Tongxin International, Ltd. Announces Second Quarter 2008 Financial Results
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NEW YORK and CHANGSHA, China, Sept. 15, 2008 - Tongxin International, Ltd. ("Tongxin") ("Company") a manufacturer of engineered commercial vehicle body structures ("EVBS"), SUV passenger vehicle bodies and stamped body parts for the Chinese commercial vehicle market, today announced the Company's second quarter financial results ended June 30th, 2008.
-- Second quarter revenues increased 23.9% to $23.2 million vs. Q2 2007
-- Second quarter net income increased 8.4% to $2.5 million vs. Q2 2007
-- First six months revenues increased 30.1% to $53.5 million and net
income increased 25.0% to $6.3 million on year-over-year basis
-- Six-month EPS rose 23.6% over same period last year to $0.49, on 13.1
million weighted average shares outstanding
"We are pleased with our second quarter and year to date results. As a result of our teams' ability to closely monitor the effects of restricted customer operations and reductions in output as a result of lack of availability of engines and related hardware to meet new Euro III truck emission requirements and the Beijing Olympics, we were able to still report a measurable increase in our second quarter earnings," stated Rudy Wilson, CEO of Tongxin International. "Our current quarter will also be affected by these measures as July, August and part of September was restricted periods in manufacturing during the Olympics and following Special Olympics late August and early September. We are on-track to meet our guidance for the year and anticipate that any slowdown in the third quarter will be offset by a strong fourth quarter," Wilson concluded.
2008 Second Quarter Financial Results
Net revenues for the second quarter ended June 30, 2008 reached $23.2 million, an approximate $4.5 million or 23.9% increase over the same period of the prior year. The increase in revenue was due to the organic growth in sales and increased demand for painted and un-painted cabs. According to the National Board of Statistics in China (NSBC), year to date sales for commercial vehicles have outpaced passenger vehicles by 500 basis points, 22% and 17% respectively. Tongxin's growth has outpaced that of the market by 190- basis points. Currently 98% of Tongxin's production and sales are to commercial vehicle Original Equipment Manufacturers (OEMs) in China. The company maintains a network of more than 130 customers throughout China which include some of the largest commercial vehicle OEMs in the PRC.
Cost of goods sold were $18.5 million yielding gross profits of $4.7 million in the second quarter 2008, slightly lower than that of the second quarter 2007, which was approximately $4.9 million. For the second quarter, gross profit margin decreased to 19.6% from 26.0% for the three months ended June 30, 2007. The decrease was directly attributed to higher costs in raw materials, specifically the 29% increase in cold-rolled steel since January 1, from which pricing increases had yet to be fully passed on to customers. While Tongxin's customer contracts permit quarterly material pricing adjustments, sharp increases in raw materials during month to month periods can create short term margin fluctuations. Contract pricing for Tongxin customers has continuously been adjusted along with steel cost increases. As steel pricing stabilizes, the Company expects a return to its standard 25% gross margin percentages.
Total operating expenses for the second quarter of 2008 were $ 1.2 million versus $1.0 million for the same period in 2007. Operating expenses as a percentage of revenues were 5.0% compared with 5.3% for the same period, 2007. Operating income and operating margin for the quarter were $3.5 million and 15.2%, versus $3.9 million and 20.8% in 2007.
Net income was $2.5 million, representing an increase of 8.4% from $2.3 million reported in the same period prior year. Corresponding net profit margins were 10.6% for the quarter which represented a 150-basis point decrease versus the same quarter, 2007. This small decrease was related to increases in raw material costs. The Company incurred $0.7 million in taxes during the second quarter at an effective tax rate of 22.1%. Calculated on the Treasury Method, earnings were $0.19 for the quarter based on 13.1 million shares outstanding. The share count for the quarter was calculated based on the treasury method. Based on 16.2 fully-diluted shares, EPS for the quarter is $0.15.
