Fourth Quarter 2006 Highlights
-- Revenue rose 19.1% YoY to RMB 450.3 million (US$57.7 million)(1)
-- Gross profit rose 2.8% YoY to RMB 209.2 million (US$26.8 million)
-- Operating profit was RMB 133.3 million (US$17.1 million)
-- Net income was RMB 114.4 million (US$14.7 million)
-- Diluted earnings per ADS were RMB 4.58 US$0.59
-- Net cash per ADS was RMB14.80 US$1.90
Fiscal 2006 Highlights
-- Revenue rose 16.3% YoY to RMB 832.8 million US$106.7 million
-- Gross profit rose 1.9% YoY to RMB395.8 million US$50.7 million
-- Operating profit was 179.2 million US$23.0 million
-- Net Income was RMB 148.8 million US$19.1 million
-- Diluted Earnings Per ADS were RMB 6.25 US$0.80
SHENZHEN, China, March 12 /Xinhua-PRNewswire/ -- China GrenTech
Corporation Limited (Nasdaq: GRRF; ''China GrenTech'' or ''the Company''), a
leading provider of wireless coverage products and services and a leading
developer of radio frequency (''RF'') technology in the People's Republic of
China (''China''), today announced its unaudited financial results for the
fourth quarter and fiscal year ended December 31,2006.
''We had a solid fourth quarter on a number of levels,'' commented Mr.
Yingjie Gao, China GrenTech Chairman and Chief Executive Officer. ''Our
fourth quarter has always been by far our strongest quarter due to the
seasonal spending patterns of the Chinese telecom operators for wireless
coverage products, and this year was no exception. Even with China Unicom,
our largest customer, reducing their investment spending, we still achieved a
19.1% increase in our top line in the fourth quarter, which set a new
quarterly record for us. However, due to intense competition in the market,
the profitability in the overall wireless coverage industry fell.
Additionally, in a strategic response, we expanded our marketing spending in
an effort to aggressively strengthen our market share and we also increased
our R&D spending for base station RF components and 3G-related products.
Finally, we increased our spending in an effort to continue to enhance our
management and internal control systems, particularly in light of the
compliance requirements set by Sarbanes Oxley Section 404. These factors
combined to drive our operating profit in the fourth quarter down 15.9%
compared to the fourth quarter of 2005 and 20.4% compared to the full 2005
fiscal year. It also resulted in a 26.2% fall in net income compared to the
fourth quarter of 2005 and an 18.0% drop from the full year last year.
However, we believe the additional spending will help prepare the Company for
expected growth in the 3G wireless coverage and base station RF components
market in China. With strong increasing demand for base stations and growing
visibility about the TD-SCDMA commercial trial network that is soon to start,
we are fully confident about our prospects heading into 2007.''
Revenues for 4Q2006 were RMB450.3 million (US$57.7 million), an increase
of RMB72.2 million (US$9.3 million) from RMB378.1 million in 4Q2005. The
wireless coverage business continues to be China GrenTech's main source of
revenue, with wireless coverage products accounting for 94.3% of total revenue
in 4Q2006 and RF products accounting for the remaining 5.7%. Despite facing
an unfavorable situation with China Unicom lowering its investment budget for
CDMA network coverage, the Company made a concerted effort to diversify and
balance its customer base by increasing marketing and promotional activities
to China Mobile and the other operators. China GrenTech had strong increases
in revenue from China Mobile, China Telecom, and China Netcom, though revenue
from China Unicom dropped slightly by 1.0%. In 4Q2006, China Mobile, China
Unicom, China Telecom, China Netcom, integrators, overseas customers and OEMs
accounted for 38.4%, 26.6%, 10.7%, 8.9%, 9.3%, 0.4% and 5.7% respectively of
total revenues.
For fiscal 2006, the Company reported revenues of RMB 832.8 million
(US$106.7 million), compared to RMB 716.3 million in 2005, an increase of
16.3% YoY. China Unicom was still the Company's main customer in terms of
revenue, accounting for 35.9% of total revenue. China Mobile, China Telecom,
China Netcom, integrators, overseas customers and OEMs accounted for 33.3%,
10.7%, 8.3%, 6.8%, 1.2%and 3.8% respectively of total revenues.
