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Wonder Auto Reports Its Third Quarter 2009 Financial Results

Posted on: Monday, 2 November 2009, 07:10 CST

JINZHOU CITY, China, Nov. 2 /PRNewswire-Asia-FirstCall/ -- Wonder Auto Technology, Inc. (Nasdaq: WATG) ("Wonder Auto" or "the Company"), a leading manufacturer of automotive electric parts, suspension products and engine components in China, today announced its financial results for the third quarter ended September 30, 2009.

Highlights: -- $59.0 million sales revenue for the third quarter of 2009, an increase of 50.2% from the same quarter of last year; $41.0 million organic sales revenue in China, an increase of 24.1% on year-over-year basis excluding acquisition contribution. -- $6.5 million net income, or $0.24 per share on a basic and diluted basis, for the third quarter of 2009, an increase of 2.4% from the same period of last year; -- On a non-GAAP basis, net income for the third quarter of fiscal 2009 increased 25.8% to $6.9 million, or $0.26 per share, on a basic and diluted basis, as compared with a non-GAAP net income of $5.5 million, or $0.20 per share, for the third quarter of fiscal 2008. Non-GAAP net income excludes non-cash exchange gain/loss in connection with a loan denominated in euro.

Business outlook

We project approximately $208 million sales revenue and $23 million net income attributable to our common stockholders for the whole year ended December 31, 2009.

Financial performance

Sales Revenue. Sales revenue increased by approximately $19.7 million, or 50.2%, to approximately $59.0 million for the three months ended September 30, 2009, compared with $39.3 million of the same period last year. This increase was mainly attributable to the $12.9 million in additional revenues generated in the third quarter of 2009 by recently acquired subsidiary, Jinan Worldwide and increased sales volume of starter and alternator products in the third quarter of 2009 due to the high market demand.

Gross Profit. Gross profit increased by approximately $3.8 million, or 37.8%, to approximately $14.0 million for the three months ended September 30, 2009, compared with approximately $10.1 million for the same period in 2008 as a result of increased demand for and sales of alternator and starter products and the consolidation of the operating results of Jinan Worldwide which contributed $3.7 million to gross profit. Gross margin was 23.7% for the three-month period ended September 30, 2009, as compared to 25.8% of the same period in 2008. Such decrease was mainly due to a larger portion of sales revenue was generated from alternators and starters for small-to-mid displacement engine vehicles which generally have a lower margin than alternators and starters for large displacement engine vehicle.

Total Operating Expenses. Total operating expenses increased by approximately $1.8 million, or 54.3%, to approximately $5.2 million for the three months ended September 30, 2009, compared with approximately $3.3 million for the same period in 2008. As a percentage of sales revenue, total expenses increased to 8.8% for the three months ended September 30, 2009, compared from 8.5% for the same period in 2008.

Net finance cost. Net finance cost was $1.5 million for the three months ended on September 30, 2009 as compared to a net finance income of $139,381 for the same period last year. The Company has an outstanding loan of EUR8.3 million from DEG - Deutsche Investitions - und Entwicklungsgesellschaft mbH, (the "DEG Loan"). Since the DEG Loan is denominated in euro, with the depreciation of RMB against euro, the Company incurred a $439,746 non-cash exchange loss during the three months ended September 30, 2009. In contrast, the Company had a non-cash exchange gain of approximately $1.0 million for the same period of 2008.

Income Taxes. Income taxes increased $307,503 to $939,622 during the three months ended September 30, 2009 from $632,570 during the same period in 2008. The income taxes increase is mainly due to the increase in income and the change in tax rate for the Company's subsidiary Jinzhou Wanyou. Jinzhou Wanyou was exempted from the PRC enterprise income tax in 2008 and its EIT rate increased to 12.5% in 2009.

Net Income. Net income increased by $153,483, or 2.4%, to approximately $6.5 million during the three months ended September 30, 2009 from approximately $6.4 million during the same period in 2008.

Events overview

On September 28, 2009, Wonder Auto's subsidiary Jinzhou Halla entered into a joint development agreement with Shenzhen BYD Auto Company Limited ("Shenzhen BYD") to design and develop alternator prototypes for Shenzhen BYD's F3/F3R sedan models, which have engine sizes between 1.3 liters and 1.5 liters, and were among the top ten best-selling models in China in the first nine months in 2009. Sample deliveries are expected to start in November 2009 for testing.

