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SORL Auto Parts Reports 24% Sales Increase and Higher Earnings in the 2016 Second Quarter

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ZHEJIANG, China, Aug. 15, 2016 /PRNewswire/ -- 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, today announced its unaudited financial results for the second quarter of 2016 and the first six months ended June 30, 2016.

Second Quarter 2016 Financial Highlights

  • Sales increased 24.0% to $73.5 million compared with $59.3 million in the second quarter last year;
  • Gross margin was 28.0% in the second quarter of 2016 compared to 27.9% in the same period of 2015;
  • Income from operations increased 190.6% to $7.7 million from $2.6 million in the same quarter last year;
  • Net Income attributable to stockholders climbed 220.0% to $7.2 million, or $0.37 per diluted share from  $2.3 million, or $0.12 per diluted share, in the second quarter of 2015.

Mr. Xiaoping Zhang, SORL's Chief Executive Officer and Chairman, stated, "We are pleased that our sales growth accelerated in the OEM and aftermarket in China despite the continuing slow growth of the Chinese economy.  Our sales growth outperformed overall commercial vehicle market in the second quarter of 2016 as we significantly increased our market share."

"We continue to benefit from our ongoing development of new products and systems to capture new market opportunities and win new customers. To augment our growth, we have been investing in products for the end markets that will benefit from the Chinese Government's policies, such as public housing, transportation, and railways," Mr. Zhang concluded.

Second Quarter 2016 Financial Performance

For the second quarter of 2016, net sales increased by 24.0% to $73.5 million from $59.3 million for the second quarter of 2015. Revenues from the Company's domestic OEM customers increased by 29.2% to $36.7 million from $28.4 million in the second quarter of 2015. Commercial vehicle production and sales increased in the second quarter of 2016. SORL also expanded its leading market position in the second quarter of 2016. Sales from China's domestic aftermarket increased 35.0% to $18.9 million in the second quarter of 2016 from $14.0 million in the same quarter of 2015. The rising expiration of OEM warranties from higher new vehicle sales in the recent past combined to drive the Company's aftermarket business in China. Also greater urbanization and the Chinese government's increased support for public transportation help expand SORL's bus aftermarket sales. Revenues from international markets increased 5.9% to $17.9 million from $16.9 million in the second quarter of 2015.

The gross profit for the second quarter of 2016 increased 24.6% to $20.6 million from $16.5 million for the second quarter of 2015. Gross margin for the second quarter of 2015 was 28.0%, compared with a gross margin of 27.9% in the same quarter of 2015. The increase in gross margin was primarily due to increased sales of higher-margin products in the product mix during the period.

Operating expenses were $14.4 million in the second quarter of both 2016 and 2015. Higher research and development and selling and distribution expenses were offset by lower general and administrative expenses in the second quarter of 2016.  As a percentage of revenue, operating expenses were 19.6% in the second quarter of 2016, compared with 24.2% in the second quarter of 2015.

  • Selling and distribution expenses were $7.1 million, or 9.7% of quarterly revenues, compared with $5.1 million, or 8.6% in the same quarter of 2015. The increase in expenses was mainly due to higher freight and packaging costs.
  • General and administrative ("G&A") expenses in the second quarter of 2016 were $4.9 million, or 6.7% of revenue, compared with $7.4 million, or 12.5% in the second quarter of 2015. The decrease in expenses was mainly due to a decline in allowance for doubtful accounts in the second quarter of 2016 compared with the second quarter of 2015.
  • Research and development ("R&D") expenses were $2.4 million in the second quarter of 2016 compared with $1.9 million in the same quarter of 2015. As a percentage of revenue, R&D was 3.2% in the second quarter of 2016 and compared with 3.1% of revenue in the second quarter of 2015. The R&D program continues to mainly focus on the development of new, higher-margin, electronically controlled mechatronic products and to upgrade the Company's traditional brake products.

