Continued to Deliver Outstanding Performance Despite Macroeconomic Challenges and Intensifying Competition
HONG KONG, Aug. 20 /Xinhua-PRNewswire/ -- China’s leading IT service provider, Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK) today announced unaudited consolidated results for the three months ended 30 June 2008.
Highlights:
For the three months ended 30 June 2008:
-- Revenue increased 27.38% YoY from Q1 FY08 to HK$10,011 million
-- Profit attributable to shareholders amounted to HK$114 million,
representing a 74.70% YoY growth
-- Gross profit up 33.24% to HK$662 million on YoY basis
-- Overall adjusted gross profit margin and net profit margin were 7.65%
and 1.14% respectively, representing a respective improvement of 58bps
and 31bps
-- Basic earnings per share was 11.83 HK cents up 58.58% as compared to Q1
FY08/09
Financial Review
During the period under review, the Group recorded a turnover of HK$10,011 million, an increase of 27.38% as compared to the same period last year. Gross profit amounted to HK$662 million, an increase of 33.24% compared to HK$497 million for the same period last year. Taking into account the effect of Renminbi appreciation on procurement costs, the Group’s overall adjusted gross profit margin for the three months ended 30 June 2008 was 7.65%, up 58 basis points from 7.01% Q1 FY08/09. The enhancement on business value also contributed to significant profit growth for the Group during the period. Profit attributable to equity shareholders amounted to approximately HK$114 million, representing a 74.70% growth compared to approximately HK$65 million for the same period last year. Net profit margin surged to 1.14% from 0.83% year over year. Basic earnings per share grew 58.58% to 11.83 HK cents, from 7.46 HK cents in Q1 FY08/09.
Mr. Guo Wei, Chairman of Digital China, commented on the results, "Chinese enterprises’ demand for IT products and related services will continue to increase despite the macroeconomic slowdown necessitating more prudent IT investments. The Group succeeded in continuing our business transformation by adopting the ‘Customer-Focused & Service-Oriented’ strategy. We managed to achieve stable growth for the first quarter of FY08/09, exceeding the average growth of China’s IT market. Our recognition by the capital market enabled us to obtain new investment of not more than RMB500 million in July 2008. We believe our strategy and this funding will further strengthen our leading position in China’s IT industry."
Segment Results
Three months ended 30 June
(HK$ million) 2008 2007 Change (%) YoY
Distribution Business
Turnover 5,461 4,766 14.57
Gross profit 235 206 14.05
Segment Results 91 77 18.24
Systems Business
Turnover 3,278 2,253 45.46
Gross profit 271 186 45.55
Segment Results 82 68 20.91
Services Business
Turnover 1,272 839 51.63
Gross profit 156 104 49.12
Segment Results 27 (10) N/A
Business Review
Services Business (with a primary focus on Industry Market)
During the period under review, the Group’s Services business continued its transformation from a start-up into a profit contribution stage. The contract value of the Group’s Services business for the period was HK$1,525 million, up by 60.28% compared to the same period last year, due mainly to the deeper cooperation and value enhancement with major customers in the Services business. Cooperation with major customers in the financial sector was further consolidated. Continual upgrades of credit and loans solutions and fee-based businesses banking solutions have led to securing new customers among regional banks. In the telecommunications sector, Anhui Mobile and Shanxi Mobile signed up for our core business systems as a new-generation of core telecom operating systems (BOSS 3.0) were launched following completion of research and development. Our leading position in the telecommunication application solutions sector was further enhanced. Turnover of the Group’s Services business for the first quarter of this financial year was HK$1,272 million, an increase of 51.63% compared to the corresponding period of last year. In particular, turnover contributions from financial and telecommunications sectors for the first quarter of the current financial year grew by 195.34% and 88.56% respectively, significantly outpacing average industry growth rates in these sectors.
Although the Distribution business experienced a slowdown in turnover growth because of the Sichuan earthquake, it has raised society’s awareness for contingency catastrophe planning. The Group conducted research and development solutions in an intensive and orderly manner for disaster alarms, emergency management and networked customs supervision systems. The disaster alarm system and emergency management system will provide unique support and services for disaster relief while the Group has signed contracts for a number of projects applying the 3+1 solution for networked customs supervision.