On September 22, 2009, Wonder Auto's subsidiary Jinzhou Wanyou Mechanical Parts Co., Ltd. acquired Friend Birch Limited and its China-based operating subsidiaries, Jinzhou Jiade Machinery Co., Ltd. and Jinzhou Lida Auto Parts Co., Ltd. Jinzhou Jiade Machinery and Jinzhou Lida Auto Parts manufacture and sell gas spring shafts and other thin mechanical shafts products, automotive springs and gas springs, and prior to the acquisition were among Wonder Auto's key suppliers of those products. As part of the transaction, Jinzhou Wanyou also acquired all proprietary technologies of Friend Birch Limited's rods and shafts technology center in Brazil.

Wonder Auto recently entered into an investment option agreement with the shareholders of Jinzhou Wonder Alternative Energy Vehicle Technology Co., Ltd. ("Jinzhou AEV"), which allows Wonder Auto to acquire a 10% ownership interest in Jinzhou AEV by the end of 2009 and grants the Company a right of first refusal to acquire a greater ownership interest in Jinzhou AEV. In addition, Wonder Auto will be the preferred supplier of motors to Jinzhou AEV. Jinzhou AEV is a manufacturer of electric and alternative energy vehicles, including electric sedans, taxis, minivans, pick-ups, freight cars, tourist coaches, golf carts and motorized bikes. Wonder Auto's CEO and chairman, Mr. Qingjie Zhao, is a 60% owner of Jinzhou AEV.

Mr. Qingjie Zhao, Chairman and Chief Executive Officer of Wonder Auto commented, "In the process of fighting against the global economic recession, significant changes have taken place in the auto industry. As the 10 million sales target was achieved in the Chinese auto market during October, people begin to turn their focuses to China's economy recovery. We have achieved our preliminary goals for adjustments to response to the financial crisis, and thus reinforced our competitiveness in the markets."

Conference call

The company will host a conference call on Monday, November 2 at 8:00 a.m. U.S. Eastern Daylight time. A question and answer session will follow management's presentation. Mr. Qingjie Zhao (Chairman & CEO), Mr. Ryan Yuan (CFO), Mr. Patrick Sun (Investor Relations Manager) and Mr. Rui Wang (Assistant CFO) will be the primary speakers for the call.

To participate, please call the following numbers ten minutes before the call start time:

Phone number: +1 866 242 1388 (United States) Phone number: +852 800 968 831 (Hong Kong) Phone number: +86 10 800 264 0084 (China, China Telecom) Phone number: +86 10 800 640 0084 (China, NetCom Users) Phone number: +44 08082347860 (United Kingdom) Conference ID: 38225903

A live webcast of the conference call will be available on the investor relations page of Wonder Auto's web site at http://www.watg.cn .

Non-GAAP Financial Measures and Related Reconciliation

To supplement the Company's financial results presented in accordance with GAAP, the Company provides non-GAAP net income and non-GAAP net income per share data on a basic and diluted basis. The presentation of these non-GAAP financial measures should be considered in addition to the Company's GAAP results and are not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. The Company's non-GAAP measures may be different from non-GAAP measures used by other companies. The Company's management believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance by excluding certain exchange gains and losses that may not be indicative of the Company's business operating results. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the Company's performance. These non-GAAP financial measures also facilitate comparisons to the Company's historical performance and its competitors' operating results. The Company includes these non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. Non-GAAP measures are reconciled to comparable GAAP measures in the table below:

Three Months Ended September 30, 2009 2008 Calculation of non-GAAP net income: GAAP net income $6.5 mil $6.4 mil Foreign exchange (loss) gain: ($0.4 mil) $1.0 mil Non-GAAP net income $6.9 mil $5.5 mil Basic and diluted non-GAAP net income per share $0.26 $0.20 Shares used in the calculation of non-GAAP net income per share - basic and diluted 26,959,994 26,959,994

About Wonder Auto

Based in Jinzhou City, Liaoning, China, Wonder Auto Technology, Inc., through its Chinese subsidiaries, designs, develops, manufactures and sells automotive electrical parts, suspension products and engine components. Wonder Auto ranked second and third in sales revenue in the Chinese market for automobile alternators and starters in 2008, respectively. Wonder Auto's products are used in a wide range of passenger and commercial automobiles with special focus on the fast-growing small- to medium-engine passenger vehicle market. For more information, please log on http://www.watg.cn .

Safe Harbor Statement

This press release may include certain statements that are not descriptions of historical facts, but are forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, our future operating results, our expectations regarding the market for our products, 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.

