幻灯片 1 - China Gerui Advanced Materials Group

geruigroup.com

幻灯片 1 - China Gerui Advanced Materials Group

November 2010


2

Safe Harbor Statement

This presentation includes or incorporates by reference statements that constitute "forward-looking

statements" within the meaning and protections of Section 27A of the Securities Act of 1933, as amended

and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forwardlooking

statements include statements with respect to our beliefs, plans, objectives, goals, expectations,

anticipations, assumptions, estimates, intentions, and future performance, and involve known and

unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause

the actual results, performance, capital, ownership or achievements of the Company to be materially

different from future results, performance or achievements expressed or implied by such forward-looking

statements. All statements other than statements of historical fact are statements that could be forwardlooking

statements. You can identify these forward-looking statements through our use of words such as

"may," "will," "anticipate," "assume," "should," "indicate," "would," "believe," "contemplate," "expect,"

"estimate," "continue," "plan," "point to," "project," "could," "intend," "target" and other similar words

and expressions of the future. All written or oral forward-looking statements attributable to us are

expressly qualified in their entirety by this cautionary notice, including, without limitation, those risks and

uncertainties described in our annual report on Form 20-F for the year ended December 31, 2009 and

otherwise in our SEC reports and filings, including the final prospectus for our offering. Such reports are

available upon request from the Company, or from the Securities and Exchange Commission, including

through the SEC's Internet website at http://www.sec.gov. We have no obligation and do not undertake to

update, revise or correct any of the forward-looking statements after the date hereof, or after the

respective dates on which any such statements otherwise are made.


3

Corporate Overview

• Based in Zhengzhou, Henan Province,

China

• Convert hot rolled steel into high-precision

thin steel sheets and strips

• 6 cold-rolled steel production lines with

annualized capacity of ~250K tons

• Chromium plating capacity of ~50K tons

• Serving over 200 customers in China in

consumption and capital industries

• New capacity of 150k tons and 100k tons

will be completed by 2011.

Major customers are located in:

Shanghai, Zhejiang, Jiangsu,

Shandong, Guangdong, Hebei,

Tianjin, Guangxi, Fujian and

Liaoning


NASDAQ: CHOP

Equity Snapshot

4

Price (11/11/10): $6.25

Revenues (ttm):

$245.0 million

Net Income (ttm):

$43.9 million

EPS (ttm): $0.97

Market Value:

$283.9 million

Trailing P/E: 6.6x

Forward P/E: 5.4x

PEG Ratio (5 yr. expected): 0.50

Price/Sales (ttm): 1.1x

Price/Book (mrq): 1.9x

Enterprise Value:

$298.5 million

EV/Sales (ttm): 1.2x

EV/EBITDA (ttm): 4.4x


5

Investment Highlights

• High Value-Added, Customized Products: Focused on customized high

value-added, high margin steel production (~30% gross margins)

• Rapidly Growing Niche Market: Robust demand in China driven by rising

purchasing power and import replacement

• Market Leader: Largest producer of high precision cold rolled narrow strip

steel in China

• Significant Barriers to Entry: Highly capital intensive business + favorable

PRC government policies prevent new entrants

• Contract-Based Manufacturing Model: Produce only after customer order

received with a 30% cash deposit

• Strong Financial Performance: Revenue and Net Income CAGR (‘06-’09) of

30% and 40%, respectively; strong balance sheet & operating cash flow

• Compelling Growth Strategy: Doubling production capacity / planned margin

expansion via further upgraded product portfolio mix

• Experienced Management Team: CEO with over 20 yrs of steel industry

experience; U.S. trained CFO with CPA/MBA


High Value-Added,

Customized Products

6

• Convert hot rolled steel manufactured by 3 rd parties into thin steel sheets

according to customer specifications

‣ Precision ultra-thin, high strength narrow plates and high-end cold-rolled

steel products




Thickness from 0.05mm

Width up to 600mm and tolerance of +/- 0.003 mm

New capacity will be for width up to 1200mm

‣ Products manufactured from steel substrate of cold-rolled or hot-rolled

pickled coils



Non-standardized commodity products and tailored to customers’

