SORL Auto Parts Reports Third Quarter 2010 Financial Results

ZHEJIANG, China, Nov. 15, 2010 /PRNewswire-Asia-FirstCall/ -- SORL Auto Parts, Inc. (Nasdaq: SORL) ("SORL" or "The Company"), a leading manufacturer and distributor of automotive brake systems as well as other key safety-related auto parts in China, announced financial results for the third quarter and nine months ended September 30, 2010.

On August 31, 2010, the Company, through its subsidiary, acquired automotive parts segments of Ruili Group Co., Ltd. SORL Q3 2010 results were inclusive of Ruili Group's September results. To facilitate comparability of figures between periods presented, SORL Consolidated results are presented to show the accounting impact of Ruili Group's results, as if the acquisition had taken place on January 1, 2009.

Third Quarter Financial Highlights

• SORL Net sales rose 40.8% from the third quarter of 2009;
• SORL OEM sales were up 43.7% year-over-year;
• SORL Export sales were up 71.8% year-over-year;
• SORL Gross margin was 28.0% up from 27.1% in the preceding quarter;
• SORL Net income rose 27.8% year-over-year; with diluted EPS of $0.25;
• SORL Net cash flows from operating activities were $19.3 million, up from negative $2.2 million in the third quarter of 2009.

Mr. Xiaoping Zhang, SORL Auto Parts' Chief Executive Officer and Chairman, stated, "We are very pleased with our financial performance in the third quarter of 2010.We benefited from the robust growth of China's economy and especially the automotive industry. Sales of our new model products, applicable to both OEM and aftermarket also grew in the third quarter of 2010. OEM sales rose as we promoted our integrated systems and modular supplies to them. Export sales growth reflects more confidence in a global economic recovery. We will continue with our strategies to further optimize our international sales network to help further penetrate into new markets. Also, we are enhancing investment in new product development to create higher-margin advanced products to increase both our OEM and aftermarket sales."

Third Quarter Financial Results

For better comparison and analysis, the Company provides the following table.

SORL net sales, were $47.9 million, a $13.9 million or 40.8% increase over the $34.0 million in the same quarter of 2009. SORL sales to the Chinese OEM market were $25.0 million and $17.4 million for the three months ended September 30, 2010 and 2009, respectively, an increase of 43.7%. SORL Chinese aftermarket sales were $9.4 million and $8.7 million for the three months ended September 30, 2010 and 2009, respectively, an increase of 8.0%. SORL export sales were $13.4 million and $7.8 million for the three months ended September 30, 2010 and 2009, respectively, an increase of 71.8%.

For the third quarter of 2010, including the acquired business of the Ruili Group, SORL consolidated net sales were $50.8 million, a 31.3% increase over the $38.7 million in the same quarter of 2009. SORL consolidated revenues from the Company's domestic OEM customers were $27.0 million, a 31.1% increase over $20.6 million in the third quarter of 2009. SORL consolidated revenues from China's domestic aftermarket were $9.8 million compared with $9.4 million in the previous year. SORL consolidated revenues from international sales were $14.0 million, a 60.9% increase from $8.7 million in the same period in 2009.

SORL gross profit was $13.4 million the third quarter of 2010, an increase of $4.5 million or 50.7% from $8.9 million for the third quarter of 2009.

Including the acquired business of the Ruili Group, SORL consolidated gross profit, was $14.5 million for the third quarter of 2010, an increase of $3.6 million or 32.4% from $11 million in the third quarter of 2009.  

SORL gross margin increased to 28.0% from 26.1% in the third quarter last year.

SORL consolidated gross margin of 28.6% in the third quarter of 2010 increased from 28.3% in the third quarter last year.

The Company has been focusing on increasing overall efficiency, improving the technologies of our products, and improving our product portfolio as well as continuing to expand into the higher-profit new valve products to maintain or increase our gross profit margins.

SORL selling and distribution expenses were $2.7 million for the three months ended September 30, 2010, as compared to $2.1 million for the same period of 2009.

