Wednesday, November 10, 2010

Lihua International Sees Strong Demand for Copper Products

Prior to the open today, Lihua International (LIWA) posted earnings that beat analyst expectations. With only a couple of analysts following LIWA, that generally isn't that worthwhile. While news that the company is upping full year guidance and that they see strong demand in 2011 is extremely useful.

LIWA reported revenue of $96.3M which was 135% over last year. EPS was $.33 versus $.13 last year. Margins were lower due to the new copper anode products having lower margins but they provide a higher return on invested capital leading to a larger bottom line and huge growth opportunities.

LIWA is a leading value-added manufacturer of copper replacement products for China's rapidly growing copper wire and copper replacement product market. LIWA is one of the first vertically integrated companies in China to develop, design, and manufacture lower cost, high quality alternatives to pure copper magnet and pure copper alternative products. Except for CCA wire, all other products such as copper rod and copper anode are made from recycled scrap copper.

LIWA continues to see higher demand then they can produce. Copper anode continues to have demand indications that exceed production even after the new facility is completed in late 2011.  Always nice to have such a problem.

Based on 2010 guidance, LIWA forecasts $.39 - .46 in Q4 EPS ( Net income of $38.1M to $40.3M - $26.5M for first 9 months divided by 30M shares outstanding). This easily exceeds the $.33 just reported and the $.37 analyst estimates. Higher copper anode production and sales will help increase margins on top of the higher sales.

via Q3 PR:


Highlights:

  • Sales increased 135% year-over-year to $96.3 million.
  • Gross profit increased 55% year-over-year to $15.1 million.
  • Net income increased to $9.9 million, or $0.33 per diluted share, compared with a net loss of $(1.3) million, or $(0.08) per diluted share in the third quarter of 2009.
  • Non-GAAP net income(1) was $10.0 million, a 49% increase, compared with $6.7 million in the third quarter of 2009. Non-GAAP net income excludes charges related to the change in fair value of warrants of $0.1 million and $8.0 million for the third quarter of 2010 and 2009, respectively.
  • EBITDA increased 65% year-over-year to $14.2 million.(2)
  • Strong balance sheet with $93.0 million in cash and cash equivalents, or $3.10 per diluted share, as of September 30, 2010, compared with $87.6 million as of June 30, 2010.
  • Cash flow from operations of $8.8 million, compared with $3.3 million in the third quarter of 2009.

Outlook

As a result of the Company's strong growth outlook for the remainder of 2010, and considering the potential incremental benefit of precious metals content in copper anode to the Company's gross profit, the Company is raising its gross profit outlook for year 2010 to $57.0 million - $60.0 million.  The revised gross profit guidance reflects 57-66% year-over-year growth.  The Company's prior gross profit guidance was $52.9 million - $55.7 million, or 46-53% year-over-year growth.  The Company expects 2010 non-GAAP net income of $38.1 million - $40.3 million, or 48-57% year-over-year growth. The Company expects that 2010 growth will be largely the result of continued strong demand in China for recycled copper and copper alternative products in the household appliance, consumer white goods, automobiles and infrastructure markets.

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