Roth 21st Annual OC Growth Stock
Conference
Yiru Melody Shi - CFO
February 17, 2009
Safe Harbor Statement
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995: Any statements set forth in this presentation that are not historical facts
are forward-looking statements that involve risks and uncertainties that could
cause actual results to differ materially from those in the forward-looking
statements, which may include, but are not limited to, such factors as
unanticipated changes in product demand, increased competition, changes in
the scope or timing of the Company’s projects, slowdown in the demand for
glucose series products and starch products, uncompetitive levels of research
and development, failure to obtain regulatory approvals, and other
information detailed from time to time in the Company’s filings and future
filings with the United States Securities and Exchange Commission. The
forward-looking statements contained in this presentation are made only as
of this date, the recent results may not be indicative of future results, and the
Company is under no obligation to revise or update these forward-looking
statements.
2
Company Overview
›
Market leader of pharmaceutical grade glucose with about 40% market share in China
– 1 of only 3 companies licensed to produce dextrose monohydrate transfusion in China
›
Leading glucose and cornstarch products manufacturer supplying the pharmaceutical
and food and beverage industries
›
Well positioned to benefit from further expansion of Chinese pharmaceutical industry
– The State Council recently approved a plan to spend a total of 850 billion RMB to provide
universal primary medical services
– The plan seeks to expand healthcare services by targeting the country’s approximately 900
million farmers, many of whom do not have basic medical insurance coverage
– Rural health care reform is expected to enhance growth of our core pharmaceutical glucose
products
›
Major operating subsidiary in Weifang, Shandong Province
– Second largest corn producing province in China with an expected 18.49 million metric tons of
corn production in 2008, as corn is our main raw materials
3
What is Pharmaceutical Grade Glucose?
› A sugar with higher standards for purity and quality
than glucose used in the food industry
› The most common pharmaceutical glucose are Dextrose
Monohydrate and Dextrose Anhydrous
› Dextrose Monohydrate is widely used as a standard
medical procedure for restorative and nutritional
purposes
› Dextrose solution is recommended for subcutaneous
injection as a restorative medium after major operations
or as a nutritive measure in debilitating diseases such as
fever, cold and diarrhea etc.
4
Favorable Industry Outlook
›
In China, pharmaceutical grade glucose is widely used as part of surgical
procedures and as a standard health treatment. It is supported by the Chinese
Government-subsidized Medical Insurance Plan
›
Improving rural area healthcare is a priority of the Chinese government – the
Chinese government-subsidized rural healthcare system is creating greater demand
for pharmaceutical glucose products
›
Rising disposable net income per capita is generating greater demand for basic
healthcare services
›
Corn prices in China are expected to stay at stable level in calendar year 2009. The
government will proactively use its large corn reserves to curb sharp ups and downs
in the corn market
›
China has approximately 50 types of transfusion products with an estimated annual
per capita consumption of around 5 bottles. Most of the consumption is for Dextrose
Monohydrate
›
The number of medical transfusion providers in China increased from
approximately 100 in 2002 to 389 in 2007. The domestic sales grew from 2 billion
bottles in 2002 to 7 billion bottles in 2007
5
Robust Growth of China’s Pharmaceutical Industry
2007E-2011E CAGR of Expenditure on
Pharmaceutical Products per Capita
Expenditure on Pharmaceutical Products
per Capita in 2006
(%)
(US$)
1,000
20%
936
18.0%
900
18%
800
16%
673
700
661
12.1%
586
600
13.7%
14%
12%
502
500
447
428
9.4%
10%
8.9%
7.9% 7.8%
394
8%
400
300
6.2% 6.0% 5.8%
6%
227
200
4.8%
4%
100
2%
43
China’s expenditure on pharmaceutical products