For fiscal 2006, wireless coverage products accounted for 96.2% of total
revenue, while RF modules accounted for 3.8%.
Revenue breakdown:
2005
Q4 FY
RMB'000 RMB'000
Wireless Coverage Products & Services
China Mobile 156,758 241,575
China Unicom 121,223 322,896
China Telecom 41,190 69,491
China Netcom 28,281 36,799
Integrators 17,595 23,441
Overseas customers 0 0
Subtotal 365,047 694,202
RF products
OEMs 13,020 22,068
Total 378,067 716,270
2006
Q4
RMB'000 US$'000 % of Revenue
Wireless Coverage Products & Services
China Mobile 172,780 22,140 38.40%
China Unicom 119,999 15,376 26.60%
China Telecom 48,305 6,190 10.70%
China Netcom 39,965 5,121 8.90%
Integrators 41,813 5,358 9.30%
Overseas customers 1,708 219 0.40%
Subtotal 424,570 54,404 94.30%
RF products
OEMs 25,724 3,296 5.70%
Total 450,294 57,700 100%
2006
FY
RMB'000 US$'000 % of Revenue
Wireless Coverage Products & Services
China Mobile 277,098 35,507 33.30%
China Unicom 298,693 38,274 35.90%
China Telecom 89,169 11,426 10.70%
China Netcom 69,175 8,864 8.30%
Integrators 56,607 7,253 6.80%
Overseas customers 10,026 1,285 1.20%
Subtotal 800,768 102,609 96.20%
RF products
OEMs 32,027 4,104 3.80%
Total 832,795 106,713 100%
Business Highlights
Wireless Coverage Products and Services
-- In 4Q2006, China GrenTech successfully won a bid from China Mobile
headquarters through its centralized bidding process for eight series
of GSM wireless coverage products. This qualifies the Company to supply
coverage equipment to China Mobile for its GSM network, which will
help increase the Company's market share from China Mobile.
3G Trial
-- China GrenTech completed its development of TD-SCDMA trunk amplifiers,
optical repeaters and radio repeaters for indoor coverage.
-- China GrenTech made progress on the development of Synchronous Control
technology, which is a key technology in TD-SCDMA repeaters.
-- The Company recently received first round regulatory approval for its
TD-SCDMA repeaters and trunk amplifiers. The Company is well prepared
for the full-scale production and launch of TD-SCDMA products, and a
staff of engineers has been trained to provide comprehensive support
services.
RF Products
-- With GSM capacity expansion and the launch of construction of the TD-
SCDMA enlarged commercial trial network construction in China, as well
as increasing demand for base stations from overseas markets, base
station OEMs are expanding orders for base station RF components.
-- The Company became a qualified supplier for six domestic and overseas
base station OEMs.
-- In Q4, the Company won a bid for two major CDMA RF modules from the
largest domestic base station OEM; Additionally, the Company won a bid
from a foreign-owned enterprise based in Shanghai for TD-SCDA filter.
China GrenTech has been supplying RF products in volume to three major
base station OEMs.
Financial Analysis
Cost of Revenue
The cost of revenues for 4Q2006 totalled RMB241.1 million (US$30.9
million), representing an increase of 38.2% from 4Q2005.
The cost of revenues for fiscal 2006 totalled RMB437.0 million (US$56.0
million), representing an increase of 33.2% from 2005.
The year-over-year increase in the cost of revenue was driven primarily by
the greater number of units shipped, which coupled with a decrease in average
selling price (''ASP'') for 2G wireless coverage products caused the gross
margin in fiscal 2006 to decline to 47.5% from 54.2% in 2005. Furthermore,
the Company's products that were sold to China Telecom and China Netcom were
PHS products which have lower ASPs and gross margins compared to GSM and CDMA
products. In addition, since the gross margin of RF products is lower than
wireless coverage products, the increase in sales of RF products also caused a
slight reduction in the Company's gross margin ratio.
