Revenue Grew 40% YoY, Aftermarket Sales Rose, Gross Margin Maintained at 22%
ZHEJIANG, China, Nov. 14 /Xinhua-PRNewswire-FirstCall/ -- SORL Auto Parts, Inc. (Nasdaq: SORL), a leading manufacturer and distributor of commercial vehicle air brake valves as well as other auto parts in China, today announced its financial results for the third quarter ended September 30, 2007.
Third Quarter Financial Highlights
-- Revenue increased to $29.7 million, reflecting a 40%
year-over-year growth;
-- Revenue from sales to OEMs increased to $9.2 million, reflecting a
37% year-over-year growth;
-- Chinese domestic aftermarket revenue increased to $7.7 million,
reflecting a 48% year-over-year growth;
-- Export revenue increased to $12.8 million, reflecting a 36%
year-over-year growth;
-- Net income increased to $2.1 million, reflecting a 20% year-over-year
growth; and
-- Third quarter diluted earnings per share were $0.12
-- One-time items were approximately 300,000 dollars
Total revenue for the third quarter of 2007 was $29.7 million, a 40% increase as compared to $21.3 million for the same period in 2006. Revenue from sales to Original Equipment Manufacturers (OEM) for the third quarter of 2007 was $9.2 million, a 37% increase as compared to $6.7 million for the third quarter of 2006. Aftermarket revenue from the Chinese domestic market for the third quarter of 2007 was $7.7 million, an increase of 48% as compared to $5.2 million for the third quarter of 2006. Revenue from exports was $12.8 million for the third quarter of 2007, an increase of 36% as compared to $9.4 million for the third quarter of 2006.
Xiaoping Zhang, SORL Auto Parts’ Chairman and CEO, said, "We are delighted to report another solid quarter as we continued to achieve a strong top line increase with well-balanced growth among all three divisions -- OEM, Aftermarket and Export. The third quarter is normally a slow season due to the summer. During this quarter, we repositioned our sales effort to focus on the Chinese domestic aftermarket space where seasonality does not have a major impact. We continued to sign OEM customers, expand geographic and application coverage, and introduce new products. Our newly acquired facility will enable us to rapidly ramp up production capacity to meet the growing market demand for our high-quality SORL products."
Gross profit for the third quarter of 2007 was $6.6 million, an increase of 39% as compared to $4.8 million in the same period in 2006. Operating income for the third quarter of 2007 was $2.7 million, an increase of 15% as compared to $2.3 million in the same period in 2006. Total selling expenses were $1.9 million for the third quarter of 2007, as compared to $1.2 million in the same period of 2006. The increased transportation fees for domestic sales, packaging fees for exports and overall advertising expenses contributed to the higher selling expenses during this quarter. The increased transportation fees were due to the capacity bottleneck and increased shipping frequency during the quarter. Packaging fees in this quarter were also increased in preparation for the high season of export shipment normally in the 4th quarter. Advertising fee increase was due to a one-time outdoor advertising opportunity. General and administrative expenses were $1.7 million for the three months ended September 30, 2007, as compared to $1.0 million for the same period of 2006. The increase was mainly due to such factors as increased depreciation, office expenses, one-time staff compensation, R&D expense and travel expenses related to the expansion of the facilities and workforce. The Company also incurred a one-time professional consulting fee related to the SOX 404 compliance program.
Net income for the third quarter of 2007 was $2.1 million, an increase of 20% as compared to net income of $1.8 million in the same period in 2006. During the third quarter of 2007, the diluted earnings per share were $0.12 as compared to $0.13 diluted earnings per share in the same period in 2006. Fully diluted common shares for the 2007 third quarter were 18,312,574, a 37% increase compared to the 13,368,387 in the third quarter last year.
For the nine months ended September 30, 2007, total revenue increased 37% to $83.3 million as compared to $60.8 in the first nine months of 2006. Net income in the first nine months of 2007 grew 45% to $8.3 million from $5.7 million in the first nine months of 2006. Fully diluted earnings per share were $0.45 as compared to $0.43 in same period of 2006.
Total cash and cash equivalents as of Sept 30, 2007 totaled $2.0 million as compared to $11.1 million as of December 31, 2006. The working capital as of September 30, 2007 was $41.2 million as compared to $47.2 million as of December 31, 2006. Stockholder's equity increased to $68.2 million as of the end of September 30, 2007 from $57.4 million as of December 31, 2006. Total shares outstanding on fully diluted basis as of Sept 30, 2007 were 18,312,574 as compared to 13,368,387 as of September 30, 2006.