Including the acquired business of the Ruili Group, SORL consolidated selling and distribution expenses were $3.3 million for the three months ended September 30, 2010 compared to $2.8 million in the same period of 2009.

The increase of selling and distribution expenses was mainly due to the increased transportation and accrued warranty expenses resulting from higher sales.

As a percentage of revenue, SORL selling expenses decreased to 5.6% for the three months ended September 30, 2010 compared to 6.3% in the 2009 same quarter.

Including the acquired business of the Ruili Group, SORL consolidated selling expenses, as a percentage of sales revenue, decreased to 6.5% for the three months ended September 30, 2010, as compared to 7.2% for the same period in 2009.

SORL general and administrative expenses were $2.5 million for the three months ended September 30, 2010, as compared to $1.4 million for the same period of 2009.

Including the acquired business of the Ruili Group, SORL consolidated General and administrative (G&A) expenses were $3 million for the third quarter ended September 30, 2010 compared to $2.1 million for the same period of 2009.

The increase in G&A was mainly related to higher sales resulting in the need for increased personnel to support the business expansion and a higher provision for doubtful accounts in the third quarter of 2010. In the year ago quarter, a bad debt was recovered and that generated a negative $450,102 bad debt provision, which reduced G&A expenses in the third quarter last year.  

SORL research and development expense was $1.6 million, as compared to $0.4 million for the same period of 2009. The $1.2 million greater investment focused on new product development, particularly in upgrading traditional valve products and in developing electronically controlled products.

Including the acquired business of the Ruili Group, SORL consolidated research and development expenses including third-party development costs, for the third quarter of 2010 were $1.8 million compared to $0.6 million for the same period of 2009.  

SORL operating income in the third quarter of 2010 was $6.2 million, a 26.5% increase over the $4.9 million in the third quarter of 2009.

Including the acquired business of the Ruili Group, SORL consolidated operating income in the third quarter of 2010 was $6.1 million, a 14.9% increase over the $5.4 million in the third quarter of 2009. The increase in operating income is due to sales growth and a higher gross margin during the third quarter of 2010 compared with the same quarter a year ago.

SORL operating margin was 12.9% in the third quarter of 2010 compared with the operating margin of 14.4% in the third quarter last year.

Including the acquired business of the Ruili Group, SORL consolidated operating margin was 12.1% in the third quarter of 2010 compared with the operating margin of 13.8% in the third quarter last year.

SORL net income attributable to stockholders for the quarter ended September 30, 2010 were $4.9 million, or $0.25 per diluted share,  increased by $1 million over the $3.8 million, or $0.21 per diluted share, in the year ago third quarter.

Including the acquired business of the Ruili Group, SORL consolidated net income attributable to stockholders for the third quarter of 2010 was $5.0 million, or $0.26 per diluted share, an 19.0% gain over the $4.2 million, or $0.23 per diluted share, in the year ago third quarter.

Net Cash Flows from Operating Activities were $19.3 million, as compared to negative $2.2 million in the third quarter of 2009.  

First 9 Months Financial Results

SORL net sales were $131.9 million and $84.0 million for the nine months ended September 30, 2010 and 2009, respectively, an increase of $47.9 million or 57.0%.

Including the acquired business of the Ruili Group, SORL consolidated net sales for the first nine months of 2010 increased 51.9% year-over-year to $144.6 million from $95.1 million in the first nine months of 2009.

SORL gross profit increased by 60.0% from $22.8 million for the nine months ended September 30, 2009 to $36.5 million for the nine months ended September 30, 2010. SORL gross margin increased by 0.5% for the nine months ended September 30, 2010, to 27.7% from 27.2% for the same period of 2009.

Including the acquired business of the Ruili Group, SORL consolidated gross profit for the first nine months of 2010 was up 52.6% to $42.5 million from the comparable period a year ago. SORL consolidated gross margin increased slightly to 29.4%.  

SORL income from operations was $16 million, up from $10.4 million in the first nine months of 2009, and the 2010 operating margin was 12.1% compared with 12.3% in the previous year's same period.