Systems Business (with a primary focus on Enterprise Market)
The Group’s Systems business sustained robust growth during the period under review. Turnover of the Group’s Systems business for the three months ended 30 June 2008 was HK$3,278 million, a 45.46% growth compare to the same period last year. Adjusted gross profit margin for this business segment was 10.09%, a stable increase from 9.95% the same period of last year. The Group has proactively developed the regional customer base resulting in continuous growth in market share. The Group realized rapid growth in networking products, packaged software and storage products with support from the sound cooperation with vendors and sales channels. Turnover from networking products, packaged software and storage products under the Systems business for the first quarter of the current financial year grew by 61.57%, 38.80% and 112.99% respectively, compared to the same period last year. Sales momentum drove rapid overall growth and was realized from significant sales to Cisco, Juniper, Polycom and EMC. To enhance this business segment’s service capability, the number of technical staff 47.48% as compared to the corresponding period of last year. Turnover for Q1 FY08 from the product-related service business under the Systems business increased 52.41% year over year due to enhanced service capability.
Distribution Business (with a primary focus on SMB & Consumer Markets)
Turnover in the Group’s Distribution business for Q1 FY08 amounted to $5,461 million, representing a 14.57% growth over the same period last year. Adjusted gross profit margin increased to 4.95% versus 4.59% for the corresponding period of last year. Even though the growth of the SMB and Consumer markets was curbed by the Sichuan earthquake, the Group strengthened its efforts in regional penetration and sales channel development. The Group has also achieved encouraging results from its attempts to market customer-oriented solutions. Effective sales channels increased by 10.63% while cities covered increased by 50.55% as compared to 30 June 2007. Turnover from fourth-tier and fifth/sixth-tier cities also reported growth of 30.33% and 80.86% respectively, as compared to the corresponding period of last financial year. Rapid growth of the Group’s Distribution business continued in notebooks, desktops, PC servers and accessories during the period under review. Turnover from the four aforementioned major business sectors reported a respective YoY growth of 15.11%, 17.33%, 18.64% and 32.23%.
Outlook
Demand in the China IT market will remain steady in the coming year. The Group should benefit from the restructuring of its service business that will outpace that in the overall IT market. Management is confident in the Group’s future business development. For the Distribution business, the Group will continue to seek more IT products to enrich its product mix. At the same time, the Group will expand its regional distribution penetration rate. Both strategies will broaden its revenue sources. For the Systems business, with its solid foundation of the sound cooperation with vendors and its sales channels, will ensure a rapid revenue growth. Meanwhile, the Group will strengthen its technical teams that will further enhance its technical support capabilities and provide better value-added service to customers. Management believes that the Distribution business and System business will maintain stable revenue and earnings growth.
The Group will benefit from its Services business restructuring momentum which is expected to generate significant growth in the current financial year. The Group’s promotion system and product support of the IT outsourcing and maintenance services (PSOM) is well established. A professional team of service agents, which operates on a re-selling basis, is being established to cover all regions of China. This lays a sound foundation for growth of the Group’s Services business in the current financial year. The restructuring of telecom service providers and issuance of 3G licenses are expected to present tremendous opportunities to the Group’s core system projects and value-added operations in the future. The Group will try to capitalize these opportunities to accelerate business development.
Looking into the remaining financial year, Mr. Guo Wei, Chairman of Digital China, said, "We are extremely pleased with the remarkable growth achieved during the first quarter. These satisfactory results prove that we are in the right strategic direction and well positioned to achieve our operational and management objectives set for this financial year. The 2008/09 financial year presents us with multiple opportunities and challenges. Through high operating efficiency and fine tuning of our business strategies, we are confident that we will achieve these targets and deliver greater value for our shareholders, against the backdrop of considerable uncertainties in China’s macroeconomic environment."
