Wonder Auto Reports Results for the Third Quarter of 2010, Continues Strong Rise in Sales and Profit; Raises Guidance for 2010

JINZHOU CITY, China, Nov. 9, 2010 /PRNewswire-Asia-FirstCall/ -- Wonder Auto Technology, Inc. (Nasdaq: WATG) ("Wonder Auto" or the "Company"), a leading manufacturer of automotive electrical parts, automotive safety products, suspension products and engine accessories in China, today announced its financial results for the third quarter ending September 30, 2010.

Highlights for the third quarter of 2010:

• Sales revenue increased 33.7% year-over-year to approximately $78.8 million;
• Gross profit rose 48.2% year-over-year to approximately $20.7 million from approximately $14.0 million;
• Net income attributable to Wonder Auto increased 83.5% year-over-year to approximately $11.9 million;
• EPS was approximately $0.35, representing a 45.8% increase from approximately $0.24 compared with the third quarter of 2009;
• Non-GAAP Net income attributable to Wonder Auto increased 108.6% year-over-year to approximately $13.6 million;
• Non-GAAP EPS was approximately $0.40, representing a 66.1% increase from approximately $0.24 in the third quarter of 2009;
• Sales revenue in China increased approximately $18.3 million, or 34.8% year-over-year, from approximately $52.7 million in the third quarter of 2009, or increased to 90.0% of total sales revenue from 89.3% in the third quarter of 2009.
• Sales revenue from outside the PRC increased approximately $1.5 million, or 24.5% year-over-year, from approximately $6.3 million in the third quarter of 2009 to approximately $7.9 million for the third quarter of 2010. 
• The Company raises guidance for full year 2010 sales revenue to $307 million from $300 million, as well as the guidance for full year 2010 net income to $37.5 million from $36 million, excluding the share-based compensation.

Our net income for the periods ended September 30, 2010 and 2009 was $11.9 million and $6.5 million, respectively. Our earnings per share for the periods ended September 30, 2010 and 2009 was $0.35 and $0.24, respectively. Our net income and earnings per share were materially impacted by non-cash share-based employee compensation recognized pursuant to Accounting Standard Codification ("ASC") 718. On November 24, 2009, we granted options to purchase a total of 1,674,400 shares of our common stock to certain officers, directors and employees with an exercise price of $11.48 per share. As a result, we incurred a non-cash share-based employee compensation of $1.6 million and $4.9 million in the three and nine months ended September 30, 2010, respectively. In the table below, we have presented a non-GAAP financial disclosure to provide a quantitative analysis of the impact of the non-cash employee compensation on our net income and earnings per share. We caution readers that "Non-GAAP net income attributable to the company" and "Non-GAAP EPS" are non-GAAP measures and do not purport to be alternatives to operating income, net income or earnings per share as a measure of operating performance. Management believes that these measures are useful to investors and other users of our financial information in evaluating operating profitability because non-cash shared-based employee compensation does not require the use of current assets and management does not include it in its analysis of our financial results or how we allocate our resources. It is management's intent to provide this non-GAAP financial information to enhance understanding of our GAAP financial statements and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. The non-GAAP measure of "Non-GAAP net income attributable to the company" and "Non-GAAP EPS" presented herein may be determined or calculated differently by other companies.  

Business outlook:

"As the founder and CEO of WATG, I'm very glad that it has been growing rapidly and stably since it was listed on NASDAQ. The third quarter of 2010 is the 15th consecutive quarter of record results since the fourth quarter of 2006 excluding, the fourth quarter of 2008, which was affected by the financial crisis," said Mr. Qingjie Zhao. "In addition to the contribution from the acquisition of auto safety business in September, the increase in our sales revenue in the third quarter also benefited from a year-on-year increase of 18% organic growth despite the fact that July and August are usually low season months in the Chinese automobile market. Particularly, our rods and shafts business increased 97% in the third quarter year-on-year. This increase was mainly attributable to the increase in sales to our existing customers as a result of greater customer acceptance of our brand and products. Meanwhile, the integration of the newly acquired business is going well, better than we have expected. We believe Jinheng's auto safety business will be able to contribute more to the growth of WATG. Along with the penetration and increasing coverage of major customers and markets, the Company expects to further improve its scale advantage. We are very optimistic that in the following years WATG will continue to grow rapidly. We thank our shareholders who have provided WATG with strong support and benefitted from its rapid growth."

