Wonder Auto Technology, Inc. Reports Second Quarter 2006 Results
JINZHOU CITY, China--Aug. 17, 2006--Wonder Auto Technology, Inc., formerly MGCC Investment Strategies Inc. (OTCBB:MGIS) ("Wonder Auto" or "the Company"), whose subsidiary Jinzhou Halla Electrical Equipment Co., Ltd. ("Halla") designs, develops, manufactures and sells automotive electrical parts and is the second largest seller of automotive alternators and starters in China, today announced results for its second quarter and six months ended June 30, 2006.Second Quarter 2006
Revenues rose 19.4% to $18.8 million, from $15.8 million for Q2 2005. Gross profit and margin for Q2 2006 were $3.2 million and 17.2%, respectively, compared to $3.9 million and 25.0% of revenues in the same period of 2005. Gross profit and gross margin were affected by high cost components that the Company used to meet increased demand in the second quarter. Income before taxes was $2.3 million for Q2 2006, compared to $2.7 million for Q2 2005. Net income for the second quarter was $2.1 million, or $0.12 per share, during the three months ended June 30, 2006, versus $2.4 million, or $0.14 per share, during the same period in 2005.
Commenting on the results for the second quarter, the Company's President and CEO, Qingjie Zhao said, "Stronger demand from the small and medium engine sedan market in China drove higher sales revenue in the second quarter, but also required us to import high cost components. Moving forward, we believe that as we transition to lower priced locally sourced parts, margins will improve."
"Wonder is focused on leveraging our highly efficient manufacturing processes and strong market share in the fast growing domestic automotive market to become a leader in cost and quality for the rotating electrical parts industry in China and explore overseas growth opportunities."
Second quarter administrative expenses were unchanged at $0.3 million compared to Q2 of last year. Selling expenses decreased $0.2 million to $0.5 million from $0.8 million in Q2 of 2005 due mainly to more efficient expense controls.
Segment Information
The Company's alternator business segment generated $11.5 million, or 60.9% of sales, in the second quarter of 2006, representing an increase of 13.5% for the same period last year. The Company's starter motor business segment accounted for $7.4 million, or 39.1% of sales, in Q2 2006, representing a 30.3% rise from the first half of 2005. Segment profit for the Company's alternator business segment decreased to $0.9 million in the quarter ending June 30, 2006, from $1.6 million in the same period a year ago. This was due to the aforementioned rise in component costs. Segment profit in the Company's starter motor segment rose to $1.4 million from $1.1 million in Q2 2005.
Six Months Results
Revenues for the first half of 2006 were $33.6 million, up from $25.6 million for the same period in 2005. Gross profit and gross margin were $6.1 million and 18.2%, respectively, for the first six months of 2006, versus $6.0 million and 23.4% for the same period in 2005. Income before taxes was $4.0 million during the six months ended June 30, 2006, compared to $4.1 million during the same period in 2005. Net income was $3.5 million during the six months ended June 30, 2006, compared to $3.6 million during the same period in 2005. Earnings per share were $0.20, versus $0.21 in the first half of 2006.
Liquidity and Capital Resources
As of June 30, 2006, the Company had cash and cash equivalents (including restricted cash) of $15.5 million compared to $8.0 million at December 31, 2005.
The Company's debt to equity ratio was 53% as of June 30, 2006. The Company has $7.5 million in loans maturing in or before November 2006. It plans to either repay this debt as it matures or refinance this debt.
In June 2006, the Company completed a private placement of its common shares to certain accredited investors and raised approximately $12.0 million in gross proceeds. After the deduction of offering expenses, the Company had raised approximately $10.0 million in net proceeds.
Outlook
For fiscal 2006, Wonder Auto expects that revenues will be approximately $65.9 million and net income will be approximately $8.2 million.
Mr. Zhao added, "For the second half of the year, we expect continued growth in demand from the Chinese automobile market, as the sedan segment expands. With the success of our cost control programs and plans to reduce component costs, we expect to improve margins as sales rise, compared to the previous year, in response to growth in the overall automobile market in China. Our recent financing will enable us to support our growth with sufficient working capital and investments in new production lines."
Subsequent Event
On July 12, 2006, the board of the directors of the Company approved a 2.448719-for-1 Forward Stock Split in the form of a stock dividend. The record date for the stock dividend is July 25, 2006. Customary notification was provided to the NASDAQ Stock Market and it effected the Forward Stock Split on the OTCBB at the beginning of business on July 26, 2006. Immediately following the Forward Stock Split, the Company has 23,959,994 shares of common stock issued and outstanding.
