Third Quarter Financial Highlights:
-- Revenue increased 11.0% year-over-year to $33.0 million
-- 9-Month revenue increased 27% year-over-year to $ 105.8
-- Gross profit margin of 25.5% as compared with 22.3% in the prior year
ZHEJIANG, China, Nov. 12 /Xinhua-PRNewswire-FirstCall/ -- SORL Auto Parts, Inc. (Nasdaq: SORL), a leading manufacturer and distributor of commercial vehicle air brake valves and other auto parts in China, today announced financial results for the third quarter ended September 30, 2008.
Third Quarter Results
Revenue for the third quarter of 2008 was $33.0 million, an 11.0% increase from $29.7 million for the same period in 2007. Revenue from China's domestic OEM market, China's domestic aftermarket and international markets for the third quarter of 2008 were $10.4 million, $8.4 million, and $14.1 million, respectively. For the nine months ending September 30, 2008, revenues increased 27% to $105.8 million as compared to $83.3 million during the first nine months of 2007. The increase in revenue over the ninth month period was the result of the continued expansion of the Chinese commercial vehicle market, the introduction of new products and systems, and the continued growth of our export business. For several reasons, including the introduction of new emission standards in China and the impact of the 2008 Olympics in Beijing, OEM customers in China skewed their production toward the first half of 2008 with the result that their parts orders increased at a greater rate in the first half of the year than in the third quarter. This adjustment in OEM order patterns is the primary reason why third quarter revenue growth was below the level achieved over the nine month period.
Gross profit for the third quarter of 2008 was $8.4 million, a 26.8% increase as compared to $6.6 million for the same period in 2007. Gross profit margin reached 25.5% as compared 22.3% in the same quarter last year. For the nine months ended September 30, 2008, gross profit grew by $9.8 million to $28.5 million, and gross margin increased 450 basis points to 26.9% as compared to 22.4% for the same period in 2007. The higher gross margin was the result of various factors including price increases, the sale of more systems versus individual components, and ongoing improvements in manufacturing efficiency.
Operating expenses increased $1.5 million from $4.0 million in the third quarter of 2007 to $5.5 million in the same quarter in 2008. As a percentage of revenue, operating expenses increased from 13.3% in the third quarter of 2007 to 16.7% in the same quarter in 2008. For the nine months ended September 30, 2008 operating expenses as a percentage of revenue were 14.7% as compared to 11.3% during the prior year period. In addition to the general growth of the business, several factors contributed to the increase in operating expenses. The most significant increase in operating expense was a 160% increase in research and development expense, from $0.9 million during the first nine months of 2007 to $2.5 million during the first nine months of 2008, a reflection of increased investment in new product development such as electronic components. Other factors included increases in packaging costs, increased wages and benefits for employees, and an increase in bad debt allowance due to concerns about the possible impact of the global credit crisis on collections from accounts receivable.
Operating income increased 8.9% from $2.7 million in the third quarter of 2007 to $2.9 million in the third quarter of 2008. As a percentage of revenue, operating income was 8.8% in the third quarter of 2008 as compared to 9.0% in the prior year period. For the nine months ended September 30, 2008, operating income increased 39.8% to $12.9 million, as compared to the same period in 2007. Also, for the nine months ended September 30, 2008, operating income as a percentage of revenue was 12.2% as compared to 11.1% during the prior year period.
Net income increased 10.9% from $2.1 million in the third quarter of 2007, or $0.12 per share, to $2.3 million in the third quarter of 2008, or $0.13 per share. Net margin of 7.1% in the third quarter of 2008 was the same as in the third quarter of 2007. For the nine months ended September 30, 2008, net income grew by 27.3% to $10.6 million, or $0.58 per diluted share, as compared $8.3 million, or $0.45 per diluted share, during the prior year period. For both the first nine months of both 2007 and 2008, net margin was 10%, a result of the increase in gross margin offset by the increase in operating expenses.
"We are satisfied with our overall performance in the third quarter of 2008," said Xiaoping Zhang, SORL Auto Parts' CEO and Chairman. "Despite the stagnant global economic environment, our third quarter revenue continued to experience growth by 11% year-over-year, and we maintained a relatively high gross margin of 26.9% for the first three quarters of 2008. As we look to the future we have to recognize that the current condition of the global economy may present us with great challenges. The credit crisis that started in the US has spread throughout the global economy and now appears to be having an impact on the real economy. The US seems likely to experience negative economic growth over the next few quarters and vehicle sales in the US have fallen off dramatically. There are signs that similar trends will be felt throughout the global economy. This includes China which recently reported that growth has slowed significantly as compared to the 2007 level. We also believe that this slowdown has begun to impact the vehicle market in China. Given changes in the economic environment since the onset of the financial crisis we will make the follow adjustments. We will put maximum effort into developing high potential market segments including buses and agricultural vehicles. We will also continue to work to sell more systems, as opposed to individual components, as systems sales provide higher margins and also secure better customer relationships. Also in the interest of better customer relationships, we will put more resources into serving our better customers, including having more SORL technical personnel onsite regularly, while at the same time paring relationships with customers that present unacceptable credit risk. We will also develop new customers cautiously, particularly as relates to credit risk. Finally, we will continue our efforts relative to manufacturing efficiency in order to sustain and build upon the gross margin improvement we have been making. In summary, we will continue to pursue growth while minimizing our risk and improving our gross margins by ongoing improvements in operating efficiency."
