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Transcript of China geruisept12presentation
September 2012
2
Safe Harbor
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. Forward-looking 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 forward-looking 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, 2011 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
Capital Markets Summary
(1)1Figures are adjusted for the one-time warrant exercise expenses incurred in the first quarter of 2011.(2) Analyst FY2012E EPS guidance of $0.75 per share.(3)GGrowth rate provided by Thomson One.
Price (9/11/12): $2.02Price (9/11/12): $2.02
Revenues (ttm): $338.5 millionRevenues (ttm): $338.5 million
Net Income (ttm) (1): $58.2 million Net Income (ttm) (1): $58.2 million
Diluted EPS (ttm) (1): $1.01Diluted EPS (ttm) (1): $1.01
Market Capitalization: $117.6 millionMarket Capitalization: $117.6 million
Price/Book (ttm): 0.37xPrice/Book (ttm): 0.37x
2012E P/E (2): 2.69x2012E P/E (2): 2.69x
PEG Ratio (3): 0.38PEG Ratio (3): 0.38
4
The Leading High-Precision Steel Processing Company in China
● Headquartered in Zhengzhou, Henan Province, China● Approximately 1,100 employees as of June 2012● Annual capacity of 500K tons by Q2 of 2012, including 50% chromium plating capacity● Serves over 200 customers in China in consumer spending and construction industries
Company Overview
China Gerui is a leading niche and high-value added metal processing company that utilizes advanced technology to produce specialty, cold-rolled steel products in China
Raw Materials
Hot Rolled Steel
Cold Rolled Steel Processing
(Narrow + Wide Strip)Manufacturers
End Applications
5
1 Focus on customized, high value-added, high margin steel production
2 Leading position in robust niche market in China
3 Unique business model with defendable barriers to entry
4 Proven track record of strong financial performance and profitability
5 Defined long-term growth strategy
7
Seasoned management with local market knowledge
Investment Highlights
Diversification of revenue stream via new technologies and exports
6
6
In-House Value Chain
Hot Rolled
Coil
Initial Cutting
Acid Pickling
Cold Rolling
Annealing
Temper Rolling/
Stretching
Cold Rolled Steel Strips
(Narrow + Wide)
Chromium Plated Steel
Production Process
Leve
l of C
ompl
exity
Finished Product
Input Factor Value Creators
7
Defining Our Market
● For CRS products, the thickness can range between 0.05mm up to 7.5mm● China Gerui specializes in ultra-thin, high precision products with
thicknesses mostly from 0.05mm to 0.5, width up to 1200mm, tolerance +/-0.003mm
● Typical thickness of CHOP raw material HRC: 3mm● Five series and over twenty types of high precision strip steel products
0.05mm 0.5mm 7.5 mm
CHOP Commodity-type producers
8
Revenue by Industry Application
China Gerui produces high precision steel products tailored to meet exact customer specifications
Food and industrial packaging
49%
Construction and
household decorations
materials19%
Electrical appliances
24%
Telecom wires and
cables8%
2010
Food and industrial packaging
52%
Construction and
household decorations
materials34%
Electrical appliances
6%
Telecom wires and
cables8%
2011
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Economics of CHOP’s Business Model
Made- to- order production
High Inventory Turnover
Low A/R
No Long-Term Debt
Customer Survey/Order
Secure Raw Material
Receive 30% down payment
Processing 70% Balance
Collected Upon Delivery
Cost-plus method of pricing
● Not a commodity business: focused on customized high margin steel production● Products meet stringent performance and specification requirements● Supplier of choice when our existing customers develop new products
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Outpacing the Competition
● Limited domestic supply because PRC manufacturers lack the equipment and expertise to produce high end specialty cold rolled steel
● Steel industry is highly capital intensive: Capital requirements prevent newcomers or smaller players without sufficient funds from entering the market
CHOP International Companies
Domestic Companies
Strategic Focus
First Mover Advantage
Brand Recognition
Nationwide Distribution
Local Market Knowledge
High Product Quality
Financial Resources
11
$218.9$253.9
$341.8
$86.1 $76.8
0
50
100
150
200
250
300
350
400
2009 2010 2011 Q2 2011 Q2 2012
$43.4$47.1
