Highlights of Third Quarter 2006
-- Revenue increased 20.3% YoY to RMB187.7 million (US$23.8 million) (1)
-- Gross profit increased 11.2% YoY to RMB89.1 million (US$11.3 million)
-- Operating profit up 4.5% YoY to RMB37.9 million (US$4.8 million)
-- Net income increased 67.8% YoY to RMB30.7 million (US$3.9 million)
-- Diluted earnings per ADS(2) were RMB1.229 (US$0.155)
-- Net cash per ADS (3) was RMB25.4 (US$3.2)
SHENZHEN, China, Nov. 7 /xinhua-PRNewswire/ -- China GrenTech Corporation
Limited (Nasdaq: GRRF; “ the Company”), a leading provider of wireless
coverage products and services and a leading developer of radio frequency
(“RF”) technology in the People’s Republic of China (‘‘PRC’’), today
announced its third quarter 2006 results.
"We had a strong third quarter as revenue grew by 20.3% year-over-year.
Our performance was a result of good execution and an effective
diversification strategy. We saw strong growth in our wireless coverage
business and benefited from acceleration in investments in wireless coverage
projects by some of the major telecom operators and further expansion of our
customer base.
The increase in revenues was mainly due to higher revenue from China
Telecom, China Netcom and China Mobile, the major telecom operators in the
PRC. In addition, overseas markets and base station RF modules also
demonstrated growth during the period. Although China Unicom, the other major
telecom operator, trimmed its investments in CDMA network, sales from China
Unicom showed a slight increase of 1% YoY." said Yingjie Gao, the Company
Chairman and CEO.
Revenues were RMB187.7 million (US$23.8 million), an increase of RMB31.7
million (US$4.0 million) from RMB156.0 million in 3Q 2005. With greater
efforts placed on developing new markets, approximately 23.3% of total
revenue in the third quarter was contributed by new customers from whom the
Company had not generated any revenues prior to 3Q 2006, including
subsidiaries of China Mobile, China Telecom, China Netcom and overseas
customers.
Revenue from base station RF modules increased RMB1.6 million (US$0.2
million), which accounted for about 0.9% of total turnover in 3Q 2006.
China Unicom, our largest customer, contributed to 50.6% of our total
revenue in 3Q 2006. China Mobile, China Telecom, China Netcom, overseas
operators, RF products and other customers accounted for 25.4%, 10.2%, 5.2%,
2.4%, 2.0% and 4.2%, respectively, of our total revenue in 3Q 2006.
In terms of products, wireless coverage products and services and RF
products accounted for 98.0% and 2.0% respectively, of the total revenue.
Notes:
(1) The Company’s functional and reporting currency is Renminbi
(“RMB”).The translation of amounts from RMB to United States Dollars
(“U.S. dollars”) is solely for the convenience of the reader. RMB numbers
included in the press release have been translated into U.S. dollars at the
noon buying rate for U.S. dollars in effect on September 30, 2006 in The City
of New York for cable transfers in RMB per U.S. dollar as certified for
customs purposes by the Federal Reserve Bank of New York at US$1.00 =
RMB7.9040. No representation is made that RMB amounts could have been, or
could be, converted into U.S. dollars at that rate or at any other certain
rate on September 30, 2006, or at any other date.
(2) 1 ADS = 25 ordinary shares; earnings per ordinary share in 3Q2006 =
RMB0.0492 (US$0.0062)
(3) Net cash per ADS = (cash and cash equivalents + time deposit +
pledged time deposit)/ total ADSs
Revenue breakdown
3Q2005 3Q2006
Revenues % of Total Revenues Revenues % of YoY
(RMB’000) revenues (RMB’000) (US$’000) Revenues
Change
Wireless
Coverage
Products &
Services
China Unicom 94,067 60.3 % 95,026 12,023 50.6 % 1.0 %
China Mobile 43,018 27.6 % 47,612 6,024 25.4 % 10.7 %
China Netcom 2,056 1.3 % 9,736 1,232 5.2 % 373.5 %
China Telecom 8,950 5.7 % 19,092 2,416 10.2 % 113.3 %
Overseas 0 0 % 4,470 565 2.4 % N/A
Others 3,320 2.0 % 7,973 1,008 4.2 % 140.0 %
Subtotal 151,411 97 % 183,909 23,268 98.0 % 21.5 %
RF products
Repeater OEMs 4,631 3.0 % 2,214 280 1.2 % -52.2 %
Base Station 0 0 % 1,606 203 0.9 % N/A
OEMs
Subtotal 4,631 3.0 % 3,820 483 2.0 % -17.5 %
Total 156,042 100 % 187,729 23,751 100.0 % 20.3 %
Business Highlights
Wireless Coverage Products and Services
-- China GrenTech successfully developed WCDMA Multiple Carrier Power
Amplifier (MCPA) technology, which is the core technology of WCDMA
wireless coverage equipment. This development is expected to reduce
the cost of WCDMA wireless coverage equipment.
