Shengtai Pharmaceuticals (OTC BB:SGTI)

Third Quarter 2012 Results

• Net sales for the three months ended March 31, 2012 were $39,803,608, a decrease of $1,882,553 or 4.52%, compared with the same period in 2011.
• Net income for the three months ended March 31, 2012 was $98,253, a decrease of $2,206,924, compared with $2,305,177 for the same period in 2011.

Management Comments

Looking forward, Qingtai Liu, CEO of Shengtai Pharmaceutical, Inc. stated, "Going forward, Shengtai will continue to work on expanding sales network, maintaining good customer relationship, improving gross profit, and controlling the expenses. As usual, we will keep focusing on quality control."

WEIFANG, China, April 24, 2012 /PRNewswire-Asia/ -- Shengtai Pharmaceutical, Inc. (OTC Bulletin Board: SGTI) ("Shengtai" or "the Company" or "We" or "Us"), a manufacturer and distributor in China of glucose and starch as pharmaceutical raw materials and other starch and glucose products, today announced that it has established a special committee of its board of directors (the "Special Committee") to consider the preliminary, non-binding proposal received from Shengtai's Chairman and Chief Executive Officer, Mr. Qingtai Liu, on April 17, 2012 to acquire all of the outstanding shares of the Company's common stock not currently owned by him in a going private transaction (the "Liu Proposal").

The Special Committee is composed of the following independent directors of the Company: Mr. Tao Jin, Mr. Lawrence Lee, and Mr. Yaojun Liu. Mr. Tao Jin was elected as the chairman of the Special Committee by the Special Committee members. The Special Committee will retain legal advisor and independent financial advisor to assist it in its evaluation of the Liu Proposal and any additional proposal that may be made by Mr. Liu and his affiliates, if any.

No decisions have been made by the Special Committee with respect to the Company's response to the Liu Proposal and there can be no assurance that any definitive offer will be made, that any agreement will be executed, or that the Liu Proposal or any other transaction will be approved or consummated.

WEIFANG, Shandong, China, April 17, 2012 /PRNewswire-Asia-FirstCall/ -- Shengtai Pharmaceutical, Inc. (OTC Bulletin Board: SGTI) ("Shengtai" or "the Company" or "We" or "Us"), a manufacturer and distributor in China of glucose and starch as pharmaceutical raw materials and other starch and glucose products, today announced that its Board of Directors has received a preliminary, non-binding proposal from its Chairman and Chief Executive Officer, Mr. Qingtai Liu ("Mr. Liu"), which stated that Mr. Liu intends to acquire all of the outstanding shares of the Company's common stock not currently owned by him and his affiliates in a going private transaction at a proposed price of $1.65 per share in cash. According to the proposal letter, the acquisition is intended to be financed with a combination of debt financing and equity financing. Mr. Liu and his affiliates currently beneficially own approximately 40.5% of the Company's common stock. A copy of the text of the proposal letter to the Board of Directors is set forth below.

The Company's Board of Directors intends to form a special committee of independent directors to consider this proposal and any additional proposal that may be made by Mr. Liu and his affiliates, if any. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that a transaction with Mr. Liu or any other transaction will be approved or consummated.

Second Quarter 2012 Results

• Net sales for the three months ended December 31, 2011 were $42,933,425, a decrease of $6,111,431 or 12.46%, compared with the same period in 2010.
• Net (loss) income for the three months ended December 31, 2011 was $(65,062), a decrease of $2,761,530, compared with $2,696,468 for the same period in 2010.
• Earnings per share were a loss of ($0.01) vs gain of $0.28 in prior year.

During the quarter ended December 31, 2011, corn prices continued to increase. Shengtai continued its focus on controlling the gross profit," Qingtai Liu, CEO of Shengtai Pharmaceutical, Inc. stated, "We completed the corn warehouse expansion in October 2011. Currently we have 50,000 tons storage capacity. We refused lower profit sales to keep our long-term success. We put our view for the long term success of the business and we are on the right path toward improvement and success among competition."

