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China Power Equipment Announces Second Quarter 2012 Financial Results

August 14, 2012

XI’AN, China, Aug. 14, 2012 /PRNewswire-Asia-FirstCall/ — China Power Equipment, Inc. (“China Power Equipment” or the “Company,” OTCBB: CPQQ), a manufacturer of a new generation of energy saving amorphous alloy transformer cores and transformers in China, today announced its financial results for the second quarter ended June 30, 2012.

Second Quarter Highlights:

  • Revenues decreased 2.1% to $9.49 million year over year
  • Net income increased 1.6% to $1.70 million year over year with $0.07 in diluted EPS
                                           Summarized Second Quarter 2012 Results
                                                Q2 2012                Q2 2011               Increase (Decrease)
    Revenues                                     $9.49 million          $9.70 million                            (2.1)%
    Gross Profit                                 $2.51 million          $2.40 million                              4.3%
    Selling, General and
     Administrative
     Expenses                                    $0.50 million          $0.41 million                             20.5%
    Net Income                                   $1.70 million          $1.67 million                              1.6%
    Diluted EPS*                                         $0.07                  $0.07                                -

    *Earnings per share are based on weighted average fully diluted shares outstanding of 23.7
     million and 23.6 million in Q2 2012 and Q2 2011, respectively. All numbers are rounded to
     nearest $1 million, excluding EPS and percentages.

“Due to our marketing strategy, we passed most of our cost savings from a decline in the prices of the amorphous alloy strips onto the customers. Therefore, despite the higher sales volume in amorphous alloy cores, revenues for the quarter were lower year over year.” said Mr. Song Yongxing, Chairman, CEO, and President of China Power Equipment. “Revenues in the second quarter increased 30.8% compared to revenues in the first quarter which underscores our brand equity and the fact that our marketing and sales strategy are working.

“In addition, our gross profit margin increased to 26.4% in the second quarter of 2012 from 24.8% in the same period last year. The higher gross profit margin shows that our efforts of controlling costs and enhancing efficiency are starting to achieve the good improvement we have been expecting.

“Despite revenues from amorphous alloy transformers decreasing 5.7% in the second quarter of 2012, compared to the same period of 2011, the number of the transformers we produced in-house at our new production facility increased 184% in the second quarter of 2012 compared to the first quarter of the same year. The increases in capacity utilization of amorphous alloy cores and transformers and the improvement of gross margin in amorphous alloy cores are positive developments that are consistent with our Company’s long term objectives. Furthermore, the demand for energy-saving and environmentally friendly products is expected to increase continuously as China further upgrades its electric grids and continues to expand its energy infrastructure in western China,” concluded Mr. Song.

Total net revenues for the quarter decreased $207,191 or 2.1% to $9.49 million, compared to the same period of 2011, primarily attributable to the lower average selling prices of amorphous alloy cores and transformers and the lower sales volume of amorphous alloy transformers, partly offset by higher tonnage of amorphous alloy cores sold. As the amorphous alloy technologies mature, producers can afford to price amorphous alloy transformers more competitively so as to encourage their increased adoption and usage by end users. Net revenues generated by sales of amorphous alloy cores decreased 0.8% to $6.95 million for the quarter, representing 73.2% of sales. Net revenues generated by sales of amorphous alloy transformers were $2.54 million, representing 26.8% of sales, a decrease of 5.7% from the second quarter of 2011.

Gross profit for the quarter was $2.51 million, representing an increase of approximately 4.3% compared to the same period of 2011, primarily attributable to a lower cost of goods sold associated with amorphous alloy cores. Consolidated gross profit margin for the quarter increased 1.6 percentage points to 26.4% from 24.8% in the second quarter of 2011, mainly attributable to a decrease in primary raw material prices.

Selling, general and administrative (“SG&A”) expenses totaled $0.50 million for the three months ended June 30, 2012, an increase of approximately 20.5% from the same period in 2011, primarily attributable to an increase in administrative personnel expenses, resulting from higher director and officer insurance and higher salaries and related employee benefit. Net income from operation increased approximately 0.99% year-over-year to $2.01 million, reflecting an operating margin of 21.2%.

Net income for the second quarter ended June 30, 2012 was $1.70 million, a slight increase of 1.6% versus the same period of 2011, primarily attributable to higher gross profit, offset by higher SG&A expenses. Earnings per share based on 23.7 million fully-diluted shares were $0.07.

