SORL Auto Parts reports increased revenues for second quarter

SORL Auto Parts, Inc., a manufacturer and distributor of commercial vehicle air brake valves as well as related auto parts in China, announced today financial results for the second quarter ended June 30, 2008. The company says that its revenue has grown by 45 percent to $42.2 million and its net income has grown by 15 percent to $4.7 million.

"We are very pleased with our financial performance in the second quarter of 2008," says Xiaoping Zhang, SORL Auto Parts' CEO and chairman. "We continued to experience significant growth in all of our major markets. We are particularly pleased to see our business in India growing rapidly along with the continued expansion of our business in the Chinese bus market. We are also very satisfied that our efforts to improve our gross margins continue to produce positive results as our margins remain well above last year's level. Although we expect to continue to make progress in all of these areas during the second half of the year, we can also see certain challenges ahead. While we still expect to have a strong year, it is possible we will not be able to duplicate the growth rate of the second quarter."

Revenue for the second quarter of 2008 was $42.2 million, a 44.5 percent increase from $29.2 million for the same period in 2008. Revenues from China's domestic OEM market, China's domestic aftermarket and international markets for the second quarter of 2008 were $17.5 million, $10.5 million, and $14.1 million, respectively. The increase in sales was a result of the continued growth of the commercial vehicle market in China, including demand for replacement parts, as well as the continued development of export markets. For the first half of 2008 sales were $72.8 million as compared to $53.6 million in the first half of 2007, an increase of 35.9 percent.

Gross profit for the second quarter of 2008 was $11.4 million, a 79.4 percent increase as compared to $6.4 million for the same period in 2007. Gross profit margin was 27.0 percent compared with 21.8 percent in the same quarter last year, an increase of 520 basis points. The higher gross margin was the result of various factors including price increases, the sale of more systems versus individual components, and ongoing efforts to improve manufacturing efficiency. For the first half of 2008 gross margin was 27.5 percent versus 22.5 percent in the prior year period.

Operating expenses increased 137.5 percent from $2.5 million in the second quarter of 2007 to $5.9 million in the second quarter of 2008. As a percentage of revenue, operating expenses increased from 8.5 percent in the second quarter of 2007 to 13.9 percent in the second quarter of 2008. This increase in operating expenses as a percentage of revenue was a result of several factors the most prominent of which were an increase in transportation charges related to the rising cost of fuel and an increase in research and development expenses from $0.3 million in the second quarter of 2007 to $1.3 million in the second quarter of 2008. For the first half of 2008 operating expenses as a percentage of sales was 13.8 percent versus 10.2 percent in the prior year period.

Operating income increased 42.4 percent or $1.6 million from $3.9 million in the second quarter of 2007 to $5.5 million in the second quarter of 2008. As a percentage of revenue, operating income was 13.1 percent in the second quarter of 2008 as compared to 13.3 percent in the prior year period. This small decrease was a result of the combination of the improved gross margin and the increase in operating expenses as a percentage of sales. For the first half of 2008, operating income as a percentage of sales increased to 13.7 percent versus 12.2 percent in the first half of 2007.

Net income increased 15.0 percent, or $0.6 million, from $4.1 million in the second quarter of 2007, or $.23 per share, to $4.7 million in the second quarter of 2008, or $.26 per share. Net margin decreased 290 basis points from 14.1 percent in the second quarter of 2007 to 11.2 percent in the second quarter of 2008. In addition to the above factors, net margin was negatively impacted by income taxes which changed from a $0.4 million credit in the second quarter of 2007 to a $0.3 million charge in the second quarter of 2008. For the first half of 2008 net income was $8.3 million, or $0.45 per diluted share, an increase of 32.9 percent as compared to $6.2 million, or $0.34 per diluted share, in the first half of 2007. Net margin for the first half of 2008 was 11.3 percnt as compared to 11.6 percent for the first half of 2007.

For more information about SORL Auto Parts, Inc., visit the company's Web site.