Yuhe International, Inc., a leading supplier of day-old chickens raised for meat production (broilers) in the People's Republic of China has announced financial results for the quarter ended 30 June 2010.

Second quarter 2010 highlights include net revenue increased 26.9 per cent to US$12.5 million year-over-year, while sales volume increased 34.4 per cent to 34.6 million birds. Gross profit rose 47.1 per cent to $4.1 million, and gross margin increased 450 basis points to 33.0 per cent. Operating income was 51.1 per cent higher at $3.1 million, and operating margin increased 400 basis points to 24.9 per cent. Net income was $3.1 million, an increase of 46.1 per cent.

Diluted earnings per share increased 46.2 per cent to $0.19

Zhentao Gao, Chairman and Chief Executive Officer of Yuhe, commented: "The second quarter of 2010 was another successful quarter for Yuhe.

"We benefited from the fact that we were able to use our industry expertise to accurately forecast the trends in our market earlier in the year and were able to respond accordingly during the quarter to maximize our sales, margins and earnings performance. We executed according to our plan and our business achieved record revenue and net income."

Six-month results

In the six months ended 30 June 2010, Yuhe reported net revenues increased 16.8 per cent to $24.2 million, from $20.7 million in the same period last year.

Gross profit grew 16.9 per cent year over year to $8.0 million, with a gross margin of 33.1 per cent, flat with the same period of 2009. Operating income rose 15.1 per cent to $6.1 million, with an operating margin of 25.1 per cent.

Net income increased 19.5 per cent to $6.0 million, or $0.37 per diluted share, compared to $5.0 million, or $0.32 per diluted share, in the same period of 2009.

Recent developments

On 19 July 2010, Yuhe announced that its wholly owned subsidiary, Weifang Yuhe Poultry Co., Ltd., had entered into an asset purchase agreement with Liaoning Haicheng Songsen Stock Farming and Feed Company Limited to purchase five breeder farms in Haicheng City, Liaoning Province. The payment included RMB21.3 million (approximately $3.1 million) in cash and approximately 300,000 restricted shares of Yuhe common stock calculated at a price of $10 per share. The restricted shares are subject to a six-month lock-up period. The five breeder farms have a total production capacity of 430,000 sets of parent breeders.

As of 13 August 2010, six of the thirteen breeder farms that were purchased in 2009 and 2010 have begun operation and the other seven farms are expected to commence operations by the end of 2010.

Outlook

The Company's management expects sales volume and net income to rise in the second half of the year, given the seasonality of the business and the fact that the new parent breeders that were purchased in 2009 and 2010 will begin to generate revenue in the fourth quarter of 2010. Therefore, management re-affirms its previously issued guidance for 2010 with production of 150 million broilers in total and net income of approximately $17 million.

Considering the contribution of the five newly acquired breeder farms, management expects the output of broilers in 2011 to reach 250 million. Management also believes their existing sales network is capable of absorbing the increased output in the short run. The Company plans to build sales networks gradually around those production facilities outside Shandong province to provide pre-sales services, marketing, and after-sales support.

The construction of Yuhe's new hatchery was, to some extent, affected by the recent hot weather because the Chinese government enforces shorter working hours for construction workers on high temperature days. Management expects the new hatchery to commence operations in September 2010.

Mr Gao added: "We believe Yuhe is very well positioned to capitalise on the opportunities in our market. With our recently closed and announced acquisitions and the construction of our new hatchery, we are confident that we are making the right investments today to position our Company for profitable growth. We have a very experienced team that understands our market very well and is adept at optimising our input costs and maximising our sales potential to drive both sales and earnings.

"We are very pleased with our first half performance. As we enter the second half of the year, we are encouraged by the market environment.

"We previously stated that we believe there will be a supply shortage in our market going forward and we are beginning to see tangible signs of this. Our day-old broilers are currently commanding average selling prices that are up significantly from the prices we were seeing in the second quarter. We believe that demand and prices for high-quality day-old broilers will stay strong through at least the second half of the year. This together with our expanding capacity gives us confidence that we will be able to deliver strong results for our shareholders through the balance of the year and beyond."