Operating Expenses
Total operating expenses for 4Q2006 increased by RMB30.8 million, or
68.3%, from RMB45.1 million in 4Q2005 to RMB 75.9 million (US$9.7 million).
Total operating expenses for fiscal 2006 increased by RMB53.4 million, or
32.7%, from RMB163.2 million in 2005 to RMB216.6 million (US$27.8 million).
Research and development costs for 4Q2006 were RMB17.1 million (US$2.2
million), an increase of 64.2% from 4Q2005.
Research and development costs for fiscal 2006 were RMB47.7 million
(US$6.1 million), an increase of 55.7% from 2005. The increase was primarily
because the Company expanded its research & development team and increased
spending on the development of base station RF products and 3G technologies.
Sales and distribution expenses for 4Q2006 were RMB36.3 million (US$4.7
million), an increase of 58.7% from 4Q2005.
Sales and distribution expenses for fiscal 2006 were RMB112.9 million
(US$14.5 million), an increase of 23.5% from 2005. The increase was mainly
due to an expansion of the sales & marketing team and increased marketing
expenses as the Company continued to strengthen the relationships with its
customers and broadened its customer base.
General and administrative expenses for 4Q2006 were RMB 22.5 million
(US$2.9 million), an increase of 90.8% from 4Q2005.
General and administrative expenses for fiscal 2006 were RMB55.9 million
(US$7.2 million), an increase of 36.3% from 2005. The year-over-year increase
was primarily due to expenses related to enhancement in management and control
systems, particularly in light of the Sarbanes Oxley Section 404 compliance
requirements, and other expenses related to the listing, including legal,
consulting and other logistical support.
Other Expenses/Income
Other expenses for 4Q2006 were RMB1.4 million (US$0.2 million), compared
to other income of RMB13.8 million in the same period last year. The year-
over-year change was due to decreasing of grant income and the fluctuation in
foreign currency exchange gain.
Other expenses for fiscal 2006 were RMB10.8 million (US$1.4 million),
which was almost unchanged from RMB10.4 million last year.
Interest income for 4Q2006 increased from RMB1.1 million in 4Q 2005 to
RMB4.5 million (US$0.6 million) because of higher cash deposits and an
increase in the deposit rate.
Interest income for fiscal 2006 increased from RMB3.2 million in 2005 to
RMB19.2 million (US$2.5 million), for the same reason mentioned above.
Interest expense for 4Q2006 decreased 6.6% from RMB9.3 million in 4Q2005
to RMB8.7 million (US$1.1 million).
Interest expense for fiscal 2006 decreased 22.4% from RMB36.1 million in
2005 to RMB28.0 million (US$3.6 million).
The foreign currency exchange loss for 4Q2006 increased to RMB4.6 million
(US$0.6 million) from an exchange gain of RMB5.6 million in 4Q2005, mainly
because the proceeds from the IPO were kept as bank deposits denominated in US
dollars, resulting in an exchange loss due to the appreciation of the Renminbi
against the US dollar.
For the same reason, the foreign currency exchange loss for fiscal 2006
increased to RMB9.9 million (US$1.3 million) from an exchange gain of RMB5.6
million in 2005.
Grant income from government subsidies for 4Q2006 dropped by RMB8.9
million to RMB7.4 million (US$0.9 million) from RMB16.3 million in 4Q2005. The
change was due to a decreasing number of grant applications having been
approved and paid by the government authorities in the period.
For the same reason, grant income for fiscal 2006 decreased to RMB7.7
million (US$1.0 million) from RMB16.7 million in 2005
Earnings
Gross profit for 4Q2006 increased to RMB209.2 million (US$26.8 million) in
4Q2006, from RMB203.6 million in 4Q2005, representing an increase of RMB5.6
million (US$0.7 million). The gross margin was 46.5%, which decreased from
53.9% in the corresponding period last year.
Gross profit for fiscal 2006 increased by RMB7.6 million to RMB395.8
million (US$50.7 million), from RMB388.2 million in 2005. The gross margin
was 47.5%, compared to 54.2% last year.
The operating profit for 4Q2006 decreased by RMB25.2 million, or 15.9%,
from RMB 158.5 million in 4Q2005 to RMB 133.3 million (US$17.1 million) in
4Q2006. The operating margin was 29.6%, compared to 41.9% in 4Q2005.
