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China HGS Announces Second Quarter of Fiscal Year 2010 Results

2010-05-18 19:07 1712

- Revenue and net income grew over 1300% year-over-year

HANZHONG, China, May 18 /PRNewswire-Asia-FirstCall/ -- China HGS Real Estate Inc. (OTC Bulletin Board: CAHS) ("China HGS" or the "Company"), a leading residential property developer in Hanzhong, China, today reported financial results for the second quarter of its 2010 fiscal year ended March 31, 2010.

Second Quarter Fiscal Year 2010 Highlights

-- Revenue increased to $13.0 million, up from $0.9 million a year ago

-- Gross profit was $5.7 million with gross margin of 43.4%

-- Net income totaled $5.0 million, or $0.11 per diluted share

-- Appointed Mr. Gordon Silver, Mr. David Sherman and Mr. Yuankai Wen as

independent directors and Ms. Shenghui Luo as director of the Company's

board in January 2010

"While the Chinese government has recently implemented tighter policies to control the overheating domestic real estate market, we continued to experience strong demand for our new residential real estate projects in Hanzhong during the second quarter of fiscal 2010. We experienced tenfold growth in revenue and net income and maintained healthy gross margins of 40% to 55% on our projects. This was the result of a larger inventory of units available for sale, China HGS' enhanced brand recognition among consumers, and rising levels of disposable income in China's second-tier and third-tier cities," commented Mr. Xiaojun Zhu, Chief Executive Officer of China HGS Real Estate Inc.

Second Quarter Fiscal 2010 Results

Second quarter fiscal 2010 revenue increased 1,315.1% to $13.0 million, from $0.9 million in the comparable period of 2009. The significant growth in revenue was attributable to the development of the Company's new projects, enhanced advertising and promotional activities, growing brand recognition, and rising levels of disposable income. Sales from the Company's Mingzhu Garden and Yangzhou Pearl Garden accounted for about 51.5% and 48.5% of the total revenue during the quarter, respectively.

Gross profit increased 1,115.4% to $5.7 million compared to $0.5 million in the second quarter of fiscal 2009. Gross margin was 43.4%, compared to 50.5% in the same period of 2009. The exponential growth in gross profit was largely due to the significant growth in sales while the decline in gross margin was a result of increased raw material prices and direct labor costs compared to the same period last year.

Total operating expenses were $0.4 million, up 251.4% from $0.1 million in the same period a year ago. Selling and distribution expenses rose 988.9% to $144,090, or 1.1% of sales compared to $13,233, or 1.4% of sales, in the prior year period. The increase in selling expenses was largely due to higher sales during the quarter. General and administrative expenses were $0.2 million, up 150.8% year-over-year. The increase in G&A expenses was primarily related to legal and professional expenses associated with being a publicly traded company in the U.S. Operating expenses as a percentage of revenue were 3.0%, as compared to 12.0% in the same period last year.

Operating income increased 1,384.0% to $5.3 million in the second quarter of 2010, from $0.4 million in the same period a year ago. Operating margin was 40.4%, compared to 38.5% in the same period a year ago.

Net income increased 1,461.0% to $5.0 million in the second quarter of fiscal 2010, or $0.11 per diluted share, compared to net income of $0.3 million, or $0.01 per diluted share, in the year ago period. Diluted earnings per share was calculated using weighted average shares of 45.1 million in the quarter ended March 31, 2010 compared to 39.0 million a year ago. The increase was the result of increased shares outstanding due to the reverse merger in 2009.

Six Months Fiscal 2010 Results

Net revenue increased 141.6% to $23.4 million for the six months ended March 31, 2010, compared to $9.7 million for the six months ended March 31, 2009. Gross profit increased 135.0% to $10.5 million, with a gross margin of 44.8%, compared to $4.5 million, with a gross margin of 46.0% for the same period a year ago. Operating income grew 121.6% to $9.0 million, with an operating margin of 38.4%, compared to $4.1 million, with an operating margin of 41.8% for the year ago period. Net income rose 122.7% to $8.6 million, or $0.19 per diluted share, compared to $3.8 million, or $0.10 per diluted share, for the six months ended March 31, 2009.

