Earnings Recap: Wonder Auto Reports Its Fourth Quarter and Full Year 2008 Financial Results

JINZHOU CITY, China, March 2 /PRNewswire-Asia-FirstCall/ -- Wonder Auto Technology, Inc. (Nasdaq: WATG; 'Wonder Auto' or 'the Company'), a leading manufacturer of automotive electrical, suspension parts and engine accessories in China, today announced its financial results for the fourth quarter and full year ended December 31, 2008.

GeoManaged Guidance Table

    Highlights:
    -- Sales revenue increased 38.3% year-over-year to $141.2 million;
    -- Gross profit rose 42.2% year-over-year to $36.4 million;
    -- Net income increased 30.3% year-over-year to $18.9 million;
    -- Export sales reached $22.9 million, representing 16.2% of total sales
       revenue;
    -- Non-GAAP EPS was $ 0.73, representing 21.0% increase compared with
       $0.60 in 2007

Business outlook

For the first quarter of 2009, sales revenue is expected to be approximately $40 million with net income to be about $4.0 million.

Financial performance

Sales revenue in 2008 rose to a record high of $141.2 million, which is a 38.3% increase from $102.1 million in 2007. Revenue from alternators and starters increased $20.6 million, the sales of rod and shaft products increased $10.8 million and engine valves valve tappets contributed $7.7 million to revenue. The increase was mainly attributable to the growing market demand for our cost effective and high quality products. Export sales increased by 135.1% to $22.9 million as compared to $9.8 million in 2007.

In 2008, gross profit increased 42.2% to a record of $36.4 million from a gross profit of $25.6 million in 2007. Gross margin was 25.8% in 2008 compared with 25.1% for year 2007. The increased gross margin was attributable to the advantage of economies of scale that emerged from the robust sales volume in the past year, and the lower raw material consumption and decreased per unit cost through our continuous improvement in R&D capabilities and optimized technical solutions.

Operating expenses for 2008 increased $5.3 million, or 66.1%, to $13.3 million from $8.0 million of 2007. The increase was primarily due to higher administrative expenses, research & development costs and higher selling expenses. The increased administrative expenses were primarily due to administrative expenses of the newly acquired subsidiaries, higher expenses on legal, audit, and due diligent work for acquisitions, maintenance fees as a Nasdaq listed company, especially the consulting and auditing costs for SOX 404 compliance work during 2008. In addition, a stock-based compensation of $706,295 was incurred from termination of the stock option plan. The increase of research and development costs is primarily attributable to the research and development of new and existing products. As a percentage of revenue, research and development costs were 1.2% in 2008 compared with 1.1% in 2007. Selling expenses increased to $4.1 million compared with $3.3 million in 2007. The increased selling expenses were mainly caused by commissions for increased sales volume and higher freight costs during the period of Beijing Olympic Games.

Income before income taxes increased $6.5 million, or 38.2%, to $23.5 million in 2008 from $17.0 million in 2007. Income before income taxes as a percentage of revenue was 16.7% in 2008 -- the same as in 2007.

Net income increased $4.4 million, or 30.3%, to $18.9 million in 2008 from $14.5 million in 2007. Non-GAAP EPS was $0.73, representing a 21.0% increase from $0.60 in 2007, without considering the stock-based compensation of $706,295 incurred from termination of the stock option plan.

As of December 31, 2008, Wonder Auto had $8.2 million in cash and cash equivalents and restricted cash of $24.2 million, a current ratio of 1.2-to-1, working capital of $26.4 million, and $16.1 million long term bank loan. Shareholders' equity increased to $102.1 million. As of December 31, 2008, the value of property, plant and equipment rose to $69.1 million from $22.5 million as of December 31, 2007.

Events overview

In January 2008, the Company acquired 50% equity interest in Jinzhou Hanhua Electrical System Co., Ltd., a manufacturer of armatures for starters.

In February 2008, the Company acquired 65% equity interest in Jinzhou Karham Electrical Equipment Co., Ltd., a producer of carbon brush assembly for starters.

In March 2008, the Company entered into a four-year supply agreement and received supply orders from a major North American OE automotive manufacturer with total value of the contracts exceeding $13.5 million.

In October 2008, the Company acquired 65% equity interest of Jinan Worldwide Auto Accessories Company, one of the largest engine valve and valve tappets manufacturer in China.

In November 2008, one of the Company's subsidiaries, Jinzhou Motor, signed a development agreement with Korean CT&T Co., Ltd. to develop electric motor and driver products for CT&T's electric vehicles with prototype deliveries to commence in March 2009. The total revenue will be approximately $330 million from 2010 to 2013.

In November 2008, the Company disposed its $5 million short-term investment in Money Victory Limited.

In December 2008, the Company signed development agreements with Shenzhen BYD Auto Co., Ltd and will develop starters and alternators for Shenzhen BYD with prototype deliveries to commence in March 2009.