The operating profit for fiscal 2006 decreased by RMB45.8 million, or
20.4%, to RMB179.2 million (US$23.0 million) from RMB 225.0 million in 2005.
The operating margin was 21.5%, a decrease from 31.4% in 2005.
Net income for 4Q2006 decreased by RMB40.6 million, or 26.2%, from
RMB155.0 million in 4Q2005 to RMB 114.4 million (US$14.7 million) in 4Q2006.
The net margin was 25.4% in 4Q2006, a decrease from 41.0% in 4Q2005.
Net income for fiscal 2006 decreased by RMB32.6 million, or 18.0%, from
RMB181.4 million in 2005 to RMB 148.8 million (US$19.1 million). The net
margin was 17.9%, compared to 25.3% in 2005.
Diluted Earnings per ADS for 4Q2006 were RMB 4.58(US$0.59).
Diluted Earnings per ADS for fiscal 2006 were RMB 6.25 US$0.80 .
Balance Sheet
Total cash(2) increased from RMB204.9 million as of December 31, 2005 to
RMB706.0 million (US$90.5million) as of December 31, 2006, an increase of
RMB501.1 million or 244.6%, which was mainly attributable to the net proceeds
from the IPO. Cash and cash equivalents increased to RMB 467.4 million
(US$59.9 million) from RMB 128.6 million as of December 31, 2005; Pledged time
deposits increased by RMB162.4 million to RMB238.6 million (US$30.6 million).
Total accounts receivable (A/R)(3) increased by 45.4% from RMB 699.4
million as of December 31, 2005 to RMB1,016.8 million (US$130.3 million) as of
December 31, 2006. This increase was mainly attributable to the growth in
revenues and an increase in long-term accounts receivable.
Inventories increased from RMB 370.1 million as of December 31, 2005 to
RMB 434.4 million (US$55.7 million) as of December 31, 2006, an increase of
17.4%. The increase was mainly due to an increase in finished goods
inventories which are in the process of installation with customers.
Total assets increased by RMB940.4 million, or 63.7%, from RMB2,416
million as of December 31, 2005 to RMB2,416 million (US$309.6 million) as of
December 31, 2006. The increase was mainly attributable to the increased
total cash as well as the increase in accounts receivable.
Total liabilities decreased by RMB39.2 million, or 4.3%, from RMB905.6
million as of December 31, 2005 to RMB866.4 million (US$111.0 million) as of
December 31, 2006. Current liabilities increased RMB127.8 million, or 17.3%,
from RMB 738.6 million as of December 31, 2005 to RMB 866.4 million (US$111.0
million) as of December 31, 2006. The increase was primarily due to an
increase in short-term bank loans of RMB175.4 million which was obtained by us
to finance our increased working capital requirements. Currently, there are no
long-term debts outstanding, as the long term debts of RMB 167 million
outstanding as of December 31, 2005 were fully converted into ordinary shares
upon completion of the IPO during 2006.
Business Outlook
With the enlarged commercial trial for TD-SCDMA services and expansion of
2G network capacity in 2007, China GrenTech believes that demand for wireless
coverage products in China will continue to expand in 2007. In addition, the
Company believes that base station OEMs will accelerate their purchasing of RF
modules in China. China GrenTech believes it will benefit from both trends.
The Company currently estimates an increase in the Company`s revenues from
wireless coverage products in high teens in 2007, and revenues from the RF
components business to grow by 300% to 400% in 2007.
Looking out to the first quarter of 2007, driven by strong demand for RF
component , the Company currently estimates a substantial increase in total
revenue in the range of RMB 28.0 million to RMB 32.0 million as compared to
revenues of RMB14.8 million in the first quarter of 2006, which equates to
year-over-year growth of 89%-116%.
Conference Call and Webcast
The Company's management team will conduct a conference call on Monday,
March 12, 2007 at 8:00 am Eastern Time. A webcast of the conference call will
be accessible on the Company's web site at http://www.GrenTech.com.cn .
