Guanwei Recycling boosts margins as demand returns for recycled plastic
Plastic recycling group Guanwei Recycling (NASDAQ: GPRC) reported a sharp improvement in net income in its first quarter ended March 31, 2010 ("Q1 2010) of 73.4% to US$2.2 million, or 11 cents per share (Q1 2009: $1.27 million, or 11 cents per share). EPS (earnings per share) in the first quarter this year is based on 20 million fully diluted shares outstanding compared with 12 million in 2009.
Guanwei said the boost in net income was largely due to a 24.65% boost in revenues from its high margin recycled LDPE revenues to US$9.3 million (Q1 2009: $7.47 million) and lower input costs.
While the net income numbers were straightforward, the net revenue figure was not. Reported net revenues fell 58% to US$9.49 million from $22.6 million in Q1 2009. However, the apparently massive drop in revenues was due to the company's decision to sell third party recycled material last year, which it no longer does, and a decision to cut its inventory last year which generated a one off material sales gain of $7.48 million. Both the sale of raw material inventory and third party sales were initiated to offset weakness in the industry in 2009.
"After managing our continued success through the difficult industry conditions in 2009, we are pleased to have started 2010 in very strong fashion. As previously reported, this was fully anticipated, as we began the year with a greatly expanded customer base -- nearly 300 customers in ten different industries -- and with rebounding LDPE prices as demand for our product has continued to grow," Chen Min, CEO of the Company, stated.
"Most significant has been our ability to bolster and diversify our long term European raw material supply base, which is what gives us a significant edge over competition. It also is the key element in maintaining our rapid growth, which is what we continue to anticipate in 2010. Underlying this is our commitment to maintaining the highest green standards in the industry in all phases of our operations. In our case, clean tech has and will continue to translate to higher product quality, higher margins and industry leadership."
In Q1 2010 the company's cost of revenues was $6.17 million, or 65% of sales, compared to $20.67 million in Q1 2009, or 91.44%. The aberration was again impacted by the one-off gain in investor sales last year combined with lower margin resale of third party products. The China based recycling group also benefited from higher pricing power, achieving $1051 per ton in Q1 2010 versus $953 per ton in Q1 2009 and lower input costs as the average price per ton of plastic waste was $451 per ton in Q1 2010 compared to $509 per ton in Q1 2009.
The Company also reported that overall gross profit in the 2010 first quarter increased 71.5% to $3.3 million and the overall gross margin rose to 35% compared with 8.5% in the same period of 2009.
The Company noted that, in addition to the recovery in selling prices for recycled LDPE it saw in the first three months of 2010, there were ‘other clear indications of continuing growth in the market in this period'. Guanwei highlighted data compiled by China Custom, which reported that total production volume of polyethylene in China increased 19% to 2.84 million tons in the first quarter of 2010.
The Company has net working capital (as of March 31, 2010) of $5.76 million.
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