Looking forward, Qingtai Liu, CEO of Shengtai Pharmaceutical, Inc. stated, "Even though Shengtai is facing industry pressure caused by continually increasing corn prices, we believe that we are taking the right strategy to keep our competitive position in the industry. We estimate that we still occupy more than 30% of the pharmaceutical glucose market. We are vertically integrated which allows us to provide high quality cornstarch to manufacture glucose. We will continue our focus on keeping our leader position in pharmaceutical glucose market and focus on controlling our gross profit for the cornstarch and other products gross profit margin.

WEIFANG, Shandong, China, Nov. 14, 2011 /PRNewswire-Asia-FirstCall/ 

"We are glad that our sales increased 15% during the last quarter ended September 30, 2011, compared to the same period last year. During the quarter ended September 30, 2011, we continued our strategy of locking in lower cost raw material." Qingtai Liu, CEO of Shengtai Pharmaceutical, Inc. stated, "We put in more cash resources into advances for raw material purchases to lock in the increasing raw material cost. We put our view for the long term success of the business and we are on the right path toward improvement and success among competition."

Management Comments

Looking forward, Qingtai Liu, CEO of Shengtai Pharmaceutical, Inc. stated, "Even though during the last quarter, the increased corn prices shrank the gross margin for the industry, we still view it as an opportunity for us. Compared to smaller companies, we had more cash to support us in a less profitable market for a longer time. We had stored larger raw material inventory and advanced more cash for raw material purchases. This will allow us to have a better margin than the competitors."

"Going forward we are confident to be the final winner of the industry!" concluded Mr. Liu.

The Company estimates the need for capital to run new production facilities. The exact amount will be determined based on both the market demand for the Company’s products and the time needed for these facilities to run at full capacity. The Company will carefully review its financial condition and consider financing with internally generated cash, bank loans or additional equity. The Company expects that its proceeds from operating cash flows and its cash balances, together with amounts available under its loans, will be sufficient to meet its anticipated liquidity needs for the next twelve months.

Fiscal 2011 Results

• Sales revenue for the fiscal year ended June 30, 2011 was $ 171,717,866, an increase of $55,763,918, or 48.09% compared with the corresponding period in 2010
• Net income for the year ended June 30, 2011 was $7,651,051 or $0.80 per share, an increase of $4,452,070, or 139.17%, compared with a net income of $3,198,981 or $0.33 per share for the same period in 2010.

"We are very glad that the Company has made tremendous progress in the year ended June 30, 2011." Qingtai Liu, CEO of Shengtai Pharmaceutical, Inc. stated, "Compared with last year, our sales increased $55,763,918, or 48.09% and our net income increased $4,452,070, or 139.17%. Our sales increased both domestically and internationally. Customer deposit also increased which shows a strong customer demand for our products. We also successfully expanded our corn storage from 36,000 tons 50,000 tons and our cornstarch annual production capacity from 300,000 tons to 400,000 tons. The storage expansion allowed us to lock in raw material prices by storing more raw material while the raw material prices are increasing. The expansion of cornstarch production line allows us to produce more cornstarch and related products to meet the increased demand for our cornstarch and related products, and provide more cornstarch as raw material for our glucose production."

Looking forward, Qingtai Liu, CEO of Shengtai Pharmaceutical, Inc. stated, "Our Company strives to keep our sales growth in the coming year by providing competitive pricing as well as super customer satisfaction. Most importantly, our company will take a few steps to keep our gross profit stable. We will continue to store more raw material corn inventory when the corn prices are increasing. At the same time, we will enhance our sales policy in monitoring pricing."

"The Company has sufficient cash for our operation for the coming year. The Company has no plan for large construction or project in the coming year. We will closely monitor our cash reserve to make sure we will have sufficient funding for our operation. We also are continually looking for new high technology products that will bring higher profit to the Company. Going forward we are confident for bring a successful year!" concluded Mr. Liu.

Third Quarter Results:

• Net sales for the three months ended March 31, 2011 were $41,686,161, an increase of $12,278,874, or 41.75%, compared with $29,407,287 for the same period in 2010.
• EPS $0.24 v. $0.10

"During the third quarter 2011, we continued to develop our customer base, both domestically and internationally. In January 2011, we completed the expansion of a new cornstarch production facility which increased our production capacity from 300,000 tons to 400,000 tons. With our new state-of-the-art facilities, we now have the production capacity to meet the anticipated increase in demand. We also completed construction on a warehouse to store an additional 22,000 tons of corn, our major raw material. Since corn prices have been increasing the additional inventory ability will help to control our cost." Mr. Liu concluded.