The diluted weighted average number of shares outstanding increased from 39.0 million in the six months ended March 31, 2009 to 45.1 million in the six months ended March 31, 2010, as a result of the reverse merger last year.

Financial Condition

As of March 31, 2010, China HGS had $6.5 million in cash and cash equivalent, up from $0.8 million at September 30, 2009. China HGS had working capital of $37.8 million, up from $29.1 million at fiscal year end 2009. Shareholder's equity was $38.5 million. The Company has no long-term debt and generated $5.8 million of operating cash flow.

Business Outlook

"We are a rapidly growing residential real estate developer with a strong focus on second-tier and third-tier cities in China. We maintain our positive outlook for real estate growth momentum in these markets," commented Mr. Zhu. "The remarkable growth in personal income in Hanzhong and the surrounding areas has resulted in significant improvement in standards of living and demand for better housing. Therefore, we believe Hanzhong's real estate market will experience sustainable growth for the foreseeable future.

"We have enhanced our corporate governance by establishing a strong board with a majority of independent directors and creating audit, compensation and nominating and corporate governance committee. We believe we now meet all the corporate governance requirements to list our common stock on a major U.S. stock market."

As of March 31, 2010, the Company's major projects under development include Ming Zhu Xin Ju project, Ming Zhu Nan Yuan Phase II project in Hanzhong, Mingzhu Garden in Hanzhong and Yangzhou Pearl Garden in Yang County.

For the fiscal year ending September 30, 2010, China HGS reaffirms its guidance of revenue of approximately $47.5 million to $49.0 million and net income of $15.5 million to $16.0 million.

Conference Call

China HGS will conduct a conference call at 10:00 a.m. Eastern Time on Tuesday, May 18, 2010 to discuss results for the second quarter of fiscal 2010.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time:

+1-877-883-4655. International callers should dial +1-706-758-4585. The conference call ID number is 757 716 94.

A replay of the conference call will be available for 14 days starting on Tuesday, May 18, 2010 at 11:00 a.m. Eastern Time. To access the replay, please dial +1-800-642-1687. International callers should dial +1-706-645-9291. The conference call ID number is 757 716 94.

About China HGS Real Estate Inc.

China HGS Real Estate Inc., through its wholly-owned subsidiary, Shaanxi Guangsha Investment and Development Group Co., Ltd., specializes in real estate development in China's second-tier and third-tier cities. The Company's real estate properties include multi-layer, sub-high-rise, and high-rise apartment buildings. The Company possesses the national grade II real estate qualification and was ranked as the No. 1 property developer in Hanzhong, Shaanxi Province in terms of market share in 2007 and 2008 successively.

Forward-looking Statements:

This press release contains certain statements that may include

'forward-looking statements'. All statements other than statements of historical fact included herein are 'forward-looking statements'. These forward looking statements are often identified by the use of forward-looking terminology such as 'believes,' 'expects' or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website http://www.sec.gov. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

- Financial Tables Follow -

CHINA HGS REAL ESTATE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of

March 31, September 30,

2010 2009

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents $6,518,901 $820,783

Restricted cash 1,025,994 412,373

Loans to outside parties 5,223,666 1,762,022

Real estate property development

completed 7,654,414 2,392,003

Real estate property under

development 36,436,066 42,522,287

Other current assets 4,432 71,985

Total current assets 56,863,473 47,981,453

Property, plant and equipment, net 678,911 713,008

Total Assets $57,542,384 $48,694,461

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Short-term loans $585,129 $672,751