Six Month Results

                                             Summarized First Half 2012 Results
                                                1H 2012                1H 2011               Increase (Decrease)
    Revenues                                    $16.75 million         $17.43 million                            (3.9)%
    Gross Profit                                 $4.34 million          $4.24 million                              2.5%
    Selling, General and
     Administrative
     Expenses                                    $1.03 million          $0.87 million                             18.1%
    Net Income                                   $2.74 million          $2.80 million                            (2.1)%
    Diluted EPS*                                         $0.12                  $0.12                                -

    *Earnings per share are based on weighted average fully diluted shares outstanding of 23.7
     million and 23.6 million in the first half of 2012 and 2011, respectively. All numbers are
     rounded to nearest $ 1 million, excluding EPS and percentages.

Total net revenues for the six-month period ended June 30, 2012 decreased $682,047 or 3.9%, compared to the same period of 2011. Net revenues generated by sales of amorphous alloy cores decreased 3.3% to $12.43 million during the period and accounted for 74.2% of total sales. Net revenues generated by sales of amorphous alloy transformers decreased 5.7% to $4.32 million and comprised of 25.8% of sales for the period. Net revenues decreased primarily as a result of the lower average selling prices of amorphous alloy cores and transformers and the lower sales volume of amorphous alloy transformers, partly offset by higher tonnage of amorphous alloy cores sold, as described above.

Gross profits for the first half of 2012 were $4.34 million, an increase of 2.5% versus the same period last year. Gross profit margin for the period for amorphous alloy cores increased 2.7 percentage points to 26.9%, while gross profit margin for amorphous alloy transformers decreased 1.3 percentage points to 23.2%.

SG&A expenses for the first half of 2012 increased 18.1% to $1.03 million compared to the same period of last year and represented 6.2% of the total net revenues.

Net income for the first half of 2012 was $2.74 million, a decrease of 2.1% versus the same period of last year and earnings per share were $0.12 based on 23.7 million fully-diluted shares.

Financial Condition

Cash and cash equivalents were $25.18 million at June 30, 2012 compared to $23.09 million at December 31, 2011. Working capital increased to $27.36 million at June 30, 2012 from $23.89 million at the end of 2011. Accounts receivable was $3.63 million at June 30, 2012, compared to $ 1.99 million at the end of 2011.

The Company generated $1.95 million of cash flows from operating activities during the first six months of 2012.

Business and Facilities Update

Since the third quarter of 2010, the Company has expanded its amorphous core production lines from an annual capacity of 1,500 to 6,500 tons. The capacity utilization of the lines ramped up very well and was 100% in the second quarter and 88% in the first half of 2012 based on the designed capacity with one shift. The amorphous core production lines can easily be expanded to annual capacity of 10,000 tons with minimal capital expenditure.

Since the Company commenced commercial production at its new amorphous alloy transformer production line during the third quarter of 2011, it has invested a significant amount of time to recruit and train personnel working at the new transformer facility to ensure the highest standards of quality and reliability of its transformers. The efforts were also recognized by Quality Inspection and Test Center for Equipment of Electric Power (“QITCFEEP”), a quality inspection authority for the transformers industry in China. On June 6, 2012, the Company received a Qualified and Satisfactory Test Report issued by QITCFEEP. Previously, the Company used third party manufacturers to make transformers. With the completion of this new facility, orders that were previously subcontracted are gradually being taken in-house. During the second quarter of 2012, the Company produced about 76% of all transformers in-house at the new production facility.

As the domestically-produced amorphous alloy strip continues to improve and becomes more reliable, during the second quarter of 2012, about 57% of the Company’s amorphous alloy cores were made from the domestically-produced amorphous alloy strip which contributed to a decrease in cost of goods sold and an increase in gross profit margin.

According to the category of new technologies mandated by China State Grid, starting in 2012 all newly-installed distribution transformers must be energy-saving transformers. Furthermore, the Southern Grid plans to significantly increase its usage of amorphous alloy transformers in its electric grid projects. The Company expects these positive developments to drive demand for amorphous alloy transformers in the second half of 2012. As one of the leading companies that has large-scale production capacity and produces high efficient new models of amorphous alloy transformers in northwestern China, the Company anticipates capturing a good share of the emerging rural markets to increase sales and further grow its business.

Conference Call

China Power will hold its second quarter 2012 financial results conference call at 8:00 am ET on Wednesday, August 15, 2012.

To attend the call, please use the information below for dial-in access. When prompted on dial-in, ask for “China Power Equipment Second Quarter 2012 Earnings Conference Call”.