Business Outlook

"With our performance to date during the 2011 fiscal year, we are very confident and proud to say that both the net revenue and net income will increase greatly for the fiscal year 2011 compared to fiscal year 2010," stated Mr. Qingtai Liu, Shengtai Pharmaceutical's CEO. "As we look further into the fourth quarter of our fiscal year 2011, we expect our cornstarch manufacturing facility be utilized at around 85% of capacity by the end of December 31, 2011. The newly expanded cornstarch manufacturing facilities will help us to satisfy the increasing demand of our cornstarch products and byproducts. We have already built relatively large back orders for our glucose and cornstarch products. In order to continually stabilize our gross profit margin, we will continue to construct additional storage facilities to better control the impact of fluctuating corn prices. Looking forward, we are also confident with our cash position, which is enhanced by the increased sales and good accounts receivable collection. In the coming year, we will focus on providing high quality products as well as continue searching for higher profit high-tech products." Mr. Liu concluded.

Business Outlook

"For the second half of fiscal year 2011, we expect sales of our glucose, cornstarch and other products will continue to grow in both domestic and international markets," stated Mr. Qingtai Liu, Shengtai Pharmaceutical's CEO. "As we look further into the second half of our fiscal year 2011, we expect our newly expanded cornstarch manufacturing facility will be utilized over 50% by the end of fiscal year 2011. The newly expanded cornstarch manufacturing facilities will help us to satisfy the increasing demand of our cornstarch products and byproducts. We have already built relatively large back orders for our glucose and cornstarch products. In order to stabilize our gross profit, we have continued to construct additional storage facilities to better control the impact of fluctuating corn prices. Looking forward, we are also confident with our cash position, which is enhanced by the increased sales and good accounts receivable collection. In the coming year, we will focus on providing high quality products as well as continue searching for higher profit high-tech products." Mr. Liu concluded

On December 1, 2010, YE Hu offered his resignation as Chief Financial Officer of Shengtai Pharmaceutical, Inc. (the “Company”), with an effective date of December 31, 2010. The Board of Directors of the Company has accepted his resignation and is actively searching for a new Chief Financial Officer. Yongqiang Wang, the Financial Controller of the Company, will act as principal financial officer until such time as the Board has appointed a new Chief Financial Officer.

		Three months ended September 30,  2010				Three months ended September 30, 2009
Net Sales		$	34,644,572			$	23,127,057
Cost of Sales			28,625,215				19,805,701
Gross Profit			6,019,357				3,321,356
Selling, General and Administrative Expenses			2,579,804				2,084,689
Income (Loss) From Operations			3,439,559				1,236,667
Other (Expense) Income, Net			(1,019,082	)			(364,936	)
Income (Loss) Before Provision For (Benefit From) Income Taxes			2,320,541				871,731
Provision For (Benefit From) Income Taxes			677,457				87,897
Net Income (Loss)		$	1,643,084			$	783,833

EARNINGS PER SHARE
Basic		$	0.17			$	0.08
Diluted		$	0.17			$	0.08
WEIGHTED AVERAGE NUMBER OF SHARES
Basic			9,584,903				9,584,903
Diluted			9,584,903				9,584,903

The Company estimates the need for capital to run new production facilities. The exact amount will be determined based on both the market demand for the Company’s products and the time needed for these facilities to run at full capacity. The Company will carefully review its financial condition and consider financing either with internally generated cash, bank loans or additional equity. The Company expects that its proceeds from operating cash flows and its cash balances, together with amounts available under its loans, will be sufficient to meet its anticipated liquidity needs for the next twelve months.

Shengtai Pharmaceuticals update:

The stock has lagged the the recent bullish move in the ChinaHybrid space.  Can SGTI experience  a bump in its P/E multiple? 

• At a share price of $1.04, the implied EPS guidance gives SGTI a P/E of 2 to 2.5.
• Stock is selling below its book value per share of $2.56 (maybe because its current ratio is below 2 to 1).

