-- Raises fiscal 2010 revenue guidance to $52.5 to $53 million
-- Net income guidance raised to $17 to $17.5 million
HANZHONG, China, Aug. 17 /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 third quarter of its 2010 fiscal year ended June 30, 2010.
Third Quarter Fiscal Year 2010 Highlights
-- Revenue increased to $7.7 million, up from $0.3 million a year ago
-- Gross profit was $3.7 million with gross margin of 47.7%
-- Net income totaled $3.2 million, or $0.07 per diluted share
"During the third quarter of fiscal year 2010, market demand for residential properties in Hanzhong, our core market, continued to exhibit solid growth. Thanks to a larger inventory of units available and our strong reputation, we sold a total of 288 residential and commercial property units and car parks at attractive margins. This resulted in another quarter of significant top line and bottom line growth," said Mr. Xiaojun Zhu, Chief Executive Officer of China HGS Real Estate Inc.
Third Quarter Fiscal 2010 Results
During the three months ended June 30, 2010, total revenue increased 2,145.0% to $7.7 million, from $0.3 million during the same period in 2009. The significant growth in revenue was primarily due to the development of several new projects in the quarter, growing brand recognition, and rising levels of local residents' disposable income. During the quarter, the Company sold a total of 288 residential and commercial units and car parks, compared to only 14 residential property units sold a year ago. Among the company's new projects, Yangzhou Pearl Garden, Mingzhu Garden and Hanzhong Minpin contributed 69.8%, 16.0%, and 14.2% of the total revenue in the quarter, respectively.
Gross profit increased 1,870.1% to $3.7 million compared to $0.2 million in the third quarter of fiscal 2009. Gross margin decreased to 47.7% as compared to 54.3% in the same period of 2009. The exponential growth in gross profit was mainly driven by the significant growth in sales. The decline in gross margin was a result of rising construction costs and land use rights costs compared to the same period last year, but within the Company's normal range. Gross margins for the Company's projects were in the range of 45% to 72% during the third quarter of fiscal 2010.
Selling, general and administrative expenses in the third quarter of fiscal 2010 were $0.3 million, an increase of 61.1% from $0.2 million in the third quarter of fiscal 2009. Selling expenses were approximately $40,978 in the third quarter of 2010, down 52.0% from $85,303 in the same quarter 2009. The significant decrease in selling expenses was attributable to reduced advertising expenses and sales commissions to employees. As a result of a strong and well-established brand name in its home market, China HGS benefited from referrals from loyal customers, reducing the need to conduct sales promotion activities during the quarter ended June 30, 2010. General and administrative expenses in the three months ended June 30, 2010 increased 135.1% to $0.3 million from $0.1 million in the same period 2009. The significant increase in general and administrative expenses was primarily related to legal and professional expenses associated with being a publicly traded company in the U.S.
Operating income was $3.3 million, or 43.1% of the total revenue, in the third quarter of 2010 as compared to operating loss of $29,767 in the same period a year ago.
Net income was $3.2 million in the three months ended June 30, 2010, or $0.07 per diluted share, compared with net loss of $0.1 million during the same period of 2009. The diluted weighted average number of shares outstanding increased from 39.0 million in the three months ended June 30, 2009 to 45.1 million in the three months ended June 30, 2010, as a result of the reverse merger last year.
Nine Months Fiscal 2010 Results
Net revenue was $31.1 million in the nine months ended June 30, 2010, up 209.8% from $10.0 million in the nine months ended June 30, 2009. Gross profit was $14.1 million with a gross margin of 45.5%, up 204.2% from $4.7 million and a gross margin of 46.3% in the nine months ended June 30, 2009. Operating income was $12.3 million with an operating margin of 39.5%, up 205.4% from $4.0 million and an operating margin of 40.1% in the nine months ended June 30, 2009. Net income was $11.7 million, or $0.26 per fully diluted share, up 213.9% from $3.7 million, or $0.10 per fully diluted share, in the nine months ended June 30, 2009.
The diluted weighted average number of shares outstanding increased from 39.0 million in the nine months ended June 30, 2009 to 45.1 million in the nine months ended June 30, 2010, as a result of the reverse merger last year.
Financial Condition
As of June 30, 2010, China HGS had $9.8 million in cash and cash equivalent, up from $0.8 million at September 30, 2009. China HGS had working capital of $41.1 million, up from $29.1 million at fiscal year end 2009. Shareholder's equity was $41.8 million. The Company has no long-term debt and generated $9.1 million of operating cash flow in the nine months ended June 30, 2010.
Business Outlook
"Despite the Chinese government's tightening policy and regulations to constrain growth in the domestic real estate market, we maintain our positive outlook for the property market in second-tier and third-tier cities in western China. We believe that Hanzhong and the surrounding areas will continue to enjoy the benefits of China's "Go to the West" policy in the coming years," commented Mr. Zhu. "While we continue our efforts to strengthen our market leadership in Hanzhong, we are also actively planning to expand into the neighboring cities in Southern Shaanxi Province and Northern Sichuan Province."
As of June 30, 2010, the Company's major projects under development include Yangzhou Mingzhu Project, Mingzhu Xinju Project and Mingzhu Project V which have completed construction up to 43.1%, 75.0% and 26.7%, respectively, as of June 30, 2010.
China HGS expects to complete construction of its Hanzhong Mingzhu Nanyuan #8 and #9 building, Yangzhou Mingzhu Project #27 and #30 building and several other projects during the fourth quarter of fiscal 2010.