Financial expenses were $0.1 million in the second quarter of 2016 compared with $0.2 million in the second quarter of 2015. 

Income before income taxes was $9.3 million for the second quarter of 2016 compared to $3.3 million for the second quarter of 2015. The higher income reflected increased sales and income from operations compared with the same quarter of 2015. The pretax income margin was 12.7% in the second quarter of 2016, compared with 5.5% in the second quarter of 2015.

The provision for income taxes was $1.3 million, or a 13.7% tax rate, in the second quarter of 2016, which is compared with $0.8 million, or a 24.3% tax rate, in the second quarter in 2015. The Company used a tax rate of 25% in the second quarter of 2015 as it was being assessed based on PRC income tax laws to be designated as a "High-Tech Enterprise".  Such designation was approved in the fourth quarter of 2015 which bestowed a 15.0% tax rate for 2016 and 2017.

Net income attributable to stockholders for the second quarter of 2015 increased 220.0% to $7.2 million, or $0.37 per basic and diluted share, compared with $2.3 million, or $0.12 on per basic and diluted share, in the second quarter of 2015.

First Six Months 2016 Financial Performance

Net sales for the first six months of 2016 increased 14.3% to $127.4 million from $111.5 million for the first six months of 2015. Net sales from the Company's China OEM market increased 19.5% to $64.9 million from $54.3 million in the same period in 2015. Revenues from China's domestic aftermarket increased 21.6% to $32.1 million from $26.4 million in the first six months of 2015. Revenues from international markets decreased 1.3% to $30.4 million from $30.8 million in the first six months of 2015.

Gross profit for the first six months of 2016 increased 15.8% to $35.0 million from $30.3 million in the same period in 2015. Gross margin for the six months ended June 30, 2016, increased to 27.5% from 27.1% for the first six months of 2015.

Operating income for the first six months of 2016 increased 22.5% to $8.8 million from $7.2 million in the same period in 2015. Operating margin was 6.9% versus 6.4% in first six months of 2015.

Net income attributable to stockholders for the first six months of 2016 was $7.7 million, or $0.40 per basic and diluted share, compared with $5.3 million, or $0.28 per basic and diluted share, in the same period in 2015.

Balance Sheet

As of June 30, 2016, the Company had cash, cash equivalents and short-term investments of $11.6 million. Inventories were reduced to $58.4 million at June 30, 2016 from $73.7 million at December 31, 2015. Bank acceptance notes from customers increased to $36.4 million on June 30, 2016 from $22.9 million and accounts receivables were $84.1 million compared with $71.8 million on December 31, 2015. Total equity was $156.7 million at June 30, 2016. On June 30, 2016, working capital was $96.7 million with a current ratio of 1.9 to 1.

Recent Events

On May 5, 2016 SORL Auto Parts, Inc. (the "Company"), through its principal operating subsidiary, Ruili Group Ruian Auto Parts Co., Ltd. (the "Subsidiary"), entered into a Purchase Agreement with Ruili Group Co., Ltd., a related party under common control with the Company pursuant to which the Company agreed to purchase the land use rights and factory in the new development zone.  As a part of the transaction, the Company will transfer to the Ruili Group it's the land use rights and factory facilities under the Company's ownership, plus RMB501 million in cash to fill the price difference. The total floor area of the prior facility is 58,714 square meters compared with the total floor area of the new facility of 157,619 square meters, which will provide more manufacturing and service capacity to support the Company's future growth.

The cash consideration in the amount of RMB481,000,000 (approximately $74,444,000) was paid to the Ruili Group in installments before June 30, 2016, and the remaining RMB20,000,000 (approximately $3,016,000) will be paid within 10 days of completion of the required procedures for transferring the title of the facilities and the land use right as specified in the Purchase Agreement. Before the transaction, the Company was leasing 89,229 square meters of the Development Zone Facility from Ruili Group for its brake systems business, which lease was scheduled to expire on December 31, 2017. This lease was terminated upon the completion of the purchase. The transaction was approved by a committee of independent directors of the Company based on the valuation reports by a globally reputable third-party real estate appraisal firm.