per capita is still lagging behind other
countries…
Australia
France
Germany
UK
USA
Korea
Singapore
Canada
Japan
India
0%
China
India
China
Singapore
Korea
Australia
Germany
Japan
France
Canada
USA
0
UK
5
… and is expected to grow fastest among other
major countries in the next five years
Source: 2006 data from the PRC National Bureau of Statistics; 2007E to 2011E projected data from Frost & Sullivan
This data has not been independently verified and is subject to change
6
Strong Product Lines & Sales Growth
›
Glucose
– Dextrose Monohydrate
– Dextrose Anhydrous
– Dextrose Monohydrate Oral
– Industrial Glucose
›
Corn Starches
– Pharmaceutical
– Food & Beverage
›
Others
– Germ
– Fibers
– Protein Powders
– Dextrin
Revenue Breakdown
6 Mths FY08
6 Mths FY09
Other
26%
Glucose
40%
Other
25%
Glucose
53%
Cornstarch
34%
Cornstarch
22%
7
Shengtai Core Competence
› Market Leader and Preferred Supplier
– Largest domestic producer of pharmaceutical grade glucose in China
with about 40% of market share
› Modern Production Facilities
– Vertically integrated business model
•In-house cornstarch production facility
•Capacity and productivity improvement in existing glucose facility
•New glucose facility to significantly increase production capacity
› High Product Quality
– GMP certified from China SFDA
› Strong and Loyal Customer Base
– 430+ customers combined domestically and internationally for glucose
products
› Extensive Distribution Network
– Coverage in all provinces not including Tibet
– Exporting to 70 countries and growing
8
Production Process
Cornstarch
Convert
Emulsion
Add in
Glucoamylase
Filter
Discolor
Ion exchange
Inspissations
Crystallization
and separation
Glucose
Clean and Dry
9
Quality Control
›
›
›
›
›
Fully certified for GMP, ISO9002 and HACCP
international quality standards
Most products globally certified HALAL,
KOSHER and IP GMO
Chinese EPA compliant
Output conforming to pharmaceutical glucose
product specifications is maintained at 100%
Stringent condition controlled warehouse
– All year temperature under 86 degree F and
humidity under 80%
›
Three-Tier quality control system
– Workshop team
– Production team
– Management accountability
10
Distribution Channels and Target Market
Strong distribution
› Three marketing offices
› Coverage in all provinces not
including Tibet
› Exporting to 70 countries
including developed countries
such as Japan, Singapore, Korea,
Australia & emerging markets
such as Russia and India
Domestic
Market
Target Customers
› Pharmaceutical companies
› Medical supply companies
› Food and beverage
companies
Representative Office
Shandong
Chengdu
Nanchang
Guangzhou
Chinese Operation Headquarter
11
Growing Customer Base
›
Growing base of over 1,000 total
customers in China and abroad
›
High-quality pharmaceutical grade
products certified for product reliability
›
Strong referrals from large reputable
customers including Shanghe and Kelun
which are the largest transfusion
suppliers in China
›
Excellent customer service and support;
On-time deliveries
›
Good AR collection with DSO for
FY2008 at 30 days
12
Key Corporate Milestones
› Invested for growth and reshaped business
through major capital investments
Completed new
glucose facility
› Accomplishments in two years
Listed on
OTCBB
Completed
new
cornstarch
facility
Completed
financing
US $17.5M
Began
construction
of the new
glucose
plant
Began trial
production
from new
glucose
plant
GMP certificate
received
Started
operation in
new glucose
facility
2Q FY09
1Q FY09
July 08
1Q FY08
4Q FY07
2Q FY07
13
Vertically Integrated Cornstarch Production
›
Production facility completed in October 2006
– Located in Shandong province, the second largest corn
producing province in China
– Stable supply of high-quality raw materials for glucose
– Strategically located next to its own glucose production
plants which lowers transportation cost
›
Maximum annual production capacity of 240,000 tons,
able to expand production up to 300,000 tons per year
– Achieves economies-of-scale
– Additional revenue opportunities by selling excess
cornstarch
›
Power & Gas plant on site
– Lower cost and stable supply of electricity and gas to all