In February 2009, the Company won the bid to supply starters to Dongfeng Automotive Co., Ltd with prototype deliveries for road testing to be commenced in 2009. The expected revenue under this agreement will be approximately $20 million during the period of 2011 to 2015 progressively.

'Wonder Auto is well-positioned to weather the current economic downturn. We delivered a very strong fiscal year highlighted by the increasing demand for our products. This was attributable to our market-oriented focus, stringent quality control, advanced technology, effective cost structure, as well as the favorable government policies to boost China's auto industry. Our strategic acquisitions also contributed to our market expansion and product portfolio optimization through cross-selling synergies. We are seeing growth momentum in the mid- to small-sized engine vehicle market in China and the growing market demand for alternative energy vehicles and parts, which will further our quest to bring exceptional value to our customers and our shareholders,' commented Mr. Qingjie Zhao, Chairman and Chief Executive Officer of Wonder Auto.

Conference call

The company will host a conference call on Tuesday, March 3 at 8:00 a.m. U.S. Eastern Standard time. A question and answer session will follow management's presentation. Mr. Qingjie Zhao (Chairman & CEO), Mr. Ryan Yuan (CFO) and Ms. Lydia Zhao (Assistant CFO) will be the primary speakers for the call.

To participate, please call the following numbers ten minutes before the call start time:

    Phone number:  +1-866-242-1388 (United States)
    Phone number:  +852-800-968-831 (Hong Kong)
    Phone number:  +86-10-800-264-0084 (China)
    Phone number:  +86-10-800-640-0084 (China)
    Conference ID: 86242210

A live webcast of the conference call will be available on the investor relations page of Wonder Auto's web site at http://www.watg.cn .

About Wonder Auto

Based in Jinzhou City, Liaoning, China, Wonder Auto Technology, Inc., through its Chinese subsidiaries, designs, develops, manufactures and sells automotive electrical parts, suspension products and engine accessories. Wonder Auto was ranked second in sales revenue in the China market for automotive alternators and starters in 2007. With respective 5 different series and over 150 models of alternators, 70 models of starters, various suspension and engine related parts, the Company supplies to a wide range of automakers, engine producers and auto parts suppliers both in domestic China and overseas. Wonder Auto's main customers include Beijing MOBIS Auto Parts & Components Co., Ltd, Harbin Dongan Automotive Engine Co., Ltd, Shenyang Xinguang Huachen Auto Engine Co., Ltd, SWT, Shenyang Aerospace Mitsubishi Motors Engine Co., Ltd., Shanghai VW and Weifang Diesel Engine. For more information, please log on http://www.watg.cn .

Safe harbor statement

This press release may contain forward-looking information about Wonder Auto Technology, Inc. and its wholly owned subsidiaries which are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as 'believe,' 'expect,' 'may,' 'will,' 'should,' 'project,' 'plan,' 'seek,' 'intend,' or 'anticipate' or the negative thereof or comparable terminology, and include discussions of strategy, statements about industry trends and Wonder Auto Technology, Inc.'s future performance, operations and products. This and other 'Risk Factors' are contained in Wonder Auto Technology, Inc.'s public filings with the SEC.

                          Wonder Auto Technology, Inc.
         Consolidated Statements of Income and Comprehensive Income
                             (Stated in US Dollars)

                                              Year ended December 31,
                                          2008          2007         2006

    Sales revenue                     $141,189,559  $102,083,722  $72,150,483
    Cost of sales                      104,750,150    76,459,944   57,342,201

    Gross profit                        36,439,409    25,623,778   14,808,282

    Operating expenses
    Administrative expenses              6,827,200     3,565,332    1,917,817
    Stock-based compensation               706,295            --           --
    Research and development costs       1,647,888     1,135,997      947,702
    Selling expenses                     4,093,413     3,290,689    2,137,853

                                        13,274,796     7,992,018    5,003,372

    Income from operations              23,164,613    17,631,760    9,804,910
    Other income                         1,359,883       287,322      356,590
    Government grants                      192,882     1,496,547           --
    Net finance costs                   (2,246,099)   (2,409,021)    (936,741)
    Equity in net income of
     non-consolidated
     affiliates                         1,072,788        34,147      371,005

    Income before income taxes and
     minority interests                 23,544,067    17,040,755    9,595,764
    Income taxes                        (2,174,948)   (1,389,008)  (1,270,391)
    Minority interests                  (2,460,352)   (1,136,694)    (101,827)

    Net income                         $18,908,767   $14,515,053   $8,223,546

    Other comprehensive income
    Foreign currency translation
     adjustments                         4,002,238     2,969,894    1,007,468

    Total comprehensive income         $22,911,005   $17,484,947   $9,231,014



    Earnings per share: basic and
     diluted                                 $0.70         $0.60        $0.40