-- 3G Trial: The Company’s TD-SCDMA repeaters and trunk amplifiers
passed the joint trials conducted respectively by several base station
manufacturers, namely Datang Mobile, China Putian and TD Tech, with
satisfactory results.
-- The Company participated in the formulation of TD-SCDMA repeater
standard by China Telecommunication Technology Labs (CTTL) and
wireless coverage network management standard by China Mobile.
-- The Company has been selected to build wireless coverage systems for
Beijing’s Olympic stadiums. Though the revenue contribution from
the project will not be significant in 2006, it is likely to enhance
China GrenTech’s brand image and further strengthen its business
relationship with China Mobile. It is also a testament to the
Company’s ability to compete efficiently in the 3G wireless coverage
market in the future.
-- Centralized bid: China Mobile shifted from a decentralized procurement
model to a centralized one, which lowered the prices of the products
that the Company sold to China Mobile. On the other hand, the
centralized procurement model is likely to lead to a consolidation of
the market which is beneficial for China GrenTech.
-- The Company’s revenue from overseas wireless coverage markets also
recorded growth and reached RMB4.5 million (US$0.6 million). The
contribution mainly came from new markets in Indonesia and the
Philippines. As a qualified indoor coverage product supplier of Huawei
Technologies and ZTE, China GrenTech will be a contributor to their
turn-key projects in Indonesia and Pakistan, the Company expects that
revenue from overseas markets will increase significantly in the
fourth quarter.
-- Challenges:
-- The price of coaxial cable rose as a result of the increase in copper
prices, which caused an increase in cost of revenues and a drop in
profit margin by 1.6% in 3Q06.
-- China Unicom reduced its investments in CDMA. Although it increased
GSM spending last quarter, it was not enough to offset the decrease in
CDMA spending. Therefore China GrenTech’s revenue growth in the third
quarter was adversely affected as China Unicom was the Company’s
biggest customer.
RF Products
-- The RF components supply chain is shifting toward China and the
Management believes this trend will benefit China GrenTech. The
Company has developed a number of base station RF modules for GSM,
CDMA, WCDMAand TD-SCDMA technologies for several base station OEMs.
Apart from ZTE, Datang Mobile, TD Tech and a big European base station
OEM, the Company also obtained approvals from another two big base
station OEMs as a qualified supplier of RF products.
-- In addition to winning the bid for supplying TD-SCDMA filters to the
big European base station OEM in February 2006, China GrenTech was
successful in winning several bids for projects solicited by base
station OEMs which are the biggest two base station OEMs in China,
while results for bids submitted with two other OEMs are still
pending. The total value of orders secured was RMB30 million (US$3.8
million). Most of these orders will be executed in 4Q2006.
-- Although China GrenTech has been approved as a qualified supplier by
six base station OEMs to date, as a new provider, the Company has to
go through a long process before it can start mass production. It
includes sample development, sample qualification and trial production
and it usually takes 3-12 months. Therefore, the Company is not
expecting any significant top-line contributions from sales of RF
products in the next quarter. However, management expects meaningful
results next year.
Financial Analysis
Cost of Revenue
Cost of revenues in 3Q 2006 totalled RMB98.7 million (US$12.5 million),
representing an increase of 30.0% from 3Q 2005. The year-over-year increase
in cost of revenue was driven primarily by the increase in total revenues.
Gross margin declined to 47.4% from 51.3% of 3Q 2005. The decrease in gross
margin was mainly due to a drop in average selling price (“ASP”) for 2G
wireless coverage products. Furthermore, the products sold to China Telecom
and China Netcom were PHS products whose ASPs and gross margins were
relatively lower than GSM or CDMA products. In addition, a rise in coaxial
cable prices also strained gross margin, as prices of coaxial cable increased
29% YoY.
Operating Expenses
Total operating expenses increased by RMB7.3 million (US$0.9 million), or
16.9%, from RMB43.8 million in 3Q 2005 to RMB 51.2 million (US$6.5 million)
in 3Q 2006, mainly due to the increase in research and development costs.
Research and development costs grew by 86.2% YoY in the third quarter due
to increased investments in base station RF products.
However, the Company’s sales and distribution expenses stayed at about
RMB25.9 million (US$3.3 million) in 3Q 2006, compared to 3Q 2005.
