China Power Equipment Announces Second Quarter Financial Results

XI'AN, China, August 16, 2011 /PRNewswire-Asia-FirstCall/ -- China Power Equipment, Inc. ("China Power Equipment", OTCQB: CPQQ), a manufacturer of high efficiency and energy saving amorphous alloy transformer cores and amorphous core step-down transformers in China, today announced financial results for its second quarter ended June 30, 2011.

Second Quarter Highlights:

• Revenues increase 29.4% to $9.7 million
• Sales of amorphous alloy cores increase 48.1% year-over-year
• Net income of $1.7 million with $0.07 in EPS

*Earnings per share are based on the fully diluted share counts of 23.6 million and 22.0 million in 2011 and 2010 respectively. All numbers are rounded to nearest $100,000.

"We had another excellent quarter as we benefited from increasing demand for energy-saving and environmentally friendly products in China. Increased sales of amorphous alloy cores confirm the underlying strength of the addressable market we serve," began Chairman Yong Xing Song of China Power Equipment. "The strong sales growth in the second quarter underscores our brand equity and the fact that our marketing and sales strategy is working well with leading transformer manufacturers. As our new production facility comes online this fall, we will have the ability to bid for larger products which will enable us to make further market share gains in the rapidly growing amorphous transformer segment."

Total revenues for the quarter increased 29.4% to $9.7 million. Amorphous cores sales increased 48.1% to $7.0 million for the quarter comprised 72% of sales. Growth benefited from a volume-based pricing program to secure larger orders from the customers. Transformer sales were $2.7 million, flat versus the year ago, which are built through outsourced manufactures. The ability to bring production in house will enable the Company to bid for and service larger projects.

Gross profits for the quarter were $2.4 million, an increase of 16.3% versus the same period prior year and associated with higher revenues from the Company's amorphous core sales. Profit margins on amorphous cores declined slightly to 24.7% as a result of the volume pricing strategy which increased the sales volume of amorphous cores by 109% from current clients for the quarter. Costs of amorphous alloy strip, the key raw material used in the production remained constant year over year. Profit margins on the Company's amorphous core step-down transformers were 24.8% for the quarter, a 0.7 percentage point improvement over the year ago period.

Sales, general and administrative ("SG&A") expenses totaled $0.4 million for the three months ended June 30, 2011 versus $0.3 million during the same period prior year, with the modest increase due to higher shipping expenses and public company expenses.

The Company is subject to a reduced enterprise income tax rate of 15% as long as it meets the high-tech enterprise qualification. Net income for the quarter was $1.7 million, flat versus the same period in 2010. Higher gross profits were mainly offset by lower other income and an absence of a $0.02 million gain on investment obtained in the second quarter of 2010 after the Company sold off equity investment in an amorphous alloy transformers manufacturer to avoid any potential conflicts of interest in bidding for new work. Earnings per share based on 23.6 million fully-diluted shares were $0.07.

Six Month Results

*Earnings per share are based on the fully diluted share counts of 23,591,375 and 20,694,691 in 2011 and 2010 respectively.

Revenues for the six month period ended June 30, 2011 increased 31.6% to $17.4 million. The Company's amorphous core sales increased 51.7% during the period and accounted for 73.7% of total sales. Step-down transformer sales decreased 4.2% to $4.6 million and comprised 26.3% of sales for the period.

Gross profits for the period were $4.2 million, an increase of 18.0% versus prior. Gross margin for the period for cores decreased 4.6 percentage points to 24.2%, while gross margin for step-down transformers increased 0.5 percentage points to 24.5%.

SG&A expenses increased 92% to $0.9 million and represented 5% of sales.

Net income was $2.8 million and earnings per share were $0.12 based on 23.6 million fully-diluted shares.

Financial Condition

Cash and cash equivalents were $18.3 million at June 30, 2011 compared to $17.9 million at December 31, 2010. Working capital increased to $19.9 million from $18.5 million at the end of 2010. Accounts receivable was $2.4 million at June 30, 2011, compared to $ 1.6 million at end of 2010.

The Company generated $1.8 million of cash flows from operating activities and spent $2.1 million on capital expenditures during the first six months of 2011.

Business and Facilities Update

Beginning in the third quarter of 2010, the Company expanded its amorphous core production lines from an annual capacity of 1,500 to 6,500 tons. Additional capacity has enabled the Company to show meaningful growth in this segment.

In June 2011, the Company also completed the equipment installation and testing of an amorphous alloy step-down transformer line, with an annual capacity of 5,000 units, to manufacture its own transformers, which is currently in trial production. Previously, the Company used third party manufacturers to assemble transformers. The new production line is expected to dramatically increase efficiency and quality in manufacturing these transformers in house.

"Our trial production is running smoothly at the new facility and we are excited to be able to offer a complete transformer manufactured entirely by ourselves soon," Chairman Song reported. "China's Twelfth Five-Year Plan (2011-2015) includes upgrading the rural electricity grids as a key goal. As one of the leading companies that will have large-scale production capacity and highly efficient and new models of amorphous alloy transformers in northwestern China, we expect to capture a good share of that emerging rural market to dramatically increase our sales and grow the business."

About China Power Equipment, Inc.

China Power Equipment, Inc. designs, manufactures, and distributes amorphous alloy transformer cores and amorphous core step-down transformers in China. The Company currently manufactures 59 different products, primarily amorphous alloy cores and amorphous alloy core transformers.

Safe Harbor Statement

Certain statements in this release concerning our future growth prospects are forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. These forward-looking statements can be identified by terminology such as "anticipates," "believes," "could," "estimates," "expects," "future," "intends," "plans," "should," "will," and similar statements.

The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding the success of the company's investments, risks and uncertainties regarding fluctuations in earnings, its ability to sustain its previous levels of profitability including on account of its ability to manage growth, intense competition, wage and inflation increases in China, its ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, its ability to successfully complete and integrate potential acquisitions, withdrawal of governmental fiscal incentives, political instability and regional conflicts, and legal restrictions on raising capital or acquiring companies outside China.

Additional risks that could affect the company's future operating results are more fully described in its filings with U.S. Securities and Exchange Commission. These filings are available at www.sec.gov and at www.chinapower-equipment.com.

The company may, from time to time, make additional written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 10-K, 10-Q, and 8-K, in its annual report to shareholders, in news releases and other written materials, and in oral statements made by its officers, directors, or employees to third parties. The company does not undertake to update any forward-looking statements that may be made from time to time by or on its behalf, except as required under law.

For more information about China Power Equipment, please visit its website at www.chinapower-equipment.com.