- Revenue up 67.8%, Net income up 79.7%, and EPS at $0.28 -
ZHEJIANG, China, Aug. 12 /PRNewswire-Asia/ -- SORL Auto Parts, Inc. (Nasdaq: SORL) ("SORL" or "The Company"), a leading manufacturer and distributor of commercial vehicle air brake systems as well as related auto parts in China, announced financial results for the second quarter and six months ended June 30, 2010.
Second Quarter Financial Highlights
-- Revenues rose 67.8% year-over-year to a quarterly record of $49.9
million;
-- Gross profit rose 60.0% year-over-year to a quarterly record of $13.5
million;
-- Net income increased 79.7% year-over-year to a quarterly record of $5.4
million;
-- Fully diluted earnings per share were a quarterly record of $0.28
compared with $0.16 in the 2009 second quarter;
-- OEM sales rose 121.3% year-over-year to $31.2 million and international
market sales rose 42.9% to $12.0 million;
-- The Company was awarded five patents during the quarter, including one
invention patent from the United States Patents and Trademark Office
Mr. Xiaoping Zhang, SORL Auto Parts' Chief Executive Officer and Chairman, stated, "We are very excited about our second quarter results as we exceeded our guidance. Our strong momentum in the OEM business, especially in the more profitable heavy-duty truck segment, substantially outpaced overall market growth, showing the effectiveness of our branding strategy and customer relationship efforts. We strive to continue to improve our products' quality and safety. On the product development front, the new products we introduced have been well received by our domestic and international customers. Despite cost pressure from raw materials and payroll growth, we continue to optimize our product mix by rolling out more value-added new products to maintain an attractive margin."
Second Quarter 2010 Results
Revenue for the second quarter of 2010 achieved a quarterly record of $49.9 million, up 67.8% from $29.7 million for the same period of 2009. Revenues from the Company's domestic OEM customers were $31.2 million, a 121.3% increase over the second quarter of 2009. Revenues from China's domestic aftermarket were $6.7 million, slightly below the $7.2 million in the same period of 2009. Revenues from international markets were $12.0 million, a 42.9% increase from the same period of 2009. The increase was primarily due to the growing sales of OEM new model vehicles, an optimized SORL sales network and new market expansion strategy, and an increased focus on new product development, which helped generate larger demand.
During the second quarter of 2010, revenues from sales to OEMs were 63% of total revenue, compared with 48% a year ago. This increase reflects our continued effort to promote our integrated system and modular supplies of air brake systems to our OEM customers, and to our expanded sales network. The Company continued to focus on the light duty, bus and agricultural vehicle markets during the second quarter, and also experienced strong sales in the heavy-duty truck market.
Gross profit increased 60.0% to a quarterly record of $13.5 million, up from $8.4 million in the same period a year ago. Gross margin was 27.0%, as compared to 28.3% for the same period of 2009. The decline in gross margin was primarily due to higher costs of primary raw materials and payroll expense. We expect our continued expansion of new, higher-profit valve products to benefit gross profit margins in the future.
Operating expenses increased 76.3% to $7.7 million, up from $4.3 million for the same period of 2009. As a percentage of revenue, operating expenses increased to 15.4% of revenue in the second quarter of 2010 from 14.6% in the second quarter of 2009, mainly due to increased expenses discussed above, partially offset by increased management efficiencies, enhanced technologies of products and an improved product portfolio.
Selling and distribution expenses were $2.8 million compared to $2.1 million for the same period of 2009. The increase was primarily due to increased transportation expense and accrued warranty expense as a result of higher unit sales. As a percentage of revenue, selling and distribution expenses decreased to 5.7% in the second quarter of 2010 from 6.9% for the same period of 2009.
General and administrative (G&A) expenses in the second quarter were $2.8 million, or 5.6% of revenue, as compared to $1.5 million, or 5.0% for the same period of 2009. The increase was mainly due to increased professional expenses, and provisions for doubtful accounts due to higher sales.
Research and development (R&D) expenses were $1.7 million, or 3.5% of revenue, compared with $0.8 million, or 2.7% of revenue for the same period of 2009. Our continued investment in R&D resulted in the award of 5 patents during the quarter, including one from the United States Patent and Trademark Office.
Quarterly operating income increased 42.7% to $5.8 million, up from $4.1 million for the same quarter last year.
Net income attributable to stockholders for the second quarter of 2010 increased 79.7% to a quarterly record of $5.4 million, or $0.28 per diluted share on a greater number of shares outstanding, from $3.0 million, or $0.16 per diluted share for the same period of 2009.
