Wonder Auto Technology, Inc. Reports First Quarter 2007 Results
JINZHOU CITY, China, May 10, 2007 Wonder Auto Technology, Inc., (BULLETIN BOARD: WATG) (''Wonder Auto'' or ''the Company''), a China-based manufacturer of automotive electrical parts, predominantly, starters and alternators, today announced its financial results for the first quarter 2007.
Q1 Highlights -- Revenues increased to a record $21.6 million, up 45.8% year-over-year -- Net income increased 92.5% year-over-year to $2.7 million -- Export sales increased to 4.8% of total revenue
Revenue increased to a record $21.6 million, up 45.8% from revenue in the first quarter 2006 of $14.8 million. The increase in revenue was primarily due to the continued increase in demand from existing customers for alternators and starters. Gross profit for the quarter increased 78.5% to $5.3 million from gross profit of $3.0 million in the comparable period a year earlier. Net income increased to $2.7 million or 92.5% for the first quarter 2007 from $1.4 million in the first quarter 2006. Fully diluted earnings per share for the quarter were $0.11.
''We are very pleased to announce another quarter of record revenues and profits. We have been able to take advantage of the rapid growth of the automotive components industry in China, propelled by the strong growth of the auto market, especially for cars with small and mid size engines. In addition to increasing domestic revenues, our export sales increased to 4.8% of revenues during the quarter, indicating our emerging ability to penetrate and compete in international markets,'' said Chairman and CEO, Mr. Qingjie Zhao.
For the first quarter of 2007, gross profit was $5.3 million, for a year- over-year increase of 78.5% from $3.0 million in the first quarter of 2006. Gross margin was 24.6% for the quarter compared to 20.1% for the same period a year earlier. Gross margin was favorably impacted by the consolidation of the acquired interest in the business of Jinzhou DongWoo Precision Co., Ltd. (''Jinzhou DongWoo''), one of Wonder Auto's suppliers. Gross margin also benefited from more efficient cost control management and improved technology which allowed the Company to reduce raw material consumption per unit of production. In addition, Wonder Auto has been able to mitigate the effect of higher commodity prices on gross margin through customer pricing and product redesign, however margin levels are likely to be slightly lower during the remainder of the year.
Administrative expenses for the quarter were $0.7 million, or 3.1% of revenue, compared to $0.3 million for the same quarter a year ago, or 2.1% of revenue. The increase of administrative expenses is due to expenditures for improvement of the Company's internal cost control systems to ensure compliance with SOX 404, the inclusion of Jinzhou DongWoo and the increased cost of being a U.S. publicly traded company.
In the first quarter of 2007, research and development expenses were $0.3 million, or 1.2% of revenue, compared to $0.1 million, or 0.7% of revenue, for the same period last year. The increased research and development expense is attributed to the Company's continued efforts to maintain its technological competitiveness.
Selling expenses were $0.7 million for the first quarter 2007, or 3.0% of revenue, compared to $0.7 million, or 4.7% of revenue, in the comparable quarter a year earlier. The lower selling expense as a percent of revenue is due to the improvement in quality of the Company's products which reduced the costs of after-sales services. In addition, the increased sales volume allowed the Company to benefit from economies of scale and reduced the per unit selling expenses.
Income from operations increased to $3.7 million for the first quarter 2007, up 99.3% from $1.9 million in the first quarter 2006. Operating margin for the quarter was 17.3% compared to operating margin of 12.7% in the same period a year ago. Operating margin benefited from improvement in gross margin and operating efficiencies.
Net income for the first quarter 2007 increased to $2.7 million, up 92.2% from the first quarter 2006 of $1.4 million. Fully diluted earnings per share for the quarter 2007 were $0.11.
Financial Condition
As of March 31, 2007, Wonder Auto had $10.0 million in cash and cash equivalents (including $3.9 million restricted cash), working capital of $30.4 million and $10.9 million long-term debt. Shareholders' equity stood at $41.3 million, up from $38.2 million from December 31, 2006.