General and administrative expenses were RMB 11.4 million (US$1.4
million) in 3Q 2006, which increased by RMB1.0 million (US$0.1 million) from
3Q 2005. The year-over-year increase was primarily due to the expenses
incurred in connection with SOX compliance.
Other Expense/Income
Other expenses were RMB2.3 million (US$0.3 million) in 3Q 2006, which
decreased by RMB7.2 million (US$0.9 million) or 75.9% from RMB9.5 million in
3Q 2005. The year-over-year decrease was due to increase in interest income,
decrease in interest expenses and which offset by increase in exchange loss.
Interest income increased from RMB0.4 million in 3Q 2005 to RMB8.1
million (US$1.0 million) in 3Q 2006 because of the net proceeds from the
initial public offering (“IPO”).
Interest expense decreased from RMB10.1 million in 3Q 2005 to
RMB4.1million (US$0.5 million) in 3Q 2006, a decrease of 59.4%.
Exchange loss increased from zero in 3Q 2005 to RMB6.3 million (US$0.8
million) in 3Q 2006, an increase of RMB6.3 million (US$0.8 million). It was
due to most of the proceeds from the IPO were kept as bank deposits
denominated in U.S. dollar, resulting in exchange loss from the appreciation
of Renminbi against the U.S. dollar.
Earnings
Gross profit increased to RMB 89.1 million (US$11.3 million) in 3Q 2006,
from RMB80.1 million (US$10.1 million) in 3Q 2005, representing an increase
of RMB8.9 million (US$1.1 million). Gross margin was 47.4%, a decrease of 390
basis points when compared to the 51.3% in the corresponding period of last
year.
Operating profits increased from RMB36.3 million in 3Q 2005 to RMB 37.9
million (US$4.8 million) in 3Q 2006, an increase of RMB1.6 million (US$0.2
million) or 4.5%. Operating margin was 20.2%, a decrease of 310 basis points
from 23.3% in 3Q 2005, mainly due to the increase in research and development
costs.
Net income increased from RMB18.3 million in 3Q 2005 to RMB 30.7 million
(US$3.9 million) in 3Q 2006, an increase of 67.8% or RMB12.4 million
(US$1.6million). The increase was mainly due to a decrease in interest
expenses and a corresponding increase in interest income from the net
proceeds from the IPO. Net margin was 16.4% in 3Q 2006, an increase of 470
basis points from 11.7% in 3Q 2005.
Earnings per ADS were RMB1.229 (US$0.155) in 3Q 2006, an increase of
33.4% from RMB0.9216 in 3Q 2005.
Balance Sheet
Total cash (1) increased from RMB204.9 million as of December 31, 2005 to
RMB634.9 million (US$80.3 million) as of September 30, 2006, an increase of
RMB430.0 million (US$54.4 million) or 209.9%, mainly attributable to the net
proceeds from the IPO. Cash and cash equivalents increased to RMB 399.7
million (US$50.6 million) from RMB 128.6 million as of December 31, 2005;
time deposits increased to RMB 158.1 million (US$20.0 million). Pledged time
deposits slightly increased by RMB0.9 million (US$0.11 million) to RMB77.2
million (US$9.8 million).
Total accounts receivable (A/R) (2) increased from RMB 699.4 million as
of December 31, 2005 to RMB902.6 million (US$114.2 million) as of September
30, 2006, an increase of 29.1%. This increase was mainly attributable to the
growth in sales revenue.
Inventory increased from RMB 370.1 million as of December 31, 2005 to RMB
475.6 million (US$60.2 million) as of September 30, 2006, an increase of
28.5%. The increase was mainly due to an increase in inventory from completed
projects which have not yet been recognized as revenues in the third
quarter.
Total assets increased from RMB1.5 billion as of December 31, 2005 to
RMB2.3 billion (US$289 million) as of September 30, 2006, an increase of
RMB808.5 million or 54.8%. The increase was mainly attributable to net
proceeds from the IPO of US$83.7 million on March 30, 2006.
Total liabilities decreased from RMB905.6 million as of December 31, 2005
to RMB851.7 million (US$107.8 million) as of September 30, 2006, a slight
drop of RMB53.9 million (US$6.8 million) or 6.0%. Current liabilities
increased from RMB 738.6 million as of December 31, 2005 to RMB 851.7 million
(US$107.8 million) as of September 30, 2006, an increase of RMB113.1 million
(US$14.3 million) or 15.3%. The increase was primarily due to an increase in
short-term bank loans of RMB105.4 million (US$13.3 million). Currently, there
are no long-term debts outstanding as the convertible bonds were converted
into ordinary shares upon completion of the IPO.
