SHENZHEN, China, Aug. 14 /Xinhua-PRNewswire-FirstCall/ -- China GrenTech Corporation Limited (Nasdaq: GRRF; “the Company”, or “GrenTech”), a leading China-based wireless coverage products and services provider and radio frequency, or RF, technology and product developer, today announced its unaudited financial results for the second quarter ended June 30, 2007.
Second Quarter 2007 Financial Highlights:
-- Total revenue increased 12.8% over the second quarter of 2006 to
RMB203.0 million (US$26.7million)(1)
-- Revenue from base station RF business increased 28 times over the
second quarter of 2006 to RMB55.0 million (US$7.2 million)
-- Revenue from wireless coverage products and services was RMB148.0
million (US$19.4 million), a decreased of 16.9% from the second
quarter of 2006
-- Research and development expenses and general and administrative
expenses increased 72.5% and 42.7% respectively over the second quarter
of 2006, due to continued investment in base station RF business
-- Gross profit was RMB82.6 million (US$10.9 million), a decreased of 7.6%
from the second quarter of 2006
-- Net income was RMB16.2 million (US$2.1 million), a decreased of RMB23.2
million (US$3.1 million) from the second quarter of 2006
-- Diluted earnings per ADS(2) were RMB0.65 (US$0.08)
Mr. Yingjie Gao, Chairman and Chief Executive Officer of GrenTech, commented, “I am pleased to report another quarter of solid business development, driven by continued execution of our second stage strategic initiative to develop our base station RF parts and components business, as well as further consolidating our leading position as a provider of wireless coverage equipment and integrated service for top tier Chinese carriers.”
“As one of our core competencies and key growth drivers, our base station RF business has gained significant traction with a revenue increase of 4.3 times over last quarter and 28 times year-over-year, reaching RMB55.0 million (US$7.2 million) in second quarter of 2007. I am greatly encouraged by this strong performance in the second quarter of 2007, which I attribute to our focus and commitment on executing the following steps of our RF strategy: First, expand market share via mass production of passive modules for domestic base station OEMs to drive top line growth; Second, strengthen our position in the domestic market while expanding into global markets to continue diversifying and broadening our customer base; Third, enhance profitability and market share by developing and offering active modules to deepen penetration among domestic and global OEMs; and finally, build scalability by expanding manufacturing capacity and consolidating R&D capabilities to further support sales growth and improve bottom-line results.”
Mr. Gao continued, “We are currently working on expanding sales to base station equipment manufacturers in China and elsewhere to enhance our leadership position in this space. As part of the implementation of our RF strategy, we made significant investments in the second quarter to further consolidate our leading technology position in R&D capabilities by establishing the largest RF research and development team in China, with 51% of such team engaged in base station RF modules, and 32% of our total employees engaged in base station RF business. In June 2007, we have already expanded our manufacturing capacity to US$3.9 million from an average of US$0.5 million per month in the first quarter of 2007. In addition, we have recently acquired a piece of land, which will be used to further expand our manufacturing capacity, to meet the anticipated rapid growth in RF product demand. While our RF business did not contribute to our bottom line in the second quarter of 2007, due in large part to our continuous investment in research and development, we believe that this part of our business will achieve profitability as revenue from base station RF parts and components continues to grow.”
“Turning to our wireless coverage business, we won important bids from China Mobile in the second quarter of 2007. Although our sales revenue from these products and services in the second quarter was affected by an unexpected delay in Chinese carriers’ capital expenditure, we believe the carriers will accelerate their investment in the third quarter of 2007 as the bidding process is expected to reach completion.”
“Overall, our total revenue in the second quarter of 2007 increased by 12.8% compared to the second quarter of 2006. We expect revenue from base station RF parts and components will continue to grow steadily and the revenue from wireless coverage will recover in next quarter.”
“This second quarter demonstrates our ability to execute our strategic plan, our commitment to invest for the long term growth of the business and our focus on growth, operational efficiency and profitability, which we believe will ultimately generate positive returns for shareholders.”