About Digital China
Digital China was listed on the main board of The Stock Exchange of Hong Kong in 2001 under stock code "00861.HK" following a successful spin off from the Legend Group. In pursuit of its "Digitalized China" corporate strategy, Digital China is focused on providing its customers with pioneer electronic business platforms, solutions and services. A one-stop IT services concept, available to individual consumers and large enterprises alike, enables its client base to span across a wide range of different industries, from banking and telecommunications to government and public sectors. Leveraging on its strong partnership with over 100 top IT vendors worldwide, Digital China has become the largest integrated IT service provider in China.
Through effective guiding, Digital China provides fully integrated IT services to customers with different needs and at various stages of development to create value and success for them. For further information on its products and services, please visit http://www.digitalchina.com.hk .
CONDENSED CONSOLIDATED INCOME STATEMENT
Three months ended 30 June
2008 2007
(Unaudited) (Unaudited)
HK$’000 HK$’000
Revenue 10,010,710 7,858,762
Cost of sales (9,348,504) (7,361,756)
Gross profit 662,206 497,006
Other income and gains 129,825 91,305
Selling and distribution costs (397,424) (309,392)
Administrative expenses (83,774) (70,606)
Other operating expenses, net (141,236) (92,203)
Total operating expenses (622,434) (472,201)
Finance costs (40,818) (39,439)
Share of profits and losses of:
Jointly-controlled entities 700 (1,155)
Associates 2,446 (167)
Profit before tax 131,925 75,349
Tax (19,031) (12,414)
Profit for the period 112,894 62,935
Attributable to:
Equity holders of the parent 114,034 65,273
Minority interests (1,140) (2,338)
112,894 62,935
Earnings per share attributable to
ordinary equity holders of the parent
Basic 11.83 HK cents 7.46 HK cents
Diluted 11.83 HK cents 7.33 HK cents
CONDENSED CONSOLIDATED INCOME STATEMENT
At 30 June At 31 March
2008 2008
(Unaudited) (Audited)
HK$’000 HK$’000
NON-CURRENT ASSETS
Property, plant and equipment 405,034 401,124
Investment properties 239,955 234,212
Prepaid land premiums 15,024 14,765
Intangible assets 5,308 5,526
Interests in jointly-controlled entities 5,645 7,894
Interests in associates 38,058 35,612
Available-for-sale investments 31,611 31,611
Deferred tax assets 20,970 19,480
Total non-current assets 761,605 750,224
CURRENT ASSETS
Inventories 2,683,075 2,559,364
Trade and bills receivables 4,985,337 3,772,820
Prepayments, deposits and other receivables 1,213,010 1,233,629
Cash and bank balances 1,652,439 998,454
Total current assets 10,533,861 8,564,267
CURRENT LIABILITIES
Trade and bills payables 3,499,136 3,334,519
Other payables and accruals 1,803,881 1,695,420
Tax payable 65,757 66,405
Interest-bearing bank borrowings 2,014,475 400,066
Total current liabilities 7,383,249 5,496,410
NET CURRENT ASSETS 3,150,612 3,067,857
TOTAL ASSETS LESS CURRENT LIABILITIES 3,912,217 3,818,081
NON-CURRENT LIABILITIES
Interest-bearing bank borrowings 919,410 952,803
Bond payable 227,015 221,582
Total non-current liabilities 1,146,425 1,174,385
NET ASSETS 2,765,792 2,643,696
EQUITY
Equity attributable to equity holders of the
parent
Issued capital 96,362 96,362
Reserves 2,512,727 2,389,347
Proposed final dividend 140,210 140,210
2,749,299 2,625,919
Minority interests 16,493 17,777
TOTAL EQUITY 2,765,792 2,643,696
For investor and media inquiries:
Wycee Liu
Digital China Holdings Limited
Tel: +852-3416-8089
Email: liuyqa@digitalchina.com
Jane Liu
PRChina
Tel: +852-2522-1838
Email: jliu@prchina.com.hk
Winnie Wang
Digital China Holdings Limited
Tel: +852-3416-8090
Email: wangminh@digitalchina.com
Vivian Shi
Digital China Holdings Limited
Tel: +852-3416-8076
Email: vivianshi@digitalchina.com
Henry Chik
PRChina
Tel: +852-2522-1838
Email: hchik@prchina.com.hk