Accounts payable 905,210 730,838

Other payables 1,159,865 1,021,147

Customer deposits 13,058,613 14,900,334

Accrued expenses 698,415 125,742

Taxes payable 2,684,951 1,380,694

Total current liabilities 19,092,183 18,831,506

Stockholders' equity

Common stock, $0.001 par value,

100,000,000 shares authorized,

45,050,000 shares issued and

outstanding as of March 31,

2010 and September 30, 2009,

respectively 45,050 45,050

Additional paid-in capital 17,655,495 17,632,348

Statutory surplus 3,190,203 2,330,259

Retained earnings 15,602,222 7,904,531

Accumulated other comprehensive

income 1,957,231 1,950,767

Total stockholders' equity 38,450,201 29,862,955

Total Liabilities and Stockholder's

Equity $57,542,384 $48,694,461

CHINA HGS REAL ESTATE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

Three Months ended Six Months ended

March 31, March 31,

2010 2009 2010 2009

Real estate sale, net of

sales taxes of $870,180,

$85,195, $1,533,426 and

$610,920, respectively 13,036,357 $921,229 $23,427,214 $9,697,572

Cost of real estate sales 7,383,888 456,143 12,936,478 5,232,582

Gross profit 5,652,469 465,086 10,490,736 4,464,990

Operating expenses

Selling and distribution

expenses 144,090 13,233 443,170 143,186

General and

administrative expenses 243,525 97,087 1,060,754 265,561

Total operating expenses 387,615 110,320 1,503,924 408,747

Operating income 5,264,854 354,766 8,986,812 4,056,243

Other expenses (income)

Interest expenses 13,242 27,102 27,994 68,673

Other expenses

(income) (293) -- (293) 309

Total other expenses 12,949 27,102 27,701 68,982

Income before income taxes 5,251,905 327,664 8,959,111 3,987,261

Provision for income taxes 263,300 8,095 401,476 145,345

Net income $4,988,605 $319,569 $8,557,635 $3,841,916

Other comprehensive income

Foreign currency

translation adjustment $5,328 $27,056 $6,464 $28,034

Comprehensive income $4,993,933 $346,625 $8,564,099 $3,869,950

Basic and diluted income

per common share

Basic $0.11 $0.01 $0.19 $0.10

Diluted $0.11 $0.01 $0.19 $0.10

Weighted average common

shares outstanding

Basic 45,050,000 39,000,000 45,050,000 39,000,000

Diluted 45,059,633 39,000,000 45,054,708 39,000,000

CHINA HGS REAL ESTATE INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Six months ended March 31,

2010 2009

Cash flows from operating activities

Net income $8,557,635 $3,841,916

Adjustments to reconcile net income

to net cash provided by (used in)

operating activities:

Depreciation 31,392 27,639

Loss on disposal of

Property, Plant and

Equipment 2,861 309

Amortization of stock -based

compensation 23,147 --

Changes in assets and liabilities:

(Increase) decrease in -

Restricted cash (613,537) 52,796

Accounts receivable -- (7,492)

Loans to outside parties (3,461,293) (70,670)

Real estate property

development completed (5,261,940) 5,232,582

Real estate property under

development 6,095,614 (5,599,591)

Due from related party

Other current assets 67,568 (10,219)

Increase (decrease) in -

Accounts payable 174,213 (444,196)

Other payables 138,495 346,877

Customer deposits (1,845,009) (5,102,897)

Accrued expenses 572,652 (38,520)

Taxes payable 1,303,968 310,696

Net cash provided by (used in)

operating activities 5,785,766 (1,460,770)

Cash flow from investing activities

Addition of property, plant and

equipment -- (343,611)

Net cash used in

investing activities -- (343,611)

Cash flow from financing activities

Repayment of stockholder loans -- (437,960)

Repayment of short-term loans (87,770) (58,395)

Capital contribution -- 437,960

Net cash used in financing activities (87,770) (58,395)

Effect of changes of foreign exchange

rate on cash and cash equivalents 122 1,763

Net increase (decrease) in cash

and cash equivalents 5,698,118 (1,861,013)

Cash and cash equivalents,

beginning of period 820,783 2,121,060

Cash and cash equivalents, end of

period $6,518,901 $260,047

Supplemental disclosures of cash

flow information:

Interest paid $25,765 $69,244

Income taxes paid $73,636 $86,497

Non-cash financing activities:

Capital contribution converted

from dividend payable $-- $5,483,508

Capital contribution converted

from retained earnings $-- $10,788,349

Capital contribution converted

from surplus $-- $799,137

For more information, please contact:

Company Contact:

Mr. Ran Xiong, Deputy GM

Tel: +86-916-2622612

Email: xr968@163.net

Investor Relations Contact:

Mr. Crocker Coulson, President

Tel: +1-646-213-1915 (NY office)

Email: crocker.coulson@ccgir.com

Elaine Ketchmere, Partner

Tel: +1-310-954-1345 (LA office)

Email: elaine.ketchmere@ccgir.com

Source: China HGS Real Estate Inc.
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