Shengkai Innovations Inc · OTC:VALV
Shengkai Innovations — Investor Presentation (May 2010)
25 slides from Shengkai Innovations's investor presentation, May 17, 2010
Slide 1: World's Leader and Trailblazer in Industrial Ceramic Valves
World’s Leader and Trailblazer in Industrial Ceramic Valves SK SHENGKAI INNOVATIONS, INC. (Amex: SHE) (NASDAQ: VALV) from 5/25/2010 Corporate Presentation May 2010
Slide 2: Forward-looking statements
This presentation contains forward-looking statements, including financial projections. In some cases, you can ident forward looking statements by terms such as “may,” “wil,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” ‘predicts,” “potential,”
Slide 3: Corporate Overview
Corporate History High Tech and New Materials Strong Product Portfolio. Broad Customer Base Headquartered - Tianjin, P.R.C.; Established in 1994; went public in June 2008; Listed at NYSE Amex in Dec. 2009 & to be listed at NASDAQ GM on May 25, 2010 with symbol “VALV” Market Leader in ceramic High Te
Slide 4: Investment Highlights
is Investment Highlights Large and Growing Market for Industrial _ Growth Driven by Valves Industry and - Geographic Expansion __Proven Track Record of Solid , Gussie 52 Growth and High echnology | Profitabilit Product ! vi Portfolio Ceramic Valves Increasing — Poised to Capture Capacity to Meet Mar
Slide 5: Management Team
: = Management Team ai Mr. Chen Wang, CEO & CTO — Mr. Wang, the founder of Shengkai, has been serving as. Chief Executive Officer and Chief Technology Officer since the Company's inception. Prior to founding Shengkai, he worked at Tianjin Dagang Power Plant (September 1987 — July 1992). Mr. Wang ear
Slide 6: Valve
Valve * Definition: a device that controls the movement of liquid, gas, or loose material in bulk * Can control flow, rate, volume, pressure or direction of liquids, gases, slurries or dry materials through a pipeline, chute or similar passageway * Indispensable to virtually all manufacturing proces
Slide 7: Valve Materials: Metal vs. Ceramic
ija;)-) Valve Materials: Metal vs. Ceramic Superior Characteristics of Ceramic Resistant to Abrasion Resistant to Corrosion Resistance to High Temperature Longer Working Life — at least 10x that of metal valves
Slide 8: Valve Materials: Metal vs. Ceramic
Valve Materials: Metal vs. Ceramic Metal Metal ball after Standard metal seat ring Stainless steel wedge gate ‘one month after two months disc after one week ™ Cy e SK ceramic ball after SK ceramic seatring SK wear-resistant ceramic two years after five years wedge gate disc after five years 8
Slide 9: Conservation and Environmental Protection
24,000 x 0.6 x 10 = 144,000 tons steel 1.3 x 144,000 = 187,200 tons coal Conserva- tion Assumptions: + 0.6 ton steel/unit +10 times longer life + Capacity: 24k Units/¥r Improve- tie } Protection ment 187,200 tons coal 82,368 tons CO, 3,744 tons SO, v Reduces maintenance and replacement ¥ Prolongs co
Slide 10: Ceramic valve innovation and cost-performance
* Ceramic valve is a major scientific and technologic innovation in the field of new material application * The Chinese government is actively promoting the scientific outlook on development as the national development strategy *» Shengkai’s ceramic valves have superior cost- performance ratio compa
Slide 11: Valve Market Size
& Valve Market Size Demand for industrial valves ($ Billion) ms 3 Sources: + PRC. General Machinery i pe Industry Association, Valve Sector (Sales in the PRC, includes Q — (eed PRC 2009 Global 2011 + Freedoria Magazine Our Goal in 3 Years 7 = el, 80% > 100,000 units Production Capacity Hazardous Env
Slide 12: Ceramic Valve Application
Ceramic Valve Application Historically Limited by Size = Ceramic valves currently have less than 1% of the overall valve market in China Why? = Valve users not familiar with ceramic technology = Industrial application have been limited as most ceramic valve manufacturers (excluding Sk) can only prod
Slide 13: Breakthrough Technology, Market Leading Products and Services
Breakthrough Technology, Market Leading Products an Services Shengkai is a Trailblazer in the Ceramic Valve Industry + Has sustainable competitive advantage in technology, able to manufacture ceramic valves with calibers in excess of 150mm, up to 1,000mm * Offers tailor-made solutions to customers’