Taxation Arrangements
The Company's subsidiary, Halla, is subject to Chinese enterprises income tax ("EIT") at a rate of 27% of the assessable profits, consisting of a 24% national tax and a 3% local tax. As approved by the local tax authority in the China, Halla was entitled to a two-year exemption from EIT followed by 50% tax exemption for the next three years, commencing from the first cumulative profit-making year following the fiscal financial year of 2001. Accordingly, Halla was subject to a tax rate of 13.5% for 2003, 2004 and 2005. Furthermore, Halla, as a Foreign Investment Enterprise ("FIE") engaged in an advanced technology industry, was approved to enjoy a further 50% tax exemption for 2006, 2007 and 2008.
In addition, as an FIE, Halla was entitled to another two special tax concessions. First, equivalent to 40% of the purchase price of qualifying domestic capital expenditure as defined and approved under the relevant Chinese income tax rule can be used to offset EIT. Second, if there is a 10% increase of domestic development expenses in the current year over the prior year, an amount equivalent to 50% of the current year's expenses can be used to offset against EIT.
As a result of current taxation arrangements, provision for income taxes decreased $0.l0 million to $0.24 million during the three months ended June 30, 2006 from $0.4 million during the same period in 2005. The Company's effective tax rate for the three months ended June 30, 2006, was 13.5%. The Company expects its effective tax rate to be 13.5% for the whole of 2006. Provision for income taxes decreased $0.08 million to $0.46 million during the six months ended June 30, 2006 from $0.54 during the same period in 2005. For the reasons described above, the Company's effective tax rate for the six months ended June 30, 2006, was 13.5%, and is expected to be 13.5% for the whole of 2006.
About Wonder Auto Technology, Inc.
Wonder Auto Technology, Inc., through its subsidiary, Jinzhou Halla Electrical Equipment Co., Ltd. , designs, develops, manufactures and sells automotive electrical parts and is the second largest seller of automotive alternators and starters in China. The Company's products are suitable for various types of automobile. Most of its products are used in cars in the sedan category, especially cars with smaller engines with displacements below 1.6 liters. The Company's customers include Beijing Hyundai, Beijing Daimler Chrysler, SAIC GM WuLing, FAW Auto Group, Chery, Geely and Tianjin FAW XiaLi Automobile Co., as well as automotive engine suppliers such as Shenyang Aerospace Mitsubishi Motors Engine Manufacturing Co. Wonder Auto is a Nevada corporation with its manufacturing subsidiary Halla and its corporate headquarters located in Jinzhou City, Liaoning, China.
MGCC Investment Strategies Inc.
Condensed Consolidated Statements of Operations
For the three and six months ended June 30, 2006 and 2005
(Unaudited)
(Stated in US Dollars)
Three months ended Six months ended
June 30 (unaudited) June 30 (unaudited)
2006 2005 2006 2005
Revenue
Sales $18,813,107 $15,751,765 $33,606,328 $25,568,558
Cost of sales (15,577,562) (11,815,642) (27,494,018) (19,586,891)
------------ ------------ ------------ ------------
Gross profit 3,235,545 3,936,123 6,112,310 5,981,667
------------ ------------ ------------ ------------
Expenses
Administrative
expenses 263,214 261,365 536,933 495,213
Amortization and
depreciation 36,527 32,224 71,539 63,120
Other operating
expenses 718 6,449 754 6,524
Selling expenses 541,057 756,678 1,235,629 1,111,994
------------ ------------ ------------ ------------
841,516 1,056,716 1,844,855 1,676,851
------------ ------------ ------------ ------------
Income before the
following items
and taxes 2,394,029 2,879,407 4,267,455 4,304,816
Interest income 8,487 8,527 21,348 11,911
Other income 116,684 37,989 116,684 136,378
Finance costs (195,593) (212,889) (453,994) (372,279)
------------ ------------ ------------ ------------
Income before
income taxes 2,323,607 2,713,034 3,951,493 4,080,826
Income taxes (243,534) (347,794) (462,187) (535,006)
------------ ------------ ------------ ------------
Net income $2,080,073 $2,365,240 $3,489,306 $3,545,820
============ ============ ============ ============
Earnings per share:
basic and diluted $0.12 $0.14 $0.20 $0.21
============ ============ ============ ============
Weighted average
number of shares
outstanding:
basic and diluted 17,893,079 17,227,198 17,561,978 17,227,198
============ ============ ============ ============
MGCC Investment Strategies Inc.
