Duoyuan Global Water Inc. Reports Third Quarter 2009 Financial Results

Revenue Up 30.9% to RMB255.2 Million from the Prior Year Period

Net Income up 23.1% to RMB73.4 Million from the Prior Year Period

Diluted Earnings per ADS of $0.49

Live Conference Call to be Held on Monday, November 9, 2009 at 5:00 PM U.S. Eastern Time

BEIJING, Nov. 9 /PRNewswire-Asia/ -- Duoyuan Global Water Inc. ( DGW) ("Duoyuan" or the "Company"), a leading China-based domestic water treatment equipment supplier, today announced unaudited financial results for the third quarter of 2009.

Mr. Wenhua Guo, the Company's Chairman and Chief Executive Officer, stated, "We are pleased with the Company's third quarter financial results, which reflect increased demand across all three product lines, our comprehensive and high quality product offering, as well as our low cost manufacturing base, extensive distribution network and strong competitive position. All of these factors contributed to our quarterly financial results today and lay the groundwork for continued growth in the future."

    Third Quarter 2009 Financial Highlights
    -- Revenue increased 30.9% to RMB255.2 million ($37.4 million(1)) from
       RMB195.0 million in the prior year period.
    -- Gross margin increased to 49.5% from 46.8% in the prior year period.
    -- Operating income increased 31.1% to RMB95.7 million ($14.0 million)
       from RMB73.0 million in the prior year period.
    -- Net income increased 23.1% to RMB73.4 million ($10.8 million) from
       RMB59.6 million in the comparable period of 2008.
    -- Diluted earnings per ADS(2) was $0.49.  Each ADS represents two of the
       Company's ordinary shares.


    (1) This announcement contains translations of certain Renminbi amounts
        into US dollars at specified rates solely for the convenience of
        readers.  Unless otherwise noted, all translations from Renminbi to US
        dollars as of and for the quarter ended September 30, 2009, were made
        at the noon buying rate of RMB6.8262 to USD1.00 on September 30, 2009
        in the City of New York for cable transfers in Renminbi per US dollar
        as certified for customs purposes by the Federal Reserve Bank of New
        York.  Duoyuan Global Water makes no representation that the Renminbi
        or US dollar amounts referred to in this press release could have been
        or could be converted into US dollars or Renminbi, at any particular
        rate or at all.
    (2) American Depositary Shares, which are traded on the New York Stock
        Exchange, are equivalent to ordinary shares at a ratio of 1:2.

Third Quarter 2009 Financial Performance

Third quarter 2009 revenue increased 30.9% to RMB255.2 million ($37.4 million) from RMB195.0 million in the comparable period of 2008, reflecting growth across all three product categories. Revenue from wastewater treatment equipment increased 42.3%, to RMB100.1 million ($14.7 million) in the third quarter of 2009 compared to RMB70.3 million in the third quarter of 2008, due to increased demand for Duoyuan's belt filter press machines, sludge screw, online testing equipment, ultraviolet shelving disinfection systems and microporous aerators. Revenue from circulating water treatment increased by 20.0% to RMB96.1 million ($14.1 million) in the third quarter of 2009 compared to RMB80.1 million in the third quarter of 2008, driven by increased demand for the Company's new fully automatic filters, electronic water conditioners and circulating water central processors. Revenue from water purification equipment increased by 28.4% to RMB55.0 million ($8.1 million) in the third quarter of 2009 compared to RMB42.8 million in the prior year period, as the Company's newly introduced models for central water purifiers, industry pure water equipment and ultraviolet water purifiers continued to be well-received by the marketplace. Demand for the Company's products increased across all three product lines, driven by market recognition of the high quality, durability and effectiveness of the Company's products, as well as the success of the Company's promotion and marketing strategies.

Ongoing government regulations mandating the utilization of water treatment products and stricter enforcement of environmental protection laws also drove demand in the third quarter. While Duoyuan experienced revenue growth across all three product categories in the third quarter of 2009, demand for the Company's wastewater treatment equipment outpaced demand for circulating water treatment equipment and water purification equipment due to intensified government efforts to monitor wastewater discharge.

