China New Borun (NYSE:BORN)

First Quarter 2012 Quick View

• Total revenue increased 26.1% to RMB721.2 million ($114.6 million(1)) from RMB571.8 million in the first quarter of 2011.
• Gross profit decreased 13.6% to RMB109.9 million ($17.5 million) from RMB127.1 million in the first quarter of 2011.
• Net income decreased 17.9% to RMB63.7 million ($10.1 million) from RMB77.6 million in the first quarter of 2011.
• Diluted earnings per American Depositary Share ("ADS") were RMB2.48 ($0.39) for the quarter ended March 31, 2012. Each ADS represents one of the Company's ordinary shares.

Commenting on the results for the quarter, Mr. Jinmiao Wang, Chairman and Chief Executive Officer of Borun, stated, "Demand for edible alcohol and our by-products remained strong throughout the quarter, and we continue to operate our facilities at full capacity, making us one of the most efficient producers of edible alcohol in the country. Driven by the strong demand for edible alcohol in China and our effective capacity utilization, our first quarter revenue exceeded our previously stated guidance."

Mr. Wang added, "We are currently in an environment where higher corn prices have resulted in our cost of goods increasing at a faster rate than revenues. This has resulted in pressure on our operating profits. We view these prices as a short-to-medium term aberration and we think that they will normalize over time. In the meantime, while we cannot control the price of corn, we can operate as efficiently as possible in order to mitigate the effect of the high corn prices. Our return on assets and return on equity numbers for the past twelve months are 15.5% and 23.6%, respectively, demonstrating how we are committed to efficiency. At the same time, our business continues to generate healthy cash flows."

Financial Outlook

The Company estimates that its revenue for the second quarter of 2012 will be in the range of RMB735.0 million ($116.8 million) to RMB755.0 million ($120.0 million), an increase of approximately 1.5% to 4.2% over the same quarter in 2011.

SHOUGUANG, China, March 26, 2012 /PRNewswire-Asia/ -- China New Borun Corporation (NYSE: BORN; "Borun" or the "Company"), a leading producer and distributor of corn-based edible alcohol in China, today announced that it has completed the pre-purchase of sufficient corn at locked-in prices to cover its production requirements during the coming non-harvest season.

During the recent harvest season, the Company reserved sufficient corn to be used for later production in the non-harvest season through corn sourcing arrangements with local granaries. As a result, the Company has secured 505,000 tons of corn stored at third-party granaries, and it is estimated that all of Borun's 2012 production plans can be sufficiently fulfilled with the corn already on hand.

Mr. Jinmiao Wang, Chairman and Chief Executive Officer of Borun, remarked, "Having further enhanced our corn purchase and storage capability, we are confident that Borun is well-positioned to use our sourcing advantage to capture more business opportunities in the future. Our ability to lock in attractive prices during the peak harvest season not only provides us with higher cost visibility but also buffers us from potential higher inflation. Our strong relationships with local granaries and our strategic locations in the corn producing regions have helped us achieve this. Together with our successful pre-sales for 2012, we are excited and confident that our assured supply and solid cost visibility will help us continue to operate efficiently and prosper in a cost-rising environment."

Fourth Quarter 2011 Financial Highlights

• Total revenue increased 60.4% to RMB762.0 million ($120.9 million(1)) from RMB475.0 million in the fourth quarter of 2010.
• Gross profit increased 4.0% to RMB120.1 million ($19.1 million) from RMB115.4 million in the fourth quarter of 2010.
• Net income increased 3.6% to RMB72.1 million ($11.5 million) from RMB69.6 million in the fourth quarter of 2010.
• Diluted earnings per American Depositary Share ("ADS") were RMB2.80 ($0.45) for the quarter endedDecember 31, 2011. Each ADS represents one of the Company's ordinary shares.

Commenting on the results for the quarter, Mr. Jinmiao Wang, Chairman and Chief Executive Officer of Borun, stated, "We have seen strong demand for edible alcohol in the fourth quarter of 2011, which has continued into 2012. During the quarter our facilities operated at full capacity, making us one of the most efficient producers of edible alcohol in the country. Driven by higher prices and strong demand for edible alcohol and our strong capacity utilization, our record fourth quarter revenue exceeded our previously stated guidance. External factors, notably continued elevated levels in the price of corn, have resulted in higher costs of goods than we have seen in the past."

Mr. Wang added, "While the higher corn price has resulted in net income increasing at a slower rate than revenues, we are pleased that our production facilities, as well as sales and administration, are operating efficiently. Driven by strong market demand for our edible alcohol and the acquisition of new customers, we have already signed pre-sales contracts for approximately 90% of our total edible alcohol production capacity in 2012. We are also proactively focused on enhancing our ability to pre-purchase corn at lower prices. During the recent peak harvest season, we continued to engage granaries to secure greater quantity of lower-priced corn and store for later use in the non-harvest season."

