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JST posted good results for the first quarter of 2011.

From the press release:
Net sales for the first quarter were $29.9 million, a 52.6% increase from $19.6 million in the same period last year. The increase in sales was the result of higher volume transformer and switchgear sales in the Company's domestic business. In the first quarter, domestic sales accounted for $27.8 million, or 93.0% of net sales, compared to $17.3 million, or 88.3% of net sales in the same period last year. Net sales outside of China were $2.1 million, or 7.0% of net sales, compared to $2.3 million, or 11.7 % of net sales in the same period last year.
Cast resin transformers (excluding those for wind power applications), switch gears and unit substations represented $25.0 million, or 83.6% of net sales in the first quarter, while wind energy products represented $4.9 million, or 16.4% of net sales in the first quarter.
Gross profit in the first quarter increased 51.4% year over year to $10.9 million from $7.2 million. First quarter 2011 gross profit margin was 36.7% compared to 36.5% in the prior year period primarily due to a similar balance of domestic and international sales orders from the first quarter of 2010.
Sales, general and administrative expenses in the first quarter were $7.8 million, or 26.1% of net sales, compared to $6.4 million, or 32.7% of net sales in the same period last year. This percentage decrease was primarily a result of higher sales in the first quarter 2011 compared to the same period last year. Operating income increased 321.1% to $3.2 million, or 11.0% of net sales, from $0.8 million, or 3.9% of net sales in the same period last year.
Net income for the first quarter increased 139.4% to $2.7 million, or $0.17 per diluted share, from $1.1 million, or $0.07 per diluted share, in the same period last year. First quarter net income as a percentage of net sales was 9.2%, compared to 5.8% in the same period last year.

Mr. Zhiyuan Li, Chief Executive Officer of Jinpan, commented, "We experienced very solid growth in the first quarter, boosted by strong transformer sales in our domestic operations. This was fueled by a 57% increase in switchgear sales and 50% increase in transformer sales. Our marketing efforts over the past year led to increased sales of switchgear products. With the addition of a new line of gas insulated switchgears to our product portfolio, we are optimistic that switchgear sales will continue to grow."
From the conference call, JST only sold 10 units of their gas switchgear. Their guidance for 2011 calls for $3M-$4M in gas switchgear sales, which seems a little aggressive considering that only 10 units were sold the first quarter, but certainly achievable.

"Our international sales were stable in the first quarter led by orders from the U.S. and Europe. We anticipate stronger international sales from each region in the second quarter as demand for wind transformers continue to grow."
JST gets almost all of their US sales from one of the three OEMs that they are under contract to (well, almost all sales come from one OEM at the moment). According to their main OEM, sales in the US are picking up. So far, the 2nd Quarter international sales are strong.

"Our land acquisition and planned manufacturing and R&D facility we announced in April marks the start of our further expansion to meet the steady demand for our cast resin transformer products, high and low voltage switchgears, and transformer substations in the years ahead. We remain focused on meeting the growing demand for power generation equipment and believe that Jinpan is well positioned to capitalize on growth opportunities in China and abroad."
The land that JST is purchasing is in the SW part of China where labor and land rates are attractive. In addition, JST sees this part of China growing in the future, which would benefit future sales (but probably negatively impact labor rates).

Accounts receivable are up primarily due to sales to larger companies and the Chinese government (conference call). Larger companies do take longer to pay--they can because they are less likely to disappear; plus, larger companies take longer to pay just because of the additional bureaucracy in the companies (I have first hand experience of this biting me in the butt from a cash flow perspective). The AR increase does not alarm me too much, but it is something to keep an eye on.

Inventories are up as well due to anticipated sales. Again, this seems plausible with the recovery, but it is also something to keep an eye on.

Balance Sheet
As of March 31, 2011, the Company had $25.2 million in cash and cash equivalents, compared to $27.5 million at December 31, 2010. Inventory increased to $38.6 million as of March 31, 2011, from $29.5 million on December 31, 2010, due to anticipated order demand. Accounts receivable on March 31, 2011 totaled $77.5 million, compared to $76.0 million on December 31, 2010. Prepaid expenses increased to $33.4 million in the first quarter 2011 from $29.0 million in the fourth quarter 2010 primarily due to the a land purchase announced which was recorded as a prepaid expense but will shift to a fixed asset balance sheet line item once the Company completes the land registration process. Notes payable in the 2011 first quarter decreased to $24.1 million compared to $27.1 million at the end of December 31, 2010. Total bank loans outstanding at March 31, 2011 increase to $15.7 million as compared to $13.7 million at December 31, 2010.

Financial Outlook
As of April 30, 2011, the Company had a backlog of approximately $79 million, a 31% increase from $60 million as of December 31, 2010.
For the full year 2011, the Company reiterates its full year guidance of net sales growth of 20-25% to $173-$180 million, gross profit margin of 36%-38%, net income growth of approximately 43-50% to $19.0-$20.0 million.
As stated before, this includes $3M-$4M from the new gas swtichgears. However, it does not include any appreciable contribution from their 2nd and 3rd OEM clients, which JST is working with to increase orders.

Backlog at the end of April was $79M, which is a substantial increase (30%) from 31 Dec 2010. 15% of the backlog was international.

JST will have a better feel for the outlook for the year after the 2nd quarter as the 1st quarter is generally their slowest.

In China pricing is still competitive, but the economic rebound in 2010 is producing results in 2011 as is the normal cycle. No mention was made about a potential economic slowdown in 2011. JST is able to increase margins on the customized products, which is good. In Q1, the mix of standard to customized products was 50/50.

I expect JST to have steady growth as the world economy improves. If JST is successful with their gas switchgears, then there is a potential for even greater returns.

Long JST.
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