    Date:                           Wednesday, August 15, 2012
    Time:                           8:00 am Eastern Time, US
    US Toll Free Dial-In:                            +1 866 549 1292
    Asia Toll Free Dial-In:         Mainland China: 800 876 8626
    Hong Kong:                                             3005 2050
    Password:                       896358#
    Conference ID:                   China Power Equipment Q2 2012
                                     Earnings Conference Call

Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through September 15, 2012. To listen, please call +1 866 753 0743 within the United States, 800 876 5016 if calling in China, or +852 3005 2020 if calling internationally. Utilize the pass code 160773# for the replay.

The archive of the conference call will be available on China Power Equipment’s website at: http://www.chinapower-equipment.com

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.

    For more information, please
     contact:

    COMPANY:
    Ms. Nicole Chen (English and
     Chinese)
    Vice President of Finance
    China Power Equipment, Inc.
    Telephone: +86 (29) 6261 9758
    Mobile: +86 186 1633 1170
    Email: xa-fj@xa-fj.com

                                                               China Power Equipment, Inc.
                                                               Consolidated Balance Sheets

                                                                                           June 30, 2012             December 31, 2011
                                                                                           -------------             -----------------
                                                                                            (unaudited)
    Assets
    Current Assets
    Cash and cash equivalents                                                                            $25,182,993                   $23,090,102
    Accounts receivable, net                                                                               3,626,910                     1,990,127
    Inventory                                                                                                607,457                       304,372
    Prepaid expenses and other receivables                                                                   441,000                     1,090,142
    --------------------------------------                                                                   -------                     ---------
    Total Current Assets                                                                                  29,858,360                    26,474,743

    Property, plant and equipment, net                                                                     9,100,518                     9,415,894
    Intangible assets, net                                                                                   273,717                       301,653
    Deposit on contract rights                                                                             1,140,294                     1,266,504
    Prepaid capital lease                                                                                    105,912                       108,111
    ---------------------                                                                                    -------                       -------
    Total Assets                                                                                         $40,478,801                   $37,566,905
    ------------                                                                                         ===========                   ===========

    Liabilities and Stockholders' Equity
    Current Liabilities
    Accounts payable                                                                                        $911,518                    $1,172,603
    Other payables and advance from customers                                                              1,039,340                       889,470
    Lease payable - current portion                                                                            2,858                         2,838
    -------------------------------
    Short-term loan                                                                                           63,402                        62,948
    Income taxes payable                                                                                     485,444                       452,627
                                                                                                             -------                       -------
    Total Current Liabilities                                                                              2,502,562                     2,580,486

    Long-term Liabilities
    Lease payable - noncurrent portion                                                                       119,690                       118,831
    ----------------------------------                                                                       -------                       -------
    Total Long-term Liabilities                                                                              119,690                       118,831

    Total Liabilities                                                                                      2,622,252                     2,699,317

    Stockholders' Equity
                                                                                                               4,102                         4,150
    Series B convertible preferred stock, $0.001 par value,
      5,000,000 shares authorized, 4,102,000 shares issued and
      outstanding at June 30, 2012 and 4,149,667 shares issued
      and outstanding at December 31, 2011
    Undesignated preferred stock, $0.001 par value, 5,000,000                                                      -                             -
          shares authorized, None issued and outstanding
    Common stock: par value $0.001 per share, 100,000,000                                                     19,460                        19,412
           shares authorized; 19,459,680 shares issued and
           outstanding at June 30, 2012 and 19,412,013 shares
           issued and outstanding at December 31, 2011
    Additional paid in capital                                                                            25,840,351                    25,819,701
    Statutory surplus reserve fund                                                                         1,914,074                     1,914,074
    Retained earnings                                                                                      7,161,785                     4,422,741
    Accumulated other comprehensive income                                                                 2,916,777                     2,687,510
    --------------------------------------                                                                 ---------                     ---------
    Total stockholders' equity                                                                            37,856,549                    34,867,588
    --------------------------

    Total Liabilities and Stockholders' Equity                                                           $40,478,801                   $37,566,905
    ------------------------------------------                                                           ===========                   ===========

                                                                              China Power Equipment, Inc.
                                                             Consolidated Statements of Operations and Comprehensive Income

                             Three Months Ended June 30,                   Six Months Ended June 30,
                             ---------------------------                   -------------------------
                                                       2012                                         2011                                       2012                     2011
                                                       ----                                         ----                                       ----                     ----
                                     (unaudited)                                  (unaudited)                               (unaudited)              (unaudited)
    Revenue, net                                 $9,490,341                                   $9,697,532                                $16,745,683              $17,427,730
    Cost of goods sold                           (6,985,282)                                  (7,296,777)                               (12,403,256)             (13,190,887)
    ------------------                           ----------                                   ----------                                -----------              -----------
    Gross profit                                  2,505,059                                    2,400,755                                  4,342,427                4,236,843