For the third quarter of 2009, gross profit increased by 38.4% to RMB126.4 million ($18.5 million) from RMB91.3 million in the prior year's period. Gross margin for the third quarter of 2009 was 49.5%, compared to 46.8% in the third quarter of 2008, primarily due to a decrease in raw material costs.

Operating income increased by 31.1% to RMB95.7 million ($14.0 million) in the third quarter of 2009, from RMB73.0 million in the comparable period of 2008. Operating margin was 37.5% in the third quarter of 2009, essentially flat from 37.4% in the prior year period. Selling expenses increased 82.5% to RMB19.2 million ($2.8 million) in the third quarter from RMB10.5 million in the prior year's period. The increase primarily reflects advertising activities initiated in the third quarter of 2009 to enhance national brand recognition.

Provision for income taxes in the third quarter of 2009 increased to RMB22.4 million ($3.3 million), an effective tax rate of 23.4%, from RMB12.9 million, an effective tax rate of 17.8%, in the third quarter of 2008. The increase in tax provision primarily reflects the increase in the Company's profits by 32.0% over the same period of 2008, and the termination of a tax exemption for Duoyuan Langfang, one of the Company's subsidiaries on December 31, 2008.

Net income increased 23.1% to RMB73.4 million ($10.8 million) in the third quarter of 2009, from RMB59.6 million in the prior year's third quarter. Diluted earnings per share was RMB1.67 ($0.25) in the third quarter of 2009, compared to RMB1.99 in the third quarter of 2008. During this year over year period, diluted earnings per ADS was RMB3.35 ($0.49) compared to RMB3.97, respectively.

The Company had approximately 43.8 million weighted average number of diluted shares outstanding as of September 30, 2009, compared to 30.0 million weighted average number of diluted shares outstanding as of September 30, 2008.

As of September 30, 2009, the Company had cash and bank deposits of RMB937.2 million ($137.3 million), compared to RMB198.5 million as of December 31, 2008, mostly reflecting net proceeds from the Company's initial public offering. Cashflow provided by operating activities for the nine months ended September 30, 2009 were approximately RMB150.5 million ($22.0 million), compared to approximately RMB184.5 million in the prior year period.

Nine Months Ended September 30, 2009 Financial Performance

For the nine months ended September 30, 2009, revenue increased 33.0% to RMB589.6 million ($86.4 million) from RMB443.2 million for the first nine months of 2008. During this same time period, gross profit increased by 42.8% to RMB285.5 million ($41.8 million) from RMB200.0 million. Operating income decreased by 11.8% to RMB133.2 million ($19.5 million) for the first nine months of 2009 from RMB151.0 million for the first nine months of 2008, and net income decreased 34.8% to RMB77.2 million ($11.3 million), or RMB2.22 ($0.33) per diluted share, from RMB118.3 million, or RMB3.94 per diluted share, for these respective periods. Net income per diluted ADS was RMB4.44 ($0.65) for the first nine months of 2009, down from RMB7.89 for the first nine months of 2008. Weighted average number of diluted shares outstanding was approximately 34.8 million for the first nine months of 2009, compared to 30.0 million weighted average number of diluted shares outstanding for the first nine months of 2008.

Non-Cash Share-Based Compensation Expense

In the third quarter of 2009, the Company recorded non-cash share-based compensation expense of approximately RMB1.1 million ($158,813), or approximately $0.0072 per ADS. In the first nine months of 2009, the Company recorded non-cash share-based compensation expense of approximately RMB91.6 million ($13.4 million), or approximately $0.77 per ADS, the majority of which was recognized in the second quarter of 2009. Please refer to the non-GAAP presentation provided below for a year over year comparison excluding non-cash share-based compensation expense.

Financial Outlook

Mr. Stephen C. Park concluded, "As we come off a fantastic third quarter, which is seasonally our strongest quarter, our competitive position remains strong and we are poised for future growth supported by our trusted brand name and vast distribution network. With this in mind, we are targeting revenue of approximately RMB190 million in the fourth quarter of 2009."

This forecast reflects the Company's current and preliminary view, which is subject to change.