Business Highlights
Base Station RF Parts and Components
-- Production capacity for base station RF parts and components has
reached RMB30 million (US$3.9 million) in June from RMB4 million in the
first quarter of 2007, and is expected to remain at similar level in
the following months in order to support the increasing demand from
customers in the third quarter and the rest of the year.
-- The Company became a major supplier of base station passive RF modules
for ZTE Corporation.
-- The Company began bulk production of base station passive RF modules to
Huawei Technologies Co., Ltd.
-- The Company started development of the TD-SCDMA RRU product for next
generation 3G networks with Potevio Co., Ltd.
Wireless Coverage Products and Services
-- By the end of the second quarter of 2007, actual investment in wireless
coverage products and services by Chinese carriers was behind their
previously budgets. The major reasons for the investment delays are 1)
a change in China Mobile’s centralized procurement policy, the
implementation of which will take time to be reflected among its
subsidiaries; 2) centralized bidding for China Mobile’s TD-SCDMA
coverage equipment and bidding for integrated service suppliers to
local subsidiaries were postponed to the second quarter of 2007; and 3)
as a result of the “calling-party-pay” (CPP) policy, China Netcom’s
and China Telecom’s PHS network revenue decreased, leading to reduced
PHS investments from China Netcom and China Telecom.
-- The Company won contracts from China Mobile to provide coverage
equipment and integrated services in the first TD-SCDMA expanded
technique trial network bidding.
-- The Company won contracts from China Telecom to provide coverage
equipment and integrated services in the first TD-SCDMA expanded
technique trial network bidding.
-- The Company qualified as an integrated service provider for China
Netcom in its TD-SCDMA expanded technique trial network.
-- The Company secured a contract to supply coverage equipments and
services for the China Mobile Olympic WLAN network through China
Mobile’s centralized bidding process.
-- The Company successfully won the bid to provide wireless coverage for
No. 1 Subway Line from Beijing Subway Co. Ltd.
Second Quarter 2007 Unaudited Financial Results:
Revenues
Revenue in the second quarter of 2007 was RMB203.0 million (US$26.7 million), an increase of RMB23.0 million (US$3.0 million) from RMB180.0 million in the second quarter of 2006, representing a 12.8% year-over-year increase. This is primarily due to strong demand for the Company’s base station RF parts and components.
Revenue from base station RF parts and components increased by RMB53.1 million (US$7.0 million), from RMB1.9 million in the second quarter of 2006 to RMB55.0 million (US$7.2 million) in the second quarter of 2007. This was mainly attributable to strong demand from base station original equipment manufacturers. In addition to sales to ZTE Corporation, the Company also began bulk production for Huawei Technologies Co., Ltd in the second quarter of 2007.
Revenue from wireless coverage products and services decreased by RMB30.1 million (US$4.0 million)，from RMB178.1 million in the second quarter of 2006 to RMB148.0 million (US$19.4 million) in the second quarter of 2007. Despite increased revenue from China Telecom due to regional market expansion, revenue from China Mobile, China Unicom and China Netcom decreased compared to the second quarter of 2006 because of delays in wireless coverage investments.
Three Months Ended June 30, Year-
2006 2007 over-
Revenue Revenue Revenue % of Total Year
(RMB’000)(RMB’000) (US$’000) Revenue Change
Wireless Coverage
Products
China Mobile 52,738 37,672 4,949 18.6 % -28.6 %
China Unicom 75,479 63,859 8,389 31.5 % -15.4 %
China Telecom 20,809 29,371 3,859 14.5 % 41.1 %
China Netcom 19,324 9,592 1,260 4.7 % -50.4 %
Overseas 3,225 5,028 661 2.4 % 55.9 %
Non-operators 6,530 2,518 330 1.2 % -61.4 %
Subtotal 178,105 148,040 19,448 72.9 % -16.9 %
Base Station RF Products
OEMs 1,871 54,984 7,223 27.1 % 2838.7 %
Total 179,976 203,024 26,671 100.0 % 12.8 %
Cost of Revenues
Cost of revenue was RMB120.4 million (US$15.8 million), compared to RMB90.5 million in the second quarter of 2006, representing an increase of RMB29.9 million (US$3.9 million), or 33.0%. The increase was primarily due to an increase in total revenue and a rapid increase in revenue contribution from lower-margin RF parts and components.