Management will host a conference call at 8:30 am ET on Wednesday, November 12, 2008. Listeners may access the call by dialing (913) 312-0955. A live webcast of the conference call will also be available at http://www.viavid.net . A replay of the call will be available from November 12, 2008 to November 19, 2008. Listeners may access the replay by dialing (719) 457-0820; passcode: 2602254.
About SORL Auto Parts, Inc.
As China's leading manufacturer and distributor of automotive air brake valves, SORL Auto Parts, Inc. ranks first in market share in the segment for commercial vehicles weighing more than three tons, such as trucks and buses. The Company distributes products both within China and internationally under the SORL trademark. SORL ranks among the top 100 auto component suppliers in China, with a product range that includes 40 types of air brake valves and over 1000 different specifications. The Company has four authorized international sales centers in Australia, United Arab Emirates, India, and the United States, with additional offices slated to open in other locations in the near future. 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 .
SORL Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 2008(unaudited) and December 31, 2007
September 30, December 31,
2008 2007
(Unaudited) (Audited)
Assets
Current Assets
Cash and Cash Equivalents US$5,950,987 US$4,340,211
Accounts Receivable, Net of
Provision 36,210,887 30,586,239
Notes Receivable 6,809,907 9,410,385
Inventory 20,831,986 8,220,373
Prepayments 2,730,862 1,336,212
Other Current Assets 3,614,446 4,275,294
Total Current Assets 76,149,075 58,168,714
Fixed Assets
Property, Plant and Equipment 32,545,735 27,889,182
Less: Accumulated Depreciation (8,325,938) (6,094,229)
Property, Plant and Equipment,
Net 24,219,797 21,794,953
Land Use Rights, Net 14,632,351 13,889,705
Other Assets
Deferred Compensation Cost-Stock
Options 24,844 69,571
Intangible Assets 161,733 76,150
Less: Accumulated Amortization (35,274) (25,116)
Intangible Assets, Net 126,459 51,034
Other Non-current Assets -- --
Total Other Assets 151,303 120,605
Total Assets US$115,152,526 US$93,973,977
Liabilities and Shareholders'
Equity
Current Liabilities
Accounts Payable and Notes Payable US$5,093,924 US$5,305,172
Deposit Received from Customers 5,538,253 2,079,946
Short Term Bank Loans 2,002,533 3,370,328
Income Tax Payable 491,587 373,769
Accrued Expenses 3,233,396 1,859,938
Other Current Liabilities 429,628 463,563
Total Current Liabilities 16,789,321 13,452,716
Minority Interest 9,812,875 8,024,152
Shareholders' Equity
Common Stock - $0.002 Par Value;
50,000,000 Authorized, 18,279,254 -
Issued and Outstanding as of
June 30, 2008 and December 31,
2007 respectively 36,558 36,558
Additional Paid In Capital 37,498,452 37,498,452
Reserves 2,897,555 1,882,979
Accumulated Other Comprehensive
Income 10,876,022 5,432,189
Retained Earnings 37,241,743 27,646,931
88,550,330 72,497,109
Total Liabilities and
Shareholders' Equity US$115,152,526 US$93,973,977
SORL Auto Parts, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive
Income(unaudited)
For The Three Months and Nine Months Ended on September 30, 2008 and 2007
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Sales US$ 32,967,579 29,703,227 105,812,140 83,309,788
Cost of Sales 24,550,613 23,064,724 77,343,967 64,620,063
Gross Profit 8,416,966 6,638,503 28,468,173 18,689,725
Expenses:
Selling and
Distribution
Expenses 2,261,143 1,928,763 6,872,221 4,444,053
General and
Administrative
Expenses 3,018,390 1,682,071 7,712,808 4,402,694
Financial Expenses 221,694 349,056 974,690 606,492
Total Expenses 5,501,227 3,959,890 15,559,719 9,453,239
Operating Income 2,915,739 2,678,613 12,908,454 9,236,486
Other Income 276,752 118,334 610,592 502,606
Non-Operating Expenses (119,677) (10,357) (374,640) (94,996)
Income (Loss) Before
Provision for Income
Taxes 3,072,814 2,786,590 13,144,406 9,644,096
Provision for Income
Taxes 468,935 434,139 1,351,166 373,883
Net Income Before
Minority Interest
& Other Comprehensive
Income US$ 2,603,879 2,352,451 11,793,240 9,270,213
Minority Interest 261,904 239,867 1,183,852 936,986
Net Income Attributable
to Shareholders 2,341,975 2,112,584 10,609,388 8,333,227
Foreign Currency
Translation Adjustment 578,065 1,025,919 6,048,704 2,723,508
Minority Interest's
Share (57,807) (102,592) (604,871) (272,351)
Comprehensive Income
(Loss) 2,862,233 3,035,911 16,053,221 10,784,384
Weighted average common
share - Basic 18,279,254 18,278,805 18,279,254 18,276,366
Weighted average common
share - Diluted 18,283,011 18,312,574 18,287,094 18,323,125
EPS - Basic 0.13 0.12 0.58 0.46
EPS - Diluted 0.13 0.12 0.58 0.45
For more information please contact:
Ben Chen
Director of Investor Relations
SORL Auto Parts, Inc.
Tel: +86-577-6581-7720
Email: ben@sorl.com.cn
Dan Joseph
ICR, Inc.
Tel: +86-21-6122-1077
Bill Zima
ICR, Inc.
Tel: +1-203-682-8200
SOURCE SORL Auto Parts, Inc.
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