Recent Highlights:

On July 1, 2010, we acquired 100% of the equity interests in Vital Glee Development Limited, a corporation duly formed under the laws of British Virgin Islands ("Vital Glee"), for consideration of $15 million. The consideration is contingent on whether Vital Glee can achieve minimum net income of $1.6 million in the twelve months following the acquisition date. Vital Glee holds 100% of the equity interests in Jinzhou Lide, which is a manufacturer of shock absorber systems based in China. In connection with the acquisition of Vital Glee, we acquired patents, technical know-how and customer contracts, as well as the use of rights of the trademark "Wonder" for shock absorbers. In addition to that, our shock absorber business was upgraded from a secondary supplier level to a primary supplier level based upon as a result of our acquisition of Vital Glee, we now have direct sales channels to OEMs for shock absorbers; whereas in the past we sold shock absorbers to distributors that then resold them to OEMs.

On and effective on July 2, 2010, the Company appointed Mr. Qingdong Zeng as the Chief Strategy Officer of the Company. In such position, Mr. Zeng will oversee the Company's daily operations of accounting, research and development, legal affairs and human resource and assist the Chief Executive Officer in the development and implementation of the Company's overall strategies. Mr. Zeng has been the Company's director since June 10, 2010 and the vice president since December 2009. He has also been the president of our subsidiary Jinzhou Wanyou Mechanical Parts Co., Ltd. since September 2006.

On July 10, 2010, our wholly owned subsidiary Vital Glee Development Limited ("Vital Glee") entered into a conditional disposal agreement (the "Conditional Disposal Agreement") with Jinheng Automotive Safety Technology Holdings Limited ("Jinheng Holdings"), under which Vital Glee agreed to acquire from Jinheng Holdings its 100% equity interest in Jinheng (BVI) Ltd., a British Virgin Islands corporation ("Jinheng BVI") for a total cash consideration of HK $1,130 million (approximately US$145.4 million). Jinheng BVI, through its Chinese subsidiaries, is primarily engaged in the manufacturing of automobile airbags, safety belts and steering wheels.

On September 10, 2010, Vital Glee completed the acquisition of Jinheng BVI pursuant to the terms of the Conditional Disposal Agreement. Under the Conditional Disposal Agreement, Vital Glee paid HK $339 million (approximately US$44.6 million) and issued three non-interest bearing promissory notes in the respective amount of HK $169.5 million (approximately US$21.83 million), HK $169.5 million (approximately US$21.83 million) and HK $452 million (approximately US$58.22 million) to Jinheng Holdings, which will become payable at the 30th, 90th and 180th days after September 14, 2010, respectively.

Selected Financial Results for the Third Quarter of 2010

Sales Revenues:

Our sales revenue is generated from sales of our alternator and starter products, airbags and pretensioners, rods and shafts, and engine valves and tappets. We experienced growth in sales revenue across all segments in the third quarter of 2010. Sales revenues in the third quarter of 2010 increased by approximately $19.9 million, or 33.7% to $78.8 million, as compared to approximately $59.0 million for the third quarter of 2009.

Sales revenue from China increased by approximately $18.3 million, or 34.8%, to approximately $71.0 million in the third quarter of 2010, as compared to approximately $52.7 million for the same period in 2009. This increase was mainly attributable to the higher sales volume driven by the increased market demand for our products in expanded automobile market.

Sales revenue outside China increased by approximately $1.5 million, or 24.5%, to approximately $7.9 million in the third quarter of 2010, as compared to approximately $6.3 million for the same period last year. This increase was mainly attributable to the increased volume from our existing customers' contracts worldwide as a result of greater customer acceptance of our high quality products. Export sales accounted for approximately 10% of our total sales revenue in this quarter.

Cost of Revenues:

Our cost of revenues for the third quarter of 2010 increased 29.2% to $58.1 million from $45.0 million for the same period in 2009. As a percentage of sales revenue, the cost of revenue decreased to 73.8% during the third quarter of 2010 from 76.3% for the third quarter of 2009. The decrease was mainly due to the improved gross margin of our engine valves and tappets products as a result of the increased percentage of sales to heavy duty engine sector. Our sales to heavy duty engine sector normally have a higher gross margin than sales to the light duty engine sector. The increase was also attributable to the improved gross margin on sales of rods and shafts.