Conference Call

The Company will host a conference call on Monday, November 9, 2009 at 5:00 PM U.S. Eastern Time. Listeners may access the call by dialing:

    United States:       1-866-519-4004
    China (Landline):    800-819-0121
    China (Mobile):      400-620-8038
    Hong Kong:           852-2475-0994
    United Kingdom:      0-808-234-6646
    International:       65-6735-7955
    Conference ID:       35643396

A telephone replay will be available beginning two hours after the conclusion of the call and will be available through November 16, 2009. Listeners may access the replay by dialing:

    United States:       1-866-214-5335
    China (North):       10-800-714-0386
    China (South):       10-800-140-0386
    Hong Kong:           800-901-596
    United Kingdom:      0-800-731-7846
    International:       61-2-8235-5000
    Conference ID:       35643396

A webcast of the conference call will also be available at the investor relations section of the Company's website at http://www.duoyuan-hq.com .

About Duoyuan Global Water Inc.

Duoyuan Global Water Inc. is a leading China-based domestic water treatment equipment supplier. Duoyuan's product offerings address the key steps in the water treatment process, such as filtration, water softening, water-sediment separation, aeration, disinfection and reverse osmosis. Duoyuan offers a comprehensive set of complementary products across three product categories: circulating water treatment, water purification and wastewater treatment. The Company has an extensive local distribution network, which provides proximity to end-user customers and responsiveness to local market demand. Learn more at http://www.duoyuan-hq.com .

                  DUOYUAN GLOBAL WATER INC. AND SUBSIDIARIES
          UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                          THREE MONTHS ENDED SEPTEMBER 30,
                                           2008         2009         2009
                                            RMB          RMB          US$

    REVENUE                             194,972,023  255,203,895  $37,385,939

    COST OF REVENUE                     103,674,793  128,852,598   18,876,183

    GROSS PROFIT                         91,297,230  126,351,297   18,509,756

    RESEARCH AND DEVELOPMENT EXPENSES     3,998,738    4,413,573      646,564

    SELLING EXPENSES                     10,537,292   19,225,862    2,816,481

    GENERAL AND ADMINISTRATIVE
     EXPENSES                             3,763,336    7,007,731    1,026,593

    OPERATING INCOME                     72,997,864   95,704,131   14,020,118

    INTEREST EXPENSE                       (710,805)    (298,540)     (43,735)

    OTHER INCOME                            246,246      362,942       53,169

    LOSS FROM SALE OF PROPERTY                   --           --           --

    INCOME BEFORE INCOME TAXES           72,533,305   95,768,533   14,029,552

    PROVISION FOR INCOME TAXES           12,925,412   22,371,952    3,277,365

    NET INCOME                           59,607,893   73,396,581  $10,752,187


    Earnings per share:
       Basic                                   1.99         1.68        $0.25
       Diluted                                 1.99         1.67        $0.25

    Earnings per ADS:
       Basic                                   3.97         3.36        $0.49
       Diluted                                 3.97         3.35        $0.49

    Weighted average number of shares
     outstanding:
       Basic                             30,000,000   43,702,631   43,702,631
       Diluted                           30,000,000   43,838,207   43,838,207


                                           NINE MONTHS ENDED SEPTEMBER 30,
                                           2008         2009         2009
                                            RMB          RMB          US$

    REVENUE                             443,168,505  589,579,085  $86,370,028

    COST OF REVENUE                     243,195,069  304,061,507   44,543,305

    GROSS PROFIT                        199,973,436  285,517,578   41,826,723

    RESEARCH AND DEVELOPMENT EXPENSES    11,594,354   13,682,707    2,004,440

    SELLING EXPENSES                     26,277,454   41,490,394    6,078,110

    GENERAL AND ADMINISTRATIVE
     EXPENSES                            11,068,726   97,161,943   14,233,679

    OPERATING INCOME                    151,032,902  133,182,534   19,510,494

    INTEREST EXPENSE                     (2,587,823)    (923,450)    (135,280)