Operating Expenses
Total operating expenses increased RMB15.9 million (US$2.1 million), or 34.8%, from RMB45.9 million in the second quarter of 2006 to RMB61.8 million (US$8.1 million) in the second quarter of 2007. This was due to an increase in research and development expenses and general and administrative expenses which were primarily related to further investments in the Company’s base station RF parts and components business. Sales and distribution expenses also increased in the second quarter of 2007.
Research and development expenses grew by RMB6.0 million (US$0.8 million), or 72.5%, from RMB8.3 million in the second quarter of 2006 to RMB14.3 million (US$1.9 million) in the second quarter of 2007. The increase was mainly due to the Company’s expansion of its research and development team and increased investments in research and development. As a result, compared to the second quarter of 2006, salary and compensation for research and development staff increased by RMB4.0 million (US$0.5 million), office expenses increased by RMB1.0 million (US$0.1 million), and depreciation expenses increased by RMB0.5 million (US$0.1 million).
Sales and distribution expenses were RMB31.8 million (US$4.2 million) in the second quarter of 2007, an increase of RMB5.2 million (US$0.7 million), or 19.7%, from RMB26.6 million in the second quarter of 2006. The increase was mainly due to strengthened marketing efforts with China Mobile and an expanded sales and marketing team, which led to an increase of RMB0.9 million (US$0.1 million) in salary and compensation, an increase of RMB2.9 million (US$0.4 million) in travelling and entertainment expenses, as well as an increase of RMB1.4 million (US$0.2 million) in other office expenses.
General and administrative expenses were RMB15.7 million (US$2.1 million) in the second quarter of 2007, an increase of RMB4.7 million (US$0.6 million), or 42.7%, from RMB11.0 million in the second quarter of 2006. The year-over-year increase was primarily due to an increase of RMB3.4 million (US$0.4 million) in salary and compensation and an increase of RMB1.0 million (US$0.1 million) in connection with other office expenses.
Other Expenses/Income
Total other expenses were RMB4.1 million (US$0.5 million) in the second quarter of 2007, compared to RMB0.5 million in the second quarter of 2006, an increase of RMB3.6 million (US$0.5 million). This is primarily due to a decrease in interest income and an increase of exchange loss.
Interest income was RMB1.8 million (US$0.2 million) in the second quarter of 2007, a decrease of RMB4.0 million (US$0.5 million), or 69.2%, from RMB5.8 million in the second quarter of 2006. This decrease is mainly due to a decrease in bank deposits as portions of the proceeds from the Company’s initial public offering were used to fund working capital and capital expenditure needs.
Interest expense increased from RMB6.3 million in the second quarter of 2006 to RMB6.5 million (US$0.9 million), a slight increase of RMB0.2 million, or 2.4%. This resulted from an increase in bank loans.
Exchange loss amounted to RMB2.9 million (US$0.4 million) in the second quarter of 2007. This was primarily due to the fact that a portion of the proceeds from the Company’s initial public offering were kept as bank deposits denominated in US dollars, which suffered an exchange loss resulting from the appreciation of Renminbi against the US dollar.
Grant income was RMB3.3 million (US$0.4 million) in the second quarter of 2007, compared to RMB0.1 million in the second quarter of 2006. These grants are made by the Chinese government to encourage research and development activities.