Gross Profit:

Our gross profit increased 48.2%, to $20.7 million for the third quarter of 2010, as compared to $14.0 million for the same period in 2009 as a result of increased sales volume driven by strong market demand for our products. Gross margin increased to 26.2% for the third quarter 2010, as compared to 23.7% for the same period last year. Such increase was mainly due to the decrease of the cost of revenue as discussed above.

Total Operating Expenses:

Our total operating expenses increased to $10.4 million for the third quarter of 2010, as compared to $5.2 million for the same period in 2009. As a percentage of sales revenue, our total expenses increased to 13.2% for the third quarter of 2010, as compared to 8.8% for the same period last year. The percentage increase was primarily due to the consolidation of Jinheng for this quarter, the non-cash share-based compensation cost and increased research and development expenses.

On November, 2009, we granted options to purchase a total of 1,674,400 shares of our common stock to certain officers, directors and employees with an exercise price of $11.48 per share, which vest when the net incomes are higher than $23 million, $34.5 million and $42.5 million for year 2009, year 2010 and year 2011, respectively. As a result, we incurred a non-cash share-based employee compensation of approximately $1.6 million in the third quarter of 2010. As of September 30, 2010, none of employees had exercised the stock option rights.

Gain on disposal of Applaud:

On July 10, 2010, the company disposed the investment in Applaud Group for a total consideration of approximately $20.9 million determined by the then-current stock price quoted on the Hong Kong Stock Exchange, and recorded a gain on disposal of a non-consolidated affiliate of approximately $5.3 million for the third quarter of 2010.

Net Income:

For the above reasons, net income attributable to our common stockholders increased by $5.4 million, or 83.5%, to $11.9 million during the third quarter of 2010 from $6.5 million during the same period in 2009.

About Wonder Auto

Wonder Auto Technology, Inc. is a Nevada holding company with operating subsidiaries in China primarily engaged in the business of designing, developing, manufacturing and selling automotive electric parts, automotive safety products, suspension products and engine components. Our products include alternators and starters, airbags, pretensioners and steering wheels, engine valves and tappets, and rods and shafts for use in shock absorber systems. We have been manufacturing alternators and starters in China since 1997, and according to the China Association of Automobile Manufacturers, in 2009 we ranked second and fourth in sales revenue in the Chinese market for automobile alternators and starters, respectively. Our subsidiary Jinzhou Jinheng has been designing and developing airbags for over 10 years. We believe that we are the largest Chinese brand airbag manufacturer in terms of sales volume in 2009 and the biggest pretensioner manufacturer with Chinese brand. Our subsidiary Jinan Worldwide has been producing engine valves and tappets for over 50 years. We believe we are now one of the largest manufacturers of engine valves and tappets in China in terms of sales volume. Our subsidiary Jinzhou Wanyou is supplying rods and shafts to suspension system manufacturer worldwide. We believed that we are one of the largest independent suppliers of rods and shafts for suspension system manufacturers in the world in terms of sales volume.

Our products are used in a wide range of passenger and commercial automobiles, and we are especially focused on the fast-growing small- to-medium sized engine passenger vehicle market. We sell our products primarily within China to well-known domestic and international automobile original equipment manufacturers, or OEMs, engine manufacturers and automotive parts suppliers. We are increasingly exporting our products to international markets.

Safe Harbor Statement

This press release includes certain statements that are not descriptions of historical facts, but are forward-looking statements. Such statements include, among others, those concerning our expected 2010 financial results (including our expected fourth quarter results), our expected financial performance in 2011 and future strategic and operational plans, our future operating results, our expectations regarding the market for our products, our expectations regarding the continued growth of the automobile market, as well as all assumptions, expectations, predictions, intentions or beliefs about our relative strength and about future events. Forward-looking statements can be identified by the use of forward-looking terminology such as "will," "believe," "expect," "may," "should," "potential," "continue," "anticipate," "future," "intend," "plan," "believe," "is/are likely to," "estimate" or similar expressions. Such information is based upon assumptions and expectations of our management that were reasonable when made but may prove to be incorrect. All of such assumptions and expectations are inherently subject to uncertainties and contingencies beyond our control and based upon premises 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, except as required under applicable law. 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 on Form 10-K filed with the Securities and Exchange Commission ("SEC"), and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system at http://www.sec.gov. All information provided in this press release and in the attachments is as of the date of this press release.