Sen Yu Intl (OTC BB:CSWG)

GeoTeam® Note: 2012 vs. 2011 Third Quarter Adjusted EPS was $0.14 vs. $0.18.

The increase in revenues resulted from increased orders from our major customers, Beijing Dahongmen and Beijing Fifth Meat Factory. Hog sales increased to 162,324 heads for the three months ended March 31, 2012 from 101,141 heads during the three months ended March 31, 2011.

Fiscal 2011 Highlights

• Total revenue increased 41.8% to a record $99.8 million from $70.4 million
• Gross profit increased 84.6% year-over-year to $25.9 million from $14.0 million
• Gross margin increased to 26.0% from 20.0% on increased sales and strong increases in the average market price for hogs
• Adjusted net income, which excludes a gain in the fair value of warrants, increased 202.2% to $18.9 million, or $0.73 per diluted share, versus $6.3 million, or $0.41 per diluted share, for the same period last year, which excludes a non-cash expense related to the fair value of warrants for the fiscal year 2010
• Net income increased to $36.1 million, or $1.40 per diluted share, from $4.3 million, or $0.29 per diluted share, for the fiscal year ended June 30, 2010

"We experienced record revenues and profits in fiscal 2011 based on strong demand for our high quality breeding and commercial hogs," stated Mr. Zhenyu (Jack) Shang, Founder, Chairman and CEO of Sen Yu International Holdings, Inc. "Increased orders from our two major customers, Beijing Dahongmen and Beijing Fifth Meat Factory, resulted in revenues increasing to $99.8 million for the year compared to $70.4 million in revenue for fiscal 2010. Overall, our hog sales increased by 106,773 head to 504,028 head in fiscal 2011, compared to 397,255 at the end of fiscal 2010. We achieved higher margins in fiscal 2011 due to strong increases in average market prices for commercial hogs that led to higher unit sales prices. We believe our efficient business model and advanced breeding techniques, coupled with the demand we see for our products, will help us to continue to capture market share and drive our future growth."

Business Outlook

"We see significant growth for our industry going forward and believe that strong demand from Chinese consumers for high quality pork coupled with rising domestic incomes and economic expansion will stimulate even greater demand for our high quality breeding hogs," commented Mr. Shang. "The market for breeding and commercial hogs is becoming very attractive to foreign investors as China is the world's largest consumer of pork and produces some 50 million tons of pork every year to feed a population of over 1.3 billion. We continue to expand our production and refine our breeding techniques to meet the rising demand from China's middle class. Going forward, we believe pork consumption and production will continue to rise and that Sen Yu is well positioned to capture greater revenue and profit."

Third Quarter 2011 Highlights 

• Total revenue increased 36% to $20.3 million from $14.9 million a year ago
• Gross profit increased 107% to $5.5 million from $2.7 million a year ago
• Gross margin increased to 27.2% from 17.9% in the same period last year on increased sales and strong increases in the average market price for hogs
• Operating expenses were $1.6 million, up from $1 million in the same period last year
• Operating income rose 139% to $3.9 million from $1.6 million a year ago
• Adjusted net income, which excludes a non-cash expense related to the change in fair value of warrants for the third quarter of 2011, was $3.9 million, versus $1.4 million for the same period last year, last year there was no such non-cash expense relating to fair value of warrants
• Adjusted EPS was $0.16 vs. $0.08
• Net income was $55,696, or $0.00 per diluted share
• Working capital increased 85% to $37.8 million at March 31, 2011, from $20.5 million at June 30, 2010
• Shareholders' equity inclusive of noncontrolling interest increased 77% to $39.6 million at March 31, 2011, from $22.5 million at June 30, 2010

"We experienced higher revenue and gross profit in what is typically a slower season following the Chinese holidays," stated Mr. Zhenyu (Jack) Shang, Founder, Chairman and CEO of Sen Yu International Holdings, Inc. "This was driven by increased orders from our two major customers, Beijing Dahongmen and Beijing Fifth Meat Factory, resulting in solid revenue increases and a 107% increase in gross profit for the quarter. Hog sales increased by 13,761 head over the third quarter of last year. Going forward, we believe that our efficient business model, coupled with advanced breeding techniques and the superior quality of our Canadian breeding hogs will allow us to capture more market share and drive our growth."

Business Outlook

"We continue to see significant growth for our industry, underpinned by strong demand for quality pork among Chinese consumers," said Mr. Zhenyu (Jack) Shang, Founder, Chairman and CEO of Sen Yu International Holdings, Inc. "China's economy continues to grow rapidly, buoyed by a rising middle class and the continued preference for pork as a main and most popular source of protein among the Chinese population. To meet rising consumer demand, we continue to refine our breeding techniques and expand production based on increases in orders for commercial hogs from our customers. Based on China's economic expansion and government policies encouraging domestic pig production, we believe pork production and consumption will continue to rise, helping to fuel strong revenues and profits in our business going forward."

Year ended June 30, 2010 Highlights

• Net revenue increased 39.61% to $70.35 million for the fiscal year ended June 30, 2010 from $50.39 million for the same period ended June 30, 2009.
  
• Gross profit increased 62.75% to $14.29 million for the fiscal year ended June 30, 2010 from $8.78 million for the same period ended June 30, 2009
  
• Net income increased 38.74% to $6.26 million for the fiscal year ended June 30, 2010 from $4.51 million for the same period ended June 30, 2009.
  
• Diluted earnings per common share increased 100% to $0.46 per share for the fiscal year ended June 30, 2010 from $0.23 per share for the same period ended June 30, 2009.

Mr. Zhenyu Shang, the founder and chief executive officer of Sen Yu International, said, "Our strong increases in revenues and net income for the fiscal year ended June 30, 2010 reflect the high pork consumption in the Chinese market due to China's economic expansion. The consistency of our operating performance results from our established business model and effective execution. Our strategy, business model and actions have proven to be very effective, thereby delivering results. We continue to bring in talents to strengthen our financial structure and corporate governance."

Mr. Shang continued, "I believe our results for the fiscal year ended June 30, 2010 represent a very good performance in a very high growth year. With our advanced technology, modest debt leverage, and additional financing flexibility, we believe we should be very successful in expanding our current market and working capital to support sales growth in our commercial hogs market. We utilize Golden Lotus as our selling agent to ensure quality through a selection process. Golden Lotus is our exclusive sales agent in Heilongjiang Province. If Golden Lotus is not able to sell the minimum quarterly amount, it is required to pay a fee equal to 20% of the unaccomplished sales, and we have the right to sell our breeding swine through other agents. Among Golden Lotus' responsibilities is the recruitment of farmers that meet our standards. Golden Lotus is also responsible for processing the necessary data regarding the farmers, their requirements of breeding swine, their productivity, and an estimate of their fodder requirements. The data formulated by Golden Lotus is then used to determine the farmers' fodder requirements and our financial obligations to Wang Da. Wang Da is our fodder supply agent who maintains the Fodder Supply and Commercial Hog Buyback Agreements with the farmers." 

Mr. Shang concluded, "China's economic outlook continues to be encouraging, and China's projected domestic pork consumption will approach 68 million metric tons in 2015. Government support and trade protection policies also encourage domestic pig production with tax exemptions, vaccines technology, feed costs cap, price control and providing use of lands. China consumes about 50% of the world's pork products. As a result, we believe that the high demand for hogs should continue for several years."