SORL Reports Third Quarter 2011 Financial Results

ZHEJIANG, China, Nov. 14, 2011 /PRNewswire-Asia-FirstCall/ -- SORL Auto Parts, Inc. (NASDAQ: SORL) ("SORL" or "the Company"), a leading supplier of brake and control systems to the global commercial vehicle industry, announced today financial results for the third quarter and nine months ended September 30, 2011.

Financial Highlights for the Third Quarter of 2011

• Net sales were $47.6 million;
• Aftermarket and export revenues increased versus 2010 third quarter;
• Gross margin was 27.4%;
• Net income attributable to stockholders for the third quarter of 2011 was $3.5 million; 
• Net income attributable to stockholders per basic and diluted share for the third quarter of 2011 was $0.18 per basic and diluted share.

Mr. Xiaoping Zhang, SORL Auto Parts' Chief Executive Officer and Chairman, stated, "Revenues were slightly below last year's same quarter in a challenging environment especially for commercial vehicles.  Fortunately, we market and distribute to multiple markets and in particular to domestic OEMs, the Chinese aftermarket and internationally. Both the aftermarket and exports reported growth during the quarter. In addition we are developing new advanced products with a higher gross margin to bolster our gross margin in the future. Our R&D has been cited for its excellent in producing high-quality and innovative new products."

"These new products create new opportunities such as our new electronic foot brake valve for electric and hybrid electric vehicles which are being shipped to China Youngman Automobile Group Co., Ltd. for its new energy luxury coaches and the New Energy Bus Division of Beiqi Foton, for its new Euro V-compliant buses.  Additionally, our R&D capabilities have led us into expanding our customer relationships such as the product development agreement with Sinotruk. We will supply braking valves and components to be fitted on light-duty vehicles which present a new growth opportunity for us. We also expanded geographically with the planned opening of our regional headquarters in Brussels to service the large European market as well as some ancillary markets."

Financial Performance

For the third quarter of 2011, net sales were $47.6 million versus $50.8 million for the third quarter of 2010. Revenues from the Company's domestic OEM customers were $20.8 million, compared with $27.0 million for the third quarter of 2010. Revenues from China's domestic aftermarket were $11.6 million, an 18.2% increase over the previous year's third quarter. Revenues from international markets were $15.2 million, an 8.4% increase from the same quarter in 2010.

OEM sales reflected sluggish new vehicle sales in China's auto market. However, the growing and large number of aging vehicles operating in China requiring replacement parts, and the Chinese government's tighter measures on safety is generating stronger aftermarket sales. The international sales growth reflects the Company's improved foreign distribution system and growing customer base. Further, OEM customers increasingly purchased the Company's new models of integrated systems and modular supplies of air brake systems instead of single products, which also consolidated SORL's strategic partnerships with these OEMs.

Third quarter gross profit was $13.1 million in 2011 versus $14.5 million a year ago. Gross margin was 27.4%, compared with 28.6% in the same period a year ago. The gross margin decrease primarily resulted from higher material and labor expenses, lower production utilization rate and the appreciation of the Chinese Renminbi ("RMB"). The Company believes that increasing production efficiency, introducing more automated equipment, and upgrading its product portfolio to higher-margin advanced products will help maintain or increase gross profit margins.
 
Operating expenses increased 7.5% to $9.0 million in the third quarter of 2011 from $8.4 million in the third quarter of 2010. As a percentage of revenue, operating expenses increased to 18.9% in the third quarter 2011 from 16.5% a year ago.

Selling and distribution expenses decreased to $2.9 million, or 6.1% of quarterly revenue due to lower accrued warranty expenses, compared with $3.3 million, or 6.5% of revenue in the same quarter of 2010.

General and administrative (G&A) expenses in the third quarter of 2011 were $3.0 million, or 6.2% of revenue, compared with $3.0 million, or 5.8% in the previous year's third quarter.

Research and development (R&D) expenses increased to $1.9 million, or 4.0% of revenues compared with $1.8 million, or 3.5% of revenues, for the same period of 2010. SORL continues to invest in new product development to capture market share and propel sales growth by upgrading traditional valve products and developing more higher-margin electronically controlled products.