Notes:
(1) Total cash = cash and cash equivalents + time deposit + pledged time
deposit.
(2) Total accounts receivable = accounts receivable, net + Long-term
accounts receivable
Business Outlook
Due to the seasonal nature of the wireless coverage business, revenue in
1Q usually accounts for less than 2% of the annual revenue, whereas 2Q and 3Q
usually account for about one fifth of the annual revenue. More than half of
annual revenue is generated in the fourth quarter.
The Company expects that Chinese operators will accelerate their
investments in wireless coverage in 4Q 2006, and China Telecom will increase
its CAPEX in PHS indoor coverage for the preparation of 3G roll-out.
Additionally, revenues from the overseas network coverage markets are
expected to record growth and most of secured orders of base station RF
modules will be executed in 4Q 2006 as well. However, the Company still faces
challenges as its biggest customer, China Unicom, continues to reduce its
investments in CDMA.
Therefore, the Company currently expects revenue in the 4Q 2006 to be
between RMB435.0 million (US$55.0 million) and RMB455.0 million (US$57.6
million), representing a 15% to 20% increase from the corresponding period in
2005, or a 132%-142% increase QoQ.
In addition, the Company expects full-year revenue to grow by 14% to 17%
from 2005. Due to the new centralized policy of procurement by China Mobile,
prices of wireless coverage products are expected to decrease. Furthermore,
as revenue contribution from PHS products with lower ASPs are expected to
increase, full-year gross margin is expected to decrease to between 45% and
48% and net profit margin is expected to be in the range of 16% and 19%.
Conference Call and Webcast:
The Company’s management team will conduct a conference call on Tuesday,
November 7, 2006 at 8:00 am Eastern Time. A webcast of the conference call
will be accessible on the Company’s web site at http://www.GrenTech.com.cn .
About China GrenTech
China GrenTech is a leading developer of RF technology in China and a
leading provider of wireless coverage products and services to
telecommunication operators in China. The Company uses radio frequency (RF)
technology to design and manufacture wireless coverage products, which enable
telecommunication operators to expand the reach of their wireless
communication networks to indoor area and outdoor area, such as buildings,
highways, railways, tunnels and remote regions. China GrenTech’s wireless
coverage services include design, development, installation and project
warranty services. The Company also tailors the design and configuration of
its wireless coverage products to the specific requirements of its customers.
Based on its in-house RF technology platform, the Company also develops
and produces base station RF parts and components sold to base station
manufacturers. China GrenTech is a qualified supplier of RF parts and
components to five major base station manufacturers such as Huawei
Technologies, ZTE etc. For more information, please visit our website at
http://www.GrenTech.com.cn .
“Safe Harbor” Statement under the Private Securities Litigation Reform
Act of 1995
Statements contained in this press release that are not historical facts
are forward-looking statements, as that term is defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements,
including financial projections and forecasts, involve risks and
uncertainties that could cause the Company’s actual results to differ
materially from its current expectations. Factors that could cause the
Company’s results to differ materially from those set forth in these forward-
looking statements include the Company’s reliance on business relationships
with the Chinese telecom operators and base station OEMs; risks associated
with large accounts receivable, long collection periods and accounts
receivable cycles; fierce competition in the wireless communication industry;
growth of, and risks inherent in, the wireless communication industry in
China; uncertainty as to future profitability and the Company’s ability to
obtain adequate financing for its planned capital expenditure requirements;
its reliance on third parties to carry out the installation of its wireless
coverage products; uncertainty as to its ability to continuously develop and
manufacture new RF technology and keep up with changes in RF technology;
risks associated with possible defects and errors in its wireless coverage
products or RF products; uncertainty as to the Company’s ability to protect
and enforce its intellectual property rights; and uncertainty as to the
Company’s ability to attract and retain qualified executives and personnel,
particularly in its research and development department. Other factors that
may cause the Company’s actual results to differ from those set forth in the
forward-looking statements contained in this press release and that may
affect its prospects in general are described in the Company’s filings with
the Securities and Exchange Commission, including its Registration Statement
on Form F-1 related to its initial public offering. The Company undertakes no
obligation to update or revise forward-looking statements to reflect
subsequent events or changed assumptions or circumstances.