Earnings
Gross profit was RMB82.6 million (US$10.9 million) in the second quarter of 2007, a decrease of RMB6.8 million (US$0.9 million), or 7.6%, from RMB89.4 million in the second quarter of 2006. Gross margin was 40.7%, compared to 49.7% in the second quarter of 2006. The decrease in gross margin was primarily due to an increasing portion of lower-margin RF product sales in the overall product mix and a decrease in wireless coverage product unit pricing as a result of intense market competition.
Operating income was RMB20.8 million (US$2.7 million), a decrease of RMB22.8 million (US$3.0 million), or 52.3%, from RMB43.6 million in the second quarter of 2006. This is mainly due to the decrease in gross margin and increase in operating expenses.
Net income was RMB16.2 million (US$2.1 million), a decrease of RMB23.2 million (US$3.1 million), or 59.0%, from RMB39.4 million in the second quarter of 2006.
Diluted earnings per ADS were RMB0.65 (US$0.08) in the second quarter of 2007.
Balance Sheet
Total cash(3) decreased from RMB706.0 million as of December 31, 2006 to RMB531.7 million (US$69.9 million) as of June 30, 2007, a decrease of RMB174.3 million (US$22.9 million), or 24.7%. This decrease was mainly attributable to use of cash for purchase of base station RF module production and research equipment, capital expenditures of RMB75.9 million (US$10.0 million) for the purchase of a land use right for future production capacity expansion, as well as other working capital payments. Cash and cash equivalents decreased to RMB303.6 million (US$39.9 million) as of June 30, 2007, from RMB467.4 million as of December 31, 2006. Pledged time deposits decreased by RMB10.5 million (US$1.4 million) to RMB228.1 million (US$30.0 million) as of June 30, 2007 from RMB238.6 million as of December 31, 2006.
Total accounts receivable(4) were RMB1,088.6 million (US$143.0 million) as of June 30, 2007, an increase of RMB71.8 million (US$9.4 million), or 7.1%, from RMB1,016.8 million as of December 31, 2006. This is mainly due to the revenue increase from RF parts and components in the second quarter of 2007 and that revenue has not been collected yet.
Inventory increased from RMB434.4 million as of December 31, 2006 to RMB582.9 million (US$76.6 million) as of June 30, 2007, an increase of RMB148.5 million (US$19.5 million), or 34.2%. This is primarily due to an increase in raw materials related to the expansion of production capacity for the base station RF parts and components and an increase in wireless coverage finished goods that are in the process of customer installation.
Total assets increased by RMB245.9 million (US$32.3 million), or 10.2%, from RMB2,415.8 million as of December 31, 2006 to RMB2,661.7 million (US$349.7 million) as of June 30, 2007. The increase was mainly attributable to the increase in inventory, total accounts receivable, and property, plant and equipment.
Total liabilities increased by RMB275.6 million (US$36.2 million), or 31.8%, from RMB866.4 million as of December 31, 2006 to RMB1,142.0 million (US$150.0 million) as of June 30, 2007. The increase was mainly due to an increase in long-term debt to fund new production facilities construction and an increase in short-term bank loans for working capital needs.
Business Outlook
GrenTech estimates that revenue in the third quarter of 2007 will be in the range of RMB260 million to RMB295 million. This forecast reflects GrenTech’s current preliminary view, which is subject to change.
The Company expects to benefit from increasing market demand for base station RF parts and components. GrenTech believes it has sufficient orders on hand to potentially lead to increased revenue from its RF parts and components in the third quarter of 2007. In particular, the Company anticipates that sales to Huawei Technologies Co., Ltd and ZTE Corporation will continue to increase.
In addition, the Company believes that China Mobile, as the major investor in the wireless coverage market in China, will accelerate its wireless coverage construction after completing the bidding process, and the deployment of large scale construction of the TD-SCDMA expanded commercial trial network. China Unicom is also expected to increase its spending in wireless coverage from the third quarter of 2007.
