Fushi International
(Nasdaq: FSIN)
Jinzhou District, Dalian, Liaoning,
China
Website:
www.fushiinternational.com
Fushi International (Fushi) is a China-based manufacturer of Copper Clad
Aluminum (CCA) and Copper Clad Steel (CCS) or “bimetallic.” Bimetallic wires
have become attractive in recent years and could develop into a viable cost
effective alternative to pure copper wires, which have seen significant upside
moves in worldwide prices< due to the rising demand for infrastructure
investments in China and elsewhere.
Fushi currently controls approximately 17% of the domestic market for bimetallic
cable, making it the largest China-based producer. By the end of 2006, the
facility’s capacity was 15,000 tons of bimetallic cable and was running at 90%
utilization. The company intends to expand production to 20,000 tons in 2007 and
25,000 tons in 2008. Cost per production line is relatively low meaning lower
capital for expansion. Fushi is in the process of expanding to 40 manufacturing
lines using part of the proceeds from a $60 million debt financing.
China has been the largest copper consumer in the world for five consecutive
years and the growth trend is predicted to continue. Industry analysts predict
that 20% of China’s cable and power transmission wire needs will be met by
bimetallic wire over the next 5 years. The Optical and Electronic Cable
Association of China estimates demand for CCA wire to increase to 290,000 annual
tons in 2008 from 70,000 tons in 2006. From 2004 to 2006, the demand for
bimetallic wire has increased at a 91.3% CAGR. The growth potential for
bimetallic wire is staggering< as it presently represents a minute 1.5% of the
total copper wire usage.
Financial Results
Latest Quarter: Q2, 2007
For the second quarter of 2007, revenues increased 42.3% year-overyear to $26.1
million from $18.3 million in the comparative quarter in 2006. The volume of
bimetallic products sold increased 37% in the second quarter. Strong growth was
reported in coaxial cable (about 59.1% of sales), magnet wire (about 16.2%), and
shielding wire (about 24.7%).
Gross profit for the second quarter was $9.7 million, up 18.6% from the year
before. The gross margin was 37%, up sequentially for the third straight
quarter, but down from 44.4% in the year ago quarter due to the high copper
prices last year.
Net income fell to $7 million, or $0.28 per diluted share, in the second
quarter, down from $7.2 million, or $0.34 per diluted share, last year, but up
40.4% sequentially.
The balance sheet has cash of $75.2 million and long-term notes payable of $60
million at the end of the second quarter. The cash allows for financial
flexibility as the company expands its production capacity and introduces new
products. Payments on the note payable should not be an issue given the strong
cash flow.
Guidance and Outlook
In 2007, analysts see Fushi posting EPS of $1.13. For 2008, the consensus
analyst estimate calls for diluted EPS to increase 36.3% year-overyear to $1.54
on projected revenues of $151.8 million in 2008.
On Sept. 25, Fushi announced that it had entered into a definitive agreement to
acquire 100% of Copperweld Bimetallics, LLC, the leading U.S. manufacturer of
bimetallic wire in an all-cash transaction valued at USD$22.5 million, including
the assumption of debt, and is subject to adjustment based upon Copperweld’s net
working capital at closing. Fushi expects the transaction to be finalized at the
beginning of the fourth quarter 2007. Concluding Remarks
For China to sustain its amazing growth, it must invest heavily in
infrastructure. A firm such as Fushi, a manufacturer of key inputs for
infrastructure related products, is well-positioned to capitalize on this
explosive growth. While the company has enjoyed remarkable growth in the past,
there is more yet to come.
For the growth investor looking for a small-cap infrastructure play to partake
in China’s massive buildup, Fushi would make a good pick.
