Yasheng (PINK:YHGG)

Full year 2011 results

• Sales increased 11.7 percent to $949.1 million
• Gross profit increased 14.9 percent to $121.6 million
• Net income was $114.1 million or EPS $.74, compared to $97.4 or EPS $.63 for the same period last year
• Fourth quarter EPS of $0.25 vs $0.19 in prior year quarter

The increase in net sales was attributable to higher yields and a better product mix coupled with better pricing on agricultural products, particularly potatoes, vegetables, garlic, beans, and fruits. The price increases were driven by greater demand for our products in the domestic market. We also benefitted from expanded distribution channels serving this market.

Second Quarter 2011 Results

For the three months ending June 30^th, 2011, our net sales and gross profit were $180.4 million and $19.9 million respectively with EPS of $.12.

Chairman Zhou Changsheng commented, "Our financial performance for the second quarter was in line with expectations. A higher-than-normal share of this year's inventory was sold in the first quarter due to favorable pricing at the time. We have achieved steady overall revenue and earnings growth so far this year and expect a strong second half of 2011 as the harvest season begins."

First Quarter Results:

• Our sales are generated primarily from our farming operations and related side line products in China. Net sales for the three months ended March 31, 2011 increased $27 million or 16.05% to $195.3 million as compared to $168.3 million for the three months ended March 31, 2010.
• Our net income for the period grew to $19.8 million or $.13 per basic share from $17.1 million or $.11 per basic share for the prior-year period.

Chairman Zhou Changsheng commented, "Our solid financial performance for the first quarter was mostly the result of price increases in the agricultural sector, which were a result of the continued expansion of the Chinese economy. The Chinese Spring Festival offered a welcome marketing and sales opportunity for our premium products during the quarter. In addition, we believe that our continued strong execution, expanding distribution network, our high-quality products, which increasingly carry our Yasheng brand, and the dedicated work of our management and employees contributed greatly to our company's success. I am confident that we are operating a sustainable business that will be able to capture more of the economic growth in China in coming quarters."

Sales are generated primarily from our farming operations and related side line products in China. Net sales for the three months ended March 31, 2011 increased marginally by $27 million, or 16.05% to $195.3 million as compared to $168.3 million for the three months ended March 31, 2010. These comparisons show that our sales in the first quarter have grown more significantly than the same period in 2010. The overall increases in net sales are primarily a result of the soaring price of agricultural products attributable to the general economics in China. We also benefited from our expanded marketing network which covers more provinces with more distributors and direct clients. In addition, our traditional holiday season-the Chinese Spring Festival (“CSF”) contributed much to the increase in net sales although the first quarter for the Company is an offseason quarter in total.

REDWOOD CITY, CA--(Marketwire - March 15, 2011) - Yasheng Group today reported that revenue for the fourth quarter ended December 31, 2010, rose 27 percent to $254 million compared to $199.8 million for the same period ended December 31, 2009.

The increase in revenue is primarily the result of the increase in fruit and vegetable prices as well as the strong growth of the Chinese economy. The price of potatoes has increased approximately 80 percent month-on-month since October 2009. As to vegetables, prices have surged approximately 60 percent year-on-year since November 2010 on the average. In addition, the company benefited from increased market share as a result of its expanded distribution channels. The company also benefitted from the year-end holiday selling seasons in China.

In commenting on the results, Chairman Zhou Chang Sheng stated, "Besides price increases in agricultural products, our strong fourth quarter financial performance is mainly due to our focus on meeting market needs and our employees' solid execution. I am proud of our employees and thank them for the outstanding job they have done throughout the whole year."

Additionally, the company expects earnings per share for fiscal 2011 to fall in the range of $.72 to $.74, with sales expected to reach $976 million.

Concluding, Mr. Zhou Chang Sheng said, "We anticipate delivering another strong year this year with increases in both revenues and earnings growing in the range of 15%. We will remain focused on meeting the demands of the Chinese marketplace while expanding our footprint throughout the world. Finally, we owe our continued success to our employees whose commitment to excellence will enable Yasheng to continue generating increases in sales and earnings."