"China remains the largest producer of light, medium and heavy duty commercial vehicles and the largest exporter of commercial vehicles in the world. Compared to 40% in the US, approximately 90% of all commercial goods in China are shipped by truck," stated Weiwu Peng, COO of Hunan Tongxin (HT), subsidiary of Tongxin International. "A combination of infrastructure projects including the building of more than 50,000 km of roads at a committed budget of $31 billion over the next four years and an estimated 31% increase in freight hauling for the same period will result in continued yearly growth for our company," Peng added.
Six Month Results
Revenue increased approximately 30.1% to $53.5 million for the six months ended June 30, 2008 as compared to $41.1 million for the same period last year. Operating expenses for the six months ended June 30, 2008 were $2.9 million compared to $2.5 million for the same period in 2007. Operating expenses as a percentage of revenues are 5.5% for the six months ended June 30, 2008 compared to 6.1% for the first six months of 2007. Operating income for the six months ended June 30, 2008 was $9.3 million, an increase of 9.6% compared to $8.5 million for the six months ended June 30, 2007.
Net income is $6.3 million for the six months ended June 30, 2008, an increase of $1.3 million, or approximately 25.0% compared to same period last year. Earnings per diluted share were $0.49 based on 13.1 million shares calculated by the treasury method, or $0.38 on a fully-diluted basis. Treasury method calculation for the period ended June 30, 2008 was based on an $8.20 share price at the close of trading, June 30th 2008.
Balance Sheet and Cash Flow Discussion
As of June 30, 2008, Tongxin International had approximately $16 million in cash and cash equivalents. The company maintained a current ratio of 1.02 to 1 and $32.6 million in accounts receivable on June 30, 2008. Stockholders' equity was $32.0 million on June 30, 2008 representing an increase of 70.7% versus same period 2007.
The Company has approximately five million warrants with strike price of $5.00 and callable at $10.00. If exercised, warrants would yield $25.2 million in proceeds to the Company.
Business Outlook
Based on the Company's order bookings and accrued demand for the same time period, the Company anticipates a strong fourth quarter as its customer base completely resumes production. Additionally, the Company is completing USGAAP audit of Meihua Bus for which a framework agreement was signed on July 28th, 2008. Preliminary results for Meihua Bus indicate higher than expected revenues and net income for the 2008 year. Tongxin anticipates closing the Meihua acquisition before year end.
As part of TXI's strategy, the Company's management team has reviewed a number of complementary acquisitions. Each acquisition target is focused on the commercial vehicle sector in China. Management will provide further details when appropriate and the Company is committed to making an acquisition which will be accretive in the year completed.
Guidance
Tongxin International, Ltd. has provided $1.00 EPS guidance for 2008 based on $13 million net income in organic growth. The EPS figure will be calculated based on treasury method share count at year end, December 31st, 2008, which is estimated to be 13.1 million shares. Based on the fully diluted share count of 16.2 million shares, EPS would be $0.80.
Up Coming Events
The Company recently participated at the Susquehanna Conference in Beijing September 10-12th and is pleased to announce it has been invited to attend the Maxim Growth Conference in October. Tongxin has also confirmed participation at additional investor conferences including; Rodman & Renshaw and the Roth China Conference in November of this year.
On October 31st, the Company will attend a ceremony for its NASDAQ listing and ring the NASDAQ closing bell.
Conference Call
The Company will host a conference call on September 16th, 2008, at 9:00a.m. EDT. To attend the call, please use the dial information below. When prompted, ask for the "Tongxin International" and/or be prepared to provide the conference ID.
Conference Line Dial-In (U.S.): 1 800-762-8779 International Dial-In: + 1 480-629-9041 Conference ID: 3919799 Webcast link: http://viavid.net/dce.aspx?sid=00005641
The conference call will take place at 9:00 a.m. ET on Tuesday, September 16th, 2008. Interested participants should call 800-762-8779 when calling within the United States or +1 480-629-9041 when calling internationally. Please dial in at least 10-minutes before the call to ensure timely participation. A playback will be available through September 21st, 2008. To listen, please call 800-406-7325 within the United States or +1 303-590-3030 when calling internationally. Utilize the pass code 3919799 for the replay.