    OTHER INCOME                          1,020,437      805,274      117,968

    LOSS FROM SALE OF PROPERTY           (3,204,479)          --           --

    INCOME BEFORE INCOME TAXES          146,261,037  133,064,358   19,493,182

    PROVISION FOR INCOME TAXES           27,951,409   55,868,759    8,184,460

    NET INCOME                          118,309,628   77,195,599  $11,308,722


    Earnings per share:
       Basic                                   3.94         2.22        $0.33
       Diluted                                 3.94         2.22        $0.33

    Earnings per ADS:
       Basic                                   7.89         4.45        $0.65
       Diluted                                 7.89         4.44        $0.65

    Weighted average number of shares
     outstanding:
       Basic                             30,000,000   34,718,122   34,718,122
       Diluted                           30,000,000   34,767,287   34,767,287




                  DUOYUAN GLOBAL WATER INC. AND SUBSIDIARIES
      UNAUDITED NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                          THREE MONTHS ENDED SEPTEMBER 30,
                                           2008         2009         2009
                                            RMB          RMB          US$

    REVENUE                             194,972,023  255,203,895  $37,385,939

    COST OF REVENUE                     103,674,793  128,852,598   18,876,183

    GROSS PROFIT                         91,297,230  126,351,297   18,509,756

    RESEARCH AND DEVELOPMENT EXPENSES     3,998,738    4,413,573      646,564

    SELLING EXPENSES                     10,537,292   19,225,862    2,816,481

    GENERAL AND ADMINISTRATIVE
     EXPENSES                             3,763,336    5,923,642      867,780

    OPERATING INCOME                     72,997,864   96,788,220   14,178,931

    INTEREST EXPENSE                       (710,805)    (298,540)     (43,735)

    OTHER INCOME                            246,246      362,942       53,169

    LOSS FROM SALE OF PROPERTY                   --           --           --

    INCOME BEFORE INCOME TAXES           72,533,305   96,852,622   14,188,365

    PROVISION FOR INCOME TAXES           12,925,412   22,371,952    3,277,365

    NET INCOME                           59,607,893   74,480,670  $10,911,000


    Earnings per share:
       Basic                                   1.99         1.70        $0.25
       Diluted                                 1.99         1.70        $0.25

    Earnings per ADS:
       Basic                                   3.97         3.41        $0.50
       Diluted                                 3.97         3.40        $0.50

    Weighted average number of shares
     outstanding:
       Basic                             30,000,000   43,702,631   43,702,631
       Diluted                           30,000,000   43,838,207   43,838,207



                                           NINE MONTHS ENDED SEPTEMBER 30,
                                           2008         2009         2009
                                            RMB          RMB          US$

    REVENUE                             443,168,505  589,579,085  $86,370,028

    COST OF REVENUE                     243,195,069  302,686,834   44,341,923

    GROSS PROFIT                        199,973,436  286,892,251   42,028,105

    RESEARCH AND DEVELOPMENT EXPENSES    11,594,354   13,682,707    2,004,440

    SELLING EXPENSES                     26,277,454   37,505,478    5,494,342

    GENERAL AND ADMINISTRATIVE
     EXPENSES                            11,068,726   10,966,189    1,606,485

    OPERATING INCOME                    151,032,902  224,737,877   32,922,838

    INTEREST EXPENSE                     (2,587,823)    (923,450)    (135,280)

    OTHER INCOME                          1,020,437      805,274      117,968

    LOSS FROM SALE OF PROPERTY           (3,204,479)          --           --

    INCOME BEFORE INCOME TAXES          146,261,037  224,619,701   32,905,526

    PROVISION FOR INCOME TAXES           27,951,409   55,868,759    8,184,460

    NET INCOME                          118,309,628  168,750,942  $24,721,066


    Earnings per share:
       Basic                                   3.94         4.86        $0.71
       Diluted                                 3.94         4.85        $0.71

    Earnings per ADS:
       Basic                                   7.89         9.72        $1.42
       Diluted                                 7.89         9.71        $1.42

    Weighted average number of shares
     outstanding:
       Basic                             30,000,000   34,718,122   34,718,122
       Diluted                           30,000,000   34,767,287   34,767,287