Including acquired business of Ruili Group, SORL consolidated income from operations was $17.3 million, up from $11.2 million in the first nine months of 2009, and the 2010 operating margin was 12.0% compared with 11.8% in the previous year's same period.

SORL net income attributable to stockholders for the nine months ended September 30, 2010 increased by $5.6 million to $13.4 million with fully diluted earnings per share of $0.70, from $7.8 million, or diluted earnings per share of $ 0.42 in the first nine months ended September 30, 2009.  

Including the acquired business of the Ruili Group, SORL consolidated net income attributable to common shareholders climbed 72.0% to almost $14.6 million, with fully diluted earnings per share of $0.76 compared with $8.5 million, or diluted earnings per share of $0.46 in the first nine months of 2009.

Balance Sheet

At September 30, 2010, the Company had cash and cash equivalents of $2.2 million compared with $10.3 million at December 31, 2009. Working capital was $84.3 million at September 30, 2010, with a current ratio of 3.8 to 1. Shareholders' equity grew to $126.0 million at September 30, 2010 from $122.2 million at December 31, 2009.

Recent development

SORL announced on September 1, 2010, that through its 90%-owned subsidiary, Ruili Group Ruian Auto Parts Co., Ltd., it executed an Asset Purchase Agreement to acquire, and purchased, the assets of the hydraulic brake, power steering and automotive electrical parts segments of the automotive parts business of Ruili Group Co., Ltd. As a result of this acquisition, the Company's product offerings expanded into both commercial and passenger vehicles' brake systems and other key safety-related auto parts. The purchase price was RMB 170 million, or approximately USD$25 million. The transaction was effected as a purchase of assets, consisting primarily of machinery and equipment, inventory, accounts receivable and patent rights, used or usable in connection with these segments of the auto parts business of Ruili Group Co., Ltd. The consideration for the business acquired was based upon a valuation performed by the Hong Kong office of DTZ Debenham Tie Leung Limited ("DTZ"), an appraiser which is not affiliated with the Company. The Company did not acquire any of the assets of the Seller other than those in the segments of Seller's business described above.

Business outlook

We project approximately $183 million of sales revenue and $18 million of net income attributable to our common stockholders for the full year ending December 31, 2010.

Conference Call

Management will host a conference call at 8:00 AM EST/ 9:00 PM Beijing time, on Monday, November 15, 2010 to discuss its third quarter 2010 financial results. Listeners may access the call by dialing #1-877-407-0778 or # 1-201-689-8565 for international callers.  A live webcast of the conference call will also be available at http://www.sorl.cn.

A replay of the call will be available shortly after the conference call through 11:59 p.m. EST on November 22, 2010, or 12:59 p.m. Beijing Time on November 23, 2010. The replay dial-in numbers are:  U.S. toll free number +1-877-660-6853, or the international number is +1-201-612-7415; using Account "286" and Conference ID "360111" to access the replay.

SORL Auto Parts, Inc.

A leading manufacturer and distributor of automotive brake systems and other key safety related auto parts in China, SORL Auto Parts, Inc. ranked No. 1 for market share in China in the segment for brake systems for commercial vehicles, such as trucks and buses. The Company distributes products both within China and internationally under the SORL trademark. SORL is listed among the top 100 auto component suppliers in China, with a product range that includes 65 categories with over 2000 specifications in brake system and others. The Company has four authorized international sales centers in Australia, UAE, India, and the United States. SORL is working to establish a broader global sales network. For more information, please visit http://www.sorl.cn.

Safe Harbor Statement

This press release may include certain statements that are not descriptions of historical facts, but are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as "will", "believes", "expects" or similar expressions. These forward- looking statements may also include statements about our proposed discussions related to our business or growth strategy, which is subject to change. Such information is based upon expectations of our management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future business decisions, which are subject to change. We do not undertake to update the forward-looking statements contained in this press release. For a description of the risks and uncertainties that may cause actual results to differ from the forward-looking statements contained in this press release, see our most recent Annual Report filed with the Securities and Exchange Commission (SEC) on Form 10-K, and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov.

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SOURCE SORL Auto Parts, Inc.