Harbin Electric Reports Record Revenues and Operating Profits for the First Quarter 2008 -- Sales Grew 65% Year-Over-Year
 |
First Quarter 2008 Financial Highlights
-- Total revenues were $22.5 million, an increase of 65% compared to
$13.6 million in the first quarter of 2007
-- Operating profit was $8.6 million, up 68% compared to the first quarter
2007
-- Net income was $5.4 million, a 57% increase from the first quarter of
2007
-- Diluted EPS were $0.27, compared to $0.19 for the first quarter 2007
-- Automobile micro-motors business exceeded expectations with
approximately $9 million in revenues
HARBIN, China, May 9 -- Harbin Electric, Inc., (the "Company", Nasdaq: HRBN), a market leader in customized linear motors, motor/controller automation systems, automobile specialty micro-motors, and other special motors, today reported preliminary financial results for the quarter ended March 31, 2008.
Mr. Tianfu Yang, Harbin Electric's Chairman and Chief Executive Officer, stated, "We are very pleased with our record-breaking quarterly results. For the past few years, we have been delivering significant year-over-year growth. This quarter, once again, we are demonstrating to investors our ability to achieve continued growth while maintaining high margins due to our strong product development capabilities and technology-focused strategy. For example, our automobile specialty micro-motors business achieved a remarkable performance in the first quarter 2008 with approximately $9 million in sales while maintaining a gross margin of over 40%. This fast-growing business accounted for 39% of our total revenues during the quarter and exceeded management expectations. We believe that these results further validate our vision and successful strategic move into the attractive and fast growing automobile specialty micro-motors segment, by leveraging our product development expertise and manufacturing capabilities."
Revenues
For the quarter ended March 31, 2008, revenues increased 65% to $22.5 million compared to $13.6 million in the first quarter of 2007. Linear motors and related integrated application systems contributed 42% to total revenues, automobile specialty micro-motors contributed 39%, and controllers, armatures, and other special motors contributed 19% compared to 68%, zero, and 32%, respectively, for the three months ended March 31, 2007.
The 65% year-over-year increase in revenues was primarily driven by increased sales of automobile specialty micro-motors segment, which contributed approximately $9 million to total revenues during the quarter.
The Company's products sold directly to customers in North America accounted for 17% of total revenues in the quarter ended March 31, 2008.
Gross Profit
Gross profit for the first quarter 2008 was $10.76 million compared to $6.86 million in the same period in 2007, a 57% year-over-year increase driven primarily by higher sales volume. The gross profit margin was 47.9% in the first quarter of 2008 compared to 50.3% in the corresponding period of last year. The slight decline in gross profit margin was mainly due to changes in the product mix attributable to the new automobile micro-motor business. By segment, the gross profit margin was 54% for linear motors and 42% for automobile specialty micro-motors. Changes in raw materials prices did not have a material impact on gross margins for the quarter.
Operating Income
The Company achieved a 68% year-over-year growth in operating profit, to $8.64 million in the three months ended March 31, 2008 from $5.13 million in the three months ended March 31, 2007. The significant growth in operating profit was primarily due to the growth in sales from the automobile micro-motors business. Operating margin was up slightly, 38.45% for the three months ended March 31, 2008 versus 37.62% for the same quarter of 2007, indicating improved operating efficiency.
Selling, general and administrative (SG&A) expenses were $2.03 million for the quarter, compared to $1.51 million for the same quarter of 2007. The year-over-year dollar increase in SG&A was associated primarily with higher shipping-and-handling costs due to volume growth. As a percentage of total sales, the Company's total SG&A expenses declined to 9.0% in the quarter from 11.1% in the same quarter last year. Going forward, the Company expects that SG&A expenses will more likely range between 10% and 12% of sales. The expected higher SG&A expenses are primarily due to activities related to compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and expenses associated with the completion of the proposed acquisition of Weihai Hengda Electric Motor Co. Ltd. announced on March 28, 2008.
Income Tax
As the Company is located in a designated economic development zone and falls under the "High Science and Technology Enterprises," from July 1, 2004 through December 31, 2007, the Company was exempted from income tax. From January 1, 2008 to December 31, 2010, the Company has been approved to have its tax rate reduced to 10% and the local government has further approved an additional rebate of 2.5%. This rebate will be included in non-operating income. For the quarter ended March 31, 2008, the Company recorded an income tax of $990,617.
Net Income
Net income for the first quarter was $5.35 million compared to $3.40 million for the corresponding quarter in 2007, representing a year-over-year growth of 57%. This growth was mainly driven by increased sales from the automobile specialty micro-motors business.
Earnings per diluted share grew 41% from $0.19 in the first quarter 2007 to $0.27 in this quarter.
Looking ahead, Mr. Yang stated, "We expect our automobile specialty micro-motor business to be the key growth driver in 2008. We believe that our linear motor driven tower-type oil pump developed for Daqing Oil Field and the permanent magnetic linear servo motor designed for ITW will also contribute to the overall growth in the year. Based on these major growth drivers combined with the existing operations, we expect total revenues for 2008 to grow more than 40% over 2007."
"The construction of our Shanghai facility is ongoing. We have received some new production equipment and expect to begin their installation in the next month. A successful start-up of the Shanghai facility this year could bring some upside potential to our expected revenue growth. Due to additional work related to the start-up of the new facility, we expect less than 10% of the Shanghai capacity to be operational this year, with the possibility of reaching 40% of total capacity in 2009," Mr. Yang continued.
"We are also moving forward with the announced acquisition of Weihai Hengda Electric Motor Co. Ltd. The financial auditing process of the target company continues according to plan, and the third party evaluation agent, Houlihan Lokey Howard & Zukin, arrived on site today to begin the evaluation work. Upon completion of that work, we should be able to determine an agreed price for the acquisition and provide additional financial information. Assuming the acquisition is completed as scheduled, we expect the new company to contribute to revenue growth this year."
"We have begun the testing of the linear motor driving system for the urban mass transportation train on the 300 meter-long track we built at our Harbin facility. The preliminary testing has been very successful, and we are conducting further evaluations and modifications while waiting for all other component systems (such as electricity power supply, control, etc.) from other vendors to be ready for integration. We are optimistic that the testing of the entire train system will commence toward the end of the year, which will enable us to start production on a small scale in 2009. We take great pride in being the first Chinese manufacturer involved in producing the first domestically-made linear motor driven train."
Mr. Yang concluded, "I am extremely excited about the bright future of Harbin Electric. China is in a transition phase from low to higher value-added manufacturing and from 'Made in China' to 'Developed in China'. While the low value-added Chinese manufacturers are exiting the center stage of China's economy, the high value-added and technology-oriented manufacturers are rapidly rising and are increasing their competitiveness in the global market for industrial goods. We believe that our Company is in the right industry at the right historical moment, and in a perfect position to shine."
First Quarter 2008 Earnings Call and Webcast
The Company will host a conference call to discuss the first quarter financial results at 8:30 a.m. ET on Friday, May 9, 2008. Tianfu Yang, Chairman and Chief Executive Officer, Zedong Xu, Chief Financial Officer, and Christy Shue, Executive Vice President will attend the call. The Company plans to release its first quarter earnings before the conference call.
To participate in the conference call, please dial any of the following numbers:
USA: 1-800-603-1779 International: +1-706-643-7429 North China: 10-800-713-0755 South China: 10-800-130-0724 The conference ID for the call is 46403018.
A replay of the call will be available beginning at 9:30 a.m. ET on May 9, 2008 and will remain available through midnight on May 16th, 2008.