Business Outlook

For the fiscal year 2016, management has reiterated its expectation for annual net sales to be approximately $200.0 million and net income to be approximately $11.5 million. These targets are based on the Company's current views on the operating and market conditions, which are subject to change.

Conference Call

Management will host a conference call on Monday, August 15, 2016 at 8:00 A.M. EDT/ 8:00 P.M. Beijing Time to discuss its 2016 second quarter and six months results. Listeners may access the call by dialing U.S. toll free number +1-877-407-0778 and +1-201-689-8565 for international callers, and Mainland China toll free +864-001-202-840. 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. EDT on September 15, 2016, or 11:59 A.M. Beijing Time on September 16, 2016. The replay dial-in numbers are: U.S. toll free number +1-877-660-6853 or the international number +1-201-612-7415; using Conference ID "13642159" 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. is the market leader 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 systems 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 within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of forward-looking terminology such as "expects," "anticipates," "believes," "targets," "goals," "projects," "intends," "plans," "seeks," "estimates," "may," "will," "should" or similar expressions. For example, when the Company describes the evaluation of the preliminary non-binding proposal letter, it is using forward-looking statements. These forward-looking statements may also include statements about the Company's proposed discussions related to its business or growth strategy, which are subject to change. Such information is based upon expectations of the Company's management that were reasonable when made, but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond the Company's control and upon assumptions with respect to future business decisions, which are subject to change. The Company does not undertake to update the forward-looking statements contained in this press release. These risks and uncertainties may include, but are not limited to general political, economic and business conditions which may impact the demand for commercial vehicles or passenger vehicles in China and the other significant markets where the Company's products are sold, uncertainty regarding such political, economic and business conditions, trends in consumer debt levels and bad debt write-offs, general uncertainty related to possible recessions, natural disasters, the political stability of China and the impact of any of those events on demand for commercial or passenger vehicles, changes in consumer confidence, new product development and introduction, competitive products and pricing, seasonality, availability of alternative sources of supply in the case of the loss of any significant supplier or any supplier's inability to fulfill the Company's orders, cost of labor and raw materials, the loss of or curtailed sales to significant customers, the Company's dependence on key employees and officers, the ability to secure and protect trademarks, patents and other intellectual property rights, potential effects of competition in the Company's business, the dependency of the Company upon the normal operation of its sole manufacturing facility, potential effect of the economic and currency instability in China and countries to which the Company sold its products, the ability of the Company to successfully manage its expenses on a continuing basis, the continued availability to the Company of financing and credit on favorable terms, business disruptions, disease, general risks associated with doing business in China or other countries including, without limitation, foreign trade policies, import duties, tariffs, quotas, political and economic stability, and the other factors discussed in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. For additional information regarding known material factors that could cause the Company's results to differ from its projected results, please see its filings with the SEC, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. 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

Raymond Lin
+86-139-6777-6556
+86-577-6581-7721
ljf@sorl.com.cn

Phyllis Huang
+86-151-6770-5972
+86-577-6581-7721
phyllis@sorl.com.cn

Investor Relations
+1-646-726-6511
sorl@compassbell.com

- tables follow -

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Balance Sheets

June 30, 2016 and December 31, 2015










June 30, 2016


December 31, 2015




(Unaudited)




Assets






Current Assets






Cash and cash equivalents

US$

8,308,325

US$

30,230,828


Accounts receivable, net


84,075,376


71,823,328


Bank acceptance notes from customers


36,376,536


22,870,791


Short term investments


3,317,650


61,007,709


Inventories


58,392,945


73,661,860


Prepayments, including $2,734,232 and $- prepayments to
related parties at June 30, 2016 and December 31, 2015,
respectively.