For the fiscal year ending September 30, 2010, China HGS raises its revenue guidance from previously announced $47.5 million - $49.0 million to $52.5 million to $53.0 million. The Company also raised its fiscal year 2010 net income guidance from $15.5-$16 million to $17.0-$17.5 million, or diluted earnings per share of approximately $0.38 to $0.39.
Conference Call
China HGS will conduct a conference call at 10:00 a.m. Eastern Time on Tuesday, August 17, 2010 to discuss results for the third 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 935 920 84.
A replay of the conference call will be available for 14 days starting on Tuesday, August 17, 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 935 920 84.
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.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2010 September 30,
(Unaudited) 2009
ASSETS
Current assets:
Cash and cash equivalents $9,830,972 $820,783
Restricted cash 414,131 412,373
Loans to outside parties 5,328,937 1,762,022
Real estate property development completed 8,769,396 2,392,003
Real estate property under development 37,657,198 42,522,287
Other current assets 6,360 71,985
Total current assets 62,006,993 47,981,453
Property, plant and equipment, net 672,185 713,008
Total Assets $62,679,178 $48,694,461
Current liabilities:
Short-term loans $587,492 $672,751
Accounts payable 845,593 730,838
Other payables 962,611 1,021,147
Customer deposits 14,655,909 14,900,334
Accrued expenses 719,820 125,742
Taxes payable 3,116,628 1,380,694
Total current liabilities 20,888,053 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 June 30,
2010 and September 30, 2009,
respectively 45,050 45,050
Additional paid-in capital 17,663,211 17,632,348
Statutory surplus 3,509,485 2,330,259
Retained earnings 18,449,382 7,904,531
Accumulated other comprehensive income 2,123,998 1,950,767
Total stockholders' equity 41,791,126 29,862,955
Total Liabilities and Stockholder's
Equity $62,679,179 $48,694,461
CHINA HGS REAL ESTATE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months ended Nine Months ended
June 30, June 30,
2010 2009 2010 2009
Real estate sale, net
of sales taxes of
$503,158, $39,944,
$2,036,584 and
$650,864, respectively $7,677,121 $341,972 $31,104,335 $10,039,544
Cost of real estate
sales 4,018,218 156,254 16,954,696 5,388,836
Gross profit 3,658,903 185,718 14,149,639 4,650,708
Operating expenses
Selling and distribution
expenses 40,978 85,303 484,148 228,489
General and administrative
expenses 306,113 130,182 1,366,867 395,743
Total operating expenses 347,091 215,485 1,851,015 624,232
Operating income (loss) 3,311,812 (29,767) 12,298,624 4,026,476
Other expenses (income)
Interest expenses 13,968 27,253 41,962 95,926
Interest income (1,412) --
Other expenses (income) (293) -- (586) 309
Total other expenses 13,675 27,253 39,964 96,235
Income (loss) before
income taxes 3,298,137 (57,020) 12,258,660 3,930,241
Provision for income
taxes 133,107 50,329 534,583 195,674
Net income (loss) 3,165,030 (107,349) 11,724,077 3,734,567
Other comprehensive
income (loss)
Foreign currency
translation adjustment 166,767 (936) 173,231 27,098
Comprehensive income
(loss) $3,331,797 $(108,285) $11,897,307 $3,761,665
Basic and diluted
income (loss) per
common share
Basic $0.07 $(0.00) $0.26 $0.10
Diluted $0.07 $(0.00) $0.26 $0.10
Weighted average common
shares outstanding
Basic 45,050,000 39,000,000 45,050,000 39,000,000
Diluted 45,053,400 39,000,000 45,057,659 39,000,000
CHINA HGS REAL ESTATE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended June 30,
2010 2009
Cash flows from operating activities
Net income $11,724,077 $3,734,567
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 47,720 43,905
Loss on disposal of fixed assets 3,650 309
Amortization of stock -based compensation 30,863 --
Changes in assets and liabilities:
(Increase) decrease in -
Restricted cash (1) 185,167
Accounts receivable -- (7,496)
Loans to outside parties (3,545,569) 203,287
Real estate property development completed (6,342,444) 5,388,836
Real estate property under development 5,026,582 (11,739,403)
Other current assets 65,675 (26,677)
Increase (decrease) in -
Accounts payable 111,207 (372,209)
Other payables (62,641) 1,474,814
Customer deposits (306,694) 10,772
Accrued expenses 591,381 (38,538)
Taxes payable 1,723,326 (11,637)
Net cash provided by (used in) operating
activities 9,067,132 (1,154,302)
Cash flow from investing activities
Addition of property, plant and equipment (7,681) (343,779)
Net cash used in investing activities (7,681) (343,779)
Cash flow from financing activities
Repayment of stockholder loans -- (438,174)
Repayment of short-term loans (87,781) (58,423)
Capital contribution -- 438,174
Net cash used in financing activities (87,781) (58,423)
Effect of changes of foreign exchange rate
on cash and cash equivalents 38,519 2,780
Net increase (decrease) in cash and cash
equivalents 9,010,189 (1,553,723)
Cash and cash equivalents, beginning of
period 820,783 2,121,060
Cash and cash equivalents, end of period $9,830,972 $567,337
Supplemental disclosures of cash flow
information:
Interest paid $38,474 $95,285
Income taxes paid $206,702 $136,798
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
Email: xr968@163.net
Tel: +86-916-262-2612
Investor Relations Contact:
Mr. Crocker Coulson, President
Email: crocker.coulson@ccgir.com
Tel: +1-646-213-1915 (NY office)
Elaine Ketchmere, Partner
Email: elaine.ketchmere@ccgir.com
Tel: +1-310-954-1345 (LA office)
Source: China HGS Real Estate Inc.