About China GrenTech
China GrenTech is a leading developer of radio frequency (''RF'')
technology in China and a leading provider of wireless coverage products and
services in China. The Company uses RF technology to design and manufacture
wireless coverage products, which enable telecommunication operators to expand
the reach of their wireless communication networks to indoor area and outdoor
area, such as buildings, highways, railways, tunnels and remote regions. China
GrenTech's wireless coverage services include design, development,
installation and project warranty services. The Company also tailors the
design and configuration of its wireless coverage products to the specific
requirements of its customers.
Based on its in-house RF technology platform, the Company also develops
and produces base station RF parts and components sold to base station
manufacturers. China GrenTech is a qualified supplier of RF parts and
components to six major base station manufacturers such as Huawei
Technologies, ZTE etc. For more information, please visit our website at
http://www.GrenTech.com.cn
''Safe Harbor'' Statement under the Private Securities Litigation Reform
Act of 1995
Statements contained in this press release that are not historical facts
are forward-looking statements, as that term is defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements,
including financial projections and forecasts, involve risks and uncertainties
that could cause the Company's actual results to differ materially from its
current expectations. Factors that could cause the Company's results to differ
materially from those set forth in these forward-looking statements include
the Company's reliance on business relationships with the Chinese telecom
operators and base station OEMs; risks associated with large accounts
receivable, long collection periods and accounts receivable cycles; fierce
competition in the wireless communication industry; growth of, and risks
inherent in, the wireless communication industry in China; uncertainty as to
future profitability and the Company's ability to obtain adequate financing
for its planned capital expenditure requirements; its reliance on third
parties to carry out the installation of its wireless coverage products;
uncertainty as to its ability to continuously develop and manufacture new RF
technology and keep up with changes in RF technology; risks associated with
possible defects and errors in its wireless coverage products or RF products;
uncertainty as to the Company's ability to protect and enforce its
intellectual property rights; and uncertainty as to the Company's ability to
attract and retain qualified executives and personnel, particularly in its
research and development department. Other factors that may cause the
Company's actual results to differ from those set forth in the forward-looking
statements contained in this press release and that may affect its prospects
in general are described in the Company's filings with the Securities and
Exchange Commission, including its Registration Statement on Form F-1 related
to its initial public offering. The Company undertakes no obligation to update
or revise forward-looking statements to reflect subsequent events or changed
assumptions or circumstances.
Notes:
(1) The Company's functional and reporting currency is Renminbi (''RMB'').
The translation of amounts from RMB to United States Dollars (''U.S.
dollars'') is solely for the convenience of the reader. RMB numbers included
in the press release have been translated into U.S. dollars at the noon buying
rate for U.S. dollars in effect on December 31, 2006 in The City of New York
for cable transfers in RMB per U.S. dollar as certified for customs purposes
by the Federal Reserve Bank of New York at US$1.00 = RMB7.8041. No
representation is made that RMB amounts could have been, or could be,
converted into U.S. dollars at that rate or at any other certain rate on
December 31, 2006, or at any other date.
(2) Total cash = cash and cash equivalents + time deposit + pledged time
deposits.
