CPQQ China Power Equipment Inc (CE)

XI'AN, China, April 1, 2013 /PRNewswire-FirstCall/ -- China Power Equipment, Inc. ("China Power Equipment", or the "Company" OTCBB: CPQQ), a manufacturer of a new generation of energy saving amorphous alloy transformer cores and transformers in China, today announced its financial results for the fourth quarter and twelve month period ended December 31, 2012.

Fourth Quarter Ended December 31, 2012 Highlights:

• Net revenues increased 0.7% to $9.35 million year-over-year
• Net revenues from amorphous alloy transformer business increased 3.7% to 2.94 million year-over-year
• Net income increased 10.2% to $1.58 million with $0.07 in diluted earnings per share, or EPS

Full Year Ended December 31, 2012 Highlights:

• Net revenues decreased 0.6% to  $36.77 million year-over-year
• Net revenues from amorphous alloy transformer business increased 3.6% to $10.56 million year-over-year
• Net income increased  8.1% with $0.27 in diluted EPS

"I am pleased to report good financial results for both our fourth quarter and full year 2012," began Mr. Song Yongxing, Chairman, CEO, and President of China Power Equipment. "Over the past years, we have invested in innovating and enhancing our product quality and improving production efficiency, as well as expanding our production capacity. This strong foundation enabled us to increase both of our gross profit and net income during 2012 to record levels in our corporate history. With the strong support from Chinese government to adopt amorphous alloy transformers in grids and improved cost-effectiveness of amorphous alloy transformers, we optimistically expect that the market demand for our energy-saving products will increase rapidly. We will seize the opportunity to actively explore new customer base including user market, and expand our market shares to deliver revenue growth and margin improvement in the coming quarters."

*Earnings per share are based on weighted average fully diluted outstanding shares of approximately 23.7 million and 23.6 million in 2012 and 2011, respectively. All numbers are rounded to nearest $1,000,000, excluding EPS.

Total net revenues for the quarter increased $0.06 million, or 0.7%, to $9.35 million, compared to the same period of 2011, primarily attributable to increased sales of amorphous alloy transformers. Net revenues generated by amorphous alloy cores decreased 0.7% to $6.41 million for the quarter, representing 68.5% of total net revenues. The slight decline was mainly due to the lower average selling prices of amorphous alloy cores, partly offset by the higher tonnage of amorphous alloy cores sold. Net revenues generated by sales of amorphous alloy transformers were $2.94 million, up 3.7% from the fourth quarter of 2011, partly offset by lower average unit prices of amorphous alloy transformers, which were primarily due to more units of lower priced low capacity alloy transformers sold in the fourth quarter of 2012.  In addition, the overall price adjustment in the amorphous alloy transformers industry as amorphous alloy technologies mature and the Company's ability to sell in-house produced amorphous alloy transformers at more competitive prices also contributed to the lower average unit prices.

Gross profit for the quarter was $2.49 million, representing an increase of 0.2%, as compared to the same period in 2011. This was primarily due to the higher sales but lower cost of goods sold from amorphous alloy transformers.  Consolidated gross margin decreased slightly to 26.6% from 26.7% in the fourth quarter of 2011. Gross margin on amorphous cores declined 2 percentage points to 27.1%, compared to 29.1% in the fourth quarter of 2011 primarily due to the lower average selling prices.   Gross margin on the Company's amorphous alloy transformers increased 4.1 percentage points to 25.5% in the fourth quarter, compared to 21.4% a year ago mainly due to lower costs of in-house produced amorphous alloy transformers associated with the ramping up of the transformer production lines in the fourth quarter of 2012.

Selling, general and administrative ("SG&A") expenses totaled $0.61 million for the three months ended December 31, 2012, a decrease of approximately 19.7% from the same period in 2011. Operating income increased approximately 9% year-over-year to $1.88 million, with an operating margin of 20.1%.

Net income for the fourth quarter was $1.58 million, up 10.2% versus the same period in 2011 as a result of the higher operating income, partly offset by slightly higher income taxes in the quarter. Earnings per share based on 23.7 million fully-diluted shares were $0.07 compared to $0.06 in the fourth quarter of 2011.

Fiscal Year 2012 Results

*Earnings per share are based on weighted average fully diluted outstanding shares of approximately 23.7 million and 23.6 million in 2012 and 2011, respectively. All numbers are rounded to nearest $1,000,000, excluding EPS.

Net revenues decreased $0.23 million or 0.6% during the year ended December 31, 2012 compared to the year 2011. The decrease was primarily due to the lower average selling prices of our amorphous alloy cores and transformers, partly offset by the higher tonnage of amorphous alloy cores and more units of amorphous alloy transformers sold. Net revenues generated by amorphous cores decreased 2.2% during the period and accounted for 71.3% of total sales. Net revenues from amorphous alloy transformers grew by 3.6% to $10.56 million for the period.

