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Wonder Auto Technology, Inc. Reports First Quarter 2007 Results

2007-05-10 16:22 17423

JINZHOU CITY, China, May 10 /Xinhua-PRNewswire-FirstCall/ -- Wonder Auto Technology, Inc., (OTC Bulletin Board: WATG) ("Wonder Auto" or "the Company"), a China-based manufacturer of automotive electrical parts, predominantly, starters and alternators, today announced its financial results for the first quarter 2007.

Q1 Highlights

-- Revenues increased to a record $21.6 million, up 45.8% year-over-year

-- Net income increased 92.5% year-over-year to $2.7 million

-- Export sales increased to 4.8% of total revenue

Revenue increased to a record $21.6 million, up 45.8% from revenue in the first quarter 2006 of $14.8 million. The increase in revenue was primarily due to the continued increase in demand from existing customers for alternators and starters. Gross profit for the quarter increased 78.5% to $5.3 million from gross profit of $3.0 million in the comparable period a year earlier. Net income increased to $2.7 million or 92.5% for the first quarter 2007 from $1.4 million in the first quarter 2006. Fully diluted earnings per share for the quarter were $0.11.

"We are very pleased to announce another quarter of record revenues and profits. We have been able to take advantage of the rapid growth of the automotive components industry in China, propelled by the strong growth of the auto market, especially for cars with small and mid size engines. In addition to increasing domestic revenues, our export sales increased to 4.8% of revenues during the quarter, indicating our emerging ability to penetrate and compete in international markets," said Chairman and CEO, Mr. Qingjie Zhao.

For the first quarter of 2007, gross profit was $5.3 million, for a year-over-year increase of 78.5% from $3.0 million in the first quarter of 2006. Gross margin was 24.6% for the quarter compared to 20.1% for the same period a year earlier. Gross margin was favorably impacted by the consolidation of the acquired interest in the business of Jinzhou DongWoo Precision Co., Ltd. ("Jinzhou DongWoo"), one of Wonder Auto's suppliers. Gross margin also benefited from more efficient cost control management and improved technology which allowed the Company to reduce raw material consumption per unit of production. In addition, Wonder Auto has been able to mitigate the effect of higher commodity prices on gross margin through customer pricing and product redesign, however margin levels are likely to be slightly lower during the remainder of the year.

Administrative expenses for the quarter were $0.7 million, or 3.1% of revenue, compared to $0.3 million for the same quarter a year ago, or 2.1% of revenue. The increase of administrative expenses is due to expenditures for improvement of the Company's internal cost control systems to ensure compliance with SOX 404, the inclusion of Jinzhou DongWoo and the increased cost of being a U.S. publicly traded company.

In the first quarter of 2007, research and development expenses were $0.3 million, or 1.2% of revenue, compared to $0.1 million, or 0.7% of revenue, for the same period last year. The increased research and development expense is attributed to the Company's continued efforts to maintain its technological competitiveness.

Selling expenses were $0.7 million for the first quarter 2007, or 3.0% of revenue, compared to $0.7 million, or 4.7% of revenue, in the comparable quarter a year earlier. The lower selling expense as a percent of revenue is due to the improvement in quality of the Company's products which reduced the costs of after-sales services. In addition, the increased sales volume allowed the Company to benefit from economies of scale and reduced the per unit selling expenses.

Income from operations increased to $3.7 million for the first quarter 2007, up 99.3% from $1.9 million in the first quarter 2006. Operating margin for the quarter was 17.3% compared to operating margin of 12.7% in the same period a year ago. Operating margin benefited from improvement in gross margin and operating efficiencies.

Net income for the first quarter 2007 increased to $2.7 million, up 92.2% from the first quarter 2006 of $1.4 million. Fully diluted earnings per share for the quarter 2007 were $0.11.

Financial Condition

As of March 31, 2007, Wonder Auto had $10.0 million in cash and cash equivalents (including $3.9 million restricted cash), working capital of $30.4 million and $10.9 million long-term debt. Shareholders' equity stood at $41.3 million, up from $38.2 million from December 31, 2006.

Subsequent Event

On April 2, 2007, Wonder Auto, through its subsidiaries, acquired approximately 80% of the shares in Jinzhou Wanyou Mechanical Parts Co., Ltd. ("Wanyou"). Wonder Auto already owned approximately 20% of the shares of Wanyou which combined with the additional 80% gives the Company and its subsidiaries 100% ownership in Wanyou. The shares were purchased from two separate parties for a total of $16.42 million, subject to certain net income targets.