    Selling, general and
     administrative expenses                        497,553                                      412,876                                  1,032,140                  874,173
                                                    -------                                      -------                                  ---------                  -------

    Net income from
     operations                                   2,007,506                                    1,987,879                                  3,310,287                3,362,670

    Other income (expenses)
    Other income                                     31,707                                            -                                     31,707                      789
    Other expenses                                      (24)                                         (30)                                    (4,800)                     (69)
    Interest income                                   5,218                                        8,715                                     10,839                   27,926
    Interest expense                                 (1,617)                                           -                                     (2,879)                       -
    ----------------                                 ------                                          ---                                     ------                      ---
    Total other income                               35,284                                        8,685                                     34,867                   28,646

    Net income before income
     taxes                                        2,042,790                                    1,996,564                                  3,345,154                3,391,316

    Income taxes                                    346,106                                      326,949                                    606,110                  593,351
    ------------                                    -------                                      -------                                    -------                  -------

    Net income                                   $1,696,684                                   $1,669,615                                 $2,739,044               $2,797,965
    ----------                                   ==========                                   ==========                                 ==========               ==========

    Other Comprehensive
     Income
    Change in foreign
     currency translation
     adjustment                                      16,897                                      328,292                                    229,267                  475,091
                                                     ------                                      -------                                    -------                  -------
    Comprehensive income                         $1,713,581                                   $1,997,907                                 $2,968,311               $3,273,056
                                                 ==========                                   ==========                                 ==========               ==========

    Earnings per share -
     basic                                            $0.09                                        $0.09                                      $0.14                    $0.14
    --------------------                              =====                                        =====                                      =====                    =====
    Earnings per share -
     diluted                                          $0.07                                        $0.07                                      $0.12                    $0.12
    --------------------                              =====                                        =====                                      =====                    =====

    Weighted average common
     shares outstanding:
    -----------------------
    Basic                                        19,459,680                                   19,382,013                                 19,438,204               19,382,013
                                                 ==========                                   ==========                                 ==========               ==========
    Diluted                                      23,655,544                                   23,591,375                                 23,651,835               23,591,375
                                                 ==========                                   ==========                                 ==========               ==========

                                                                       China Power Equipment, Inc.
                                                                  Consolidated Statements of Cash Flows

                                                                                                        Six Months Ended June 30,
                                                                                                        -------------------------
                                                                                                                                   2012                      2011
                                                                                                                                   ----                      ----
                                                                                                               (unaudited)               (unaudited)
    Cash Flows from Operating Activities
    Net income                                                                                                               $2,739,044                $2,797,965
    Adjustments to reconcile net income to net cash:
    Depreciation and amortization expense                                                                                       553,283                   302,911
    Stock-based compensation                                                                                                     20,650                    37,779
    Reversal of provision for impairment on advance to suppliers                                                                (20,001)                        -
    Changes in operating assets and liabilities:
    Accounts receivable                                                                                                      (1,622,645)                 (778,205)
    Inventory                                                                                                                  (301,245)                   32,395
    Prepaid expenses and other receivables                                                                                      677,070                   124,215
    Accounts payable                                                                                                           (270,155)                 (678,552)
    Other payables and advance from customers                                                                                   143,785                   (81,999)
    Income taxes payable                                                                                                         29,458                    72,848
    Net cash provided by operating activities                                                                                 1,949,244                 1,829,357

    Cash Flows from Investing Activities
    Addition in plant and equipment                                                                                                (852)                   (7,791)
    Addition in construction in progress                                                                                              -                (2,058,792)
    Proceeds from disposal of investments                                                                                             -                   330,454
    Net cash used in investing activities                                                                                          (852)               (1,736,129)

    Cash Flows from Financing Activities                                                                                              -                         -

    Effect of exchange rate changes on cash and cash equivalents:                                                               144,499                   270,256
                                                                                                                                -------                   -------

    Increase  in cash and cash equivalents                                                                                    2,092,891                   363,484
    Cash and cash equivalents, beginning of period                                                                           23,090,102                17,932,447
                                                                                                                             ----------                ----------
    Cash and cash equivalents, end of period                                                                                $25,182,993               $18,295,931
                                                                                                                            ===========               ===========

    Supplemental disclosure of cash flow information
    Interest paid in cash                                                                                                        $2,879   $                     -
                                                                                                                                 ======   =======================
    Income taxes paid in cash                                                                                                  $576,652                  $520,503
                                                                                                                               ========                  ========

    Non-cash investing and financing activities:
    Conversion of preferred stock into common stock                                                                                 $48   $                     -

SOURCE China Power Equipment, Inc.


Source: PR Newswire