Investors need to be aware that P/E expansion could be limited:

• SGTI fiscal 2010 auditor was Kabani, a firm that has come under fire.
• Current ratio is under 2 to 1.
• Debt to equity ratio is 1.22.
• Warrant overhang exits.
• SGTI trades on the bulletin board.

We are also unsure of liquidity needs:

The Company estimates the need for capital to run new production facilities. The exact amount will be determined based on both the market demand for the Company’s products and the time needed for these facilities to run at full capacity. The Company will carefully review its financial condition and consider financing with internally generated cash, bank loans or additional equity. The Company expects that its proceeds from operating cash flows and its cash balances, together with amounts available under its loans, will be sufficient to meet its anticipated liquidity needs for the next twelve months.

Disclosures:

• We own a very small short term trading position based on the outside chance that SGTI may experience minor P/E expansion. 
• We have not interviewed or performed on the ground due diligence.
• We have not pulled SAIC filings.
• Auditor is Kabani.

On October 18, 2010, Shengtai Pharmaceutical, Inc. published a power point presentation (the “PPT”).  As part of a series of meetings to be held during the week of October 18, 2010, executives of the Company will provide an overview of the Company and present the PPT.

It appears that Shengtai Pharmaceuticals has issued fiscal 2011 guidance in its most recent power point presentation:

• Revenues to increase 55.2% to $180.0 million.
• Net Income to increase 212.5% to $10.0 million.

Using the current share count, this translates into EPS of about $0.52.  Including warrants of 4,398,945, exercisable at $2.60, would equate to EPS of $0.42.  We calculate that, on a fully adjusted basis, SGTI reported EPS of about to $0.30 in fiscal 2010.  The company is fully taxed.

Year Ended June 30, 2010 Compared with Year Ended June 30, 2009

• Sales revenue for the fiscal year ended June 30, 2010 was $115,953,948, an increase of $42,632,086, or 58% compared with the corresponding period in 2009. The increase in sales revenue resulted from the increase of the Company’s sales volume and selling prices.
  
• Net income for the year ended June 30, 2010 was $3,198,981, an increase of $5,862,869, compared with a net loss of $2,663,888 for the same period in 2009.
  
• EPS was $0.17 vs. $(0.14).

GeoTeam® Note:  It appears that after adding back $1.3 miullion in non-cash amortization charges, the company has met the high end of its net income guidance range of $3.0 to $4.0 million.

"With the recovery of the world and China economy, management has seen increased sales trend that would improve our market and financial positions. We will continue to identify and pursue product quality and innovative technology to increase our market share and optimize our cost structure. Barring unforeseen circumstances, we anticipate continued growth in our sales growth in next few years. Our ability to meet increased customer demand and stay profitable will however still depend on factors such as world and china economic recovery, market demand, our production capacity, and working capital."

 Also see press release

From May 17th 2010:

 Financial Summary of the Third Quarter 2010
    -- Revenues totaled $29.41 million
    -- Net income totaled $0.98 million
    -- Basic and diluted earnings per share of $0.05
    -- Cash and restricted cash position at $18.10 million on March 31, 2010

 Financial Summary of the First Nine Months 2010
    -- Revenues totaled $81.04 million
    -- Net income totaled $2.81 million
    -- Basic and diluted earnings per share of $0.15
    -- Operating cash flow of $7.35 million

Based on its current outlook, and existing and anticipated business conditions, Shengtai expects net income for the fiscal year ending June 30, 2010 to be between $4 to $5 million.

"We stick to our strategies of increasing of production capacity, control of costs, improving of product mix structure to create higher total gross profits," said Mr. Qingtai Liu, Shengtai's CEO. "The market remains competitive. However, with our competitive strength and corporate strategies, we are very confident that we will have a profitable fiscal year of 2010 as we continue to benefit from the global and domestic economic recovery and the consequently increasing demands by the overseas and domestic markets for glucose and starch products."

Added to the GeoSpecial list on February 17, 2010 @ $ 1.25

Catalyst: Shares were selling below book value of @2.26; Bullish guidance.
Peak performance: Reached a high of $1.97 on April 29, 2010.
Current Price: $1.30
 
Current road block:  Lack of investor awareness; Investors will likely require guidance for fiscal 2011 ending October; 4,398,945 warrants exist with a strike price of $2.60.