Business Outlook

The auto industry in China continues to grow rapidly and Wonder Auto expects to continue to participate in that growth through increased orders from current customers and by developing new products through its joint development program. In July 2007, Wonder Auto expects to begin production from its new starter and alternator lines which will enable the Company to continue to improve its manufacturing capability and operating efficiencies. Moreover, the recent acquisition of Wanyou enhances the Company's expertise and network in the export market, which Wonder Auto intends to leverage as it increases its international presence. The Company reaffirms its previous guidance for the full year of revenues of $100 million and net income of $13.5 million.

"The Chinese automotive market remains robust after taking over from Japan as the world's second largest market in 2006. With a current market share of about 15% in China, we are focused on aggressively expanding our presence in both domestic and international markets by maintaining our competitiveness through technological superiority and internal controls. We expect this progress will result in Wonder Auto achieving a growth rate higher than the industry average this year," concluded Mr. Zhao.

Conference Call

Wonder Auto will host a conference call on Thursday, May 10th at 10:00 am ET to discuss results for the first quarter of 2007. Joining Mr. Qingjie Zhao, Chairman and CEO, will be Ryan Yuan, CFO, and Mark Collinson, Partner of CCG Investor Relations. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (888) 419-5570. International callers should dial (617) 896-9871. When prompted by the operator, mention Conference Passcode 90877975.

If you are unable to participate in the call at this time, a replay will be available on Thursday, May 10, at 11:00 a.m. Eastern Time, through Thursday, May 17, 2007. To access the replay dial (888) 286-8010 and enter the conference passcode 11929842. International callers should dial (617) 801-6888.

The conference will be broadcast live over the Internet and can be accessed by all interested parties at Wonder Auto's website at http://www.watg.cn . To listen to the call please go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.

About Wonder Auto Technology, Inc.

Wonder Auto Technology, Inc., through its subsidiary, Jinzhou Halla Electrical Equipment Co., Ltd., designs, develops, manufactures and sells automotive electrical parts and is the second largest seller of automotive alternators and starters in China. The Company's products are suitable for various types of automobiles and industrial vehicles. Wonder Auto's customers include Beijing Hyundai, Shenyang Aerospace Mitsubishi, Harbin Dong'an Mitsubishi, and Dongfeng Yueda Kia Motor Co., Ltd. Wonder Auto Technology, Inc. is a Nevada corporation with its manufacturing subsidiary Jinzhou Halla and its corporate headquarters located in Jinzhou City, Liaoning, China.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Wonder Auto's management and are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: business conditions in China, weather and natural disasters, changing interpretations of generally accepted accounting principles; outcomes of government reviews; inquiries and investigations and related litigation; continued compliance with government regulations; legislation or regulatory environments, requirements or changes adversely affecting the businesses in which Wonder Auto is engaged; fluctuations in customer demand; management of rapid growth; intensity of competition from other providers of auto components; timing approval and market acceptance of new product introduction; general economic conditions; geopolitical events and regulatory changes, as well as other relevant risks not included herein. The information set forth herein should be read in light of such risks. Wonder Auto does not assume any obligation to update the information contained in this press release.

-- Financial Tables Below --

Wonder Auto Technology, Inc.

Condensed Consolidated Statements of Operations

For the three months ended March 31, 2007 and 2006

(Stated in US Dollars)

Three months ended

March 31

(Unaudited)

2007 2006

Net sales $21,566,796 $14,793,221

Cost of sales (16,251,790) (11,815,898)

Gross profit 5,315,006 2,977,323

Operating expenses

Administrative expenses 666,566 306,908

Research and development costs 263,446 100,558

Selling expenses 651,616 696,431

Total operating expenses 1,581,628 1,103,897

Income from operations 3,733,378 1,873,426

Interest income 16,709 12,861

Other income 23,795 --

Finance costs (419,392) (258,401)

Equity in net income of an unconsolidated

affiliate 34,147 --

Income before income taxes 3,388,637 1,627,886

Income taxes (466,814) (218,653)

Minority interests (209,371) --

Net income $2,712,452 $1,409,233

Other comprehensive income

Foreign currency translation adjustments 367,329 93,226

Comprehensive income $3,079,781 $1,502,459

Earnings per share: basic and diluted $0.11 $0.08

Weighted average number of shares outstanding:

basic and diluted 23,959,994 17,227,198

Wonder Auto Technology, Inc.