Conference Call and Webcast
The Company’s management team will conduct a conference call on August 14, 2007 at 5:00 am (Pacific) / 8:00 am (Eastern) / 8:00 pm (Beijing/Hong Kong). A webcast of the conference call will be accessible on the Company’s website at http://www.grentech.com.cn .
About China GrenTech
GrenTech is a leading radio frequency or RF, technology developer and a leading provider of wireless coverage products and services to telecommunication operators 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 and outdoor areas, such as buildings, highways, railways, tunnels and remote regions. GrenTech derives most of its revenues from wireless coverage products and services.
Based on its in-house RF technology platform, the Company also develops and produces base station RF parts and components sold to base station equipment manufacturers. China GrenTech is a qualified supplier of RF parts and components to six major base station equipment manufacturers such as Huawei Technologies and ZTE Corporation. 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, in particular China Mobile, and base station OEMs; the risk that demand for base station RF parts and components will not continue to grow rapidly for whatever reason; the risk that the Company will not win the bid for China Mobile’s TD-SCDMA indoor wireless coverage equipment or any other bids it participates in whether due to pricing, product performance or other factors; risk that the telecommunication operators in China will not accelerate their capital expenditures on wireless coverage products and services; risks associated with large account receivable, long collection periods and accounts receivable cycles; fierce competition in the wireless communication industry including the risk that the Company will continue to experience downward pressure of the pricing of its products; 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; uncertainty as to the issuance of 3G licenses by the PRC governmental authorities; future changes to the regulations and policies governing the telecommunications industry in China, including possible future industry restructuring; limitation on the Company’s production capacity for RF products; 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 statement contained in this press release and that may affect its prospects in general are described in the Company’s fillings with the Securities and Exchange Commission, including its Registration Statement on Form F-1 related to its initial public offering, and its annual report on Form 20-F. The Company undertakes no obligation to update or revise forward-looking statements to reflect subsequent events or changed assumptions or circumstances.
(1) The Company’s functional and reporting currency is Renminbi (“RMB”).
The translation of amounts from RMB to United States dollars is solely
for the convenience of the reader. RMB numbers included in this press
release have been translated into U.S. dollars at the noon buying rate
for U.S. Dollars in effect on June 30, 2007 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 , which was
US$1.00=RMB7.612. No representation is made that RMB amounts could
have been, or could be, converted into U.S. Dollars at that rate or at
any other rate on June 30, 2007, or at any other date.
(2) Each ADS represents 25 of our ordinary shares.
(3) Total cash = cash and cash equivalents + pledged time deposit.
(4) Total accounts receivable = accounts receivable, net + long-term
accounts receivable.
- FINANCIAL TABLES TO FOLLOW -
China GrenTech Corporation Limited and subsidiaries
Unaudited Condensed Consolidated Balance Sheets
As of December 31, 2006 and June 30, 2007
(RMB and US$ expressed in thousands, except share and per share data)
December June 30, June 30,
31, 2006 2007 2007
RMB RMB US$
Assets
Cash and cash equivalents 467,423 303,642 39,890
Pledged time deposits 238,618 228,065 29,961
Accounts receivable, net 747,859 806,760 105,985