Continuing, Mr. Wang stated, "In January of 2012 the State Intellectual Property Office awarded a patent to the Company for the Borun Wet Process, our proprietary manufacturing method. We are pleased to receive the patent and believe that it validates our conviction that the Borun Wet Process results in a higher production yield, is environmentally friendlier and is more energy efficient than other corn-based edible alcohol production processes currently used in China. Benefitting from our patented Borun Wet Process, our robust pre-sales for 2012, and our strong corn sourcing ability, we believe that we will be well-positioned to continue to prosper in a cost-rising environment."

Financial Outlook

The Company estimates that its revenue for the first quarter of 2012 will be in the range of RMB680.0 million($107.9 million) to RMB705.0 million ($111.9 million), an increase of approximately 18.9% to 23.3% over the same quarter in 2011.

BEIJING, February 7, 2012 /PRNewswire-Asia/ -- China New Borun Corporation (NYSE: BORN; "Borun" or the "Company"), a leading producer and distributor of corn-based edible alcohol in China, today announces that the Company has promoted Ms. Bing Yu (Ann) to Chief Strategy Officer from her current position as Chief Financial Officer and Mr. Yuanqin Chen (Terence) to Chief Financial Officer from his current position as Vice President for Finance, effective immediately.

Third Quarter 2011 Financial Highlights

• Total revenue increased 50.1% to RMB627.0 million ($98.7 million(1)) from RMB417.7 million in the third quarter of 2010.

• Gross profit increased 10.8% to RMB111.8 million ($17.6 million) from RMB100.9 million in the third quarter of 2010.

• Net income increased 5.0% to RMB67.5 million ($10.6 million) from RMB64.2 million in the third quarter of 2010.

• Diluted earnings per American Depositary Share ("ADS") were RMB2.62 ($0.41) for the quarter ended September 30, 2011 vs. $0.39.  

Commenting on the results for the quarter, Mr. Jinmiao Wang, Chairman and Chief Executive Officer of Borun, stated, "During the third quarter we executed on our plans for continued strong growth. The company successfully brought online increased production capacity for crude corn oil and liquid carbon dioxide in our Shandong facility, and grade-A edible alcohol in our Daqing facility. These projects increase our yield from processing corn and help diversify both our revenue and customer base. They help position us as one of the most modern and efficient producers of edible alcohol in China."

Mr. Wang added, "Demand for edible alcohol remains strong as we saw good increases in sales volumes of edible alcohol. However, the cost of corn, our principal input cost, rose sharply during the quarter, outpacing edible alcohol prices and put pressure on our gross margins. Looking forward to the fourth quarter, our ability to continue to execute on our operating strengths, our sourcing expertise and diversifying our product and customer base should allow us to continue profitable growth."

Financial Outlook

• The Company estimates that its revenue for the fourth quarter will be in the range of RMB720.0 million ($113.3 million) to RMB750.0 million ($118.0 million), an increase of approximately 51.6% to 57.9% over the same quarter in 2010.

• Correspondingly, the Company estimates that its revenue for the full year of 2011 will be in the range of RMB2,643.2 million ($415.9 million) to RMB2,673.2 million ($420.6 million), an increase of approximately 54.2% to 56.0% over the previous year.

Our primary planned capital expenditures for fiscal 2011 are for the expansion of our manufacturing capacity in the PRC. We expect our capital expenditures in 2011 to be approximately ranging from RMB 500 million (US$75.50 million) to RMB 600 million (US$90.60 million) for the expansion of Phase IV at our Daqing facility. We expect to fund the planned expenditures, including our working capital requirements, through cash generated from operations, borrowings through short-term loans, and the proceeds from issuances equity or debt instruments and we believe that such cash generated from these activities will be sufficient for our planned expenditures including our working capital requirements.

First Quarter Results:

• Total revenue increased 47.1% to RMB571.8 million ($87.2 million(1)) from RMB388.8 million in the first quarter of 2010.
• Gross profit increased 46.0% to RMB127.1 million ($19.4 million) from RMB87.1 million in the first quarter of 2010.
• Net income increased 32.8% to RMB77.6 million ($11.8 million) from RMB58.5 million in the first quarter of 2010.
• Diluted earnings per American Depositary Share ("ADS") were RMB3.02 ($0.46) for the quarter ended March 31, 2011. Each ADS represents one of the Company's ordinary shares.

Mr. Jinmiao Wang, Chairman and Chief Executive Officer of Borun, commented, "It is our pleasure to share with you another quarter of strong financial performance.  We solidly executed on all aspects of our business plans, as we flawlessly ramped up production of our new Daqing Phase III facility while maintaining full utilization of our other facilities.  During the quarter we experienced solid revenue growth resulting from both strong demand and price increases for edible alcohol, coupled with expanded capacity."

