China Power Equipment, Inc. Reports Higher Revenues

XI'AN, China, May 16, 2011 /PRNewswire-Asia-FirstCall/ -- China Power Equipment, Inc. ("China Power" or "China Power Equipment" or the "Company,"OTCBB: CPQQ), the designer, manufacturer, and distributor of a new generation of energy saving electric transformers and transformer cores in the People's Republic of China, today reported higher revenues for the first quarter ended March 31, 2011.

First Quarter 2011 Highlights

• Net revenues increased 34.4% to $7.7 million in the first quarter 2011 from $5.8 million in the first quarter 2010.
• Net revenues from the amorphous alloy cores business increased 56.1% to $5.9 million in first quarter 2011 from $3.7 million in the first quarter 2010.
• Gross profit increased 20.3% to $1.8 million in first quarter 2011 from $1.5 million in the first quarter 2010.
• Net income decreased 2.6% to $1.1 million in first quarter 2011 from $1.2 million in the first quarter 2010.
• Basic earnings per share decreased 25.0% to $0.06 per share in first quarter 2011 from $0.08 per share in the first quarter 2010 on 30.0% higher weighted average basic shares outstanding in the first quarter 2011 than in the first quarter 2010.
• Diluted earnings per share remained even at $0.05 per share in both the first quarter 2011 and first quarter 2010. Weighted average diluted shares outstanding in the first quarter 2011 were 4.1% higher than in the first quarter 2010.
• Earnings conference call and webcast will be held on May 17, 2011 at 7:00 a.m. EDT (New York).

Chairman's comments

Mr. Yong Xing Song, Chairman of the Board of China Power Equipment, said, "We had a very good quarter. Our marketing and sales strategy is working well and resulted in strong sales growth in the first quarter.

"Our sequential gross profit margin increased to 23.8% in the first quarter 2011 from 23.2% in the fourth quarter 2010. The higher sequential gross margin shows that our efforts at further controlling costs and enhancing efficiency are starting to achieve the good improvements we expected. In the next several quarters, we will work to increase our sales and profits through higher sales of amorphous alloy cores and amorphous alloy transformers, the installation of our new transformer line and its initial production and sales, higher production efficiency and capacity utilization, and by providing more value-added services and technical support to our customers who make transformers."

The development of China Power's new transformer production line is advancing smoothly. The company has ordered all the production equipment and facilities from suppliers and expects to complete the equipment installation and testing by the end of the second quarter 2011.

Mr. Song continued, "Our strong balance sheet and the cash flow from our current businesses are providing the cash for the new transformer production line, as well as substantial increases in working capital."

The demand for energy-saving and environmentally friendly products is expected to continue increasing. The Chinese government is further encouraging the promotion and application of energy-saving products. Reinforcing China's previous statements of support, the "Guidance for Demand Side Management," published by China's National Development and Reform Commission and five other government offices in November 2010, became effective in January.

China's Twelfth Five-Year Plan (2011-2015) accelerates the generation of higher amounts of electricity and also specifies dramatically higher improvements in the energy efficiency of electric distribution systems in China. These investments should further increase the demand for power equipment, especially for energy-saving products. In the plan, upgrading the rural electricity grids is one of the important goals. Amorphous alloy transformers, with their dramatically better energy efficiency at no-load, are perfectly matched to the energy-saving requirements of rural power grids.

Mr. Song continued, "As one of the leading companies that will have large-scale production capacity and outstanding new models of amorphous alloy transformers in northwestern China, we expect to capture a good share of that emerging rural market to dramatically increase our sales and deliver higher returns on assets.

"May 17, 2011 is China Power's fifth anniversary. During our first five years, we completed our transformation from a private company to a public company, with our shares trading in the USA. In 2010, we improved our corporate governance by adding two independent directors to the board, established the audit committee, and changed our auditor and legal counsel. Although these actions have added costs, we believe the better governance and stronger company legal structure are essential for improving our long-term performance and the protection of assets for shareholders. We expect to continue improving our corporate governance and good communications with our shareholders and investors, while being mindful of the need to protect our competitive advantage and meet all regulatory and reporting requirements and limits.

"The outlook for China Power remains very exciting. Our dynamic high-growth market continues to evolve, and we believe we are correctly positioned to help lead the improvement in China's energy distribution system. As always, we will continue to work both smart and hard to create additional value for our shareholders."

First quarter 2011 financial results

Revenues

Net revenues increased $1,976,485 or 34.4% during the first quarter 2011 compared with first quarter 2010, primarily due to higher tonnage of amorphous alloy cores sold, partly offset by lower average selling prices for amorphous alloy cores. The revenues from amorphous alloy transformers decreased primarily due to fewer units having been sold.

During the first quarter 2011, the average sales price per ton of amorphous alloy cores was 7.1% lower than in the first quarter 2010. The lower average price of amorphous alloy cores was part of our marketing strategy to attract more orders.

During the first quarter 2011, the average sales price per unit of amorphous alloy transformers were 9.7% higher than in the first quarter 2010, primarily due to a change in the product mix sold in favor of more expensive high capacity transformers.

Cost of goods sold

Cost of goods sold increased $1,666,442 or 39.4% in the first quarter 2011 from the first quarter 2010, primarily due to higher tonnage of amorphous alloy cores sold. The average price of the primary raw material, amorphous alloy strip, was flat in the first quarter 2011 from the first quarter 2010.