Remains on the GeoSpecial list as shares still sell for less than book value per share of $2.52 .  2010 guidance implies that fourth quarter net income and EPS will range between $1.2 million to $2.2 million and $0.06 to $0.11, respectively, resulting in the strongest quarter for the year.  Again, 2011 guidance  may be necessary to prompt investors to potentially take these shares higher.  Warrants may also create a significant overhang, unless 2011 net income growth is at least greater than 40%, which would give EPS growth a good chance to eclipse 20%.

Liquidity seems intact:

Shengtai estimates it will need capital to run new production facilities. The exact amount will be determined based on both the market demand for the company’s products and the time needed for these facilities to run at full capacity. Shengtai will carefully review its financial condition and consider financing either with internally generated cash, bank loans or additional equity.  The company expects that its proceeds from operating cash flows and its cash balances, together with amounts available under its loans, will be sufficient to meet its anticipated liquidity needs for the next twelve months.

Please note: On July 6, 2010, the GeoTeam® removed all Chinese stocks that were on GeoBargains and GeoSpecial lists to respective Radar lists as we complete our "quality assessment."

***Very Important GeoTeam® note. We have yet to verify if the Chinese filings for ChinaHybrid stocks we monitor match respective SEC filings. We are in the process of completing this task. Although we are not totally convinced that SAIC filings are an accurate represenation of financial statements the issue is impacting stock prices. Conservative investors may want to limit exposure or buy put options on stocks, that have this availability, as insurance against long positions, until we publish our findings. Odds are we will identify some promising companies that will fail this litmus test.

see relevant articles

 

We are coding Shengtai Pharma as a GeoSpecial:

• The company reported its second consecutive profitable quarter:

Year Ends in June	Fiscal 2nd Quarter 2010	Fiscal 2nd Quarter 2009
GAAP Revenue	$28.51 million	$14.80 million
GAAP EPS	$0.05	$-0.02
Fully Diluted Shares	19,169,805	19,123,338

Source: See Filing For the quarterly period ended December 31, 2009

• The company maintained its net income guidance of $3.0 to $5.0 million

We don't think this is a slam dunk for a huge run, but we do feel the stock has a enough positive news  to push shares to its book value per share of $2.46. 

Investors need to be cognizant that:

• The company has 4,398,945 warrants that are exercisable at $2.60 which could place a ceiling on the stocks appreciation potential.

  Potential fully diluted shares outstanding as of February 16, 2010:

  19,169,805: Primary Shares
   4,398,945 :  Warrants
  __________
  23,568,750

• The company's guidance range could imply a sequential decrease in EPS in coming quarters. (Net Income for the  6 months 2010 is $1.8 million) 

 

Based on its current outlook, and existing and anticipated business conditions, Shengtai expects net income for fiscal year ending June 30, 2010 to be between $3-$5 million.

"Looking forward we see several factors that will create a continuous demand for the Company's pharmaceutical graded glucose products. First of all, this winter is abnormally cold in northern China with Swine flu a strong threat to health. More people will get flu shots and other IV treatments. In China, IV drips are the most commonly used in hospitals and clinics to treat the symptoms of cold and flu," said Mr. Qingtai Liu, Shengtai Pharmaceutical's CEO. "Second, we would also see the health care stimulus package starting to show its effects in the next twelve months and we expect increased demand for basic pharmaceutical products from newly built clinics. Third, we believe we are in a much better position than some of our key competitors in the pharmaceutical glucose field. We have expanded production capacity and have enough operating cash flow. Some of our key competitors went bankrupt, have temporarily stopped production, or are on the verge of going out of business. This is a good opportunity for us to obtain an even higher market share in the pharmaceutical glucose market. With these good external opportunities, we plan to stick to our strategy of controlling costs, improving product structure to create a higher gross profit products mix, and expanding market share in the pharmaceutical glucose market. We are very confident that our key competitive strength remains and will welcome a profitable year in fiscal year 2010."

Source: PR Newswire (November 16, 2009)