Ms Zongyun Zhou, Chief Financial Officer, said, "We successfully maintained our gross margin at 22% with our high-quality products and reliable after-sales support. As we experienced strong top line growth along with gradual expansion of our production capacity, we encountered temporary operating expense increases. In the third quarter of 2007, the increase in operating expenses was mainly due to higher SG&A expenses: selling expenses increased by $765,686 during this quarter as compared to the same period in 2006. However, beginning in October, with our newly acquired capacity, we will be able to better manage the domestic transportation costs and control packaging costs. General & Administrative expenses increased by $653,209 including a higher compensation cost which is also a one-time item, increased R&D expenditures, a one-time SOX consulting fee, and costs related to our annual shareholder meeting. We strongly believe that our focus on new product R&D, internal controls and corporate governance will help build stronger shareholder value in the long run. We are confident that we will continue to grow our business and ramp up production capacity while improving cost and expense management."
Key Event
On October 1, 2007, SORL announced that, through its subsidiary, Ruili Group Ruian Auto Parts Co. Ltd., it has purchased land rights, a manufacturing plant and office building with a total floor area of 66,177.91 square meters, or 712,333 square feet, from Ruili Group Co. Ltd. ("Ruili"), for 152 million yuan (approximately $20 million). The Company had previously leased from Ruili and occupied approximately 50 percent of this production facility. Ruili vacated the rest of the facility in October. The appraisal of the assets was conducted by the leading independent appraiser, DTZ Debenham Tie Leung Ltd., and total asset value was appraised at 154 million yuan. As a result of this transaction, the acquired capacity expansion is expected to meet the Company's growth demands for the next 2 to 3 years.
Recent Development
On October 15, 2007, SORL announced that it has been designated as the exclusive air brake parts supplier for the estimated 2,400 new municipal buses the City of Tianjin is purchasing. These new buses are being acquired to both help solve the transport needs of the city's residents and to accommodate the expected larger transportation demands of the nearby Beijing 2008 Olympics. Tianjin is a major economic hub for northern China with a population of approximately 10 million people and is located only 63 miles away from Beijing. Additionally, Beijing has also chosen SORL as a designated air brake parts supplier for its municipal bus fleet. SORL management estimates that the Company has achieved a 25% market share in the Beijing and Tianjin aftermarket for bus brake parts for 2007.
On October 25, 2007, SORL announced that it has entered into a technology development agreement with China’s second largest heavy truck maker, Baotou North- Benz Heavy Duty Truck Co. Ltd. ("North-Benz"). With this new agreement, SORL becomes a major long-term supplier of air brake products for North-Benz. After more than six months of trial installations and stringent testing of SORL's air brake systems, the two companies signed the technology development agreement and formally began a comprehensive strategic partnership. The partnership will include technology research and new product development for North-Benz's broad range of truck products. SORL's management estimates that by next year, SORL will supply approximately 40%-50% of the air brake systems installed in North-Benz's heavy duty trucks. The estimated value of the contract is approximately US$2 million in 2008.
Earnings Conference Call
SORL's management team will host a conference call at 8:30AM Eastern Time on November 14, 2007. A live webcast and replay of the conference call will be available at: http://www.vcall.com/IC/CEPage.asp?ID=117078 . The webcast replay will be available through November 14, 2008.
The dial-in by telephone details for the live conference call: U.S. Toll Free Number +1-877-407-8035, International dial-in number +1-201-689-8035.
About SORL Auto Parts, Inc.
As China's leading manufacturer and distributor of automotive air brake valves, SORL Auto Parts, Inc. ranks first in market share in the segment for commercial vehicles weighing more than three tons, such as trucks and buses. The Company distributes products both within China and internationally under the SORL trademark. SORL ranks among the top 100 auto component suppliers in China, with a product range that includes 40 types of air brake valves and over 800 different specifications. The Company has three authorized international sales centers in Australia, United Arab Emirates, and the United States, with additional offices slated to open in other locations in the near future. For more information, please visit http://www.sorl.cn .
Safe Harbor Statement
Statements made in this press release that are not historical fact are "forward-looking statements," which are based on current expectations that include a number of risks and uncertainties. Additional factors that could potentially affect the Company's financial results may be found on the Company's filings with the Securities and Exchange Commission ( http://www.sec.gov ).
SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
For The Second Quarter Ended September 30, 2007 and 2006
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Sales US $29,703,227 21,288,002 US$ 83,309,788 60,824,588
Cost of Sales 23,064,724 16,511,343 64,620,063 47,012,827
Gross Profit 6,638,503 4,776,659 18,689,725 13,811,761
Operating Expenses
Selling and
Distribution
Expenses 1,928,763 1,163,077 4,444,053 3,407,535
General and
Administrative
Expenses 1,682,071 1,028,862 4,402,694 2,212,113
Financial Expenses 349,056 259,587 606,492 767,034
Total Operating
Expenses 3,959,890 2,451,526 9,453,239 6,386,682
Operating Income 2,678,613 2,325,133 9,236,486 7,425,079
Other Income 118,334 24,280 502,606 92,976
Non-Operating Expenses (10,357) (75,841) (94,996) (232,566)
Income Before Provision
for Income Taxes 2,786,590 2,273,572 9,644,096 7,285,489
Provision for Income
Taxes 434,139 311,208 373,883 898,713
Net Income Before
Minority Interest
& Other
Comprehensive
Income US$ 2,352,451 1,962,364 US$ 9,270,213 6,386,776
Minority Interest 239,867 196,236 936,986 638,677
Net Income
Attributable
to Shareholders 2,112,584 1,766,128 8,333,227 5,748,099
Foreign Currency
Translation Adjustment 1,025,919 262,110 2,723,508 448,790
Minority Interest's
Share (102,592) (26,211) (272,351) (44,879)
Comprehensive Income 3,035,911 2,002,027 10,784,384 6,152,010
Weighted average common
share -- Basic 18,278,805 13,346,555 18,276,366 13,346,555
Weighted average common
share -- Diluted 18,312,574 13,368,387 18,323,125 13,360,639
EPS -- Basic 0.12 0.13 0.46 0.43
EPS -- Diluted 0.12 0.13 0.45 0.43
SORL Auto Parts, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30, 2007 and December 31,2006
September 30, 2007 December 31, 2006
(Unaudited) (Audited)
Assets
Current Assets
Cash and Cash Equivalents US$ 1,972,825 US$ 11,137,501
Accounts Receivable, Net of
Provision 31,351,401 26,750,778
Notes Receivable 5,953,499 3,494,327
Inventory 8,814,201 4,528,856
Prepayments 2,276,728 5,532,802
Other current assets 4,216,545 2,925,558
Total Current Assets 54,585,199 54,369,822
Fixed Assets
Property, Plant and Equipment 26,172,629 20,418,557
Less: Accumulated Depreciation (5,410,661) (4,106,901)
Property, Plant and
Equipment, Net 20,761,968 16,311,656
Land Use Rights, Net 13,583,427 --
Other Assets
Deferred compensation cost-stock
options 84,480 129,207
Intangible Assets 74,059 45,779
Less: Accumulated Amortization (22,768) (17,655)
Intangible Assets, Net 51,291 28,124
Other Non-current Assets 38,637 41,299
Total Other Assets 174,408 198,630
Total Assets US$ 89,105,002 US$ 70,880,108
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable and Notes
Payable US$ 5,649,773 US$ 4,620,692
Deposit Received from Customers 877,625 508,268
Short term bank loans 4,705,709 --
Income tax payable 540,063 358,367
Accrued Expenses 1,086,373 1,232,845
Other Current Liabilities 491,823 454,430
Total Current Liabilities 13,351,366 7,174,602
Long-Term Liabilities
Long term bank loans -- --
Other long term liabilities -- --
Total Liabilities 13,351,366 7,174,602
Minority Interest 7,545,894 6,336,557
Shareholders' Equity
Common Stock - $0.002 Par Value;
50,000,000 authorized,
18,279,254 and 18,275,126
issued and outstanding as of
September 30, 2007 and December
31, 2006 respectively 36,558 36,550
Additional Paid In Capital 37,498,452 37,444,051
Reserves 1,640,403 797,116
Accumulated other comprehensive
income 3,553,626 1,102,469
Retained Earnings 25,478,703 17,988,763
Total Shareholders' Equity 68,207,742 57,368,949
Total Liabilities and
Shareholders' Equity US$ 89,105,002 US$ 70,880,108
For more information, please contact:
Richard Cai
SORL Auto Parts, Inc.
Tel: +86-577-6581-7720
Email: richardcai@sorl.com.cn
Kevin Theiss
The Global Consulting Group
Tel: +1-646-284-9409
Email: ktheiss@hfgcg.com