Chairman Zhou Changsheng summarized, "Our solid financial performance for the third quarter was primarily the result of increased pricing attributable to the positive growth economics in China, our successful price renegotiations, and contributions from key projects we implemented during the past year to optimize our operations and control cost. Given the positive economics and our successful harvest during the second and third quarters, we anticipate continued growth and a strong fourth quarter."

"The overall increases in Net sales are primarily a result of price soaring attributable to the general economics in China. These comparisons show that our sales in the third quarter have grown more significantly than the previous quarter. This is due primarily to the renewal of our fixed price contracts that we had in place for the first half of 2010. We are able to enjoy this increased market price of our products with the renewed the contracts. What’s more, most of our products are harvested in the third quarter, and a large part of them are sold out in this quarter, and we can benefit from the price soaring."

To Our Employees, Shareholders, and Business Partners:

It is with tremendous pride that I write this letter to you to update you on the important activities and developments at our company. Now in its 40th year, the Yasheng Group is poised to enter a new phase of growth and expansion. We are excited about our future and hope that you share our enthusiasm.

Over the past five years, Yasheng Group has made great strides by executing our strategic plan that focuses on corporate expansion and innovation, enabling us to deliver superior results and profitable growth. We will build on our solid foundation to fuel future growth as we strive to achieve the highest international standards in corporate practices and governance.

Our company has continued to expand its access to land resources and use of modern agricultural technologies. We have implemented key projects that will generate significant rewards over the next five years. Within our product R&D departments, we are implementing projects such as the production of deep processed potato, fruit and vegetable concentrate products for food processors and retail consumers, to expand our high-tech processing abilities to deliver products that efficiently meet the demands of an emerging Chinese consumer in a challenging global economy. Yasheng has fed China and the world for four decades and we will continue to do so by playing an increasingly important role in the global food industry.

Given our company's access to land and natural resources in China, we will continue to expand industrial farms in an environmentally-responsible manner. We continually upgrade our operations to insure that we are using the most modern cultivation technologies available and that our infrastructure is both efficient and sustainable in meeting demands of our consumers for "Green Food and Organic Policies." Our growing regions, situated in the northwest region of China, provide us with a key advantage in the cultivation of high-end products in a clean environment, without the need for artificial elements or unnatural ingredients typically used in the cultivation process. We will continue to meet any and all standards or certifications required for food safety, quality, and global sustainability.

Yasheng Group has established itself as a company that strives for the highest standards in technology, management, corporate governance, and financial performance, insisting on Total Quality Management and excellence in everything we do. I continue to demand strict adherence to these values as the company's founder, Chairman, and CEO and welcome your input on our company's progress.

Our company's foundation has been built upon Agriculture, Biotechnology, and Chemicals and we will continue to develop those segments that relate to our core cultivating and producing commodities. During the next five years, GanSu Yasheng Group will continue to focus on developing the Agriculture, Biotechnology, and Chemicals Industries while our U.S.-listed "YHGG" will focus on Agriculture within the food, agribusiness, and eco-friendly by-products markets.

We intend to focus our energies on building the "Yasheng" name as a global leader in quality, consistency, safety, and value. In addition, we intend to list our common shares on a more senior exchange as soon as we meet the necessary requirements. Such a listing would serve to increase investor awareness and interest in our company. Yasheng Group has undertaken major public relations and branding programs to generate awareness of our company as well as to build awareness of our status as a publicly-traded company. We have retained the New York-based Makovsky + Company, a public relations and investor relations firm, to assist us with these efforts as part of the company's larger plan to bring more public awareness to Yasheng Group.

After months of anticipation, Yasheng Group has finally filed its 2009 10K. The fourth quarter and year end break out is as follows:

While the company has not provided specific details on its 2010 outlook, it did provide some insight into industry dynamics:

Growth of China's agriculture industry. China is currently the world’s largest agricultural economy and a leading importer and exporter of agricultural products. China’s agricultural sector continues to change as it responds to the rising and increasingly sophisticated demands of domestic and foreign consumers, adapts small-scale farm structure to global food markets, and competes with other sectors for labor, investment capital, and scarce land and water resources. We believe agriculture product consumption in China will continue to grow due to increased affordability of agriculture processed products in concert with China’s economic growth and increased health and wellness consciousness. We expect these factors to continue to drive industry growth, especially in our primary markets. Such growth will not only increase the overall market size for processed products, but will also greatly benefit companies such as ours that are well positioned to sell into these markets.

