China Precision Steel Announces First Quarter Fiscal 2011 Results

SHANGHAI, Nov. 15, 2010 /PRNewswire-Asia-FirstCall/ -- China Precision Steel, Inc. (Nasdaq: CPSL) ("China Precision Steel" or the "Company"), a niche precision steel processing Company principally engaged in producing and selling high precision, cold-rolled steel products, announced today its fiscal 2011 first quarter results for the period ended September 30, 2010.  

First Quarter Highlights

• Revenue increased 98.9% to $33.9 million compared to the first quarter of fiscal 2010
• Sales volume was a record 42,513 tons
• Gross profit increased 239.0% to $2.4 million with 7.0% gross margin compared to the first quarter of fiscal 2010
• Net income was $0.6 million
• Fully diluted income per share was $0.01

"We are pleased with the continued strong revenue growth as domestic demand remains robust.  Specifically, our sales for low carbon products during the quarter was a record $23.9 million as we received an overwhelming increase in orders for low carbon steel to manufacture home appliances.  In addition, with the added capacity from our new mill, our sales volume was a record 42,513 tons," commented Mr. Hai Sheng Chen, CEO of China Precision Steel.  "With the continued strong domestic demand and a backlog as of September 30, 2010 of $33.7 million, we remain upbeat on our future growth opportunities."

Revenue for the first quarter of fiscal 2011 was $33.9 million, up 98.9% from revenue in the first quarter of fiscal 2010 of $17.0 million.  The increase in revenue was mainly attributed to the increase in demand for low-carbon cold-rolled products used in construction and home appliances production.  Total sales volume and average selling price per ton in the first quarter increased to 42,513 tons and $797, respectively, compared to total sales volume and average selling price of 22,293 and $764, respectively, in the first quarter of fiscal 2010.  High carbon and low carbon sales accounted for 19.3% and 70.5% of total sales, respectively, compared to 34.5% and 55.3%, respectively in the first quarter of fiscal 2010.  Exports represented 8% of total sales for the quarter.  

Gross profit in the first quarter was $2.4 million, up 239.0% from gross profit in the same period a year ago of $0.7 million.  Gross margin was 7.0% compared to 4.1% in the first quarter of fiscal 2010.  The increase in gross margin was mainly due an increase in average selling prices and a higher equipment utilization rate.

Selling expenses for the first quarter of fiscal 2011 were $110,205, or 0.3% of revenue, compared to $31,809, or 0.2% of revenue, in the first fiscal quarter of fiscal 2010. The increase in selling expenses was primarily attributable to increased focus on sales and marketing efforts. Administrative expenses were $871,470, or 2.6% of revenue, compared to $578,698, or 2.6% of revenue.  The increase in administrative expenses is due to an increased travelling costs and professional fees during the period.  

Operating income for the quarter was $1.4 million, compared to operating loss of $68,003 million in the first quarter of fiscal 2010.    

Net profit for the first quarter of fiscal 2011 was $644,511, compared to net loss of $275,191 in for the first quarter of fiscal 2010.  Fully diluted earnings per share were $0.01 compared to fully diluted loss per share of $0.01 in the same period a year ago.  

Financial Condition

As of September 30, 2010, China Precision Steel had $12.7 million in cash and cash equivalents, $18.3 million in long term debt, total liabilities of $63.2 million and working capital of $66.2 million.  Stockholders' equity stood at $129.4 million compared to $127.1 million as of September 30, 2009.  

Business Outlook

China Precision Steel is ramping up production capacity with the addition of its third mill, which went into production in January 2010.  The new mill is currently operating at 25% of its design capacity.  Total production capacity is expected to increase by approximately 35,000 tons to 195,000 tons by the end of fiscal 2011 as the new mill continues to ramp up production.  Once all mills reach full design capacity in approximately three to four years, total production capacity is expected to be approximately 260,000 tons.  As of September 30, 2010, China Precision Steel had a backlog of $33,772,326.

"We believe that the next few years will continue to provide numerous growth opportunities for us as domestic consumption is expected to remain strong.  Specifically, the Chinese government recently released its 12th five-year plan in which it stated that its focus for economic growth is shifting from dependence on export-led sectors to increasing domestic consumer demand," Mr. Chen continued.  "Moreover, we expect that demand for our precision steel products will also benefit from the increasing number of international manufacturers moving their production facilities to China."

About China Precision Steel, Inc.

China Precision Steel, Inc. is a niche precision steel processing company principally engaged in the production and sale of high precision cold-rolled steel products and provides value added services such as heat treatment and cutting medium and high carbon hot-rolled steel strips. China Precision Steel's high precision, ultra-thin, high strength (7.5 mm to 0.05 mm) cold-rolled steel products are mainly used in the production of automotive components, food packaging materials, saw blades and textile needles. The Company primarily sells to manufacturers in the People's Republic of China and overseas markets such as Nigeria, Thailand, Indonesia and the Philippines. China Precision Steel was incorporated in 2002 and is headquartered in Sheung Wan, Hong Kong. Additional information can be found at the Company's website http://chinaprecisionsteelinc.com.

Conference Call

China Precision Steel will host a conference call on Tuesday, November 16, 2010 at 9:00 a.m. Eastern Time to discuss fiscal 2011 first quarter results. To participate in the live conference call, please dial the following number fifteen minutes prior to the scheduled conference call time: 866-800-8648. International callers should dial 617-614-2702. When prompted by the operator, mention conference passcode 334 143 05.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Tuesday, November 16, 2010 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 97099877. International callers should dial 617-801-6888 and enter the same passcode.

This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.chinaprecisionsteelinc.com. Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.

Forward-Looking Statements

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release and oral statements made by China Precision Steel on its conference call in relation to this release, constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding China Precision Steel's ability to prepare the Company for growth, the Company's planned manufacturing capacity expansion, predictions about improvements in the global economy and predictions and guidance relating to the Company's future financial performance. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs but they involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, such as business conditions in China, weather and natural disasters, changing interpretations of generally accepted accounting principles; outcomes of government reviews; inquiries and investigations and related litigation; continued compliance with government regulations; legislation or regulatory environments, requirements or changes adversely affecting the businesses in which China Precision Steel is engaged; cyclicality of steel consumption including overcapacity and decline in steel prices, limited availability of raw material and energy may constrain operating levels and reduce profit margins, environmental compliance and remediation could result in increased cost of capital as well as other relevant risks not included herein. The information set forth herein should be read in light of such risks. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement.  The forward-looking statements made herein speak only as of the date of this press release and the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations.  

- Financial Tables Follow -

SOURCE China Precision Steel Inc.