Condensed Consolidated Balance Sheets

As of March 31, 2007 and December 31, 2006

(Stated in US Dollars)

March 31, December 31,

2007 2006

(Unaudited) (Audited)

ASSETS

Current assets

Cash and cash equivalents $6,065,302 $8,203,699

Restricted cash 3,919,971 4,876,879

Trade receivables (net of allowance of

doubtful accounts of $38,023 in 2007

and $32,150 in 2006) 26,042,474 24,696,982

Bills receivable 8,100,371 3,098,314

Other receivables, prepayments and

deposits 1,445,086 1,254,209

Inventories 15,535,997 13,689,374

Amount due from a related company 70,249 69,561

Deferred taxes 217,693 237,570

Total current assets 61,397,143 56,126,588

Know-how 1,482,617 1,468,089

Trademarks and patents 11,182 11,418

Property, plant and equipment, net 14,469,688 13,945,846

Land use right 1,202,302 1,203,256

Deposit for acquisition of property, plant

and equipment 2,864,978 1,740,548

Investment in an unconsolidated affiliate 567,130 527,627

Goodwill 3,115,227 2,771,293

Deferred taxes 221,744 205,475

TOTAL ASSETS $85,332,011 $78,000,140

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Current liabilities

Trade payables $12,411,172 $9,631,537

Bills payable 6,717,565 8,628,078

Other payables and accrued expenses 2,833,675 3,121,533

Provision for warranty 980,551 1,049,344

Income tax payable 446,084 398,768

Amount due to an unconsolidated

affiliate 100,136 37,492

Dividend payable to minority

stockholders 691,152 --

Dividend payable to Winning 343,934 --

Secured short-term bank loans 6,459,198 14,326,831

Total current liabilities 30,983,467 37,193,583

Secured long-term bank loans 10,916,984 --

TOTAL LIABILITIES 41,900,451 37,193,583

COMMITMENTS AND CONTINGENCIES

MINORITY INTERESTS 2,124,794 2,579,572

STOCKHOLDERS' EQUITY

Preferred stock: par value $0.0001 per

share; authorized 10,000,000 shares,

none issued and outstanding -- --

Common stock: par value $0.0001 per share;

authorized 90,000,000 shares,

issued and outstanding 23,959,994

shares in 2007 and 2006 2,396 2,396

Additional paid-in capital 22,140,143 22,140,143

Statutory and other reserves 3,148,265 3,148,265

Accumulated other comprehensive income 1,819,467 1,452,138

Retained earnings 14,196,495 11,484,043

TOTAL STOCKHOLDERS' EQUITY 41,306,766 38,226,985

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $85,332,011 $78,000,140

Wonder Auto Technology, Inc.

Condensed Consolidated Statements of Cash Flows

For the three months ended March 31, 2007 and 2006

(Stated in US Dollars)

Three months ended March 31

(Unaudited)

2007 2006

Cash flows from operating activities

Net income $2,712,452 $1,409,233

Adjustments to reconcile net income to

net cash (used in) provided by operating

activities:

Depreciation 445,132 328,740

Amortization of trademarks and

patents 347 87

Amortization of land use right 12,811 6,681

Deferred taxes 7,454 28,485

Provision for doubtful debts 5,533 --

Recovery of obsolete inventories (22,720) (12,873)

Equity in net income of an

unconsolidated affiliate (34,147) --

Minority interests 209,371 --

Changes in operating assets and

liabilities:

Trade receivables (1,102,316) (2,796,781)

Bills receivable (4,951,887) (968,729)

Other receivables, prepayments and

deposits (187,937) (340,268)

Inventories (1,677,966) (1,405,824)

Trade payables 2,673,792 3,882,703

Bills payable (1,988,059) --

Amount due to an unconsolidated

affiliate 62,029 --

Other payables and accrued expenses 104,787 (207,189)

Provision for warranty (78,866) 213,991

Income tax payable 43,200 (83,400)

Net cash flows (used in) provided by operating

activities (3,766,990) 54,856

Cash flows from investing activities

Payments to acquire and for deposit

for acquisition of property, plant

and equipment (1,932,319) (645,405)

Decrease in restricted cash 956,907 36,326

Installment payments for acquisition of

Dong Woo (400,000) --

Net cash flows used in investing activities $(1,375,412) $(609,079)

Cash flows from financing activities

Dividend paid to stockholders $-- $(1,704,206)

Repayment of bank loans (7,977,971) --

New bank loans 10,874,139 --

Net cash flows provided by (used in)

financing activities 2,896,168 (1,704,206)

Effect of foreign currency translation on cash

and cash equivalents 107,837 31,947

Net decrease in cash and cash equivalents (2,138,397) (2,226,482)

Cash and cash equivalents - beginning of period 8,203,699 4,368,757

Cash and cash equivalents - end of period $6,065,302 $2,142,275

Supplemental disclosures for cash flow

information:

Cash paid for:

Interest $222,702 $228,022

Income taxes $416,161 $273,567

Source: Wonder Auto Technology, Inc.
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