PRC Government Policy Promoting the Development of the Agriculture Industry. In the PRC central government’s eleventh five-year guideline, the central government emphasized its determination to solve the problems of farmers, boost modern agriculture and increase rural affluence. After the onset of the economic crisis in late 2008, the PRC Ministry of Agriculture, or MOA, also stated its objective to promote agriculture commercialization. We believe that our business model is structured within the framework of these MOA initiatives and that government policies will continue to have a positive impact on the sale of our products.

High-tech Agriculture. We own the land use rights to over 100,000 acres of farmland that are cultivated using the latest scientific technologies to produce a wide variety of agricultural products. Our farms produce beer barley, 2,500 acres of hops, 5,300 acres of fruit orchards producing 50 million kg of apple pears, apples of several varieties, grapes, apricots, and dates, 6,000 tons of potatoes, 2,500 acres of vegetables including tomatoes, carrots, peppers, cabbages, and onions, and melon seeds. The Company also operates 63 acres of automated, climate controlled greenhouses and a 2,500-acre medical herb facility that produces licorice, ephedrine and other herbs while also conducting research on Chinese medicine.

Investors may assume that YHGG may need to tap the financial markets for funding purposes:

"Expansion of our capacity is needed to satisfy increased demand for our products. In order to increase production in a meaningful way capital investment will be needed to build additional capacity to satisfy the projected demand of our products."

Although, current verbiage clearly indicates that the company has enough internal funds to accomplish this task:

"We believe that our cash on hand and cash flows from operations, together with the net proceeds from the private offering referenced above and anticipated additional cash resources, will meet our expected capital expenditure and working capital for the next 12 months."

YHGG still must file its 2010 first and second quarter 10Qs to become current with the SEC.

The questions on many investors' minds are:

• Can YHGG approach is book value per share?
• How can a nearly $1.0 billion company experience meaningful growth?
• Will the company reduce its share count?

We think excitement over the YHGG story is building due to the following:

1. The company appears to be in the final stages of becoming a fully reporting company, which could be a precursor to an uplisting.
2. The company issued some preliminary revenue figures in an NT-10K fling on April 1 2010.

Breaking down the fourth quarter and using pre-tax margins of 13.3% from the 2009 third quarter it looks like we get get following:

^aGeoTeam calculations.

So... If our fourth quarter calculation is correct investors may see a reason to continue to take note of YHGG shares.

3. Using the 2009 third quarter as a guide it appears that book value per share is over $10.00 (~4 excluding good will).  If the company can convince investors that it can grow EPS rapidly it seems fair to assume that YHGG may fill the book value per share gap or at the very least attain a P/E multiple of 10.

4. An adjustment to YHGG's risk premium as uncertainty has been reduced.

Caveats:

YHGG  outstanding share count is well above our preferred 50 million minimum.  We believe  it would be prudent for YHGG to reduce its share count via a combination of:

• Retiring some stock
• A Stock buy back
• A Reverse Split

We had suggested a similar strategy to CHGI's management when it was trading around $0.70.  They eventually took our advice and struck a deal with investors to reduce warrant overhang.

• YHGG still trades on the pinks
• Still need more information on the existence of dilutive securities
• Short-Term Debt= $29.5 million; Long-Term Debt= $3.2 million. Although the debt to equity ratio is only about 2.0%
• We would like more information on the accounts payable figure of $51.5 million.
• YHGG did not provide net income figures in its NT10K filing.
• And most importantly, one quarter does not indicate a trend. YHGG has had flashes of brilliance in the past. YHGG will have to convince investors that it can continue to grow EPS at a respectable pace in order to approach book value.  The shares selling at $0.65 were like just too low for a company that is profitable and eliminating uncertainty. 

by Maj
President
GeoTeam