Slide 14: Shengkai's Proprietary Technologies of Structural Ceramics
saa) Shengkai’s Proprietary fy-S|s Technologies of Structural 4% Ceramics Added zirconia to alumina ceramics to enhance toughness and resistance to corrosion Successfully used martensite transformation toughening technology to enhance toughness and to improve deformability Applied nano-technology to
Slide 15: Sales by industry
12.4% 7.3% AT me 80.3% 75.2% [Petrochemical | Power Generation Aluminum / Steel / Metallurgy and Other = Proven track record of penetrating Power * Focus on Petrochemical industry in FY 2009 Generation industry - Segment sales accounting for 20.1% of = Successfully expanded into other total revenue
Slide 16: Sales & Distribution
Sales & Distribution Nationwide Distribution Network + 11 Regional Sales Centers * 30 Sales Agent Offices Gearing Up for Exports + Export expected to account for approx. 10% of total sales for CY 2010 * Approved exporter to Europe, North America, Russia, UAE, Turkey, Pakistan and the Asia- Pacific R
Slide 17: Case 1: Huntley Power Plant; Case 2: CNOOC
bY Case 1: HUNTLEY Power Plant, Town of Tonawanda, USA Case 2: China National Offshore O Corporation Challenge: = At Huntley Power Plant, fly ash conveying system previously used metal valves = Metal valves had to be replaced every 3 months, some within 2 weeks Solution: = Huntley replaced metal val
Slide 18: Current Production and Capacity Expansion
Current Production and Capacity Expansion Current Facility = Output 10,000 units of valves for FY 2009, exceeding annual production capacity of 7,500 units New Facility * Triple capacity to reach 24,000 units of valves p.a. = Estimated total investment of $54 MM = Expected completion at end of June
Slide 19: Strong R&D Capability
ae Strong R&D Capability Two Excellent R&D Teams: «Ceramic Material Team = Significantly improve ceramic valves’ performance = Widen the application of ceramic materials “Valve Team = Research and develop new structures and new types of valves = Continue to offer customized solutions to new customer
Slide 20: Growth Strategy
2 2 E 53) < Reinforce > Expand Competitive poser Exon’ ok ewe: Petrochemical Geographic Manufacturing ness against Capacity I Metal Valves Industry (to reach Coverage 30% of total sales) Internationally Construct new Enhance product Increase promotion ») (‘Develop relationships manufacturing plant q
Slide 21: Revenue, Gross Profit, Net Income and Margin
Revenue ($ MM) Gross Profit ($ MM) CAGR=30.4% 24n, 45.8% CAGR=31.4% By ia an ‘ea 38.6%, Ba ise re Go FY2007 FY2008 FY2009 G3 3 FY2007 FY2008 FY2009 Q3 03 Fy2009 FY2010 FY2009 FY2010 Net Income ($ MM) Net Income Margin CAGR=43.6% as i 38.2% 36% 353% 35 FY2007 FY2008 FY2009 Q3 aa . Fy2007 FY2008 FY200
Slide 22: Summary Income Statement
Summary Income Statement ‘93 FY2008 Total Net Sales 14.5 10.0 Revenue Growth 45.0% nla Gross Profit 8.6 6.2 24.0 19.4 Gross Margin 59.3% 62.4% 61.1% 59.3%) Income from Operations 63 45 17.9 14.3 Operating Margin 43.2% 45.3% 45.5% 44.1%) Income, 4.0) (4.5) Effective Tax Ré 29.1% Net Income 44 25 13.6
Slide 23: Adjusted income and EPS reconciliation
Three Months Ended Nine Months Ended 31-Mar 31-Mar 2010 2009 2010 2009 Income From Operations 4,118,803 4,519,153 14,655,966 11,988,885 Add back (Deduct) Non-Cash Share-based Compensation Expenses 2,159,429 - 2,159,429 - Adjusted Income from Operations 6,278,232 4,519,153 16,815,395 11,988,885 Net I
Slide 24: Balance Sheet and Operating Efficiency Ratios
*Q3 FY2010 financial data excludes share-based compensation of $2.2 MM ck |; wt (US$ Millions) FYE 6/30 Mar. 31,2010 June 30, 2009 Cash and Cash Equivalents 22.9 39.0 Trade Receivables 64 44 Inventories 18 0.9 Advances to suppliers: 2 7 : : Other Current Assets Total Current Assets 46.9 45.7 Propert
Slide 25: Investment Highlights
Lia le: Investment Highlights fied Large and Growing Market for Industrial Valves eo —~ f \ \ Superior Technology & NY Product Portfolio Increasing Capacity to Meet Growing Demands Growth Driven by Industry and Geographic Expansion Proven Track Record of Solid Growth and High Profitability Ceramic V
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