SORL Auto Parts, Inc.

ZHEJIANG, China, Aug. 14, 2017 /PRNewswire/ -- SORL Auto Parts, Inc. (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 2017 and the first six months ended June 30, 2017.

Second Quarter 2017 Financial Highlights

Net sales increased 22.7% to $90.2 million compared with $73.5 million in the second quarter last year;
Gross margin was 26.3% in the second quarter of 2017 compared to 28.0% in the same period of 2016;
Income from operations increased 14.6% to $8.8 million from $7.7 million in the same quarter last year.

First Six Months of 2017 Financial Highlights

Net sales increased 28.8% to $164.1 million compared with $127.4 million in same period of last year;
Operating income increased 109.7% to $18.4 million from $8.8 million in the same period in 2016;
Net income attributable to stockholders increased 66.2% to $12.8 million, or $0.67 per basic and diluted share, compared with $7.7 million, or $0.40 in the same period of 2016.

Mr. Xiaoping Zhang, SORL's Chief Executive Officer and Chairman, stated," We achieved solid growth in all three business lines led by a 28.8% increase in the segment of our China domestic OEM market. We continued to gain market share as our growth outperformed the overall commercial OEM vehicle market."

Second Quarter 2017 Financial Performance

For the second quarter of 2017, net sales increased by 22.7% to $90.2 million from $73.5 million for the second quarter of 2016. Revenues from the Company's domestic OEM customers increased by 28.9% to $47.3 million from $36.7 million in the second quarter of 2016. Commercial vehicle production and sales increased in the second quarter of 2017 and SORL continued to increase its leading market position. Sales from China's domestic aftermarket increased 20.1% to $22.7 million in the second quarter of 2017 from $18.9 million in the same quarter of 2016. Higher product sales due to the expiration of OEM warranties from prior new vehicle sales drove the Company's aftermarket business in China. Also, the Chinese government's increased support for public transportation due to greater urbanization expanded SORL's bus aftermarket sales. Revenues from international markets increased 12.8% to $20.2 million from $17.9 million in the second quarter of 2016 primarily due to a larger customer base.

The gross profit for the second quarter of 2017 increased 15.5% to $23.7 million from $20.6 million for the second quarter of 2016. Gross margin for the second quarter of 2017 was 26.3%, compared with a gross margin of 28.0% in the same quarter of 2016. The decrease in gross margin was primarily due to increased sales promotions during the period and higher raw material costs.

Operating expenses increased 12.2% to $16.2 million from $14.4 million in the second quarter of 2016. Operating expenses rose due to higher research and development and selling and distribution expenses with flat general and administrative expenses in the second quarter of 2017. As a percentage of revenue, operating expenses were 18.9% in the second quarter of 2017, compared with 19.6% in the second quarter of 2016.

Selling and distribution expenses were $9.0 million, or 10.0% of quarterly revenues, compared with $7.1 million, or 9.7% in the same quarter of 2016. The increase in expenses was mainly due to higher packaging and transportation costs as unit sales rose.
General and administrative ("G&A") expenses in the second quarter of 2017 were $4.7 million, or 5.2% of revenue, compared with $4.9 million, or 6.7% in the second quarter of 2016.
Research and development ("R&D") expenses were $2.5 million in the second quarter of 2017 compared with $2.4 million in the same quarter of 2016. As a percentage of revenue, R&D was 2.8% in the second quarter of 2017 and compared with 3.2% of revenue in the second quarter of 2016. The R&D program mainly focused on the development of new, higher-margin, electronically controlled mechatronic products and to upgrade the Company's legacy brake products to build market leadership.

Income from operations increased 14.6% to $8.8 million in the second quarter of 2017 compared with $7.7 million in the same quarter of 2016.

Other income was only $50 in the second quarter of 2017 compared to $0.85 million in the same quarter of 2016.

Financial expenses were $0.5 million in the second quarter of 2017 compared with $0.1 million in the second quarter of 2016. The increase was due to a rise in interest rates and a higher amount of average loans outstanding.

Income before income taxes was $7.9 million for the second quarter of 2017 compared to $9.3 million for the second quarter of 2016. The pretax income margin was 8.8% in the second quarter of 2017, compared with 12.7% in the second quarter of 2016.

The provision for income taxes was $1.3 million in both the second quarters of 2017 and 2016.

Net income attributable to stockholders for the second quarter of 2017 decreased to $5.9 million, or $0.31 per basic and diluted share, compared with $7.2 million, or $0.37 on per basic and diluted share, in the second quarter of 2016.

First Six Months 2017 Financial Performance

Net sales for the first six months of 2017 increased 28.8% to $164.1 million from $127.4 million for the first six months of 2016. Net sales from the Company's China OEM market increased 37.3% to $89.1 million from $64.8 million in the same period in 2016. Revenues from China's domestic aftermarket increased 27.1% to $40.8 million from $32.1 million in the first six months of 2016. Revenues from international markets increased 12.5% to $34.2 million from $30.4 million in the first six months of 2016.

Gross profit for the first six months of 2017 increased 26.3% to $44.3 million from $35.0 million in the same period in 2016. Gross margin for the six months ended June 30, 2017, was 27.0% compared to 27.5% for the first six months of 2016.

Operating income for the first six months of 2017 increased 109.7% to $18.4 million from $8.8 million in the same period in 2016. Operating margin was 11.2% versus 6.9% in first six months of 2016.

Net income attributable to stockholders for the first six months of 2017 was $12.8 million, or $0.67 per basic and diluted share, compared with $7.7 million, or $0.40 per basic and diluted share, in the same period in 2016.

Balance Sheet

As of June 30, 2017, the Company had cash and cash equivalents of $7.9 million. Inventories increased to $84.0 million at June 30, 2017 from $65.8 million at December 31, 2016. Bank acceptance notes from customers increased to $55.1 million on June 30, 2017 from $42.7 million, and accounts receivables were $121.2 million compared with $102.1 million on December 31, 2016. Total equity was $180.8 million at June 30, 2017. On June 30, 2017, working capital was $91.0 million with a current ratio of 1.5 to 1.

Business Outlook

For the fiscal year 2017, management has reiterated its expectation for annual net sales to be approximately $315 million and net income to be approximately $27.5 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 14, 2017 at 8:00 A.M. EDT/ 8:00 P.M. Beijing Time to discuss its 2017 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 +86-400-120-2840. 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 8:00 A.M. EDT on September 14, 2017, or 8:00 P.M. Beijing Time on September 15, 2017. The replay dial-in numbers are: U.S. toll free number +1-877-481-4010 or the international number +1-919-882-2331; using Conference ID "19821" 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.