Wonder Auto Technology, Inc. Condensed Consolidated Statements of Income and Comprehensive Income For the three and nine months ended September 30, 2009 and 2008 Three months ended Nine months ended September 30, September 30, (Unaudited) (Unaudited) 2009 2008 2009 2008 Sales revenue $58,961,604 $39,265,821 $148,588,838 $107,041,424 Cost of sales 45,007,159 29,139,968 112,320,802 79,238,857 Gross profit 13,954,445 10,125,853 36,268,036 27,802,567 Operating expenses Administrative expenses 2,594,285 1,676,857 7,662,331 4,444,210 Research and development expenses 487,572 459,804 1,408,479 1,128,026 Selling expenses 2,080,438 1,209,170 4,811,601 2,912,020 5,162,295 3,345,831 13,882,411 8,484,256 Income from operations 8,792,150 6,780,022 22,385,625 19,318,311 Other income 149,146 107,023 827,043 520,349 Government grants 397,277 -- 749,815 -- Net finance (costs)/ income (1,481,640) 139,381 (3,511,726) (1,380,951) Equity in net income of an unconsolidated affiliate -- 567,802 -- 792,924 Income before income taxes and noncontrolling interests 7,856,933 7,594,228 20,450,757 19,250,633 Income taxes (939,622) (632,570) (2,492,651) (1,859,813) Net income before noncontrolling interests 6,917,311 6,961,658 17,958,106 17,390,820 Net income attributable to noncontrolling interests (410,290) (608,120) (903,823) (1,785,599) Net income attributable to Wonder Auto Technology, Inc. common stockholders $6,507,021 $6,353,538 $17,054,283 $15,605,221 Net income before noncontrolling interests $6,917,311 $6,961,658 $17,958,106 $17,390,820 Other comprehensive income Foreign currency translation adjustments 167,348 185,858 112,056 4,448,672 Comprehensive income 7,084,659 7,147,516 18,070,162 21,839,492 Comprehensive income attributable to noncontrolling interests (421,159) (623,982) (904,590) (2,372,767) Comprehensive income attributable to Wonder Auto Technology, Inc. common stockholders $6,663,500 $6,523,534 $17,165,572 $19,466,725 Earnings per share attributable to Wonder Auto Technology, Inc. common stockholders: basic and diluted $0.24 $0.24 $0.63 $0.58 Weighted average number of shares outstanding: basic and diluted 26,959,994 26,959,994 26,959,994 26,959,994 Wonder Auto Technology, Inc. Condensed Consolidated Balance Sheets As of September 30, 2009 and December 31, 2008 September 30, December 31, 2009 2008 (Unaudited) (Audited) ASSETS Current assets Cash and cash equivalents $21,419,751 $8,159,156 Restricted cash 21,283,623 24,181,645 Trade receivables, net 50,640,997 46,571,619 Bills receivable 21,351,329 8,388,926 Other receivables, prepayments and deposits 9,225,466 16,408,304 Inventories 46,916,547 44,016,192 Amount due from Hony Capital -- 7,637,216 Income tax recoverable -- 289,000 Deferred taxes 1,204,625 1,075,766 Total current assets 172,042,338 156,727,824 Intangible assets 22,097,408 22,062,560 Property, plant and equipment, net 71,883,262 69,131,579 Land use rights 10,206,638 10,391,527 Deposit for acquisition of property, plant and equipment 2,554,387 3,845,774 Deferred taxes 628,382 870,500 TOTAL ASSETS $279,412,415 $263,029,764 Wonder Auto Technology, Inc. Condensed Consolidated Balance Sheets (Cont'd) As of September 30, 2009 and December 31, 2008 September 30, December 31, 2009 2008 (Unaudited) (Audited) LIABILITIES AND EQUITY LIABILITIES Current liabilities Trade payables $30,633,985 $21,616,932 Bills payable 31,161,376 31,247,100 Other payables and accrued expenses 13,540,880 20,465,014 Provision for warranty 2,581,872 2,377,620 Payable to Hony Capital -- 10,187,216 Income tax payable 602,290 -- Secured borrowings 54,010,768 44,055,803 Early retirement benefits cost 371,247 419,301 Total current liabilities 132,902,418 130,368,986 Secured borrowings 18,577,971 16,054,478 Deferred revenue - government grants 3,382,726 2,806,777 Early retirement benefits cost 519,895 798,115 TOTAL LIABILITIES 155,383,010 150,028,356 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock: par value $0.0001 per share; authorized 10,000,000 shares in 2009 and 2008; none issued and outstanding -- -- Common stock: par value $0.0001 per share Authorized 90,000,000 shares in 2009 and 2008; issued and outstanding 26,959,994 shares in 2009 and 2008 2,696 2,696 Additional paid-in capital 67,711,999 71,349,599 Statutory and other reserves 7,944,120 7,628,541 Accumulated other comprehensive income 9,609,908 8,424,270 Retained earnings 31,708,870 14,654,587 TOTAL WONDER AUTO TECHNOLOGY, INC. STOCKHOLDERS' EQUITY 116,977,593 102,059,693 NONCONTROLLING INTERESTS 7,051,812 10,941,715 TOTAL EQUITY 124,029,405 113,001,408 TOTAL LIABILITIES AND EQUITY 279,412,415 $263,029,764 Wonder Auto Technology, Inc. Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2009 and 2008 Nine months ended September 30, (Unaudited) 2009 2008 Cash flows from operating activities Net income attributable to Wonder Auto Technology, Inc. common stockholders $17,054,283 $15,605,221 Adjustments to reconcile net income attributable to Wonder Auto Technology, Inc. common stockholders to net cash provided by operating activities: Depreciation 4,239,790 2,248,751 Amortization of intangible assets and land use rights 297,888 85,162 Deferred taxes 111,617 (208,858) Loss (gain) on disposal of property, plant and equipment 59,490 (1,205) Provision for doubtful debts 303,738 (4,020) Provision of obsolete inventories 26,149 43,671 Exchange loss (gain) on translation of monetary assets and liabilities 387,701 (828,205) Equity net income of a non-consolidated affiliate -- (792,924) Share-based payment compensation -- 109,772 Noncontrolling interests 903,823 1,785,599 Deferred revenue amortized (193,408) -- Changes in operating assets and liabilities : Trade receivables (4,366,425) (15,303,061) Bills receivable (11,649,801) 6,302,977 Other receivables, prepayments and deposits 1,694,880 (1,860,072) Inventories (2,926,673) (6,365,418) Trade payables 9,010,565 3,254,639 Other payables and accrued expenses (4,604,814) (1,584,738) Amount due from a related company -- 78,516 Early retirement benefit costs (325,977) -- Provision for warranty 203,981 542,873 Income tax payable 886,176 (9,835) Net cash flows provided by operating activities $11,112,983 $3,098,845 Wonder Auto Technology, Inc. Condensed Consolidated Statements of Cash Flows (Cont'd) For the nine months ended September 30, 2009 and 2008 Nine months ended September 30, (Unaudited) 2009 2008 Cash flows from investing activities Payments to acquire intangible assets $(146,600) $(7,080) Payments to acquire and for deposit for acquisition of property, plant and equipment and land use right (6,463,215) (11,776,593) Proceeds from sales of property, plant and equipment 29,125 100,988 Proceeds from sales of Money Victory Limited 5,950,000 -- Net cash paid to acquire Jinzhou Hanhua Electrical Systems Co., Ltd. -- (3,042,676) Net cash paid to acquire Money Victory Limited -- (5,000,000) Net cash paid to acquire Jinzhou Karham Co., Ltd. -- (703,712) Net cash paid to acquire Fuxin Huirui Mechanical Co., Ltd. -- (140,990) Net cash paid to acquire Yearcity (9,936,057) -- Net cash paid to acquire Jinzhou Wanyou Mechanical Parts Co., Ltd. (1,705,437) -- Net cash flows used in investing activities (12,272,184) (20,570,063) Cash flows from financing activities Dividend paid to Winning -- (384,500) Government grants received 769,006 -- Decrease in bills payable (1,381,350) (4,819,593) Decrease in restricted cash 2,888,474 4,011,467 Proceeds from secured borrowings 64,274,001 15,631,122 Repayment of secured borrowings (52,193,550) (9,196,570) Net cash flows provided by financing activities 14,356,581 5,241,926 Effect of foreign currency translation on cash and cash equivalents 63,215 980,483 Net increase (decrease) in cash and cash equivalents 13,260,595 (11,248,809) Cash and cash equivalents - beginning of period 8,159,156 26,102,993 Cash and cash equivalents - end of period $21,419,751 $14,854,184 Supplemental disclosures for cash flow information: Cash paid for: Interest $3,382,425 $1,346,694 Income taxes $1,489,450 $1,656,577 Non-cash investing and financing activities: Settlement of amount due to Hony Capital II, L.P. ("Hony Capital") by offsetting with amount due from Hony Capital $7,626,804 $-- For more information, please contact: Patrick Sun Investor Relations Manager Tel: +86-10-8478-5339 Cell: +86-153-1161-1742 Email: ir@watg.cn

SOURCE Wonder Auto Technology, Inc.

Source: PR Newswire

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