10,821,997


3,350,607


Prepaid capital lease interest


24,640


93,458


Restricted cash


386,635


785,999


Other current assets, net


634,210


1,241,864


Deferred tax assets


3,766,028


2,909,729


Total Current Assets


206,104,342


267,976,173








Property, plant and equipment, net


49,381,899


37,561,905


Land use rights, net


8,820,947


13,232,149


Intangible assets, net


17,662


23,854


Security deposits on lease agreement


1,723,454


1,759,975


Total Non-Current Assets


59,943,962


52,577,883


Total Assets

US$

266,048,304

US$

320,554,056








Liabilities and Equity






Current Liabilities






Accounts payable and bank acceptance notes to vendors,
including $1,147,274 and $1,133,537 due to related parties
at June 30, 2016 and December 31, 2015, respectively.

US$

39,135,906

US$

35,292,277


Deposit received from customers


23,286,670


20,012,087


Short term bank loans


25,309,875


23,367,207


Income tax payable


1,447,903




Accrued expenses


16,167,810


13,870,587


Capital lease obligations


1,723,454


3,519,949


Other current liabilities


2,301,759


2,067,449


Total Current Liabilities


109,373,377


98,129,556


Total Liabilities


109,373,377


98,129,556








Equity






Preferred stock - no par value; 1,000,000 authorized; none
issued and outstanding as of  June 30, 2016 and December
31, 2015


-


-


Common stock - $0.002 par value; 50,000,000 authorized,
19,304,921 issued and outstanding as of

June 30, 2016  and December 31, 2015


38,609


38,609



Additional paid-in capital


(28,582,654)


42,199,014


Reserves


14,145,350


13,207,972


Accumulated other comprehensive income


12,522,065


15,662,639


Retained earnings


135,787,181


129,055,099


Total SORL Auto Parts, Inc. Stockholders' Equity


133,910,551


200,163,333


Non-controlling Interest In Subsidiaries


22,764,376


22,261,167


Total Equity


156,674,927


222,424,500


Total Liabilities and Equity

US$

266,048,304

US$

320,554,056

 

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

For The Three and Six Months Ended June 30, 2016 and 2015 (Unaudited)




Three Months Ended June 30,



Six Months Ended June 30,



2016


2015



2016


2015











Net sales

US$

73,535,732

US$

59,274,878


US$

127,372,460

US$

111,472,844

Include: sales to related parties

3,968,105


1,057,724



6,548,951


2,069,648

Cost of sales


52,941,316


42,746,432



92,338,965


81,213,324

Gross profit


20,594,416


16,528,446



35,033,495


30,259,520











Expenses:










Selling and distribution expenses

7,125,085


5,086,089



12,687,517


10,437,087

General and administrative expenses

4,909,129


7,430,223



11,838,987


10,149,595

Research and development expenses

2,379,962


1,857,470



4,123,649


3,570,091

Total operating expenses

14,414,176


14,373,782



28,650,153


24,156,773











Other operating income


1,484,939


483,091



2,399,144


1,068,808











Income from operations


7,665,179


2,637,755



8,782,486


7,171,555











Interest income


925,586


409,836



1,013,688


520,791

Government grants


140,255


25,980



145,012


25,980

Other income


845,165


594,567



890,754


687,958

Interest expenses


(126,113)


(242,544)



(300,573)


(409,200)

Other expenses


(126,663)


(160,420)



(767,292)


(531,108)











Income before income taxes provision / benefit

9,320,409


3,265,174



9,764,075


7,465,976











Income taxes provision (benefit)

1,277,277


794,144



1,242,453


1,792,422











Net income

US$

8,043,132

US$

2,471,030


US$

8,521,622

US$

5,673,554











Net income attributable to non-controlling
interest In subsidiaries

804,313


208,955



852,162


361,198











Net income attributable to common
stockholders

US$

7,238,819

US$

2,262,075


US$

7,669,460

US$

5,312,356











Comprehensive income:                                        




