    Weighted average number of shares
     outstanding:
      Basic and diluted                 26,959,994    24,140,816   20,787,279



                           Wonder Auto Technology, Inc.
                           Consolidated Balance Sheets
                             (Stated in US Dollars)

                                                     As of December 31,
                                                   2008              2007
    ASSETS
    Current assets
    Cash and cash equivalents                   $8,159,156       $26,102,993
    Restricted cash                             24,181,645         8,613,262
    Trade receivables, net                      46,571,619        38,124,411
    Bills receivable                             8,388,926        11,766,478
    Other receivables, prepayments and
     deposits                                   16,408,304         1,635,447
    Inventories                                 44,016,192        12,634,786
    Amount due from a related company                   --            74,822
    Amount due from Hony Capital                 7,637,216                --
    Income tax recoverable                         289,000                --
    Deferred taxes                               1,075,766           307,338

    Total current assets                       156,727,824        99,259,537
    Intangible assets                           22,062,560        16,873,051
    Property, plant and equipment, net          69,131,579        22,516,900
    Land use rights                             10,391,527         1,235,029
    Deposit for acquisition of property,
     plant and equipment                         3,845,774         2,072,458
    Deferred taxes                                 870,500           439,760

    TOTAL ASSETS                              $263,029,764      $142,396,735



                              Wonder Auto Technology, Inc.
                          Consolidated Balance Sheets (Cont'd)
                                 (Stated in US Dollars)

                                                       As of December 31,
                                                    2008              2007
    LIABILITIES AND STOCKHOLDERS' EQUITY

    LIABILITIES
    Current liabilities
    Trade payables                             $21,616,932       $12,726,989
    Bills payable                               31,247,100        15,903,600
    Other payables and accrued expenses         20,465,014         2,413,140
    Provision for warranty                       2,377,620         1,124,655
    Income tax payable                                  --           666,589
    Payable to Hony Capital                     10,187,216                --
    Secured short-term bank loans               44,055,803        10,282,500
    Early retirement benefits cost                 419,301                --

    Total current liabilities                  130,368,986        43,117,473

    Secured long-term bank loans                16,054,478        17,622,186
    Deferred revenue - government grants         2,806,777                --
    Early retirement benefits cost                 798,115                --

    TOTAL LIABILITIES                          150,028,356        60,739,659

    COMMITMENTS AND CONTINGENCIES

    MINORITY INTERESTS                          10,941,715         3,214,683

    STOCKHOLDERS' EQUITY
    Preferred stock: par value $0.0001
     per share; authorized 10,000,000
     shares in 2008 and 2007; none
     issued and outstanding                             --                --
    Common stock: par value $0.0001 per
     share
      Authorized 90,000,000 shares in 2008
       and 2007; issued and outstanding
       26,959,994 shares in 2008 and 2007            2,696             2,696
      Additional paid-in capital                45,576,599        44,870,304
      Statutory and other reserves               7,628,541         4,857,660
      Accumulated other comprehensive
       income                                    8,424,270         4,422,032
      Retained earnings                         40,427,587        24,289,701

    TOTAL STOCKHOLDERS' EQUITY                 102,059,693        78,442,393

    TOTAL LIABILITIES AND STOCKHOLDERS'
      EQUITY                                  $263,029,764      $142,396,735



                               Wonder Auto Technology, Inc.
                          Consolidated Statements of Cash Flows
                                (Stated in US Dollars)

                                                Year ended December 31,
                                             2008         2007        2006
    Cash flows from operating activities
    Net income                           $18,908,767  $14,515,053  $8,223,546
    Adjustments to reconcile net income
     to net cash provided by operating
     activities:
      Depreciation                         3,734,534    2,014,045   1,401,541
      Amortization of intangible assets
       and land use right                    169,641       90,712      29,652
      Deferred taxes                        (112,140)    (263,993)    (16,369)
      (Gain)/Loss on disposal of property,
       plant and equipment                  (129,374)      20,255      79,527
      Gain on disposal of Man Do Auto
       Technology Co., Ltd. ('Man Do Auto')       --         (500)         --
      Loss on disposal of non-consolidated
       affiliate                             122,788           --          --
      Provision/(Recovery of) for doubtful
       debts                                   8,577        2,159      (7,701)
      Provision/(Recovery of) for obsolete
       inventories                            46,917       39,115     (52,470)
      Exchange (gain)/loss on translation
       of monetary assets and liabilities (1,242,479)     532,738          --
      Equity in net income of
       non-consolidated affiliate         (1,072,788)     (34,147)   (371,005)
      Share-based compensation               706,295           --          --
      Increase in minority interests       2,460,352    1,136,694     101,827
      Deferred revenue amortized              28,241           --          --
    Changes in operating assets and
     liabilities:
      Trade receivables                    2,993,828  (10,651,989) (5,493,345)
      Bills receivable                     6,251,024   (6,504,351)  1,536,869
      Other receivables, prepayments and
       deposits                            2,001,363        2,902    (664,255)
      Inventories                        (14,861,979)   2,265,298  (4,481,151)
      Trade payables                         (53,217)   2,554,508     460,403
      Bills payable                         (956,502)   5,110,761     601,360
      Amount due to an unconsolidated
       affiliate                                  --           --      36,719
      Amount due from a related company       78,516           --          --
      Other payables and accrued expenses (2,644,372)   1,099,131    (263,895)
      Provision for warranty                 262,316        6,124     102,845
      Income tax payable                  (1,526,913)     235,971     164,834
      Early retirement benefits cost        (117,834)          --          --

