ShengdaTech, Inc. Q2 2010 Earnings Call Transcript

ShengdaTech, Inc. Q2 2010 Earnings Call Transcript
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ShengdaTech, Inc (SDTH)

Q2 2010 Earnings Call Transcript

August 10, 2010 09:00 am

Executives

Kevin Theiss - Grayling, ShengdaTech’s US IR Advisor

Xiangzhi Chen - Chairman & CEO

Andrew Chen - CFO

Anhui Guo - COO

Analysts

John Ma - Roth Capital Partners

Katherine Lu - Oppenheimer & Company

Ingrid Yin - Brean Murray

Presentation

Operator

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Greetings and welcome to the ShengdaTech, 2010 second quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kevin Theiss for ShengdaTech Incorporated. Thank you. Mr. Theiss, you may begin.

Kevin Theiss

Thank you for joining us today and welcome to the ShengdaTech’s 2010 second quarter conference call. My name is Kevin Theiss and I’m with Grayling, ShengdaTech’s US Investor Relations advisor.

Joining us from China are Mr. Xiangzhi Chen, ShengdaTech’s Chairman and Chief Executive Officer, Mr. Andrew Chen, Chief Financial Officer and Ms. Anhui Guo, Chief Operating Officer. They will be available to answer questions later in the conference call and we will provide translation.

Before we get started, I would like to remind our listeners that in this call, management's prepared remarks contain forward-looking statements which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today due to various risks including but not limited to such factors as unanticipated changes in product demand especially in the tire and PVC industries, the ability to attract new customers, ability to prepare for growth, plant manufacturing capacity expansion, ability to increase product’s applications and other information detailed from time-to-time in our filings and future filings with the United States Securities and Exchange Commission.

Accordingly, although the company believes the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. In addition, any forward-looking information represents management's estimates as of today, August 10th, 2010 and ShengdaTech assumes no obligation to update any forward-looking statements.

Chairman Chen will provide a brief overview in Chinese and I will provide the English version. Then, CFO Andrew Chen will provide additional comments and the financial review. Then, we will conduct a question-and-answer session after the commentary is finished.

The 2010 second quarter results are unaudited and prepared in accordance with US GAAP. Mr. Chen, you may begin.

Xiangzhi Chen

[Foreign Language]

Kevin Theiss

Good morning everyone, welcome to our second quarter conference call. We are very pleased to report to our shareholders that our company sales continue to grow strongly. The significant profits for the period ended June 30

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2010, the market demand for our NPPC product is much higher, since not only can we reduce the production cost and improve the quality of the end products for customers, but also as functional materials, we can provide better advantages for the product of customers to help gain more market share with higher profits. Therefore the overall the market finance continues to grow fast for NPCC in China.

Frost & Sullivan, a global research company is related to many of us. I would like to highlight a few specifics from our recent research report on the NPCC market conducted by Frost & Sullivan. It is estimated that NPCC Chinese market reached 732,400 metric tons in 2009, and the average for China is for a compounded annual volume growth of 19% from 2009 to 2014, the corresponding revenues growing at a compounded annual rate of 26.7% during the same period. Our higher valued products justify higher prices.

In 2009, we were ranked number one in NPCC sales in China with a gross margin that is nearly double the industry standard, due to our higher valued products justifying higher prices. ShengdaTech expects to continue to be the largest manufacturer of NPCC in China for 2010 and beyond.

Currently we already have products in a number of different industries such as tire and rubber, ink, paper, latex, polypropylene, polyethylene, PVC, ink, plastics, automobile undercoating, adhesive and sealants. But our products are currently proving their value. In order to achieve the savings and performance goals and to attract more customers, we will continue to design each NPCC product to each specific application. So far we are the only company with an NPCC (inaudible) product and we have made technical breakthroughs that provides both functional and cost advantages for this large and growing market.

We have recently provided enough data on the testing of our NPCC product applications in the large asphalt market with more than 10 customers. Our proprietary membrane-dispersion technology has substantially increased NPCC’s compatibility with asphalt and at the same time our NPCC product will add durability to modify asphalt and extend its functional life.

Meanwhile, we also developed the NPCC product with a large processing and went to the [etch] markets, used as a concentrate or additive that is dispersed into a polymer which is then excluded and Palletised. In 2008, it is estimated that 4.8 million metric tons of calcium carbonate were used by the Chinese plastic processing industry according to China Inorganic Salt Industry Association.

And the core material (inaudible) demand in China alone approximate 500,000 metric tons annually.

Additionally, we have identified a number of markets with great potential, such as food and beverage, medicine, cosmetics and the electronic inventories, et cetera; which are considered as our key development areas. We are committed to developing new product applications designed with high added value and competitive advantages by fully utilizing our advanced impacted NPCC production technology of membrane-dispersion. Through the close cooperation with customers, engineers and production experts we conduct a cold range of tests in terms of our NPCC formulas so as to ensure our products can fully satisfy the end users expectations.

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