requirements

Company has five series and over 20 types of high precision strip

steel products


7

Cold-Rolled Steel Process

• Safe, environmentally friendly manufacturing process: emits less pollution;

uses less energy; fewer accidents


End Markets Driven by Rising

Purchasing Power in China

8

• Main customers are manufacturers serving a broad range of end markets

driven by rising purchasing power in China

China Gerui’s End Market Applications

Consumer Products – Food and Beverage Packaging

Construction and Decoration Materials

Consumer Electronics - Household Appliances,

Batteries, and Electronic Components

Telecommunications Cable and Equipment –

Insulated Wires and Cables, Optic Fiber Cables


End Markets Driven by Rising

Purchasing Power in China (cont’d)

9

• Diversified industry exposure to growing end markets – Chinese middle class

are the ultimate end-users of most of our products

• Unlike the crude steel industry, whose demand is largely driven by the capital

investment cycle, the use of our products is driven by consumer spending and

overall GDP growth in China

Revenue by Industry Applications Full Year 2009


Cold-Rolled Steel

Market Overview

10

• Cold-rolled steel production was 40 million tons in 2008


Benefit From Import

Replacement Trend

• High precision cold rolled steel products are relatively high end products

traditionally imported from Japan, South Korea, the EU and the USA

China Gerui’s products are more competitively priced but of the same quality as

premium priced imported products that domestic Chinese customers have

historically relied on

200

Chinese Net Imports of Cold -Rolled

Narrow Strip Steel

(in thousands)

150

100

50

0

2005 2006 2007 2008 2009P 2010P 2011P

11


Market Leader /

Significant Barriers to Entry

12

• Currently the largest manufacturer of high-precision cold-rolled narrow strip

steel in China with a market share of 12.5%

65.20%

12.50%

8.50%

6.40%

5.10%

3.30%

China Gerui Advanced Materials

Group

Hebei Iron & Steel Group

Hebei Dachang

Jiangsu Huaxi Group

Hangzhou Metal Rolling Plant

Over 200 other firms


Market Leader / Significant

Barriers to Entry (cont’d)

13

• No direct competition between China Gerui and large state owned steel

manufacturers who are mostly involved in hot rolled steel products

• Highly fragmented industry - majority of competitors are private and smallsized

• Limited domestic supply b/c PRC manufacturers lack the equipment and

expertise to produce high end specialty cold rolled steel

• Barriers to entry are high


Steel industry is highly capital intensive: Capital requirements prevent

newcomers or smaller players without sufficient funds from entering the

market


Contract-Based

Manufacturing Model

14

• Not a commodity business: focused on customized high margin steel production

‣ Products meet stringent performance and specification requirements that

require a high degree of manufacturing and engineering expertise

‣ Products are tailored to customers' requirements and subsequently

incorporated into products manufactured for various applications

‣ We are a supplier of choice when our existing customers develop new

products.

• Benefits of our model:

‣ Approximately 30% of the aggregated contracted sales amount is pre-paid

when the contract is signed

‣ After delivery is made cash is collected

‣ No problem in collecting proceeds

‣ Results in: low inventory level on balance sheet, almost no risk of inventory

obsolescence, high inventory turnover, strong operating cash flow, etc.


15

Strong Revenue Growth

Total Revenue (in $mm)

$ million

$250

$200

$150

$100

$99.0

$139.7

$196.3

$218.9

$161.7

$187.7

$50

$0

2006 2007 2008 2009 9mo. 2009 9mo. 2010


High Margins /

Cost Plus Pricing Model

16

• Our leading market position as a supplier of choice provides us with an ~30%

gross margin

• We have a cost-plus pricing strategy

‣ We pass on raw material price increase to our customers while maintaining

or increasing our gross margins even in the face or rising steel prices

Gross Profit (in $mm)

$ million

$70

$60

$50

$40

$30

$20

$10

$0

27%

$26.4

28%

$39.1

27%

$53.9

30%

30%

$65.8 $48.8

2006 2007 2008 2009 9mo.