(3) Total accounts receivable = accounts receivable, net + Long-term
accounts receivable
FINANCIAL TABLES TO FOLLOW
China GrenTech Corporation Limited and subsidiaries
Selected Unaudited Consolidated Balance Sheets Items
as of December 31, 2005 and 2006
(RMB and US$ expressed in thousands)
December 31, December 31, December 31,
2005 2006 2006
RMB RMB US$
Assets
Cash and cash equivalents 128,608 467,423 59,895
Pledged time deposits 76,250 238,618 30,576
Accounts receivable, net 537,321 747,859 95,829
Inventories 370,136 434,406 55,664
Total current assets 1,172,072 1,948,407 249,665
Long-term accounts receivable 162,032 268,957 34,464
Total assets 1,475,469 2,415,834 309,560
Liabilities and shareholders'
equity
Short-term bank loans 160,614 336,050 43,061
Total current liabilities 738,551 866,435 111,023
Long-term debt 167,053 -- --
Total liabilities 905,604 866,435 111,023
Ordinary shares US$0.00002 par
value; 2,500,000,000 shares
authorized, 466,365,500 issued
and outstanding and 625,000,000
shares issued and outstanding as
of December 31, 2005 and 2006,
respectively 77 103 13
Total shareholders' equity 506,720 1,530,428 196,106
Total liabilities and shareholders'
equity 1,475,469 2,415,834 309,560
China GrenTech Corporation Limited and subsidiaries
Selected Unaudited Consolidated Statements of Income Items
for Three-month Periods and Years Ended December 31, 2005 and 2006(RMB and US$
expressed in thousands, except per share data)
For the Three-month Period Ended
December 31,
2005 2006 2006
RMB RMB US$
Revenues 378,068 450,294 57,700
Cost of revenues (174,471) (241,089) (30,893)
Gross profit 203,597 209,205 26,807
Research and development costs (10,406) (17,090) (2,190)
Sales and distribution expenses (22,865) (36,299) (4,651)
General and administrative expenses (11,789) (22,491) (2,882)
Total operating expenses (45,060) (75,880) (9,723)
Operating income 158,537 133,325 17,084
Interest income 1,132 4,458 571
Interest expense (9,310) (8,697) (1,114)
Investment income
Foreign currency exchange
gain/(loss) 5,584 (4,643) (595)
Grant income 16,382 7,443 954
Total other income/(expense) 13,788 (1,439) (184)
Income tax expense (14,283) (15,582) (1,997)
Income before minority interests 158,042 116,303 14,903
Net income 155,020 114,410 14,660
Net income available to ordinary
shareholders 154,233 114,410 14,660
- Basic 0.33 0.18 0.02
- Diluted 0.31 0.18 0.02
Weighted average number of ordinary
shares
- Basic 466,365,500 625,000,000 625,000,000
- Diluted 500,000,000 625,000,000 625,000,000
For the Year Ended December 31,
2005 2006 2006
RMB RMB US$
Revenues 716,270 832,795 106,712
Cost of revenues (328,064) (437,040) (56,001)
Gross profit 388,206 395,755 50,711
Research and development costs (30,616) (47,671) (6,108)
Sales and distribution expenses (91,489) (112,948) (14,473)
General and administrative expenses (41,057) (55,944) (7,169)
Total operating expenses (163,162) (216,563) (27,750)
Operating income 225,044 179,193 22,961
Interest income 3,213 19,186 2,458
Interest expense (36,105) (28,026) (3,591)
Investment income 159 238 30
Foreign currency exchange
gain/(loss) 5,584 (9,875) (1,265)
Grant income 16,732 7,670 983
Total other income/(expense) (10,417) (10,807) (1,385)
Income tax expense (26,097) (18,277) (2,342)
Income before minority interests 188,530 150,108 19,234
Net income 181,444 148,841 19,072
Net income available to ordinary
shareholders 179,016 148,292 19,002
- Basic 0.38 0.25 0.03
- Diluted 0.36 0.25 0.03
Weighted average number of ordinary
shares
- Basic 466,365,500 584,580,799 584,580,799
- Diluted 500,000,000 593,150,684 593,150,684
China GrenTech Corporation Limited and subsidiaries
Selected Unaudited Consolidated Statements of Cash Flows Items
for the Years Ended December 31, 2005 and 2006
(RMB and US$ expressed in thousands)
For The Year Ended December 31,
2005 2006 2006
RMB RMB US$
Net cash used in operating
activities (112,611) (114,778) (14,706)
Net cash used in investing
activities (20,900) (243,150) (31,157)
Net cash (used in)/provided by
financing activities (40,813) 708,514 90,787
Effect of exchange rate changes
on cash -- (11,771) (1,508)
Net (decrease)/ increase in
cash and cash equivalents (174,324) 338,815 43,415
For more information, please contact:
Investor and Media Inquiries:
Mr. Qingchang Liu
China GrenTech Corporation Limited
Tel: +86-755-8350-1796
Email: investor@powercn.com
Mr. Tip Fleming
Christensen
Tel: +1-917-412-3333
Email: tfleming@ChristensenIR.com