- FINANCIAL TABLES TO FOLLOW –
China GrenTech Corporation Limited and subsidiaries
Selected Unaudited Consolidated Balance Sheets Items
as of December 31, 2005 and September 30, 2006
(RMB and US$ expressed in thousands)
December September September
31, 2005 30, 2006 30,
2006
RMB RMB US$
Assets
Cash and cash equivalents 128,608 399,680 50,567
Time deposits -- 158,080 20,000
Pledged time deposits 76,250 77,150 9,761
Accounts receivable, net 537,321 604,360 76,463
Inventories 370,136 475,582 60,170
Total current assets 1,172,072 1,807,250 228,650
Long-term accounts receivable 162,032 298,228 37,731
Total assets 1,475,469 2,283,998 288,967
Liabilities and shareholders’ equity
Short-term bank loans 160,614 266,050 33,660
Total current liabilities 738,551 851,686 107,753
Long-term debt 167,053 -- --
Total liabilities 905,604 851,686 107,753
Ordinary shares US$0.00002 par value;
2,500,000,000 shares authorized,
466,365,500 shares and 625,000,000
shares issued and outstanding as of
December 31, 2005 and September 30,
2006,respectively (1) 77 103 13
Total shareholders’ equity 506,720 1,415,235 179,053
Total liabilities and shareholders’
equity 1,475,469 2,283,998 288,967
Notes (1): 1 ADS= 25 ordinary shares.
25,000,000 ADSs issued and outstanding as of September 30, 2006.
China GrenTech Corporation Limited and subsidiaries
Selected Unaudited Consolidated Statements of Income Items
for period ended September 30, 2005 and 2006(RMB and US$ expressed in
thousands, except per share data)
For The Three Months Ended September 30,
2005 2006 2006
RMB RMB US$
Revenues 156,042 187,729 23,751
Cost of revenues -75,915 -98,659 -12,482
Gross profit 80,127 89,070 11,269
Research and development costs -7,455 -13,882 -1,756
Sales and distribution expenses -25,980 -25,905 -3,278
General and administrative expenses -10,407 -11,377 -1,439
Total operating expenses -43,842 -51,164 -6,473
Operating income 36,285 37,906 4,796
Interest income 371 8,108 1,025
Interest expense -10,104 -4,063 -514
Investment income -- -- --
Exchange loss -- -6,333 -801
Grant income 250 -- --
Total other expense -9,483 -2,288 -290
Income tax expense -7,093 -5,043 -638
Income before minority interests 19,709 30,575 3,868
Net income 18,266 30,737 3,889
Net income available to ordinary
shareholders 18,432 30,737 3,889
Net income per share available to
ordinary shareholders:
- Basic 0.04 0.049 0.006
- Diluted 0.037 0.049 0.006
Weighted average number of ordinary
shares:
- Basic 466,365,500 625,000,000 625,000,000
- Diluted 500,000,000 625,000,000 625,000,000
China GrenTech Corporation Limited and subsidiaries
Selected Unaudited Consolidated Statements of Income Items
for period ended September 30, 2005 and 2006(RMB and US$ expressed in
thousands, except per share data)
For The Nine Months Ended September 30,
2005 2006 2006
RMB RMB US$
Revenues 338,202 382,501 48,393
Cost of revenues -153,593 -195,951 -24,791
Gross profit 184,609 186,550 23,602
Research and development costs -20,210 -30,581 -3,869
Sales and distribution expenses -68,624 -76,649 -9,698
General and administrative expenses -29,268 -33,453 -4,232
Total operating expenses -118,102 -140,683 -17,799
Operating income 66,507 45,867 5,803
Interest income 2,081 14,728 1,863
Interest expense -26,795 -19,329 -2,445
Investment income 159 238 30
Exchange loss -- -5,231 -662
Grant income 350 226 29
Total other expense -24,205 -9,368 -1,185
Income tax expense -11,814 -2,695 -341
Income before minority interests 30,488 33,804 4,277
Net income 26,424 34,431 4,356
Net income available to ordinary
shareholders 24,783 34,071 4,311
Net income per share available to
ordinary shareholders:
- Basic 0.05 0.06 0.008
- Diluted 0.05 0.06 0.007
Weighted average number of ordinary
shares:
- Basic 466,365,500 570,959,676 570,959,676
- Diluted 500,000,000 582,417,582 582,417,582
China GrenTech Corporation Limited and subsidiaries
Selected Unaudited Consolidated Statements of Cash Flows Items
for the nine months ended September 30, 2005 and 2006
(RMB and US$ expressed in thousands)
For The Nine Months Ended September 30,
2005 2006 2006
RMB RMB US$
Net cash used in operating
activities (206,061) (218,550) (27,651)
Net cash provided by/(used in)
investing activities 10,784 (213,100) (26,961)
Net cash (used in)/provided by
financing activities (9,293) 702,722 88,908