2009

30%

$56.4

9mo.

2010

31%

30%

29%

28%

27%

26%

25%

Gross Margin


Net Income Growth

Net Income (in $mm)

$50

25%

$ million

$45

$40

$35

$30

$25

16%

17% 18%

20% 20%

$43.4

$32.0

19%

$35.7

20%

15%

Net Margin

$20

$15

$23.7 $35.5

10%

$10

$15.9

5%

$5

$0

0%

2006* 2007* 2008* 2009* 9mo. 2009 9mo. 2010

* Net Income before minority interest

17


18

Compelling Growth Strategy

• Double capacity to 500,000 tons by 2011 with 50% chromium

plating capability

• Broaden product portfolio and mix by expanding into coated

steel production

• Add chromium plating capabilities

• Enable expansion into cold-rolled wide strip/sheet products

• Increase profit margins through higher margin business

• Increase market penetration

• Expansion of sales channels and product offerings

• Strengthen research and development capabilities

• Improve operating efficiencies and strengthen cost controls

• Expand technical expertise to improve manufacturing process

• Control cost over raw materials and production processes

Double

Capacity

Broaden

Product

Portfolio

Expand

Market

Share

Strengthen

R&D

Improve

Efficiency


Production Capacity

to Double by 2011

19

• New production facilities under construction

• Total cold rolled steel capacity to double to 500K tons;

total chromium plating capability to increase 5x to

250K tons

Phase 1: 2010 ($42M CapEx; 90% spent to date)

• 2 cold rolled wide strip steel production lines to be

added by Q1 2011 with 150K tons (60%) of capacity

• 200K tons of additional chromium plating capacity to

be added by Q4 2010

Phase II: 2011 ($12M CapEx)

• 1 new cold rolled wide strip steel production line to be

added by Q4 2011 with 100K tons of capacity


20

Experienced Management Team

• Mingwang Lu, Chairman of the Board and Chief Executive Officer

– Over 20 years of steel industry experience

– CEO of the Company since 2000

– Held various management positions at Zhengzhou No.2 Steel Plant from 1995 to 2000

– Elected as a member of the 9th, 10th and 11th National People’s Congress in Henan

Province

– Awarded Excellent Director/Manager in Henan Province, National Excellent Township

Entrepreneur and Expert in Steel Industry of Henan Province

• Edward Meng, Chief Financial Officer

– Joined China Gerui in April 2009

– Former CFO of A-Power Energy Generation Systems (Nasdaq: APWR)

– Former Director of both China Housing and Land Development LTD (Nasdaq: CHLN)

and Huiheng Medical Inc. (OTCBB: HHGM)

– Former CFO of MNCs in China (Shell/Koch/Terex)

– Georgetown University MBA, U.S. CPA, experienced in PRC & U.S. GAAP


21

Year-over-Year Results

For the Fiscal Year Ending

In Currency

12 months

Dec-31-2008

USD’000

12 months

Dec-31-2009

USD’000

9 months

Sep-30-2009

USD’000

9 months

Sep-30-2010

USD’000

Revenue 196,264 218,903 161,661 187,724

Cost Of Goods Sold (142,408) (153,095) (112,875) (131,369)

Gross Profit 53,857 65,807 48,786 56,356

Operating Expenses (4,263) (5,493) (4,190) (6,254)

Operating Income 49,594 60,315 44,596 50,102

Other income and (expense) (2,219) (2,115) (1,614) (2,542)

Income Tax Expense (11,870) (14,752) (10,934) (11,817)