Six Month Results
Total revenue for the first six months of 2010 increased 68.1% year-over-year to $84.0 million from $50.0 million in the first half of 2009. Gross profit for the first six months of 2010 was $23.1 million, up 66% from $13.9 million in the comparable period a year ago. Gross margin was 27.5% for the first six months of 2010, in line with the same period in 2009. Income from operations was $9.8 million, up 79.8% from $5.5 million in the first six months of 2009, and the 2010 operating margin was 11.7% compared with 10.9% in the previous year's same period. Net income attributable to common shareholders was $8.5 million, with fully diluted earnings per share of $0.45 on a greater number of shares outstanding, compared with $3.9 million, or diluted earnings per share of $0.22 in the first six months of 2009.
Financial Condition
As of June 30, 2010, the Company had cash and cash equivalents of $8.0 million as compared to $10.3 million on December 31, 2009. The current ratio was 5 to 1 and working capital was $90.9 million. Total shareholders' equity increased to $121.7 million at the end of June 2010 compared with $103.1 million at December 31, 2009.
Recent Developments
In the second quarter of 2010, the Company signed a strategic supply agreement with Shandong KAMA Automobile Manufacturing Co., Ltd. ("Shandong KAMA"), to provide clutch boosters, clutch master cylinders and other air brake systems-related products. In addition, the Company was also selected as a key supplier by the Shandong Wuzheng Group.
Also in the second quarter of 2010, as noted above, the Company was awarded five patents. Of special note is an invention patent received from the United States Patent and Trademark Office for our air brake air dryer product, which improves air dryer quality through the use of advanced production processes. Ruian Auto, SORL's subsidiary, was granted a total of 10 patents in the first half of 2010, and has developed a portfolio of 32 patents since it was established.
Business outlook
For the third quarter of fiscal year 2010, management is expecting net sales to be approximately $45 million and net income to be approximately $4 million. These targets are based on the Company's current views on the operating and market conditions, which are subject to change.
Mr. Zhang commented, "Entering into second half of 2010, we remain bullish, particularly about our domestic aftermarket business, as more and more trucks on the road need high-quality replacement brake systems, and as our OEM business continues to enhance our brand recognition in the replacement market. We expect that our OEM business growth will stabilize in the second half of 2010, after experiencing rapid growth in the first half. We expect cash flow to improve in the second half of 2010, because our capacity expansion is ahead of schedule and the majority of capital expenditures for 2010 already occurred in the first half of 2010, and because a significant amount of short-term receivables are due shortly. On the cost side, we anticipate that steel and aluminum prices will ease, relieving margin pressure. Overall, growth in the second half of 2010 will be solid as we also launch new products with higher price points, and, combined with improved material costs, should allow us maintain high profitability."
Conference Call
Management will host a conference call at 8:00 a.m. EDT on Thursday, August 12, 2010 to discuss its second quarter financial results. Listeners may access the call by dialing U.S. toll free number +1-877-407-0778, or +1-201-689-8565 for international callers. A live web cast of the conference call will also be available at http://www.sorl.cn .
A replay of the call will be available shortly after the conference call through 11:59 p.m. EDT on August 19, 2010, or 11:59 a.m. on August 20, 2010, Beijing Time. The replay dial-in numbers are: U.S. toll free number +1-877-660-6853, or the international number is +1-201-612-7415; use Account "286" and Conference ID "354335" to access the replay.
About SORL Auto Parts, Inc.
As a leading Chinese manufacturer and distributor of automotive air brake systems and other related auto parts, SORL Auto Parts, Inc. ranked No. 1 for market share in the segment for commercial vehicles, such as trucks and buses. The Company distributes products both within China and internationally under the SORL trademark. SORL is listed among the top 100 auto component suppliers in China, with a product range that includes 40 categories with over 1000 specifications in air brake systems, air controlling systems and others. The Company has four authorized international sales centers in Australia, UAE, India, and the United States. SORL is working to establish a broader global sales network. For more information, please visit http://www.sorl.cn .
Safe Harbor Statement
This press release may include certain statements that are not descriptions of historical facts, but are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as "will", "believes", "expects" or similar expressions. These forward-looking statements may also include statements about our proposed discussions related to our business or growth strategy, which is subject to change. Such information is based upon expectations of our management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future business decisions, which are subject to change. We do not undertake to update the forward-looking statements contained in this press release. For a description of the risks and uncertainties that may cause actual results to differ from the forward-looking statements contained in this press release, see our most recent Annual Report filed with the Securities and Exchange Commission (SEC) on Form 10-K, and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov .
For more information, please contact:
Ben Chen
Director of Investor Relations
Phone: +86-577-6581-7721
Email: ben@sorl.com.cn
Kevin Theiss
Grayling
Phone: +1-646-284-9409
Email: kevin.theiss@grayling.com
- Tables to follow -
SORL Auto Parts, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2010 and December 31, 2009
June 30, 2010 December 31,
(Unaudited) 2009
Assets
Current Assets
Cash and Cash Equivalents US$ 7,975,715 US$ 10,255,259
Accounts Receivable, Net of
Provision 45,779,486 44,546,107
Notes Receivable 26,376,540 13,083,691
Inventory 23,101,305 18,760,724
Prepayments 8,542,593 7,558,140
Other current assets 1,943,481 444,281
Total Current Assets 113,719,120 94,648,202
Fixed Assets
Property, Plant and Equipment 42,429,586 35,335,958
Less: Accumulated Depreciation (13,301,430) (11,608,920)
Property, Plant and Equipment, Net 29,128,156 23,727,038
Leasehold Improvements, Net 464,324 477,681
Land Use Rights, Net 14,110,375 14,198,392
Other Assets
Deferred compensation cost-stock
options -- --
Intangible Assets 162,385 161,499
Less: Accumulated Amortization (62,383) (54,380)
Intangible Assets, Net 100,002 107,119
Deferred tax assets 473,212 220,577
Total Other Assets 573,214 327,696
Total Assets US$ 157,995,189 US$ 133,379,009
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable, including $155,996
and $1,985,291 due to related
parties at June 30, 2010 and
December 31, 2009, respectively US$ 7,285,529 US$ 9,724,715
Deposit Received from Customers 4,476,527 3,670,369
Short term bank loans 4,495,264 --
Income tax payable 1,236,649 551,900
Accrued Expenses 4,803,392 4,206,297
Other Current Liabilities, including
$54,729 and $200,762 from related
parties at June 30, 2010 and
December 31, 2009, respectively 484,781 585,176
Total Current Liabilities 22,782,142 18,738,457
Non-Current Liabilities
Deferred tax liabilities 141,918 115,481
Total Liabilities 22,924,060 18,853,938
Stockholders' Equity
Preferred Stock - No Par Value;
1,000,000 authorized; none issued
and outstanding as of June 30, 2010
and December 31, 2009 -- --
Common Stock - $0.002 Par Value;
50,000,000 authorized, 19,304,921
and 18,304,921 issued and
outstanding as of June 30, 2010 and
December 31, 2009 38,609 36,609
Additional Paid In Capital 46,896,379 37,498,401
Reserves 5,299,522 4,425,784
Accumulated other comprehensive
income 11,589,014 10,939,100
Retained Earnings 57,899,291 50,231,052
Total SORL Auto Parts, Inc.
stockholders' equity 121,722,815 103,130,946
Noncontrolling Interest In
Subsidiaries 13,348,314 11,394,125
Total Equity 135,071,129 114,525,071
Total Liabilities and Stockholders'
Equity US$ 157,995,189 US$ 133,379,009
The accompanying notes are an integral part of these financial statements
SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income (Unaudited)
For The Three Months and Six Months Ended June 30, 2010 and 2009
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Sales US$ 49,897,229 29,740,212 84,002,283 49,983,950
Include: sales to
related parties 368,441 64,179 617,597 201,611
Cost of Sales 36,419,878 21,318,699 60,874,960 36,049,624
Gross Profit 13,477,351 8,421,513 23,127,323 13,934,326
Expenses:
Selling and Distri-
bution Expenses 2,843,380 2,060,718 4,827,404 3,378,452
General and Admini-
strative Expenses 2,803,915 1,481,757 5,090,776 3,508,055
Research and develop-
ment expenses 1,738,529 791,307 3,059,582 1,557,758
Financial Expenses 271,178 9,129 345,819 38,091
Total Expenses 7,657,002 4,342,911 13,323,581 8,482,356
Operating Income 5,820,349 4,078,602 9,803,742 5,451,970
Other Income 168,565 176,244 253,065 215,461
Non-Operating Expenses (43,854) (11,002) (56,513) (14,616)
Income Before Provision
