sales points should allow for more efficient use of the tighter marketing budget. We are comforted by the company’s cash position of $17.5MM, which in addition to the estimated $5MM/qtr in OCF, limited capex needs in 2011, and $40MM in untapped ST loans (available for immediate withdrawal with no covenants), should be sufficient for the majority of WC needs and the debt repayment to Sequoia, barring any unfavorable tectonic shifts in market share. Secondly, note that ADY’s market share rose to 4.5% in December 2010 from 3.3% in the prior month. While we discount minor market share shifts as noise, the 120 bps gain at the retail level could signal directionally stronger consumer reception to wholesalers and bode well for future sales. Our 12-month PT of $14 applies an 11x NTM P/E multiple (ADY’s avg. NTM P/E since January 2007 has been over 10x) to a 2012 net income estimate of $28MM.

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Fourth Quarter Highlights:

• Exceeding guidance, revenue increased 41.6% to $62.3 million from $44.0 million in 4Q 2009
• Gross profit increased to $19.0 million from a loss of $(3.0) million in 4Q 2009
• Gross margin was 30.5% in 4Q 2010 vs. a loss of (6.8%) in 4Q 2009
• Net income increased to $1.9 million from a loss of $(27.0) million in 4Q 2009
• Diluted EPS per common share increased to $0.04 from a loss of $(1.24) in 4Q 2009.

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "Our results of $62.3 million in revenue and$1.9 million in net income are excellent indications of our footprint in the competitive Chinese milk powder industry.  We are continuing to make improvements in our operations across our sales and marketing, including improving the cost effectiveness of our selling expenses and increasing sales at existing retail sales points to drive greater profitability.  We are also pleased to announce that we renewed our manufacturing license with the Heilongjiang Bureau of Quality and Technical Supervision.  The renewal permit was granted under regulatory measures introduced by the General Administration of Quality Supervision, Inspection and Quarantine of China in late 2010. According to these new measures, infant formula and dairy product companies that fail to obtain the renewal manufacturing license by the end of March 2011 must cease production.  As one of the dairy companies which consistently provide safe and higher premium quality products, we welcome stricter regulation in the dairy industry and we believe that we are well positioned to execute our strategic initiatives to grow sales at existing retail sales points throughout 2011 and capitalize on market opportunities."  

Mr. Liu Hua, the Company's Acting Chief Financial Officer, stated, "We are pleased to report our fourth quarter and full year 2010 financial results.  As we approach the end of the first quarter of 2011, we are confident that we are taking effective measures to continue to improve our operations across all functions.  Based on cash and actual purchase orders received this quarter to date and management's estimates, we project our total revenue will be approximately $290 million and net income will be approximately $22 - $24 million in the full year of 2011."

Rodman and Renshaw on ADY                      02/03/2011

ADY: Favorable renegotiated agreement w/ Sequoia; Stock is oversold; Reiterating $14 PT 

WHAT’S NEW? 

Feihe International (NYSE: ADY) Wednesday after the close announced renegotiated terms with a key shareholder, Sequoia Capital, with regards to its share redemption option. Per terms of the agreement, Sequoia’s 2.625MM shares will be redeemed over the next year at $24/share, allowing the Fund to recoup its original $63MM investment. The redemption will take place in four equal installments within 30 days after March 31, 2011, September 30, 2011, December 31, 2011, and March 31, 2012. In addition, Feihe will be paying Sequoia an annual interest rate of 1.5% on the principal for each closing. Should Feihe be unable to follow the redemption schedule at any particular juncture, the interest rate will increase to 10.0% for the principal due on that closing date, but will not affect the terms of any future closings.

OUR VIEW 

Sequoia’s equity investment essentially reclassified as a low-interest loan, resulting in ~$37.3MM windfall to remaining shareholders. Under the original terms, Sequoia’s 2.625MM shares would have been redeemed at $39/share, resulting in $102.4MM cash outflow. Under the renegotiated terms, we estimate that the total payment to Sequoia would amount to ~$65.1MM, resulting in roughly $37.3MM (~$1.90/share) savings for the remaining shareholders. 