    Net cash flows provided by operating
     activities                          $15,055,561  $12,170,486  $1,388,932



                              Wonder Auto Technology, Inc.
                    Consolidated Statements of Cash Flows (Cont'd)
                                 (Stated in US Dollars)

                                                Year ended December 31,
                                            2008         2007         2006
    Cash flows from investing
     activities
    Payments to acquire intangible
     assets                             $(1,472,868)     $(1,982)    $(10,023)
    Payments to acquire land use right   (1,856,268)          --           --
    Payments to acquire and for deposit
     for acquisition of property, plant
     and equipment                      (17,308,878)  (8,023,761)  (3,627,589)
    Proceeds from sales of property,
     plant and equipment                     242,044       25,803      73,169
    Proceeds from sales of marketable
     securities                                   --           --      37,585
    Cash acquired from the RTO                    --           --         419
    Receivable from disposal of Money
     Victory                             (5,950,000)           --          --
    Decrease/(Increase) in restricted
     cash                                 2,293,532   (3,736,383)    (917,757)
    Net cash paid to acquire Jinzhou
     Wanyou                                (293,400) (14,146,485)    (500,000)
    Net cash paid to acquire Jinzhou
     Dongwoo                                     --   (2,420,000)  (2,192,669)
    Cash inflow from disposal of Man Do          --          500           --
    Net cash paid to acquire Jinzhou
     Hanhua                              (4,040,472)          --           --
    Net cash paid to acquire Jinzhou
     Karham                                (703,712)          --           --
    Net cash paid to acquire Money
     Victory                             (5,000,000)          --           --
    Net cash paid to acquire Fuxin
     Huirui                                (140,990)          --           --
    Net cash paid to acquire Yearcity    (6,691,434)          --           --

    Net cash flows used in investing
     activities                         (40,922,446) (28,302,308)  (7,136,865)

    Cash flows from financing
     activities
    Repayment to a stockholder                   --           --       (5,149)
    Amount due from a related company            --           --      (68,128)
    Dividend paid to stockholders                --           --   (1,719,985)
    Dividend paid to Winning               (644,030)    (343,934)          --
    Dividend paid to minority
     stockholders                        (1,653,271)    (743,240)          --
    Proceeds from bank loans             18,426,341   29,486,379   17,573,649
    Repayment of bank loans              (9,196,570) (18,161,716) (16,696,664)
    Net proceeds from issue of shares            --   22,730,461   10,142,020

    Net cash flows provided by
     financing activities                 6,932,470   32,967,950    9,225,743

    Effect of foreign currency
     translation on cash
     and cash equivalents                   990,578    1,063,166      357,132

    Net (decrease)/increase in cash and
     cash equivalents                   (17,943,837)  17,899,294    3,834,942

    Cash and cash equivalents -
     beginning of year                   26,102,993    8,203,699    4,368,757

    Cash and cash equivalents - end of
     year                                $8,159,156  $26,102,993   $8,203,699



                           Wonder Auto Technology, Inc.
                   Consolidated Statements of Cash Flows (Cont'd)
                             (Stated in US Dollars)

                                                Year ended December 31,
                                              2008        2007        2006

    Supplemental disclosures for cash
     flow information:
    Cash paid for:
      Interest                             $2,849,664  $1,445,534    $807,693
      Income taxes                         $2,464,548  $1,316,837  $1,121,927

    Cash investing activities:
    Acquisitions:
      Fair value of assets acquired      $101,208,984  $3,149,361  $8,624,052
      Fair value of liabilities assumed   $86,049,295    $309,044  $3,691,211



    For more information, please contact:

    Wonder Auto Technology, Inc.
     Lydia Zhao, Assistant CFO
     Tel:   +86-10-8478-5339
     Cell:  +86-130-2118-4792
     Email: lydiaz@watg.cn

     Yechon Xie, Investor Relations Manager
     Tel:   +86-416-266-1186
     Cell:  +86-137-0006-1685
     Email: ycxie@watg.cn

SOURCE Wonder Auto Technology, Inc.