China Power Equipment Announces Second Quarter 2013 Financial Results

XI'AN, China, August 12, 2013 /PRNewswire-FirstCall/ -- China Power Equipment, Inc. ("China Power Equipment" or the "Company," OTCBB: CPQQ), a manufacturer of a new generation of energy saving amorphous alloy transformer cores and transformers in China, today announced its financial results for the second quarter ended June 30, 2013.

Second Quarter Highlights:

• Revenues decreased 6.4% to $8.88 million year over year, while increased 29.6% quarter over quarter
• Net income decreased 18.1% to $1.39 million year over year, while increased 31.1% quarter over quarter
• The gross profit margin of amorphous alloy transformers for the quarter increased 2.2 percentage points to 27.1% from 24.9% in the second quarter of 2012

"Beginning this year, we strengthened accounts receivable management, which led to the slightly lower net sales, but significant improvement of net cash flow from operating activities," said Mr. Song Yongxing, Chairman, CEO, and President of China Power Equipment. "We also saw an encouraging trend with sequential net revenue and earnings growth in both of amorphous alloy cores and transformers businesses compared to the first quarter of the year. We optimistically expect steady growth in customer order activity as we progress through 2013."

"Currently, proactive fiscal policy in China is stimulating domestic demand for electrical distribution equipment from manufacturers. Majority of our customers, which are state-owned enterprises, are expected to gradually increase spending on infrastructure development. We expect stronger performance in the second half of 2013 as the level of infrastructure development picks up in China. In addition, we also expect to initiate the development in international markets. We believe we are well positioned to capitalize on opportunities in the markets," concluded Mr. Song.

Total net revenues for the quarter decreased $0.61 million or 6.4% to $8.89 million during the quarter ended June 30, 2013, compared to the same period of 2012. The decrease in the quarter was primarily due to the lower average selling prices of amorphous alloy cores and fewer units of amorphous alloy transformers sold, partly offset by higher average unit prices of amorphous alloy transformers. Net revenues generated by sales of amorphous alloy cores decreased 7.2% to $6.45 million for the quarter, representing 72.6% of sales. Net revenues generated by sales of amorphous alloy transformers were $2.44 million, representing 27.4% of sales, a decrease of 4.2% from the second quarter of 2012. Net revenues for cores and transformers sequentially increased 28% and 34%, respectively, compared to the first quarter this year.

Gross profit for the quarter was $2.21 million, decreased $0.29 million or 11.8% compared to the same period of 2012, primarily due to the lower sales from amorphous alloy cores and transformers. Consolidated gross profit margin for the quarter decreased 1.5 percentage points to 24.9% from 26.4% in the second quarter of 2012, mainly attributable to the lower gross profit margin of amorphous alloy cores caused by its average selling prices decreased to a greater extent than the average cost of its primary raw material. The gross profit margin of amorphous alloy transformers for the quarter increased 2.2 percentage points to 27.1% from 24.9% in the second quarter of 2012, mainly attributable to more units of higher priced high capacity alloy transformers sold.

Selling, general, and administrative ("SG&A") expenses increased by $27,337 or 5.5% during the quarter compared to the same periods of 2012, primarily due to an increase in shipping expense of $66,826 resulting from selling more in-house produced alloy transformers and an increase in profession fee of $22,317, partly offset by a decrease in administrative personnel and facility expenses of $75,629 and a decrease in stock-based compensation of $4,617.

Net income for the second quarter ended June 30, 2013 was $1.39 million, a decrease of 18.1% versus the same period of 2012, primarily attributable to the lower gross profit, higher SG&A expenses and lower other income, offset by lower income taxes.

Six Month Results

Total net revenues for the six-month period ended June 30, 2013 decreased $1.01 million or 6.0% compared to the same period of 2012. Net revenues generated by sales of amorphous alloy cores decreased 7.6% to $11.48 million during the period and accounted for 73% of total sales. Net revenues generated by sales of amorphous alloy transformers decreased 1.4% to $4.26 million and comprised of 27% of sales for the period. The decrease in the first half of 2013 was mainly due to the lower average selling prices of amorphous alloy cores and transformers and the lower tonnage of amorphous alloy cores sold, partly offset by more units of amorphous alloy transformers sold.

Gross profits for the first half of 2013 were $3.91 million, a decrease of 10.0% versus the same period last year. Gross profit margin for the period for amorphous alloy cores decreased 2.3 percentage points to 24.6%, while gross profit margin for amorphous alloy transformers increased 2.4 percentage points to 25.6%.

SG&A expenses for the first half of 2013 decreased 10.8% to $0.92 million compared to the same period of last year and represented 5.9% of the total net revenues.

Net income for the first half of 2013 was $2.45 million, a decrease of 10.6% versus the same period of last year and earnings per share were $0.10 based on 23.7 million fully-diluted shares.

Financial Condition

Cash and cash equivalents were $29.24 million at June 30, 2013 compared to $21.98 million at December 31, 2012. Working capital increased to $35.35 million at June 30, 2013 from $31.63 million at the end of 2012. Accounts receivable balance was $6.23 million at June 30, 2013, compared to $ 10.19 million at the end of 2012. Accounts payable balance was $2.50 million, increased from $1.89 million.

The Company generated $6.77 million of cash flows from operating activities during the first six months of 2013, an increase of $4.82 million from the same period last year. This was primarily due to net income of $2,45 million, adjusted by non-cash related expenses including depreciation and amortization of $599,787 and stock-based compensation of $3,816, then increased by favorable changes in working capital of $3,71 million. The favorable changes in working capital mainly resulted from a decrease in accounts receivable of $4,05 million as some prior period accounts receivable got collected, a decrease in prepaid expenses and other receivables of $287,668 and an increase in account payable of $571,859, partly offset by an increase in inventory of $621,658 and a decrease in other payables and advance from customers of $546,931.

About China Power Equipment, Inc.

China Power Equipment, Inc. designs, manufactures, and distributes amorphous alloy transformer cores and amorphous core step-down transformers in China. The Company currently manufactures 59 different products, primarily amorphous alloy cores and amorphous alloy core transformers.

Safe Harbor Statement

Certain statements in this release concerning our future growth prospects are forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. These forward-looking statements can be identified by terminology such as "anticipates," "believes," "could," "estimates," "expects," "future," "intends," "plans," "should," "will," and similar statements.

The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding the success of the company's investments, risks and uncertainties regarding fluctuations in earnings, its ability to sustain its previous levels of profitability including on account of its ability to manage growth, intense competition, wage and inflation increases in China, its ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, its ability to successfully complete and integrate potential acquisitions, withdrawal of governmental fiscal incentives, political instability and regional conflicts, and legal restrictions on raising capital or acquiring companies outside China.

Additional risks that could affect the company's future operating results are more fully described in its filings with U.S. Securities and Exchange Commission. These filings are available at www.sec.gov and at www.chinapower-equipment.com.

The company may, from time to time, make additional written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 10-K, 10-Q, and 8-K, in its annual report to shareholders, in news releases and other written materials, and in oral statements made by its officers, directors, or employees to third parties. The company does not undertake to update any forward-looking statements that may be made from time to time by or on its behalf, except as required under law.

For more information about China Power Equipment, please visit its website at www.chinapower-equipment.com.