The Company estimates that its revenue for the second quarter of 2011 will be in the range of RMB690 million ($105.2 million) to RMB710 million ($108.3 million), an increase of approximately 59.5% to 64.2% over the same quarter of 2010.

 

Fourth Quarter Highlights:

• Total revenue increased 24.1% to RMB475.0 million ($71.7 million) from RMB382.7 million in the fourth quarter of 2009.
• Gross profit increased 24.3% to RMB115.4 million ($17.4 million) from RMB92.8 million in the fourth quarter of 2009.
• Net income increased 13.7% to RMB69.6 million ($10.5 million) from RMB61.2 million in the fourth quarter of 2009.
• Diluted earnings per American Depositary Share ("ADS") were RMB2.71 ($0.41) for the quarter ended December 31, 2010 vs. $0.44 in the prior year. Each ADS represents one of the Company's ordinary shares.
• The Company estimates that its revenue for the first quarter of 2011 will be in the range of RMB543 million ($82.0 million) to RMB563 million ($85.0 million), an increase of approximately 39.7 % to 44.8% over the same quarter of 2010.

Mr. Jinmiao Wang, Chairman and Chief Executive Officer of Borun, commented, "We are very pleased to report a strong set of fourth quarter and full year 2010 financial results.  Driven by higher prices for edible alcohol and our strong capacity utilization, we achieved record fourth quarter revenue and profits that exceeded our previously stated guidance. Our consistent growth in revenue for both edible alcohol and by-products, as well as our stable gross margin, again demonstrate the advantages of our business model. With the expanded capacity from our Daqing Phase III, Borun has become the second largest edible alcohol producer in China."

BEIJING, Feb. 17, 2011 /PRNewswire-Asia-FirstCall/ -- China New Borun Corporation today announced that the Company has signed two letters of intent with parties in Sichuan province.  

Under the two pre-sale letters of intent, the Company expects to provide 6,500 tons edible alcohol per month starting from the second quarter of 2011 to its customers in Sichuan province, accounting for over 15% of Borun's expanded total production capacity in 2011. This strategic win helps to further expand the Company's customer base in Sichuan province, the largest Baijiuproduction base in China. With these two newly signed letters of intent, the Company has secured letters of intent totaling over 90% of its total edible alcohol production capacity in 2011.

Mr. Jinmiao Wang, Chairman and Chief Executive Officer of Borun, commented, "We are very pleased with the strong momentum in our pre-sale wins. Riding on the strength of our leading brand and technical superiority, as well as the growing Baijiu market in China, we continue to witness strong demand for edible alcohol.  With these additional wins, we are very confident that we can sell all of our additional capacity when our Phase III plant reaches full production capacity in the coming months."

The Daqing Phase III facility is on schedule to become operational in January 2011, which will expand the Company's total production capacity by 120,000 tons, or 46%, to 380,000 tons. Of the increased 120,000 tons capacity, the Company has already won pre-sale letters of intent totaling 107,000 tons, or 89% of the increased capacity. For the full year of 2011, Borun's Daqing facility and Shouguang facility together have already entered letters of intent with customers to sell a total of 305 thousand tons of edible alcohol, accounting for over 80% of Borun's expanded total production capacity.

Mr. Jinmiao Wang, Chairman and Chief Executive Officer of Borun, commented, "Driven by our strong reputation in the industry and the robust market demand for our edible alcohol, we are very pleased with our exceptional pre-sale success. We also made significant progress with selling into Sichuan province, the largest Baijiu production base in China, as we continue to broaden our customer base. The combination of our pre-sale success and the continued strong market demand for our by-products, including DDGS feed, corn germ, carbon dioxide, and the newly-introduced crude corn oil, provides us with excellent revenue visibility for 2011. As a result, we are excited with our Daqing Phase III expansion, and we are confident that the nearly 50% increase in our total capacity will drive strong revenue and profit growth in 2011."

On September 20, 2010, we issued an alert that we would be comparing China New Borun Adr (NYSE:BORN) SEC statements with those filed in China. China Borun was one of the companies that we pulled financial statements on during our investigatory article we published on August 25, 2010.

BORN has three operating subsidiaries:

• Weifang Great Chemical
• Shandong Borun Industrial
• Daqing Borun Biotechnology

Originally, we actually obtained 2008 and 2009 SAT filings that revealed a significantly different financial picture than what is presented in China Borun 424b4 SEC filing . We sent our findings to the company who was adamant that we had incorrect documents, despite confirming that we had the correct spelling of the company's Mandarin PRC subsidiaries provided by our attorney. Management claimed that SEC filings matched Chinese filings. Giving BORN the benefit of the doubt, we pulled SAT information from a second source. We also pulled SAIC documents. We could not obtain the full financial statement from the SAIC. However, we were able to obtain an annual business performance preview of Weifang Great Chemical Shandong and Borun Industrial filed at the local AIC. The preview includes the revenue, net income, income tax and net income (after tax), total assets and total liability.

