China Gerui Advanced Materials grows second quarter profits by 6%
China Gerui Advanced Materials Group (Nasdaq: CHOP), a steel processing company that produces specialty steel products in China, has reported revenues of $64 million for the second quarter of 2010, a 15.5% increase from the same period last year, while profits grew 5.8% to $12.1 million, or $0.26 per diluted share, driven by increased sales volume.
"During the quarter, we fulfilled large orders for some of our lower margin products. This enabled us to post a double-digit increase in sales as well as higher net income, but also resulted in a decrease in our margins," said chairman and CEO Mr. Mingwang Lu.
"We continue to see strong demand for our products and as our new production lines focused on higher priced, higher margin products commence production later this year, we expect to achieve sustained increases in sales, margins, and earnings performance."
By December next year, the company plans to double its existing production capacity to 500,000 tons per annum, and increase its chromium plating capability to 250,000 tons per annum, covering 50% of its total annual steel production capacity.
Phase I of the expansion plan, for which total capital expenditures is expected to be $42 million, involves the construction of two new cold-rolled, wide-strip steel production lines with 150,000 tons of total annual capacity and a chromium plating line capable of processing 200,000 tons of cold-rolled steel per annum. The two new cold-rolled lines are expected to be completed by October 2010, while the chromium plating line is anticipated to begin production by mid-October this year. Approximately 65% of $42 million has been spent to date.
For phase II of the project, which is expected to cost around $12 million, the company intends to construct a third cold-rolled wide strip steel production line with 100,000 tons of capacity by the end of the third quarter of 2011.
The new facility will allow the company to produce both narrow and wide strip cold-rolled steel for a wider range of applications, it said.
The company`s business outlook remains strong, as the sale of its products is driven by domestic purchasing power in China, which continues to rise, as well as by the import replacement trend in the industry, said Lu.
As of June 30, 2010, the company had $109.9 million in cash and an additional $75.2 million in restricted cash. Working capital was $66.0 million versus $49.3 million at the end of 2009. China Gerui has no long-term debt.
Investors were not impressed by the results, as its share price has gone down 1.73% to $5.12 on the Nasdaq this morning.
China Gerui Advanced Materials produces high-end, high-precision, ultra-thin, high- strength, cold-rolled steel products. Products are tailored to customers' requirements and subsequently incorporated into products manufactured for various applications. The company sells its products to domestic Chinese customers in a diverse range of industries, including the food packaging, telecommunication, electrical appliance, and construction materials industries.
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