Recent CIC data shows generally declining market shares, directionally consistent with management’s guidance of $54-$56MM revenues in 4Q10, sequentially down from $61.1MM. ADY’s market share slipped to 3.3% by November 2010 from 4.9% In July 2010, which suggests that revenues will likely be sequentially down in 4Q10. We note that CIC retail data tends to be biased towards sales in larger cities, whereas the strength of Feihe’s wholesale channels really lies in tier 2 and 3 cities. We therefore rely on CIC data more as a directional compass than as an absolute tracker of ADY’s sales trends. 

Raising 4Q10, 2010, and 2011 EPS estimates. We are raising our 4Q10, 2010, and 2011 EPS estimates to $0.04, ($0.48), and $0.63, respectively, from $0.03, ($0.63), and $0.58 previously. Our earnings sensitivity suggests that every 100 bps in operating margin equates to ~$0.10-$0.11 in 2010E EPS. 

Reiterating 12-month price target of $14. Stock is oversold. We view the agreement as highly favorable towards ADY shareholders, having created roughly ~$1.90/share in instant equity value. The market appears to be reacting to the uncertainty of any potential distressed equity raise to cover the redemption, which we interpret as an overreaction considering that continued cost savings (more geographically-focused use of selling expenses) and further equipment leasing deals will likely cover most of the cashflow shortfall, in our view. In addition, ADY has the option to delay any of the four redemption periods by paying a penalty interest rate of 10.0% for any delayed redemption tranches (~$1.6MM per year, per tranch), which we do not view as overly burdensome for the company. Our 12-month PT of $14 assumes 10x NTM P/E multiple (ADY’s avg. NTM P/E since January 2007 has been ~10.0x) to a 2012 net income estimate of $28MM, which we view as conservative.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

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Rodman & Renshaw on ADY

WHAT HAPPENED? 

Feihe International (NYSE: ADY) reported 3Q10 EPS Of $0.16, significantly ahead of the ($0.02) consensus, and our $0.02 EPS estimate, and vs. $0.02 LY, driven by the combination of higher than expected sales and gross margin as well as extremely tight expense controls. 

• 3Q10 revenues fell 15.2% YoY to $61.1MM, but ahead of our $55MM estimate. 
• The gross margin contracted 661 bps YoY to 44.7% but came in higher than our 42.0% estimate due to higher than anticipated sales of high-margin infant milk formulas. 
• The operating expense rate improved 470 bps to 41.4%, attributable to extremely tight marketing / promotional expense controls. SG&A dollars fell 23.9% YoY to $25.3MM. Biological asset impairment improved sequentially to $468k from $5.8MM LQ. 
• 3Q10 net income margin fell 960 bps to 5.9%, with the majority of the decline owing to a $6.1MM YoY decline in government subsidies. 

OUTLOOK 

Based on QTD transacted orders, ADY expects 4Q10 revenues to come in at $54MM-$56MM, inline with our $55MM estimate and vs. $44MM LY. It was noted that competition from both new entrants and old competitors are amping up again.

OUR TAKE 

ADY turned out a significantly better than expected financial results in 3Q10 with strength across all line items, marked by sequential improvement in the topline, very cautious expense controls, and low asset impairment. That said, the stock has run up from ~$10 per share from the end of October 2010 to $12+, largely incorporating the above-expectation results. We would not be surprised if ADY shares trade off a bit on an inline 4Q10 outlook and some short-term profit-taking. Given our expectations of measurable progress in ADY’s efforts to drive productivity in its downstream functions (distribution, marketing, and sales), we would recommend that long-term investors accumulate on short-term weakness, if any. Our EPS estimates are under review as a result of the 3Q10 EPS beat.