$57.6
$14.0 $10.3
19.8% 18.5%
$16.9
16.3%13.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
010203040506070
2009 2010 2011 Q2 2011 Q2 2012
Net Income Net Margin
$33.8 $36.5
$56.2
$40.6
$25.0
0
10
20
30
40
50
60
2009 2010 2011 Q2 2011 Q2 2012
Strong Financial Performance
USD million
Total Revenue
Net Profit Operating Cash Flow
USD million USD million
USD million
$65.8$76.0 $101.6
$23.6 $19.8
30.0% 29.9% 30.4%
27.4%
25.8%
23.0%24.0%25.0%26.0%27.0%28.0%29.0%30.0%31.0%
0
20
40
60
80
100
120
2009 2010 2011 Q2 2011 Q2 2012
Gross profit Gross margin
Gross Profit 2012
Outlook
Revenue
$290 MMto
$305 MM
Diluted EPS
$0.75to
$0.85
12
Healthy Balance Sheet
Condensed Balance Sheet(USD 000’s)
June-30-2012(Unaudited)
December-31-2011(Audited)
Cash $282,840 $246,601Restricted cash 144,919 118,130Accounts receivable 3,650 6,383Inventories 23,516 24,463Current assets 539,767 445,186Total assets 688,553 601,076Notes Payable 246,183 204,881Term Loan 46,907 44,170Current liabilities 369,270 302,648Total liabilities 369,270 302,648Total stockholders’ equity 319,282 298,428
Working capital 170,497 142,538Inventory turnover days 15.3 14.0Days sales outstanding 3.9 6.8
13
2.7x
11.2x
8.9x10.4x 10.0x
17.4x
(a)0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
CHOP WOR MUSA RS ZEUS CAS AKS
Attractive Valuation
Notes: US Metals Processors consist of Worthington Industries, Metals USA Holdings, Reliance Steel & Aluminum, Olympic Steel, Castle and AK Steel. All pricing information is of 9/11/12; all financial information is of 6/30/12 except for WOR which is 5/31/12.
(a) Negative EPS
Source: Company Filings, Thomson One
US Metals Processors
Mean: 11.6x
2012E P/E
0.0%
10.0%
20.0%
30.0%
CHOP WOR MUSA RS ZEUS CAS AKS
20.0%
US Metals Processors
Mean: 19.0%
TTM Gross Margins
15.6%
20.4%
24.6%
29.9%
25.9%
7.3%
14
Disciplined Growth Strategy
Double capacity to 500K tons with 50% chromium plating capabilities
Broaden product portfolio and mix by expanding into plated steel production
Expand technical expertise and control cost
Develop disciplined acquisition strategyand pursue strategic partnership with industry leaders
Expand sales channelsand product offeringsPursue Acquisitions &
Strategic Partnership
Improve Efficiency
Broaden Product Portfolio
Expand Market Share
Double Capacity
15
Production Capacity to Double by 2012
250K 100% Utilization
400K
500K
250K 250K
Wide Strip
Narrow Strip
Chromium Plating
Capacity50K
150K tons in Q2 2011 with 75% utilization within six months
100K tons added in Q4 2011 with 75% utilization within six months
Phase I Capex $42MPhase II Capex $12M- all provided for
Increase of Chromium plating capacity from 50K tons to 250K tons or 50% of total capacity today
050
100150200250300350400450500
2010 2011 2012
250 250 250
150250
Tons
(000
)
0
50
100
150
200
250
2010 2011 2012
50 50
250200
Tons
(000
)
16
● 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, residing in Zhengzhou, China
– Former CFO/Director of the Board of a number of U.S.-listed companies
– Former CFO of MNCs in China (Shell/Koch/Terex)
– Georgetown University MBA, U.S. CPA, experienced in PRC & U.S. GAAP
Seasoned Management Team
17
Investment Highlights
1 Focus on customized, high value-added, high margin steel processing
2 Leading position in robust niche market in China
3 Unique business model with defendable barriers to entry
4 Proven track record of strong financial performance and profitability
5 Defined long term growth strategy
6 Seasoned management with local market knowledge
18
Contact Information
This Presentation of China Gerui Advanced Materials Group Limited was developed by the Company and CCG and is intended solely for informational purposesand is not to be construed as an offer to sell or the solicitation of an offer to buy the Company’s stock. This presentation is based upon information available to thepublic, as well as other information from sources which management believes to be reliable, but is not represented by China Gerui Advanced Materials GroupLimited or CCG as being fully accurate nor does it purport to be complete. Opinions expressed herein are those of management as of the date of publication andare subject to change without notice.
Company Contact: CCG Investor Relations:
Email: [email protected] David Rudnick, Account Manager
Website: www.geruigroup.com Phone: 1-646-626-4172
Email: [email protected]
September 2012