Subsequent Event
On April 2, 2007, Wonder Auto, through its subsidiaries, acquired approximately 80% of the shares in Jinzhou Wanyou Mechanical Parts Co., Ltd. (''Wanyou''). Wonder Auto already owned approximately 20% of the shares of Wanyou which combined with the additional 80% gives the Company and its subsidiaries 100% ownership in Wanyou. The shares were purchased from two separate parties for a total of $16.42 million, subject to certain net income targets.
Business Outlook
The auto industry in China continues to grow rapidly and Wonder Auto expects to continue to participate in that growth through increased orders from current customers and by developing new products through its joint development program. In July 2007, Wonder Auto expects to begin production from its new starter and alternator lines which will enable the Company to continue to improve its manufacturing capability and operating efficiencies. Moreover, the recent acquisition of Wanyou enhances the Company's expertise and network in the export market, which Wonder Auto intends to leverage as it increases its international presence. The Company reaffirms its previous guidance for the full year of revenues of $100 million and net income of $13.5 million.
''The Chinese automotive market remains robust after taking over from Japan as the world's second largest market in 2006. With a current market share of about 15% in China, we are focused on aggressively expanding our presence in both domestic and international markets by maintaining our competitiveness through technological superiority and internal controls. We expect this progress will result in Wonder Auto achieving a growth rate higher than the industry average this year,'' concluded Mr. Zhao.
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 automobiles and industrial vehicles. Wonder Auto's customers include Beijing Hyundai, Shenyang Aerospace Mitsubishi, Harbin Dong'an Mitsubishi, and Dongfeng Yueda Kia Motor Co., Ltd. Wonder Auto Technology, Inc. is a Nevada corporation with its manufacturing subsidiary Jinzhou Halla and its corporate headquarters located in Jinzhou City, Liaoning, China.
-- Financial Tables Below --
Wonder Auto Technology, Inc.
Condensed Consolidated Statements of Operations
For the three months ended March 31, 2007 and 2006
(Stated in US Dollars)
Three months ended
March 31
(Unaudited)
2007 2006
Net sales $21,566,796 $14,793,221
Cost of sales (16,251,790) (11,815,898)
Gross profit 5,315,006 2,977,323
Operating expenses
Administrative expenses 666,566 306,908
Research and development costs 263,446 100,558
Selling expenses 651,616 696,431
Total operating expenses 1,581,628 1,103,897
Income from operations 3,733,378 1,873,426
Interest income 16,709 12,861
Other income 23,795 --
Finance costs (419,392) (258,401)
Equity in net income of an unconsolidated
affiliate 34,147 --
Income before income taxes 3,388,637 1,627,886
Income taxes (466,814) (218,653)
Minority interests (209,371) --
Net income $2,712,452 $1,409,233
Other comprehensive income
Foreign currency translation adjustments 367,329 93,226
Comprehensive income $3,079,781 $1,502,459
Earnings per share: basic and diluted $0.11 $0.08
Weighted average number of shares outstanding:
basic and diluted 23,959,994 17,227,198
Wonder Auto Technology, Inc.
