Jinpan International released their 2011 Q4 results on 08 March 2012. It was a fairly good quarter for JST, but not earth-shattering by any means. Net sales for the fourth quarter were $64.1 million, a 49.4% increase from $42.9 million in the same period last year. Net sales for the Q3 were $66.6 million so sales slipped slightly quarter-over-quarter. Sales for Q2 were $58.3 million. Net sales for Q1 were $29.9 million. The increase in sales in Q4 was due to increased domestic transformer sales and increase international sales.In the fourth, domestic sales accounted for $59.8 million, or 93.3% of net sales, compared to $40.0 million, or 93.3% of net sales in the same period last year. In Q3 domestic sales accounted for $59.1 million, or 88.7% of net sales. In Q2 domestic sales accounted for $46.1 million, or 79.1% of net sales. In Q1, domestic sales accounted for $27.8 million, or 93.0% of net sales. On the conference call, JST stated that they had increased their stake in the domestic market and had received orders from a greater number of customers. Both are obviously good news, especially the growth in new customers as it puts them at less risk of one customer adversely affecting their sales.Net sales outside of China were $4.3 million, or 6.7% of net sales, compared to $2.9 million, or 6.7 % of net sales in the same period last year. Net sales outside of China were $7.5 million, or 11.3% of net sales, in Q3. In Q2, net sales outside of China were $12.2 million, or 20.9% of net sales. In Q1 net sales outside of China were $2.1 million, or 7.0% of net sales. The trend of sales outside of China has definitely gone negative, which is concerning. If Europe rebounds, this trend should reverse, but it is something to watch.All international sales are due to sales to OEMs. Currently, JST is producing materials for 3 OEMs, but are always looking to add OEMs to their client list. JST believes that international sales in 2012 will be on par with 2011, so not much growth there. Considering the situation in Europe (which is one of their two primary international markets with the US being the second), this is probably a realistic estimate. JST is working to get qualified with a fourth OEM (European company). However, the prototype that JST sent to the OEM was rejected. JST will submit a second prototype in 2012, Q2. They are optimistic that by the end of 2012, they will be qualified with this (fourth) OEM.There was no information provided about the product mix (wind and non-wind related transformers and switch gears).Gross profit in 2011 Q4 increased 32.9% to $22.2 from $16.7 million in the same period last year. 2011 Q4 gross profit margin was 34.6% compared to 38.9% in the prior year period. Without the lower margin sale of silicon steel to one of their customers as a favor, the GM would have been 35.7%. Gross profit in 2011 Q3 was 37.5%. Q2 gross profit margin was 38.1% compared. Q1gross profit margin of 36.7%. So, the Gross Margin is on a definite downward slope, which is not good. The company did explain that they are selling more lower-margin standardized transformers than higher-margin customized transformers.JST has expanded their manufacturing capacity to 14 million KVA. As such, they are pursuing more standardized transformer opportunities and less customized transformer opportunities. While standardized transformers have a lower gross margin, the overall market for them is much greater and more stable than customized transformers. In Q4, standardized transformers accounted for 60% of sales while in the previous quarters, that number was about 35% of sales.The gas switch gears accounted for $21 in revenue in 2011. JST expects a growth rate of 20% - 25% in this category in 2012. JST has received positive feedback from their clients on the gas switch gears. This initiative seems to be working well for JST.Selling and administrative expenses in the fourth quarter were $16.2 million, or 25.3% of net sales, compared to $11.2 million, or 26.0% of net sales in the same period last year. Selling expenses increased in the fourth quarter as a result of increased sales. Administrative expenses increased due to higher Research and Development expenses and staff salaries related to the Company's expanded manufacturing initiatives. Selling and administrative expenses in the third quarter were $16.5 million, or 24.8% of net sales. In Q2 selling and administrative expenses were $13.8 million or 23.7% of net sales. For Q1, sales, general and administrative expenses were $7.8 million, or 26.1% of net sales.Operating income increased 7.3% to $5.9 million, or 9.2% of net sales, from $5.5 million, or 12.8% of net sales in the same period last year. Q3 operating income was $8.4 million, or 12.7% of net sales. In Q2 operating income was $8.4 million. In Q1 operating income was $3.2 million.Net income for this quarter decreased 8.5% to $5.4 million, or $0.33 per diluted share, from $5.9 million, or $0.36 per diluted share, in the same period last year. Fourth quarter net income as a percentage of net sales was 8.4% compared to 13.7% in the same period last year. Net income for the third quarter was $8.4 million, or $0.51 per diluted share. Q2 net income was $7.3 million, or $0.44 per diluted share. Q1 net income was $2.7 million, or $0.17 per diluted share.Balance SheetAs of December 31, 2011, the Company had $24.2 million in cash and cash equivalents, compared to $27.5 million at December 31, 2010 (the cash and cash equivalents was previously reported as $28.6 million at Dec 31, 2010 last quarter—curious as to why the difference). As of September 30, 2011, the Company had $13.8 million in cash, cash equivalents and restricted cash compared. Cash, cash equivalents at the end of Q2 was $8.3 million, and at the end of Q1 cash, cash equivalents, and restricted cash was $25.2 million. Inventory data was not provided. This is a big concern form me as inventory was on the rise over the past couple of quarters, and I wanted to see if it continued to rise, level off or even drop this quarter.The Company's accounts receivable on December 31, 2011 totaled $110.4 million, compared to $75.7 million at December 31, 2010. Accounts receivable on September 30, 2011 totaled $110.3 million. Accounts receivable at the end of Q2 totaled $96.3 million. Accounts receivable at the end of Q1 totaled $77.5 million. At least it appears (for the moment) that AR is leveling off. Of course, this is not necessarily good news as JST actually had less revenue this quarter but a slightly higher AR.Total bank loans outstanding at December 31, 2011 increased to $23.0 million as compared to $13.7 million at December 31, 2010. Total bank loans outstanding at September 30, 2011 was $28.5 million. Total bank loans outstanding at June 30, 2011 were $31.0 million. Total bank loans outstanding at March 31, 2011 were $15.7 million. Continued, slight improvement here.Financial Outlook For the full year 2012, the Company currently anticipates net sales growth of 20-25% to $262-$273 million, gross profit margin of 33%-35%, and net income growth of approximately 17-22% to $27.8-$29.0 million.As of Feb 29th 2012, the Company had a backlog of approximately $112 million. JST expects to ship 83% of the backlog by end of Q2, with the remainder shipped by year end. That means $112M of the $262M-$273M (41% - 43%) of projected 2102 revenues are essentially booked unless order get cancelled; this appears to be a good start. For reference, as of September 30th, 2011, the Company had a backlog of approximately $100 million compared to $91 million as of June 30th, 2011, $79 million as of April 30, 2011 and $60 million as of December 31, 2010. I am still concerned about inventory and accounts receivable. When these have grown in the past at small Chinese companies, it hasn’t been good news. The switch to standardized transformers is not necessarily bad even though it brings lower margins. It should help smooth out the sales cycle and lead to overall greater revenues. What concerns me about the switch is that it seems to have come out of nowhere. JST did not previously discuss going to standardized transformers that I am aware of (although I did miss the last two conference calls).I still like JST, but I am watching to see if their moves are going to pay off.
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