Condensed Consolidated Balance Sheets
As of June 30, 2006 and December 31, 2005
(Stated in US Dollars)
June 30, December 31,
2006 2005
(Unaudited) (Audited)
ASSETS
Current assets
Cash and cash equivalents 12,282,042 4,368,757
Restricted cash 3,249,749 3,597,609
Marketable securities - 37,159
Trade receivables (net of allowance
of doubtful accounts of $39,068
in 2006 and $37,748 in 2005) 23,172,989 18,472,619
Bills receivable 5,218,710 3,528,649
Other receivables, prepayments and deposits 468,618 392,906
Inventories 10,520,050 7,807,610
Deferred taxes 235,767 261,548
------------ ------------
Total current assets 55,147,925 38,466,857
Know-how 1,433,434 1,421,556
Trademarks and patents 2,986 1,907
Property, plant and equipment, net 10,696,999 10,648,082
Land use right 571,421 580,020
Deposit for acquisition of property, plant
and equipment 999,686 819,183
Deferred taxes 176,076 152,316
------------ ------------
TOTAL ASSETS 69,028,527 52,089,921
============ ============
MGCC Investment Strategies Inc.
Condensed Consolidated Balance Sheets
As of June 30, 2006 and December 31, 2005
(Stated in US Dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities
Trade payables $13,605,486 $10,299,879
Bills payable 7,981,016 7,060,222
Other payables and accrued expenses 791,971 709,822
Provision for warranty 1,290,273 914,403
Dividend payable 0 1,699,282
Income tax payable 148,417 161,277
Amount due to a stockholder - 5,149
Amount due to a related company 64,480 -
Secured short-term bank loans 7,493,911 7,431,813
------------ ------------
Total current liabilities 31,375,554 28,281,847
Secured long-term bank loans 4,995,941 4,954,542
------------ ------------
TOTAL LIABILITIES 36,371,495 33,236,389
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock: authorized 10,000,000
shares; $0.0001 par value, none issued
and outstanding
Common stock: authorized 90,000,000 shares
$0.0001 par value; issued and outstanding
23,959,994 shares in 2006; issued and
outstanding 17,227,198 shares in 2005 2,396 1,723
Additional paid-in capital 22,140,143 11,998,377
Statutory and other reserves 2,347,848 2,347,848
Accumulated other comprehensive income 616,425 444,670
Retained earnings 7,550,220 4,060,914
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 32,657,032 18,853,532
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $69,028,527 $52,089,921
============ ============
MGCC Investment Strategies Inc.
Condensed Consolidated Statements of Cash Flows
For the three and six months ended June 30, 2006 and 2005
(Unaudited)
(Stated in US Dollars)
Six months ended
June 30
(Unaudited)
2006 2005
Cash flows from operating activities
Net income $3,489,306 $3,545,820
Adjustments to reconcile net income
to net cash (used in)
provided by operating activities:
Depreciation 664,243 558,464
Amortization of trademarks and patents 185 170
Amortization of land use right 13,391 12,991
Deferred taxes 5,457 47,591
Recovery of obsolete inventories (79,990) (73,125)
Changes in operating assets and liabilities:
Trade receivables (4,527,526) (9,212,657)
Bills receivable (1,653,822) (203,337)
Other receivables, prepayments and deposits (72,138) (1,325,301)
Inventories (2,556,444) 2,412,204
Trade payables 3,206,449 5,565,285
Bills payable 858,294 603,391
Other payables and accrued expenses 77,167 824,341
Provision for warranty 366,729 134,715
Income tax payable (14,150) 249,576
----------- -----------
Net cash flows (used in) provided
by operating activities (222,849) 3,140,128
----------- -----------
Cash flows from investing activities
Payments to acquire trademarks and patents (1,244) -
Payments to acquire and for deposit for
acquisition of property, plant and equipment (797,301) (806,701)
Decrease in restricted cash 347,860 300,855
Proceeds from sales of marketable securities 37,317 -
Cash acquired from the RTO 419 -
----------- -----------
Net cash flows used in investing activities $(412,949) $(505,846)
----------- -----------
MGCC Investment Strategies Inc.
Consolidated Statements of Cash Flows (Cont'd)
For the three and six months ended June 30, 2006 and 2005
(Unaudited)
(Stated in US Dollars)
Six months ended June 30
(Unaudited)
2006 2005
Cash flows from financing activities
Dividend paid to stockholders $(1,706,516) $(1,304,500)
Repayment of bank loans - (1,387,800)
Repayment to stockholders (5,149) -
Net proceeds from issuance of shares 10,142,020 100
Advance from a related company 64,480 -
Net cash flows provided by (used in)
financing activities 8,494,835 (2,692,200)
------------ ------------
Effect of foreign currency translation on
cash and cash equivalents 54,248 -
------------ ------------
Net increase (decrease) in cash and cash
equivalents 7,913,285 (57,918)
Cash and cash equivalents -
beginning of period 4,368,757 1,829,761
------------ ------------
Cash and cash equivalents - end of period $12,282,042 $1,771,843
============ ============
Supplemental disclosures for
cash flow information:
Non-cash financing activity:
Cash paid for:
Interest 434,868 362,552
Income taxes $470,878 $237,839
============ ============