Reiterate Market Outperform Rating and $14 PT. Applying a 10x-12x NTM P/E multiple (ADY’s avg. NTM P/E since January 2007 has been ~10.0x) to our 2012 net income estimate of $40MM results in a current share price of $13-$16. We have therefore arrived at our 12-month target price of $14, at the lower end of the aforementioned range.

Notice Regarding Privacy and Confidentiality: 

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Third Quarter 2010 Financial Highlights:

• Exceeding guidance, revenue of $61.1 million in 3Q10 vs. $72.1 million in 3Q09, up 17.1% sequentially from $52.2 million in 2Q10:
        
  • Revenue from branded milk powder products was $40.9 million in 3Q10 vs. $55.9 million in 3Q09, up 16.8% sequentially from $35.0 million in 2Q10;
  • Revenue from raw milk powder was $14.4 million in 3Q10 vs. $9.2 million in 3Q09, up 5.7% sequentially from $13.6 million in 2Q10;
    
• Gross profit of $27.3 million in 3Q10 vs. $37.0 million in 3Q09, up 47.9% sequentially from $18.5 million in 2Q10;

• Gross margin was 44.7% in 3Q10 vs. 51.3% in 3Q09, up from 35.4% in 2Q10;

• Net income of $3.6 million in 3Q10 vs. net income of $11.1 million in 3Q09, up from net loss of $(20.7) million in 2Q10; and

• EPS per diluted share was $0.16 vs. $0.52 in 3Q09, up from a loss of $(0.92) in 2Q10.

Mr. Leng You Bin, the Company's Chairman and Chief Executive Officer, stated, "We are continuing to make measurable progress with our operations across our sales and marketing to our dairy farms.  Our results of $61.1 million in revenue and $3.6 million in net income are excellent indications of our footprint in the Chinese milk powder space.  We are continuing to make improvements including strengthening our team through training of existing talent and recruitment and adjusting existing retail sales points to drive greater profitability.  We believe that we are well positioned to execute our strategic initiatives to grow sales at existing retail outlets throughout the remainder of the year and capitalize on market opportunities."  

Financial Guidance

Mr. Jonathan H. Chou, the Company's Chief Financial Officer, stated, "We are pleased to report three month revenue growth of 17.1% compared to the second quarter of 2010.  Specifically, sales of our branded milk powder products grew 16.8% to $40.9 million compared to the second quarter of 2010.  As we approach the middle of the fourth quarter of 2010, we are confident that we are taking effective measures to continue to improve our operations across all functions.  Based on cash and actual purchase orders received this quarter to date, we project our total revenue will be between $54 million to $56 million in the fourth quarter of 2010."

Rodman & Renshaw on American Dairy

We met with Roger Liu (Vice Chairman) and Judy Tu (Investor Relations) in Beijing and later in New York for the Rodman & Renshaw Investment Conference and came away with the following updated thoughts: 

What happened in 2Q10? In 2Q10, ADY reported significantly below-expectation EPS of ($0.92) vs. the consensus of $0.22. Overly optimistic internal and Street expectations for the rebound in infant milk formulas combined with intense competition led to a sales mix shift from infant milk formulas into a higher proportion of whole milk powders, which carried (2%) GM in 2Q10. Furthermore, inventory, ending at $58.3MM at the end of 2Q10, has declined only 1.6% sequentially vs. a sales drop of 35.9%, which also signifies lack of demand in 2Q10. The fact that ADY pays, on average, 10-15% premium for their fresh milk, partly due to the higher cost of operating their proprietary dairy farm, further depressed the gross margin. Thirdly, selling expenses in 2Q10 did not bring the expected returns due to inefficient pass-through of promotional items (e.g., rattles, free samples, etc.) through the distribution layers. In 2H10, while selling expenses may not necessarily be higher on a dollar basis, they are expected to be more effective in driving sales as ADY has become more vigilant of these issues. 