Financial expenses for the three months ended September 30, 2011 increased by $869,518 to $1.2 million, which was mainly increased interest expense and the financing expense associated with our capital lease transaction. On September 13, 2011, the Company sold and simultaneously leased back part of its unencumbered manufacturing equipment, for a term of 60 months and an interest rate of 7.95%.

Operating income was $4.0 million for the third quarter 2011 compared with $6.1 million for the same quarter last year as higher expenses combined with lower sales in the 2011 third quarter.

Net income attributable to stockholders for the third quarter of 2011 was $3.5 million, or $0.18 per basic and diluted share, compared with $5.0 million, or $0.26 per basic and diluted share, in the third quarter of 2010.

First Nine Months Financial Results

SORL's net sales for the first nine months ended September 30, 2011, increased by 11.1% year-over-year to $160.7 million from $144.6 million during the same period in 2010.
 
For the nine months, domestic OEM sales were $85.5 million, a 1.1% increase from the same period in 2010.  Aftermarket sales were $32.9 million reflecting a 41.7% increase from a year ago. International sales rose 14.9% to $42.3 million compared with last year.

SORL's gross profit rose 4.0% to $44.2 million during the first nine months in 2011. Gross margin was 27.5% in 2011 compared with 29.4% for 2010. The Company is emphasizing new more efficient production techniques and the addition of new high-margin products to stabilize gross margin.

Financial expense increased by $1.9 million to $2.7 million from $775,385 for the same period of 2010.  This increase was mainly due to increased interest expense and the financing expense associated with our capital lease transaction and foreign exchange losses.

Income from operations declined to $16.4 million for the first nine months of 2011 from $17.3 million in the same period in 2010.  Operating margin was 10.2% versus 12.0% a year ago.

The net income attributable to stockholders for the nine months ended September 30, 2011 was  $13.3 million from $14.6 million in the year ago same period. Earnings per share ("EPS"), both basic and diluted, for the nine months ended September 30, 2011 and 2010, were $0.69 and $0.76 per share, respectively.

Balance Sheet

At September 30, 2011, SORL had cash and equivalents of $12.4 million as compared to cash and cash equivalents of $6.7 million at December 31, 2010. The Company had working capital of $113.7 million versus $87.9 million at December 31, 2010. 

Net cash provided by operating activities was $3.2 million for nine months ended September 30, 2011 compared with a negative $9.0 million of net cash in operating activities in the same period in 2010.  The swing is primarily due to the decreased cash inflow resulted by changes in inventory and accounts receivable.

Recent Developments

In June, SORL's Electronic Servo Clutch System (ESCS) won China's New Energy Bus Auto Parts Technology Innovation Award for 2011 in recognition of SORL's novel technologies for new energy vehicles that contribute to greater efficiency and energy saving. SORL was honored with this prestigious industry award at a ceremony during the Sixth China International Bus Contest in Beijing China. SORL's product is a new control system for the clutch, which offers two modes of operation for drivers. Drivers have the option of either using the traditional mode (clutch pedal) to separate and engage the clutch, or using an electronic control mode to separate and engage the clutch which can help reduce driver fatigue, provide more flexible operation, and it is both more reliable and fuel efficient.

In July, the "30th National Machinery Industry Quality Management Team Celebration for improving the comprehensive quality of industrial products" was held in Beijing. SORL's improvements in Exhaust Brake Valves stood out and won first place among over 300 competing projects from hundreds of participating domestic companies. This award follows a previous provincial award won by SORL for the "Excellent Quality Management Group Achievements" at the Zhejiang Machinery Industry Quality Management Team Celebration in June 2011.

In July, SORL won the first place prize for Excellent Achievement in Quality Management at the 2011 National Machinery Industry Excellence Group Achievement Awards. This award acknowledges SORL's product quality management and capability to improve quality.

In July, SORL announced that to improve its production management system, managers of its subsidiary, Ruili Group Ruian Auto Parts Co., Ltd., recently completed advanced training in the TPS production management system. The TPS (Toyota Production System) production management system is a widely used global system. Through continuous improvement from each individual module to the overall process, the TPS production management system eliminates inefficiencies.