                  DUOYUAN GLOBAL WATER INC. AND SUBSIDIARIES
                    CONDENSED CONSOLIDATED BALANCE SHEETS

                                    ASSETS

                                     December 31,  September 30, September 30,
                                         2008          2009           2009
                                      (AUDITED)     (UNAUDITED)   (UNAUDITED)
                                         RMB           RMB            US$
    CURRENT ASSETS:
     Cash                            198,518,061    937,209,569  $137,295,943
     Accounts receivable             137,549,786    184,060,332    26,963,806
     Inventories, net of reserve
      for obsolescence                46,726,339     63,289,184     9,271,510
     Other receivables                    46,500         31,000         4,541
     Other current assets                645,376         22,745         3,332
     Deposits                          9,990,000     29,474,320     4,317,823
      Total current assets           393,476,062  1,214,087,150   177,856,955

    PLANT AND EQUIPMENT, net         117,681,359    145,189,409    21,269,434

    OTHER ASSETS:
     Prepaid leases                   22,481,491     22,088,727     3,235,875
     Deferred tax assets               4,446,899      4,446,899       651,446
      Total other assets              26,928,390     26,535,626     3,887,321

       Total assets                  538,085,811  1,385,812,185  $203,013,710

                     LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES:
     Notes payable                    20,000,000     20,000,000    $2,929,888
     Accounts payable                 38,696,788     79,684,831    11,673,381
     Other payables                   24,927,232     17,541,482     2,569,729
     Income taxes payable             10,768,521     24,088,093     3,528,770
      Total current liabilities       94,392,541    141,314,406    20,701,768

    SHAREHOLDERS' EQUITY:
     Ordinary shares, US$0.000033
      par value: Authorized shares
      - 1,500,000,000; Issued and
      outstanding - 30,000,000
      shares at December 31, 2008
      and 43,702,631 shares at
      September 30, 2009                   7,295         10,384         1,521
     Additional paid-in capital      132,455,705    856,061,526   125,408,210
     Statutory reserves               36,413,141     53,467,690     7,832,717
     Retained earnings               274,817,129    334,958,179    49,069,494
       Total shareholders' equity    443,693,270  1,244,497,779   182,311,942

           Total liabilities and
            shareholders' equity     538,085,811  1,385,812,185  $203,013,710




                  DUOYUAN GLOBAL WATER INC. AND SUBSIDIARIES
           RECONCILIATION OF GAAP TO NON-GAAP RESULTS OF OPERATIONS

                                           THREE MONTHS ENDED SEPTEMBER 30,
                                             2008        2009         2009
                                              RMB         RMB          US$

    GAAP NET INCOME                       59,607,893  73,396,581  $10,752,187
    Share-based compensation                      --   1,084,089      158,813
    NON-GAAP NET INCOME                   59,607,893  74,480,670  $10,911,000

    GAAP Earnings per share - diluted           1.99        1.67        $0.25
    Share-based compensation                      --        0.03           --
    NON-GAAP Earnings per share - diluted       1.99        1.70        $0.25

    GAAP Earnings per ADS - diluted             3.97        3.35        $0.49
    Share-based compensation                      --        0.05         0.01
    NON-GAAP Earnings per ADS - diluted         3.97        3.40        $0.50

    Weighted average number of shares
     outstanding - diluted                30,000,000  43,838,207   43,838,207


                                           NINE MONTHS ENDED SEPTEMBER 30,
                                           2008         2009         2009
                                            RMB          RMB          US$

    GAAP NET INCOME                     118,309,628   77,195,599  $11,308,722
    Share-based compensation                     --   91,555,343   13,412,344
    NON-GAAP NET INCOME                 118,309,628  168,750,942  $24,721,066

    GAAP Earnings per share - diluted          3.94         2.22        $0.33
    Share-based compensation                     --         2.63         0.38
    NON-GAAP Earnings per share -
     diluted                                   3.94         4.85        $0.71

    GAAP Earnings per ADS - diluted            7.89         4.44        $0.65
    Share-based compensation                     --         5.27         0.77
    NON-GAAP Earnings per ADS - diluted        7.89         9.71        $1.42

    Weighted average number of shares
     outstanding - diluted               30,000,000   34,767,287   34,767,287

SOURCE Duoyuan Global Water Inc.