We overestimated the extent of topline volatility that had been priced into ADY shares prior to the company’s 2Q10 earnings announcement…hindsight is 20/20.…but we’ve come full circle, and expectations have been reset. Frankly, things are on the upswing. If there is one market more volatile than the financial markets over the past couple of years, it has been Chinese dairy market shares. For ADY, fortunately, expectations are fairly low at this point, with 3Q10 and 4Q10 EPS consensus of ($0.02) and $0.02, respectively. Recall that the company expected to be slightly profitable for the remainder of the year following its disappointing 2Q10 earnings results. Since then, market share gains have trended a bit ahead of our expectations, largely due to renewed fears over product safety for both domestic and international brands, which ADY benefits from due to its vertically-integrated farm-to-market model. Therefore, we believe there could be upside to current consensus EPS estimates.

Recent market share gains are kicking off a virtuous cycle. In the realm of consumer behavior, good things (and bad) come in waves; isolated standout quarters are rare. We believe that ADY is on the upswing again for quarters to come, again winning consumers’ trust due to its high quality, vertically-integrated milk source.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

 Second Quarter 2010 Financial Highlights:

• Revenue up 26.7% to $52.2 million vs. $41.2 million in 2Q09
• Net loss of $(20.7) million in 2Q10 vs. net income of $7.6 million in 2Q09
• EPS per diluted share down to a loss of $(0.92) vs. $0.40 in 2Q09
  

Financial Guidance:

Mr. Jonathan H. Chou, the Company's Chief Financial Officer, stated, "Despite the softness in this quarter's results, we are pleased to report three month revenue growth of 26.7% compared to the prior year period. Specifically, sales of our branded milk powder products grew 9.0% to $35.0 million compared to the prior year period. As we approach the middle of the third quarter of 2010, we are confident that we are taking effective measures to continue to improve our operations across all functions. With respect to our balance sheet, we continue to address the Company's cash needs versus debt level, which resulted in repayment of approximately $20 million equivalent in selected RMB and USD debt facilities. We will continue strengthen our balance sheet and match most ideal liabilities available to our PRC assets. Based on cash and actual purchase orders received this quarter to date, we project our total revenue will exceed $55 million in the third quarter of 2010."

Investor Presentation filed an 8K on August 5,2009.

American Dairy got whacked Monday falling 44% to $20.88.   The stock's drop was in response to the company's second quarter financial guidance it released yesterday morning which was well below analyst estimates of $84 million.  The stock had been making a run from ~$17.00, when it recorded solid 2009 first quarter results May 13, 2009 well ahead of analyst estimates. In fairness to the company, it had warned investors not to use the first quarter results as a barometer for the remainder of the year stating that:

"The first quarter's growth rate was exceptional, and we expect the second and third quarters to trend in line with historical results, in which we deliver year over year growth."

Although estimates for the 2009 second quarter echoed this statement, the magnitude of the second quarter sequential decline was more severe than anticipated.  The company reported first quarter revenues of $113.8 million. 

Source: See Release, July 13, 2009


On the bright side, American Dairy did provide 2009 full year guidance, which at the high end could result in the third and fourth quarter earnings coming close to meeting analyst estimates.  Combined third and fourth quarter analyst revenue estimates currently stand at $226.8 million compared to the company's extrapolated 2009 second half guidance of $175 to $205 million.  American Dairy reported 2008 second half revenues of $113 million.  

Unfortunately, the company did not provide 2009 earnings per share guidance which may create a sense of uncertainty.  Due to the company's forecast for strong 2009 second half and full year revenue growth,  the GeoTeam® will keep American Dairy on the GeoBargain on the Radar list.  If the company can also achieve above average earnings per share growth, it is quite possible that the fall in the company's shares could present a future opportunity for value investors who missed the first run.

The GeoTeam® will provide updates if warranted.

^a The above forecasts reflect the Company's current and preliminary views and are therefore subject to change. Please refer to the Company's Safe Harbor Statement (usually in press releases) for the factors that could cause actual results to differ materially from those contained in any forward-looking statement.