for Income Taxes 5,945,060 4,243,844 10,000,294 5,652,815
Provision for
Income Taxes 10,964 914,125 615,542 1,272,091
Net Income US$ 5,934,096 3,329,719 9,384,752 4,380,724
Other Comprehensive
Income - Foreign
Currency Translation
Adjustment 688,424 60,385 722,428 41,183
Total Comprehensive
Income 6,622,520 3,390,104 10,107,180 4,421,907
Less:
Net income attributable to
Noncontrolling Interest
In Subsidiaries 548,868 332,972 842,775 439,066
Other Comprehensive Income
Attributable to
Non-controlling
Interest's Share 68,842 6,039 72,514 4,119
Total Comprehensive Income
Attributable to
Non-controlling
Interest's Share 617,710 339,011 915,289 443,185
Net Income Attributable
to Stockholders 5,385,228 2,996,747 8,541,977 3,941,658
Other Comprehensive
Income Attributable to
Stockholders 619,582 54,346 649,914 37,064
Total Comprehensive
Income Attributable to
Stockholders 6,004,810 3,051,093 9,191,891 3,978,722
Weighted average
common share - Basic 19,304,921 18,279,254 19,089,451 18,279,254
Weighted average common
share - Diluted 19,304,921 18,279,254 19,089,451 18,279,254
EPS - Basic 0.28 0.16 0.45 0.22
EPS - Diluted 0.28 0.16 0.45 0.22
SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For The Three Months and Six Months Ended June 30, 2010 and 2009
Three Months Ended Six Months Ended
June 30, June 30,
2010 2009 2010 2009
Cash Flows from
Operating Activities
Net Income US$ 5,385,228 2,996,747 8,541,977 3,941,658
Adjustments to reconcile
net income (loss) to
net cash from operating
activities:
Noncontrolling Interest
In Subsidiaries 548,868 332,972 842,775 439,066
Bad Debt Expense 731,096 (97,231) 888,295 452,925
Depreciation and
Amortization 956,043 746,805 1,811,315 1,476,238
Stock-Based Compensation
Expense -- -- -- 9,935
Loss on disposal of
Fixed Assets -- 10,098 -- 10,098
Changes in Assets and
Liabilities:
Accounts Receivable (5,359,127) (6,897,996) (1,942,290) (5,393,265)
Notes Receivable (9,848,412) (757,995) (13,177,496) (581,005)
Other Current
Assets (892,983) 1,079,180 (1,428,985) 3,871,962
Inventory (2,192,139) (138,622) (4,220,975) 2,865,795
Prepayments (1,892,718) 4,284,501 (950,002) (553,492)
Deferred tax assets (150,434) (168,203) (250,855) (342,074)
Deferred assets -- (465,484) -- (465,484)
Accounts Payable and
Notes Payable (637,151) 2,714,776 (2,609,738) 861,550
Income Tax Payable 1,016,940 1,281,330 680,866 1,422,870
Deposits Received
from Customers (324,028) 259,233 780,928 137,259
Other Current
Liabilities and
Accrued Expenses 896,405 190,883 407,999 340,719
Deferred tax
liabilities 12,868 21,367 25,701 42,730
Net Cash Flows from
Operating Activities (11,749,543) 5,392,361 (10,600,484) 8,537,485
Cash Flows from Investing
Activities
Acquisition of Property
and Equipment (3,447,536) (387,131) (6,672,691) (613,314)
Sales proceeds of disposal
of fixed assets -- 2,897 -- 36,692
Net Cash Flows from
Investing Activities (3,447,536) (384,234) (6,672,691) (576,622)
Cash Flows from Financing
Activities
Proceeds from (Repayment
of) Bank Loans 4,483,578 -- 4,483,578 --
Proceeds from Share
Issuance -- -- 9,399,978 --
Capital contributed
by Minority Shareholder -- -- 1,038,900 --
Net Cash flows from
Financing Activities 4,483,578 -- 14,922,456 --
Effects on changes in
foreign exchange rate 68,424 7,740 71,175 5,980
Net Change in Cash and
Cash Equivalents (10,645,077) 5,015,867 (2,279,544) 7,966,843
Cash and Cash Equivalents -
Beginning of the period 18,620,792 10,746,963 10,255,259 7,795,987
Cash and cash Equivalents -
End of the period US$ 7,975,715 15,762,830 7,975,715 15,762,830
Supplemental Cash Flow
Disclosures:
Interest Paid -- -- -- 13,736
Tax Paid 35,288 261,825 1,063,706 630,682
Source: SORL Auto Parts, Inc.
