China Precision Steel Announces Third Quarter Fiscal 2011 Results

Third Quarter Highlights

• Revenue increased 5.0% period-over-period to $31.5 million
• Net loss was $0.9 million
• Fully diluted loss per share was $0.02
• Backlog as of March 31, 2011 was $21.8 million

"During the third quarter of fiscal 2011, we experienced some challenges due to the rapid increase in steel prices which resulted in a sharp increase in our average cost per ton.  Additionally, while overall near-term demand remains healthy, some of our customers chose to temporary delay their orders until steel prices leveled off," commented Mr. Hai Sheng Chen, CEO of China Precision Steel.  "Towards the end of the quarter, steel prices began to stabilize which contributed to a slight increase in customer orders.  We anticipate that orders will increase from both domestic and international customers through the fourth quarter of fiscal 2011."

Revenue for the third quarter of fiscal 2011 increased to $31.5 million, up 5.0% from $30.0 million in the third quarter of fiscal 2010. The revenue increase was mainly attributable to a 6.3% increase in average sales price to $863 per ton, from $812 per ton in the comparable period in 2010.  Sales volume in the third quarter decreased 1.3% to 36,475 tons, from 36,953 tons in the third quarter of 2010.  The third fiscal quarters are usually slower than other quarters of the fiscal year due to the approximately 10 days of lost production in connection with a shorter February month and the Chinese New Year holidays.  High carbon and low carbon products accounted for 23.8% and 74.0% of sales, respectively, compared to 23.1% and 63.0%, respectively, from the prior year period.  Exports contributed to 0.9% of total revenue, compared to 13.6% in the third quarter of fiscal 2010.

Gross loss in the third quarter was $41,616, compared to gross profit of $3.4 million in the third quarter of fiscal 2010. Gross margin was (0.1)%, down from 11.4% in the same period a year ago. Gross margin was unfavorably impacted by compressed spreads between selling prices and raw material costs.  Period-over-period, the average cost per unit sold increased 20.0%, compared to the increase of average selling price of 6.3%.  Sequentially, the average cost of raw materials increased 7.7% from the second quarter of fiscal 2011, compared to an increase of 2.5% in the average selling price for the same period.  The Company is taking steps to widen the spread between the average selling price and average cost of goods sold, but expects gross margins to remain under pressure for the near-term.

Selling expenses for the third quarter of fiscal 2011 were $93,172, compared to $124,589, in the third quarter of fiscal 2010. The decline in selling expenses was primarily attributable to lower exports and associated sales commissions during the 2011 period.  Administrative expenses were $111,068, or 0.4% of revenue, compared to $773,102, or 2.6% of revenue period-on-period.  The decline in administrative expenses is associated with the gain in foreign currency exchange due to the strength in RMB against U.S. dollar which favorably impacted the Company's US dollar denominated loan during the 2011 period.

Operating loss for the third quarter was $296,155, compared to operating income of $2.5 million in the same period a year ago.

Net loss for the third quarter of fiscal 2011 was $872,497, compared to net income of $2.0 million in the prior year period.  Fully diluted loss per share was $0.02, compared to fully diluted earnings per share of $0.04 in the comparable period a year ago.

Nine Months Financial Results

Revenues for the first nine months of fiscal 2011 were $105.2 million, up 42.0% from revenues of $74.0 million in the first nine months of fiscal 2010. Gross profit was $4.3 million, compared to gross profit of $7.8 million in the first nine months of fiscal 2010.  Gross margin was 4.0%, compared to 10.5% for the comparable period a year ago. Operating income was $2.2 million, compared to operating income of $5.2 million in the first nine months of fiscal 2010. Net loss was $26,205, compared to net income of $4.3 million in the same period a year ago. Fully diluted earnings per share were $0.00, compared to fully diluted earnings per share of $0.09 in the first nine months of fiscal 2010.

Financial Condition

As of March 31, 2011, China Precision Steel had $16.4 million in cash and cash equivalents, $18.0 million in long term debt, total liabilities of $64.4 million and working capital of $67.6 million.  Stockholders' equity stood at $131.9 million, compared to $127.1 million as of June 30, 2010.

Business Outlook

China Precision Steel continues to ramp up production capacity with the addition of its third mill, which commenced production in January 2010.  As the new mill continues to ramp up production, total production capacity is expected to increase by approximately 35,000 tons to 195,000 tons by the end of fiscal 2011.   Once the three mills reach full design capacity in approximately two to three years, total annual production capacity is expected to be approximately 260,000 tons.  As of March 31, 2011, China Precision Steel had a backlog of $21.8 million for contracts signed but not yet delivered.

"We have a cautiously optimistic outlook for the near-term as growth in demand for precision steel products resumed in response to the stabilization of steel prices towards the end of the quarter.  We also anticipate an increase in exports in the fourth quarter of fiscal 2011 as we are in negotiations with several new potential international customers," Mr. Chen continued. "While uncertainties remain in respect to the macro environment, we will continue to focus on our operating fundamentals and those factors we can control, such as expanding markets, improving margins of existing product groups, developing higher margin products, maintaining our strong balance sheet and financial flexibility, and positioning ourselves to capitalize on any strategic growth opportunities that may develop."

About China Precision Steel, Inc.

China Precision Steel, Inc. is a niche precision steel processing company principally engaged in the production and sale of high precision cold-rolled steel products and provides value added services such as heat treatment and cutting medium and high carbon hot-rolled steel strips. China Precision Steel's high precision, ultra-thin, high strength (7.5 mm to 0.05 mm) cold-rolled steel products are mainly used in the production of automotive components, food packaging materials, saw blades and textile needles. The Company primarily sells to manufacturers in the People's Republic of China and overseas markets such as Indonesia, Thailand, the Caribbean, Nigeria and Ethiopia. China Precision Steel was incorporated in 2002 and is headquartered in Sheung Wan, Hong Kong. Additional information can be found at the Company's website http://chinaprecisionsteelinc.com.

Conference Call

China Precision Steel will host a conference call on Tuesday, May 17, 2011 at 9:00 a.m. Eastern Time to discuss fiscal 2011 third quarter results. To participate in the live conference call, please dial the following number fifteen minutes prior to the scheduled conference call time: 866-800-8648. International callers should dial 617-614-2702. When prompted by the operator, mention conference passcode 682 689 70.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Tuesday, May 17, 2011 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 98871923. International callers should dial 617-801-6888 and enter the same passcode.

This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.chinaprecisionsteelinc.com. Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.

Forward-Looking Statements

This release and oral statements made by China Precision Steel on its conference call in relation to this release, may contain certain "forward-looking statements" relating to the business of China Precision Steel, Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including, without limitation, statements regarding: the general ability of the Company to achieve its commercial objectives, including the likelihood that orders will increase from both domestic and international customers through the fourth quarter of 2011; the ability of the Company to continuously increase the production capacity of its new mill; the continued stabilization of steel prices; and the ability of the Company to win new international customers and increase in exports in the fourth quarter of fiscal 2011; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

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