Net Income before minority interest 35,506 43,448 32,047 35,742

Margin Analysis

Gross Margin 27.4% 30.1% 30.2% 30.0%

Operating Margin 25.3% 27.6% 27.6% 26.7%

Net Income (before minority interest) Margin 18.1% 19.8% 19.8% 19.0%

Growth Rate

YOY Revenue 40.5% 11.5% 16.1%

YOY Net Income 50.1% 22.4% 11.5%


22

Balance Sheet Summary

September-30-2010

USD’000

December-31-2009

USD’000

ASSETS

Current Assets

Cash $110,705 $79,607

Restricted cash 73,096 37,498

Accounts receivable 4,180 4,808

Inventories 6,948 5,959

Prepaid expenses and other receivables 33,156 18,766

TOTAL CURRENT ASSETS 230,005 146,639

Property, Plant and Equipment 84,106 22,338

Prepaid Machinery Deposits - 13,974

Land use right, net 15,159 1,399

Total non-current assets 99,265 37,711

TOTAL ASSESTS 329,270 184,350

LIABILITIES AND STOCKHOLDERS EQUITY

Current Liabilities

Term loan 56,716 33,983

Accounts payable 4,256 7,618

Notes payable 91,030 41,014

Tax payable 3,719 3,817

Customer deposits 8,254 8,147

Accrued liabilities other payables 3,501 2,728

Total Current Liabilities 178,288 97,307

TOTAL LIABILITIES 178,288 97,307

Total Stockholders Equity 150,982 87,043

TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 329,270 184,350


23

Capital Structure

CHOP Insider Shares 34,459,521

CHOP Public Shares (3) 6,156,202 9,459,973

Warrant conversion since Nov 2009 1,632,415

Basic Shares Outstanding 45,551,909

CHOP Insider Warrants (Exercisable at $5.00 and Callable at $8.50) 2,266,667

CHOP Publicly Shares Traded Warrants (Exercisable at $5.00 and Callable at $8.50) 6,156,202 12,167,585

Underwriter Shares from COAC IPO (Part of Unexercised Unit Purchase Option) (1) 600,000

Underwriter Publicly Traded Warrants from COAC IPO (Part of Unexercised Unit Purchase Option) (1) 1,200,000

Representative Warrant Purchase Option (2) 144,000

Fully Diluted Shares Outstanding 61,930,161

(1) We have agreed to issue a Unit Purchase Option (UPO) which entitles its holder to purchase 600,000 units at $6.60 per unit

at or before 5:00 pm, New York City local time, on March 19, 2011. The holder may exercise the UPO on a cashless

basis. Each unit consists of one ordinary share and two warrants, each to purchase one ordinary share at $5.00 per share on or

before March 19, 2011 for a total of 1,800,000 ordinary shares.

(2) We have also agreed to issue to Maxim Group LLC, a warrant to purchase 144,000 ordinary shares (equal to an aggregate

of three (3%) percent of the ordinary shares sold in the offering). The warrants will have an exercise price equal to 120% of the

offering price of the ordinary shares sold in this offering, or $6.00. The warrants are exercisable commencing nine (9) months

after the effective date of the registration statement related to this offering, and will be exercisable for five (5) years after the

effective date of the registration statement.

(3) Includes the issuance of 3,303,771 of the Company's ordinary shares via a private placement closed on June 4, 2010


24

Investment Highlights

• High Value-Added, Customized Products: Focused on customized high

value-added, high margin steel production (~30% gross margins)

• Rapidly Growing Niche Market: Robust demand in China driven by rising

purchasing power and import replacement

• Market Leader: Largest producer of high precision cold rolled narrow strip

steel in China

• Significant Barriers to Entry: Highly capital intensive business + favorable

PRC government policies prevent new entrants

• Contract-Based Manufacturing Model: Produce only after customer order

received with a 30% cash deposit

• Strong Financial Performance: Revenue and Net Income CAGR (‘06-’09) of

30% and 40%, respectively; strong balance sheet & operating cash flow

• Compelling Growth Strategy: Doubling production capacity / planned margin

expansion via further upgraded product portfolio mix

• Experienced Management Team: CEO with over 20 yrs of steel industry

experience; U.S. trained CFO with CPA/MBA


25

Contact Information

Company Contact:

CCG Investor Relations:

Email: investors@geruigroup.com

Athan Dounis, Account Manager

Website: www.geruigroup.com Phone: 1-646-213-1916

Email: athan.dounis@ccgir.com

www.ccgirasia.com

Legal Counsel:

Pillsbury Winthrop Shaw Pittman LLP

Auditor: UHY Vocation HK CPA Ltd.


Thank You

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