Gross profit and gross profit margin

Gross profit increased $310,043 or 20.3% in the first quarter 2011 from the first quarter 2010 primarily due to higher sales revenues associated with amorphous alloy cores.

The gross profit margin (gross profit as a percent of total revenues) decreased 2.7 percentage points to 23.8% in the first quarter 2011 from 26.5% in the first quarter 2010 primarily due to the lower average selling price of amorphous alloy cores in the first quarter of 2011 than in the first quarter 2010.

Selling, general, and administration expenses

Selling, general, and administrative expenses increased by $256,183 or 124.9% in the first quarter 2011 from the first quarter 2010. The higher selling, general, and administrative expenses in dollars and as a percentage of revenues were mainly due to an increase in professional and consulting fees of $134,328 resulting from a higher audit fee, an increase in administrative employee expenses of $42,911, an increase in sales related tax levy of $15,775 resulting from higher revenues, and an increase in depreciation of $15,266 as a result of the addition in plant and equipment.

Net income and earnings per share

Net income decreased $30,566 or 2.6% to $1,128,350 in the first quarter 2011 from $1,158,916 in the first quarter 2010 mainly due to higher selling, general, and administrative expenses and higher income taxes.

Basic earnings per share decreased 25.0% to $0.06 per share in the first quarter 2011 from  $0.08 in the first quarter 2010 on weighted average basic shares outstanding that were 30.0% higher in the first quarter 2011 than in the first quarter 2010.

Diluted earnings per share remained even at $0.05 per share in both the first quarter 2011 and first quarter 2010. Weighted average diluted shares outstanding in the first quarter 2011 were 4.1% higher than in the first quarter 2010.

Liquidity and capital resources  

We have funded our operations and capital expenditures using cash generated from operations and funds raised from issuing convertible preferred stock. We will continue our investment in the development and enhancement of the production facilities for amorphous alloy cores and transformers. Cash generated from operations will be used to fulfill such commitments.

China Power believes its existing cash will be sufficient to maintain its operations at the present level for at least the next 12 months.

The following table summarizes our liquidity and capital resources on March 31, 2011 and 2010.

Working capital is defined as current assets minus current liabilities.

The following table summarizes the changes in the sources and uses of cash in the first quarter of 2011 and 2010.

Net cash provided by operating activities in the first quarter 2011 was $1,157,492 and came mainly from net income of $1,128,350.

Net cash used in investing activities in the first quarter 2011 was $328,334 and was mainly due to the $330,454 proceeds from the disposal of long-term investment in Shaanxi Yan An Amorphous Alloy Transformer Co., Ltd.

Financial statements follow.

Conference call and webcast 

China Power Equipment will host its earnings conference call and live webcast covering the first quarter 2011 on Tuesday, May 17, 2011 at 7:00 a.m. EDT (New York), which is 7:00 p.m. in China on the same day.

The dial-in details for the live conference call are:

The live webcast and archive of the conference call will be available on the Investor Relations section of China Power's website at http://www.chinapower-equipment.com. Please log in about 15 minutes before the call to download any necessary software.

A telephone replay of the call will be available after the conclusion of the conference call through 9:00 a.m. EDT on May 24, 2011.

The dial-in details for the telephone replay are:

About China Power Equipment, Inc.

China Power Equipment, Inc., is a U.S. corporation, which through its wholly-owned subsidiary, An Sen (Xi'an) Power Science & Technology Co., Ltd., and its affiliated operating company, Xi'an Amorphous Alloy Zhongxi Transformer Co., Ltd., designs, manufactures, and distributes amorphous alloy transformer cores and amorphous alloy core distribution transformers in the People's Republic of China. The company currently manufactures 59 different products, primarily amorphous alloy cores and amorphous alloy core transformers.

Safe harbor statement

Certain statements in this release concerning our future growth prospects are forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. These forward-looking statements can be identified by terminology such as "anticipates," "believes," "could," "estimates," "expects," "future," "intends," "plans," "should," "will," and similar statements.

The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding the success of the company's investments, risks and uncertainties regarding fluctuations in earnings, its ability to sustain its previous levels of profitability including on account of its ability to manage growth, intense competition, wage and inflation increases in China, its ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, its ability to successfully complete and integrate potential acquisitions, withdrawal of governmental fiscal incentives, political instability and regional conflicts, and legal restrictions on raising capital or acquiring companies outside China.

Additional risks that could affect the company's future operating results are more fully described in its filings with U.S. Securities and Exchange Commission. These filings are available at www.sec.gov and at www.chinapower-equipment.com.

The company may, from time to time, make additional written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 10-K, 10-Q, and 8-K, in its annual report to shareholders, in news releases and other written materials, and in oral statements made by its officers, directors, or employees to third parties. The company does not undertake to update any forward-looking statements that may be made from time to time by or on its behalf, except as required under law.

For more information about China Power Equipment, please visit its website at www.chinapower-equipment.com.

For more information, please contact:

Ms. Nicole Chen (English and Chinese)
Vice President of Finance
China Power Equipment, Inc.
Telephone +86 (29) 6261 9758
Mobile +86 186 1633 1170
Email: [email protected]

or

Christensen

Mr. Chen Yuanyuan (English and Chinese)
Mobile +86 139 2337 7882
[email protected]

Mr. Tom Myers (English)
Mobile +86 139 1141 3520 in Beijing
[email protected]

Ms. Kathy Li (English and Chinese)
Telephone +1 212 618 1978 in the USA
[email protected]

SOURCE China Power Equipment, Inc.