The Auto Channel
The Largest Independent Automotive Research Resource
The Largest Independent Automotive Research Resource
Official Website of the New Car Buyer

SORL Auto Parts Reports Second Quarter of 2008 Financial Results


PHOTO (select to view enlarged photo)

                Revenue Grows 45% and Net Income Grows 15%

  Second Quarter Financial Highlights:

  -- Revenue increased 44.5% year-over-year to $42.2 million

  -- Gross profit margin increased to 27.0% compared with 21.8% a year ago

  -- Net income increased 15% to $4.7 million

ZHEJIANG, China, Aug. 13 /Xinhua-PRNewswire-FirstCall/ -- SORL Auto Parts, Inc. ("The Company"), a leading manufacturer and distributor of commercial vehicle air brake valves as well as related auto parts in China, announced today financial results for the second quarter ended June 30, 2008.

Second Quarter Results

Revenue for the second quarter of 2008 was $42.2 million, a 44.5% increase from $29.2 million for the same period in 2008. Revenues from China's domestic OEM market, China's domestic aftermarket and international markets for the second quarter of 2008 were $17.5 million, $10.5 million, and $14.1 million, respectively. The increase in sales was a result of the continued growth of the commercial vehicle market in China, including demand for replacement parts, as well as the continued development of export markets. For the first half of 2008 sales were $72.8 million as compared to $53.6 million in the first half of 2007, an increase of 35.9%.

Gross profit for the second quarter of 2008 was $11.4 million, a 79.4% increase as compared to $6.4 million for the same period in 2007. Gross profit margin was 27.0% compared with 21.8% in the same quarter last year, an increase of 520 basis points. The higher gross margin was the result of various factors including price increases, the sale of more systems versus individual components, and ongoing efforts to improve manufacturing efficiency. For the first half of 2008 gross margin was 27.5% versus 22.5% in the prior year period.

Operating expenses increased 137.5% from $2.5 million in the second quarter of 2007 to $5.9 million in the second quarter of 2008. As a percentage of revenue, operating expenses increased from 8.5% in the second quarter of 2007 to 13.9% in the second quarter of 2008. This increase in operating expenses as a percentage of revenue was a result of several factors the most prominent of which were an increase in transportation charges related to the rising cost of fuel and an increase in research and development expenses from $0.3 million in the second quarter of 2007 to $1.3 million in the second quarter of 2008. For the first half of 2008 operating expenses as a percentage of sales was 13.8% versus 10.2% in the prior year period.

Operating income increased 42.4% or $1.6 million from $3.9 million in the second quarter of 2007 to $5.5 million in the second quarter of 2008. As a percentage of revenue, operating income was 13.1% in the second quarter of 2008 as compared to 13.3% in the prior year period. This small decrease was a result of the combination of the improved gross margin and the increase in operating expenses as a percentage of sales. For the first half of 2008, operating income as a percentage of sales increased to 13.7% versus 12.2% in the first half of 2007.

Net income increased 15.0%, or $0.6 million, from $4.1 million in the second quarter of 2007, or $0.23 per share, to $4.7 million in the second quarter of 2008, or $0.26 per share. Net margin decreased 290 basis points from 14.1% in the second quarter of 2007 to 11.2% in the second quarter of 2008. In addition to the above factors, net margin was negatively impacted by income taxes which changed from a $0.4 million credit in the second quarter of 2007 to a $0.3 million charge in the second quarter of 2008. For the first half of 2008 net income was $8.3 million, or $0.45 per diluted share, an increase of 32.9% as compared to $6.2 million, or $0.34 per diluted share, in the first half of 2007. Net margin for the first half of 2008 was 11.3% as compared to 11.6% for the first half of 2007.

"We are very pleased with our financial performance in the second quarter of 2008," said Xiaoping Zhang, SORL Auto Parts' CEO and Chairman. "We continued to experience significant growth in all of our major markets. We are particularly pleased to see our business in India growing rapidly along with the continued expansion of our business in the Chinese bus market. We are also very satisfied that our efforts to improve our gross margins continue to produce positive results as our margins remain well above last year's level. Although we expect to continue to make progress in all of these areas during the second half of the year, we can also see certain challenges ahead. First, due to the implementation of new emission standards in the China as of July 1st, 2008, we believe there may be a trend on the part of Chinese OEM's to increase orders in the first half of the year which may have a significant downward impact on OEM orders during the second half of the year. Secondly, due to government-mandated traffic control related to the Olympics, some of our key customers will halt production during the third quarter. It is difficult at this time to project the precise impact these factors. While we still expect to have a strong year, it is possible we will not be able to duplicate the growth rate of the second quarter."

Management will host a conference call at 8:00 am ET on Wednesday, August 13, 2008. Listeners may access the call by dialing #1-913-312-1294 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 August 13, 2008 to August 3, 2008. Listeners may access the replay by dialing 1-719-457- 0820; passcode: 8647426.

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/ .