Inventories 434,406 582,934 76,581
Total current assets 1,948,407 1,999,177 262,635
Long-term accounts receivable 268,957 281,830 37,024
Total assets 2,415,834 2,661,738 349,676
Liabilities and shareholders’
equity
Short-term bank loans 336,050 426,050 55,971
Total current liabilities 866,435 992,003 130,321
Long-term debt -- 150,000 19,706
Total liabilities 866,435 1,142,003 150,027
Ordinary shares US$0.00002 par
value;
2,500,000,000 shares authorized,
625,000,000 shares issued and
outstanding as of December 31,
2006 and June 30, 2007,
respectively 103 103 14
Total shareholders’ equity 1,530,428 1,501,790 197,292
Total liabilities and
shareholders’ equity 2,415,834 2,661,738 349,676
China GrenTech Corporation Limited and subsidiaries
Unaudited Condensed Consolidated Statements of Income
(RMB and US$ expressed in thousands, except share and per share data)
For Three Months Ended June 30,
2006 2007 2007
RMB RMB US$
Revenues 179,976 203,024 26,671
Cost of revenues (90,505) (120,378) (15,814)
Gross profit 89,471 82,646 10,857
Research and
development costs (8,306) (14,326) (1,882)
Sales and distribution
expenses (26,606) (31,854) (4,185)
General and
administrative
expenses (10,967) (15,655) (2,057)
Total operating
expenses (45,879) (61,835) (8,123)
Operating
income/(loss) 43,592 20,811 2,734
Interest income 5,761 1,776 233
Interest expense (6,369) (6,525) (857)
Investment income -- 318 42
Exchange gain/(loss) -- (2,941) (387)
Grant income 100 3,310 435
Total other expense (508) (4,062) (534)
Income tax
(benefit)/expense (3,583) (1,360) (179)
Income/(loss) before
minority interests 39,501 15,389 2,022
Net income/(loss) 39,433 16,173 2,125
Net income/(loss) per
share available to
ordinary
shareholders:
- Basic 0.06 0.03 0.00
- Diluted 0.06 0.03 0.00
Weighted average
number of ordinary
shares:
- Basic 619,770,291 625,000,000 625,000,000
- Diluted 620,879,121 625,000,000 625,000,000
For Six Months Ended June 30,
2006 2007 2007
RMB RMB US$
Revenues 194,772 234,310 30,782
Cost of revenues (97,292) (138,678) (18,218)
Gross profit 97,480 95,632 12,564
Research and development costs (16,699) (27,527) (3,616)
Sales and distribution expenses (50,744) (60,453) (7,942)
General and administrative expenses (22,076) (29,060) (3,818)
Total operating expenses (89,519) (117,040) (15,376)
Operating income/(loss) 7,961 (21,408) (2,812)
Interest income 6,620 4,232 556
Interest expense (15,266) (12,587) (1,654)
Investment income 238 318 42
Exchange gain/(loss) 1,101 (5,729) (753)
Grant income 227 3,430 451
Total other expense (7,080) (10,336) (1,358)
Income tax (benefit)/expense 2,348 2,081 273
Income/(loss) before minority
interests 3,229 (29,663) (3,897)
Net income/(loss) 3,694 (28,638) (3,762)
Net income/(loss) per share
available to ordinary
shareholders:
- Basic 0.01 -0.05 -0.01
- Diluted 0.01 -0.05 -0.01
Weighted average number of ordinary
shares:
- Basic 543,491,666 625,000,000 625,000,000
- Diluted 560,773,481 625,000,000 625,000,000
China GrenTech Corporation Limited and subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(RMB and US$ expressed in thousands)
For Six-months Ended June 30,
2006 2007 2007
RMB RMB US$
Net cash (used in) operating
activities (147,830) (198,654) (26,097)
Net cash (used in) investing
activities (100,123) (180,792) (23,751)
Net cash provided by financing
activities 767,096 217,628 28,590
Effect of exchange rate changes on
cash -- (1,963) (258)
Net increase / (decrease) in cash
and cash equivalents 519,143 (163,781) (21,516)
For more information, please contact:
Investor Contact:
Dora Li, IR Director
China GrenTech Corp Ltd.
Tel: +86-755-8350-1796
Email: lidongmei@powercn.com
Investor Relations (US):
Delia Cannan
Taylor Rafferty
Tel: +1-212-889-4350
Email: GrenTech@Taylor-rafferty.com
Investor Relations (HK):
Ruby Yim
Taylor Rafferty
Tel: +852-3196-3712
Email: GrenTech@Taylor-rafferty.com
Media Contact:
John Dooley
Taylor Rafferty
Tel: +1-212-889-4350
Email: GrenTech@Taylor-rafferty.com
