China Power Equipment Announces Third Quarter 2012 Financial Results

XI'AN, China, November 15, 2012 /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 third quarter ended September 30, 2012.

Third Quarter Highlights:

• Total net revenues increased to $10.68 million, up 3.8% year-over-year and 12.5% quarter-over-quarter.
• Net revenues from the amorphous alloy transformers business increased to $3.30 million, up 18.6% year over year, and 29.7% quarter over quarter
• Net income increased 23.2% to $2.09 million year over year with $0.09 in diluted EPS

"We are pleased with the solid results in the third quarter of 2012", said Mr. Song Yongxing, Chairman, CEO, and President of China Power Equipment. "Continued strong demand in China for energy infrastructure components has allowed us to further increase our capacity utilization at our new amorphous alloy transformer production facility. Strong sales from our amorphous alloy transformers business and improved gross profit margin show the full benefits of the strategic decision we made to manufacture transformers in-house. In addition, our R&D team continues to innovate and develop production process to apply domestically-produced raw materials to our products which should not only further increase our gross profit margin but also allow us to better service our existing client base and to enter new markets. Looking ahead, we are enthusiastic about the growth opportunities for our energy-saving products because of China's further push to accelerate improvements in energy efficiency" concluded Mr. Song.

Total net revenues increased $386,976 or 3.8% to $10.68 million, compared to the same period of 2011, primarily attributable to higher tonnage of amorphous alloy cores sold and more units of amorphous alloy transformers sold as we started to ramp up the production at our new amorphous alloy transformer production line. This increase in net revenue was partly offset by the lower average selling prices of amorphous alloy cores and transformers due in part to our pricing strategy designed to capture more orders. Net revenues generated by sales of amorphous alloy cores decreased 1.7% to $7.38 million for the quarter, representing 69.1% of sales. Net revenues generated by sales of amorphous alloy transformers increased 18.6% to $3.30 million for the quarter, representing 30.9 % of sales.

Gross profit for the quarter was $2.85 million, representing an increase of approximately 14% compared to the same periods of 2011, primarily attributable to the higher sales from amorphous alloy transformers, and the lower cost of goods sold associated with amorphous alloy cores in the third quarter compared to the same periods of 2011. Consolidated gross profit margin for the quarter increased 2.4 percentage points to 26.7% from 24.3% in the third quarter of 2011, mainly attributable to the decrease in the average prices of primary raw material exceeding the decrease in average selling prices of our amorphous alloy cores and transformers in the third quarter of 2012 compared to the same periods of 2011, as well as the lower costs of in-house produced amorphous alloy transformers in the current quarter.

Selling, general and administrative ("SG&A") expenses totaled $0.35 million for the three months ended September 30, 2012, a decrease of approximately 19.1% from the same period in 2011, primarily attributable to lower professional fees and administrative personnel expenses resulting from lower director and officer insurance expenses upon the insurance policy renewal in July 2012.

Net income for the third quarter ended September 30, 2012 was $2.09 million, an increase of 23.2% versus the same period of 2011, primarily attributable to higher gross profit and lower SG&A expenses. Earnings per share based on 23.7 million fully-diluted shares increased 28.6% to $0.09.

Nine Month Results

Total net revenues for the nine-month period ended September 30, 2012 decreased $ 295,071 or 1.1%, compared to the same period of 2011. Net revenues generated by sales of amorphous alloy cores decreased 2.7% to $19.81 million during the period and accounted for 72.2% of total sales. Net revenues generated by sales of amorphous alloy transformers increased 3.5% to $7.62 million and comprised of 27.8% of sales for the period. Net revenues decreased primarily as a result of the lower average selling prices of amorphous alloy cores and transformers, partly offset by higher tonnage of amorphous alloy cores and more units of amorphous alloy transformers sold, as described above in the quarterly results.

Gross profits for the first nine months of 2012 were $ 7.20 million, an increase of 6.8% versus the same period last year. Gross profit margin for the period for amorphous alloy cores increased 2.6 percentage points to 26.8%, while gross profit margin for amorphous alloy transformers increased 0.2 percentage points to 24.7%.

SG&A expenses for the first nine months of 2012 increased 5.7% to $1.39 million compared to the same period of last year and represented 5.1% of total net revenues.

Net income for the first nine months of 2012 was $4.83 million, an increase of 7.4% versus the same period of last year and earnings per share were $0.20 based on 23.7 million fully-diluted shares.

Financial Condition

Cash and cash equivalents were $21.92 million at September 30, 2012 compared to $23.09 million at December 31, 2011. Working capital increased to $29.70 million at September 30, 2012 from $23.89 million at the end of 2011. Accounts receivable increased to $7.21 million, compared to $ 1.99 million at the end of 2011, mainly due to granting extended payment terms to customers that resulted in a longer collection period

The Company used $1.27 million of cash in operating activities during the first nine months of 2012.

Business and Facilities Update

Since the Company commenced commercial production at its new amorphous alloy transformer production line during the third quarter of 2011, it has invested a significant amount of time to recruit and train personnel working at the new transformer facility to ensure the highest standards of quality and reliability of its transformers. At the same time, the sales team has been actively approaching potential clients and making preparations for participating in bidding processes. All these efforts were recognized by the strong sales growth from amorphous alloy transformers business this quarter. During the third quarter of 2012, the capacity utilization of the new transformers lines ramped up well and the Company produced about 68% of all transformers in-house at the new production facility, which contributed to the improvement of the consolidated gross profit margin.

The Company has made good achievement in the expansion of new user market by receiving significant purchase orders from two new domestic customers recently. The first purchase order was from a highway construction project in connection with the supplement of monitoring system, communications system, charging system, power lighting and power supply system for a total of $23 million (RMB 145,390,000). The Company will apply amorphous ally transformers made in- house to the power supply system, which will help China Power Equipment to increase the market shares of highway construction markets. The infrastructure section of this construction project has started and the Company is expected to execute the order in the first half year of 2013. China Power Equipment has posted a performance bond equivalent to 10% of the total purchase price. The other purchase order the Company received was an order to deliver a total of 827 units of amorphous alloy transformers to an oil field for a total purchase price of approximately $ 4.3 million (RMB 27,399,935). Pursuant to the order, the delivery will be made upon the request of the customer between this October and early next year. The new orders underscore the Company's brand equity in users markets from various industries, including oil fields, and especially for highway construction projects, which is a brand new market for the Company.

Conference Call

China Power will hold its third quarter 2012 financial results conference call at 8:30 am ET on Thursday, November 15, 2012.

To attend the call, please use the information below for dial-in access. When prompted on dial-in, ask for "China Power Equipment 2012 Third Quarter Earnings Conference Call ".

Date: Thursday, November 15, 2012

Time: 8:30 am Eastern Time, US

US Toll Free Dial-In: +1 866 549 1292

Asia Toll Free Dial-In: Mainland China: 800 876 8626

Hong Kong: 852 3005 2050

Password: 896358#

Conference ID: China Power Equipment 2012 Q3 Earnings Conference Call

Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through December 15, 2012. To listen, please call +1 866 753 0743 within the United States, 800 876 5016 if calling in China, or +852 3005 2020 if calling internationally. Utilize the pass code 160773# for the replay.

The archive of the conference call will be available on China Power Equipment's website at: http://www.chinapower-equipment.com.

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.