In July, the Company has entered into a supply agreement with a new customer, Changsha Zoomlion Heavy Industry Science & Technology Development Co., Ltd. ("Zoomlion"), China's leading manufacturer of construction machinery equipment. SORL will supply braking air processing unit (APU) technology for Zoomlion's crane trucks. Annual sales from this APU module to Zoomlion are expected to approximate RMB 10 million in 2011.

In September, the Company has been awarded the title of "Qualified Supplier" by Xiamen King Long United Automotive Industry Co., Ltd. ("King Long Bus"), one of China's largest bus manufacturers. The Company has begun supplying its air brake products to King Long Bus. This new supplier relationship marks another breakthrough by SORL in the Chinese domestic bus market after winning orders from Zhengzhou Yutong Group Co. Ltd. to purchase disc spring chambers exclusively from SORL in 2011.

In September, the Company has entered into a product development agreement with China National Heavy Duty Truck Group Co., Ltd. ("Sinotruk"). SORL will supply braking valves and components to be fitted on light-duty vehicles. SORL has been a supplier to Sinotruk since 1997 and this new agreement is a result of SORL's past performance, recognized capability for product innovation and its high-quality standards. According to the agreement, SORL will develop braking valves and components fitted for light-duty vehicles, including brake chambers, air dryers, hand brakes, foot brakes and relay valves. The Company expects that sales to Sinotruk will reach 15 million RMB in 2012.

In September, SORL announced the creation of a new subsidiary, SORL Europe, as part of the Company's global expansion strategy.  The subsidiary will be located in Brussels, Belgium, which is also the headquarters for the regional automotive supplier trade association. It will be the headquarters for SORL Europe's regional operations in Europe, the Middle East and Africa. The European brake market alone is estimated to generate approximately $5 billion in annual sales and the European aftermarket is expected to grow roughly 10% in 2011.      

In October, SORL announced a technology breakthrough with a new electronic foot brake valve for electric and hybrid electric vehicles that make up the new energy vehicle market. This proprietary electronic foot brake valve is designed especially for new energy vehicles and creates a higher standard for energy-savings, emissions, reliability and product life expectancy. Compared with conventional foot brake valves, the Company's new electronic foot brake valve uses both traditional air pressure and electronic brake signals. The newly designed valve features both dual-circuit air and dual-circuit electronic control systems to provide greater braking reliability. It is expected that government policy and environmental pressures will make new energy vehicles a significant potential market in China.  SORL's new brake products are being shipped to China Youngman Automobile Group Co., Ltd. for its new energy luxury coaches and the New Energy Bus Division of Beiqi Foton, for its new Euro V-compliant buses.  SORL's current primary targets for this technology are new energy buses in the many growing urban centers in China.

Business Outlook

We project approximately $215 million of sales revenue and $17.6 million of net income attributable to our common stockholders for the full year ending December 31, 2011.

Conference Call

Management will host a conference call on Monday, November 14th at 8:00 a.m. EST / 9:00 p.m. Beijing Time to discuss its 2011 third quarter financial results. Listeners may access the call by dialing U.S. toll free number +1-877-407-0778, +1-201-689-8565 for international callers, and China toll free 00-800-2246-2666. A live web cast 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 December 14, 2011, or 12:59 p.m. Beijing Time on December 15, 2011. The replay dial-in numbers are:  U.S. Toll-Free +1-877-660-6853, or  International is +1-201-612-7415; using Account "286" and Conference ID "381913" to access the replay.

About SORL Auto Parts, Inc.

As a global tier one supplier of brake and control systems to the commercial vehicle industry, SORL Auto Parts, Inc. ranked No. 1 for market share in the segment for commercial vehicles brake systems, such as trucks and buses, in China. 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 UAE, India, the United States and Europe. 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.

Contact Information
 
Ben Chen
VP Finance & Corporate Secretary
+86 577 6581 7721
Email: [email protected]

Kevin Theiss
Grayling
+1 646 284 9409
Email: [email protected]

-- Tables Follow --

SOURCE SORL Auto Parts, Inc.

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