Net income

US$

8,043,132

US$

2,471,030


US$

8,521,622

US$

5,673,554

Foreign currency translation adjustments

(4,596,167)


994,826



(3,489,527)


181,583

Comprehensive income


3,446,965


3,465,856



5,032,095


5,855,137

Comprehensive income attributable to
non-controlling interest in subsidiaries

344,696


275,327



503,209


363,895

Comprehensive income attributable
to common shareholders

US$

3,102,269

US$

3,190,529


US$

4,528,886

US$

5,491,242











Weighted average common share - basic

19,304,921


19,304,921



19,304,921


19,304,921











Weighted average common share - diluted

19,304,921


19,304,921



19,304,921


19,304,921











EPS - basic

US$

0.37

US$

0.12


US$

0.40

US$

0.28











EPS - diluted

US$

0.37

US$

0.12


US$

0.40

US$

0.28

 

SORL Auto Parts, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For The Six Months Ended June 30, 2016 and 2015 (Unaudited)




2016


2015






Cash Flows From Operating Activities





Net Income

US$

8,521,622

US$

5,673,554

Adjustments to reconcile net income to net cash





used in operating activities:





Allowance for doubtful accounts


5,399,425


3,910,282

Depreciation and amortization


3,436,677


3,911,272

Deferred income tax


(950,451)


(1,163,808)

(Gain) or loss on disposal of property and equipment

-


(48,940)

Changes in assets and liabilities:





Accounts receivable


(19,302,545)


(12,214,909)

Bank acceptance notes from customers


(14,353,761)


3,957,535

Other currents assets


566,936


261,966

Inventories


14,139,460


10,876,719

Prepayments


(7,284,955)


(678,866)

Prepaid capital lease interest 


69,239


163,751

Accounts payable and bank acceptance notes to vendors

1,817,414


(4,685,074)

Income tax payable


1,466,704


596,297

Deposits received from customers


3,782,517


6,047,663

Other current liabilities and accrued expenses


535,090


(532,514)

Net Cash Flows Provided By (Used in) In Operating
Activities


(2,156,628)


16,074,928






Cash Flows From Investing Activities





Change in short term investments


57,261,374


(23,761,197)

Acquisition of property, equipment, plant and land use
right


(7,315,047)


(1,420,785)

Change in restricted cash


377,608


-

Proceeds of disposal of property and equipment


-


48,956

Advance to related party


(18,247,384)


-

Repayment of advance to related party


18,247,384


-

Net Cash Flows Used In Investing Activities


50,323,935


(25,133,026)






Cash Flows From Financing Activities





Proceeds from bank loans


31,796,224


24,913,667

Repayment of bank loans 


(29,597,070)


(16,309,191)

Repayment of capital lease


(1,779,040)


(1,864,595)

Distribution to owners in connection with plant and land
use rights exchange with entity under common control


(70,781,668)


-






Net Cash Flows Provided By (Used In) Financing Activities

(70,361,554)


6,739,881






Effects on changes in foreign exchange rate


271,744


(67,315)



-



Net change in cash and cash equivalents


(21,922,503)


(2,385,532)






Cash and cash equivalents- beginning of the period


30,230,828


14,009,597






Cash and cash equivalents - end of the period

US$

8,308,325

US$

11,624,065






Supplemental Cash Flow Disclosures:





Interest paid                                                                                    

US$

450,677

US$

465,309

Income taxes paid

US$

1,288,659

US$

2,359,836






Non-cash Investing and Financing Transactions





Disposal of plant and land use right to related party

US$

17,342,372

US$

-

Liabilities assumed in connection with the plant and land
use right exchange

US$

5,351,196

US$

-

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/sorl-auto-parts-reports-24-sales-increase-and-higher-earnings-in-the-2016-second-quarter-300313271.html

SOURCE SORL Auto Parts, Inc.

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