Keyuan Petrochemicals reports rise in revenues, but drop in profits
Having recently commenced production in October 2009, Keyuan Petrochemicals Inc. (OTC Bulletin Board: KYNP), a manufacturer and supplier of various petrochemical products in China, has released its results for its second revenue-making quarter today, recording revenue of $132 million for Q2 2010, based on the sale of 155,955 metric tons (MT) of petrochemical products, up 12% versus the first quarter of this year.
Though due to lower market pricing, the company decided to hold 24,000 MT of product in inventory, which it anticipates selling in the third quarter at a higher price, it said. It also held over 27,400 tons of production as a result of a 15-day production shutdown due to a power grid upgrade by a local utility agency. Total production was 169,386 MT in the second quarter. Net income for the period was $4.9 million, compared to $5.7 million in the previous quarter.
The company saw a decrease in gross margins for the second quarter at 6.6% compared to 7.5% in Q1, due to lower market prices caused by the European debt crisis, production start up carry over expenses, and a temporary mandated plant shutdown. Gross margin is, however, expected to improve in H2 of this year due to improved production yields and favorable product mix. The company expects it to average 10% for the full year of 2010.
"Our performance during the second quarter of 2010 reflects continued strong demand for our products," said founder, chairman and CEO Chunfeng Tao.
The company intends to double its storage capacity from 100,000 tons to 200,000 tons by the end of 2011, as well as build a raw material pre-treatment facility and an asphalt production facility in order to meet growing customer demand in 2012, it said. Keyuan hopes to fund the expansion with cash on hand, bank loans, cash flows generated by its business and potential equity financing.
The new facilities are expected to reduce raw material costs, improve production yield and maximize profits from all stages of production, as well as increase cash flows and profits.
For the first six months of 2010, the company generated $14.4 million in cash flow from operations. For the full year of 2010, Keyuan expects to record revenue of approximately $550 million, with net income of $36.3 million assuming average annual sales volume of 660,000 MT of petrochemical products.
Keyuan Petrochemicals was established in 2007 and operates through its wholly-owned subsidiary, Keyuan Plastics, Co. Ltd. Located in Ningbo, China, Keyuan's operations include a designed annual petrochemical manufacturing capacity of 550,000 MT of a variety of petrochemical products, with facilities for the storage and loading of raw materials and finished goods, and a technology that supports the manufacturing process with low raw material costs and high utilization and yields.
Despite a recent slowdown in economic activity, excess demand for refined petrochemical products persists in China. As a result, China imported 3.1 million tons of petrochemical products per month in 2009. As more companies build more factories and open new offices in China as the Chinese economy expands, the demand for petrochemical products will grow.
Investors were not encouraged by the company`s results, however, as its share price fell 9.3% today to $4.80 since the release.
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