factories including both cornstarch and glucose facilities
14
Glucose Production Facilities
›
Extant glucose production facility:
– Annual production capacity 60,000 tons
– Capable of increasing capacity by 30,000 tons, if
necessary
›
New glucose production facility:
– Construction completed at the end of July 2008
with annual production capacity of 120,000 tons
of pharmaceutical glucose and other glucose
products
– Launched trial production in July 2008
– GMP certification received at the end of
September 2008
– Started operation in Oct. 2008 and expect fullscale production by calendar year end 2009
15
Growth Strategy
›
›
›
›
›
Increase volume of sales to existing customers
Continue emphasis on higher-margin pharmaceutical grade products
Leveraging strong brand name and proactively pursuing new business
opportunities through referrals
Aggressively target new high-growth overseas markets:
– Applying for safety certifications from regulatory agencies
– Build awareness by attending trade shows and increasing its online
presence
Unlock production capacity bottleneck to lower overall costs through
increases in operating efficiencies
To Expand Its Leading Market Position As a Premiere
Supplier of Pharmaceutical Grade Glucose and Other
Refined, Starch Based Products
16
Summary Income Statement (12 Months Ended June 30)
($ millions)
2006
2007
2008
YoY
increase
2008/2007
Net Sales
$36.03
$51.71
$90.87
76%
$32.92
Gross Profits
$8.46
$12.18
$20.26
66%
$5.19
Gross Margin
23.5%
23.6%
22.3%
Operating Income
$4.63
$7.50
$12.87
72%
$0.30
Net Income
$4.21
$7.15
$10.41
45%
$0.16
6 Mtns
FY09
15.8%
17
Balance Sheet Highlights
For the years ended June 30,
($ in Thousands)
2006
2007
2008
2Q
FY09
Cash & Cash Equivalents
$4,384
$12,549
$10,169
$13,201
Current Assets
12,150
31,266
24,283
27,570
Total Assets
31,271
73,760
101,314
105,719
Current Liabilities
23,612
38,468
51,904
50,557
Total Liabilities
24,614
42,130
54,558
57,742
Total Stockholders’ Equity
6,657
31,631
46,755
47,976
18
Key Management and Board Member
›
›
›
Mr. Qingtai Liu
President and Chief Executive Officer
Chief Executive Officer and President of Weifang Shengtai since 1999
Recognized by the Weifang City Government office as a Leading Technology Innovator and a
Distinguished Pharmaceutical Production Director
Deputy to the People’s Conference of both Weifang City and Changle County
Formerly head of Science and Technology of Changle Power Factory
Bachelor of Electrical Engineering Degree from Shandong Technical University
›
›
›
›
›
Ms. Yiru Melody Shi
Chief Financial Officer
Former audit manager for Kabani & Co., Inc.
Channel Program Manager at Sun Microsystems
Financial analyst at Hewlett Packard China
MBA, University of California, Irvine,
Certified Public Accountant (US)
›
›
›
Mr. Chris W. Wang
Independent Director, Chairman of Audit Committee
Chief Financial Officer, Fushi Copperweld (NASDAQ: FSIN)
Executive VP of Redwood Capital, Inc.,
MBA in Finance and Corporate Accounting, University of Rochester
›
›
19
Equity Snapshot
Symbol:
SGTI
Price (01/30/09):
$1.00
Market Cap:
Shares Outstanding (As of 12/31/08):
Revenue (TTM):
$19.12M
19.12M
$79.46M
Net Income (TTM):
$5.64M
Diluted EPS (TTM):
$0.28
P/E
0.28x
Fiscal year end:
June 30
20
Investment Summary
›
Leading Positions
– 40% domestic market share of pharmaceutical grade glucose
– One of only three companies licensed by the Chinese government to produce dextrose
monohydrate glucose in China
– Strong existing customer base
›
Strategic Strengths
– Strong growth opportunities in favorable markets
– Focus on pharmaceutical grade glucose to take advantage of growth opportunity in China’s
healthcare market
– Clear long-term growth strategy
– Vertically integrated business model
– Strategic location and modern plants
›
Solid Track Record
– Consistently maintain high product quality
– Solid revenue and net income growth
›
Improving Financial Outlook
– Improving balance sheet
– Low maintenance Cap-X
– Solid cash generation
21
Contact Information
Shengtai Pharmaceutical, Inc.
Yiru Melody Shi, CFO
Tel: +1 (949) 468-7078
shengtaicfo@hotmail.com
Grayling Global
Eddie Cheung
Tel: +1 (646) 284-9414
echeung@hfgcg.com
22
Thank You!
February 2009