Condensed Consolidated Balance Sheets
As of March 31, 2007 and December 31, 2006
(Stated in US Dollars)
March 31, December 31,
2007 2006
(Unaudited) (Audited)
ASSETS
Current assets
Cash and cash equivalents $6,065,302 $8,203,699
Restricted cash 3,919,971 4,876,879
Trade receivables (net of allowance of
doubtful accounts of $38,023 in 2007
and $32,150 in 2006) 26,042,474 24,696,982
Bills receivable 8,100,371 3,098,314
Other receivables, prepayments and
deposits 1,445,086 1,254,209
Inventories 15,535,997 13,689,374
Amount due from a related company 70,249 69,561
Deferred taxes 217,693 237,570
Total current assets 61,397,143 56,126,588
Know-how 1,482,617 1,468,089
Trademarks and patents 11,182 11,418
Property, plant and equipment, net 14,469,688 13,945,846
Land use right 1,202,302 1,203,256
Deposit for acquisition of property, plant
and equipment 2,864,978 1,740,548
Investment in an unconsolidated affiliate 567,130 527,627
Goodwill 3,115,227 2,771,293
Deferred taxes 221,744 205,475
TOTAL ASSETS $85,332,011 $78,000,140
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities
Trade payables $12,411,172 $9,631,537
Bills payable 6,717,565 8,628,078
Other payables and accrued expenses 2,833,675 3,121,533
Provision for warranty 980,551 1,049,344
Income tax payable 446,084 398,768
Amount due to an unconsolidated
affiliate 100,136 37,492
Dividend payable to minority
stockholders 691,152 --
Dividend payable to Winning 343,934 --
Secured short-term bank loans 6,459,198 14,326,831
Total current liabilities 30,983,467 37,193,583
Secured long-term bank loans 10,916,984 --
TOTAL LIABILITIES 41,900,451 37,193,583
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS 2,124,794 2,579,572
STOCKHOLDERS' EQUITY
Preferred stock: par value $0.0001 per
share; authorized 10,000,000 shares,
none issued and outstanding -- --
Common stock: par value $0.0001 per share;
authorized 90,000,000 shares,
issued and outstanding 23,959,994
shares in 2007 and 2006 2,396 2,396
Additional paid-in capital 22,140,143 22,140,143
Statutory and other reserves 3,148,265 3,148,265
Accumulated other comprehensive income 1,819,467 1,452,138
Retained earnings 14,196,495 11,484,043
TOTAL STOCKHOLDERS' EQUITY 41,306,766 38,226,985
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $85,332,011 $78,000,140
Wonder Auto Technology, Inc.
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2007 and 2006
(Stated in US Dollars)
Three months ended March 31
(Unaudited)
2007 2006
Cash flows from operating activities
Net income $2,712,452 $1,409,233
Adjustments to reconcile net income to
net cash (used in) provided by operating
activities:
Depreciation 445,132 328,740
Amortization of trademarks and
patents 347 87
Amortization of land use right 12,811 6,681
Deferred taxes 7,454 28,485
Provision for doubtful debts 5,533 --
Recovery of obsolete inventories (22,720) (12,873)
Equity in net income of an
unconsolidated affiliate (34,147) --
Minority interests 209,371 --
Changes in operating assets and
liabilities:
Trade receivables (1,102,316) (2,796,781)
Bills receivable (4,951,887) (968,729)
Other receivables, prepayments and
deposits (187,937) (340,268)
Inventories (1,677,966) (1,405,824)
Trade payables 2,673,792 3,882,703
Bills payable (1,988,059) --
Amount due to an unconsolidated
affiliate 62,029 --
Other payables and accrued expenses 104,787 (207,189)
Provision for warranty (78,866) 213,991
Income tax payable 43,200 (83,400)
Net cash flows (used in) provided by operating
activities (3,766,990) 54,856
Cash flows from investing activities
Payments to acquire and for deposit
for acquisition of property, plant
and equipment (1,932,319) (645,405)
Decrease in restricted cash 956,907 36,326
Installment payments for acquisition of
Dong Woo (400,000) --
Net cash flows used in investing activities $(1,375,412) $(609,079)
Cash flows from financing activities
Dividend paid to stockholders $-- $(1,704,206)
Repayment of bank loans (7,977,971) --
New bank loans 10,874,139 --
Net cash flows provided by (used in)
financing activities 2,896,168 (1,704,206)
Effect of foreign currency translation on cash
and cash equivalents 107,837 31,947
Net decrease in cash and cash equivalents (2,138,397) (2,226,482)
Cash and cash equivalents - beginning of period 8,203,699 4,368,757
Cash and cash equivalents - end of period $6,065,302 $2,142,275
Supplemental disclosures for cash flow
information:
Cash paid for:
Interest $222,702 $228,022
Income taxes $416,161 $273,567
For more information, please contact:
Company Contact:
Xie Yuechun, CEO Assistant
Wonder Auto Technology, Inc.
Tel: +1-416-266-1186
Email: wondergrp2006@yahoo.com.cn
Investor Relations Contact:
Mark Collinson, Partner
CCG Investor Relations
Tel: +1-310-477-9800 x117
Email: Mark.collinson@ccgir.com