Our findings:

1. SAT documents that we pulled from our second source were identical to those from our first batch of documents.
2. SAIC documents are close to SEC documents
3. SAIC numbers are significantly diverge from the SAT numbers. Based on the SAT numbers, Weifang Great and Shandong Borun (the biggest subsidiary) had negative net income and did not pay any income tax. However, from the SAIC numbers, Shandong Borun had three consecutive large positive net incomes from 2007 to 2009 and paid three big amounts of income tax.
4. SAIC documents contain much more detailed information than SAT documents.
5. We have no information on Daqing Borun. 

These revelations certainly create quite a conundrum. How can we explain higher numbers in the SAIC filings? One would think that since SAIC documents are easy to obtain, the company is putting itself as at a high audit risk with the SAT. We postulated that the company may have made sure that SAIC filings matched SEC filings due to recent negative outcomes for companies whose filings do not match. However, our attorney claimed this assumption to be a low risk scenario, but not impossible. If we want to trust SAIC documents, then the only other explanations are that we just do not have accurate SAT documents or that BORN may have participated in tax avoidance. 

Questions to ponder

• Did the auditor even pull the SAT documents?
• Does the tax certificate that China Borun showed auditors match SAT documents? If not, did the auditor know of these alleged discrepancies and just ignore them?

On the positive side, if SAIC documents are accurate, the worst case situation is one of tax avoidance. Knowing that the penalties for income tax avoidance in China are lax, investors may assume that the possibility of cash penalties from company operations would be minimal.

We are aware that BORN restructured its business. BORN has had two re-organizations, one in December of 2008 and another in December of 2009. Could this have impacted the reliability of the SAT information we have obtained? In any event, we believe that China Borun should address these findings and get their ducks in a row before short sellers start sniffing around. We have made numerous attempts to discuss this issue with BORN management and its IR firm, but have not received a meaningful response. Maybe they are "taking care" of things and addressing what they believe is the circulation of inaccurate information.  

At the end of the day exploring financial reporting deficiencies as well as the differences between local filings in China and SEC filings will lead to tighter reporting controls, more transparency for investors and higher stock prices.

To get a copy of the SAIC/SAT information discussed in this article, please register at Geoinvesting.com and send an email request to support@geoinvesting.com.

Disclosure: No position in BORN at the time of the publication of this article.

Second Quarter 2010 Financial Highlights

    -- Total revenue increased 154.5% to RMB432.5 million ($63.7 million(1))
       from RMB169.9 million in the second quarter of 2009.

    -- Gross profit increased 149.9% to RMB102.1 million ($15.0 million) from
       RMB40.9 million in the second quarter of 2009.

    -- Net income increased 154.8% to RMB67.1 million ($9.9 million) from
       RMB26.3 million in the second quarter of 2009.

    -- Diluted earnings per American Depositary Share ("ADS") were RMB3.16
       ($0.46) for the quarter ended June 30, 2010. Each ADS represents one of
       the Company's ordinary shares.

Mr. Jinmiao Wang, Chairman and Chief Executive Officer of Borun, commented, "We are very pleased with our second quarter financial results, which marks our first quarter reporting as a publicly-traded company. Our rapid growth in revenue for both edible alcohol and by-products, as well as our strong operating cash flows, demonstrate the advantages of our business model and our unique competitive position.

"We are also glad to announce significant progress in several of our growth initiatives. We started construction on Phase III of our Daqing facility this quarter, and we expect to complete Phase III on schedule by the end of this year. We have also completed the construction of our liquid carbon dioxide project at the Shouguang facility, which has already generated revenue since July. With the completion of Phase III of our Daqing facility, we estimate we will be the second largest edible alcohol producer in China."

Ms. Ann Yu, Chief Financial Officer of Borun, stated, "We are excited to move forward into the second half of 2010 with a highly flexible financial position. Our cash balance following the initial public offering was approximately RMB 391.2 million ($57.6 million), and we are confident that the combination of our solid cash on hand, growing operating cash flows, and existing credit facility with local banks will provide us enough capital to execute on our immediate expansion plans. Given the strong demand for our products, we anticipate strong sales with respect to our expanded capacity, which could lead to higher revenue and profits in 2011 and beyond."

Financial Outlook

The Company estimates that its revenue for the full year of 2010 will be in the range of RMB1,650 million ($243.0 million) to RMB1,670 million ($245.9 million), an increase of approximately 55.7% to 57.5% over the previous year.

This forecast reflects the Company's current and preliminary view, which is subject to change.