Gross profit for the period was $9.68 million, an increase of 5.0% compared to the year 2011. The increase of gross profit in year 2012 was primarily due to the higher sales from amorphous alloy transformers and lower cost of goods sold associated with amorphous alloy cores. The consolidated gross profit margin increased 1.4 percentage points to 26.3% in year 2012 from 24.9% in year 2011. This was mainly due to the lower average prices of primary raw material and the lower costs of in-house produced amorphous alloy transformers in year 2012 compared to the year 2011. Gross margin for China Power's amorphous alloy cores and transformers were 26.9% and 24.9%, respectively.

SG&A expenses decreased 3.6% to $1.99 million during the year ended December 31, 2012 compared to the year 2011, mainly due to a decrease in professional fee of $65,977 and a decrease in stock based compensation expense of $52,514, partly offset by an increase in administrative personnel expenses of $43,127 resulting from higher director and officer insurance and higher salary and related employee benefit. Operating income increased 7.5% to $7.69 million, with an operating margin of 20.9%.

Net income attributable to China Power's common shareholders and diluted earnings per share were $6.41 million and $0.27 respectively in the year ended December 31, 2012, compared to $5.93 million and $0.25 in the previous year, primarily attributable to higher gross profit and lower SG&A expenses, offset by higher income taxes.

Financial Condition

Cash and cash equivalents were $21.98 million at December 31, 2012 compared to $23.09 million at December 31, 2011. Working capital increased to $31.63 million from $23.89 million at the end of 2011. Accounts receivable was $10.10 million at December 31, 2012, an increase of 407.7% or $8.11 million from $1.99 million at the end of 2011 due to granting extended payment terms to customers that resulted in a longer collection period.

For the year ended December 31, 2012, net cash used in operating activities was $1,26 million primarily due to the net income, reduced by unfavorable changes in working capital.

Business and Facilities Update

By the end of year 2012, the capacity utilization for amorphous alloy cores production lines was 96%. The new amorphous ally transformers lines also ramped up well.  The units of in-house produced amorphous alloy transformers sold increased 475% in 2012, compared to the same period of last year, which contributed to the improvement in gross margin. In addition, for the contract from a new oil field customer that the Company received in the third quarter of 2012, the transformers production process and orders delivery are in full compliance with the contract. The customer is very satisfied with the quality and performance of the transformers we have delivered so far.

Beginning from the first quarter of 2013, the Company has begun to purchase amorphous alloy strips, the main raw material of amorphous alloy cores, from another Chinese domestic manufacturer after undergoing internal testing, in addition to purchase from Advanced Technology & Materials Co., Ltd. (AT&M). Sourcing alloy strips from more trusted domestic suppliers will help the Company broaden its supply base, lower the concentration risk in raw material supply, provide more options to clients and help improve the profit margin of amorphous alloy cores and transformers.

In the first quarter of 2013, the Company appointed a new plant director to manage the new facility.  The new director has more than 30 years experiences in the distribution transformers industry, and will help further improve the efficiency of production and management at the new facility.

In 2012, the State Grid Corporation carried out a qualification verification on all amorphous alloy transformer suppliers and the Company passed all the indicators at high scores.

In November 2012, the Ministry of Finance of China announced subsidies policies for energy-efficient distribution transformers. With the financial subsidies, the prices of energy-saving distribution transformers have become no big different from those of traditional distribution transformers, while the comprehensive energy consumption of energy-efficient distribution transformers is 20% lower than that of traditional ones, resulting in more cost-effective benefits. In addition, State Grids, China Southern Grids and Rural Grids plan to significantly increase their usage of amorphous alloy transformers in the electric grid projects. The Company expects these positive developments to drive strong demand for amorphous alloy transformers in 2013.

About China Power Equipment, Inc.

China Power Equipment, Inc., is a U.S. corporation, which through its wholly-owned subsidiary, An Sen (Xi'an) Power Science & Technology Co., Ltd., and its affiliated operating company, Xi'an Amorphous Alloy Zhongxi Transformer Co., Ltd., designs, manufactures, and distributes amorphous alloy transformer cores and amorphous alloy core distribution transformers in the People's Republic of China. The company currently manufactures 59 different products, primarily amorphous alloy cores and amorphous alloy core transformers.

Safe Harbor Statement

Certain statements in this release concerning our future growth prospects are forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. These forward-looking statements can be identified by terminology such as "anticipates," "believes," "could," "estimates," "expects," "future," "intends," "plans," "should," "will," and similar statements.

The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding the success of the company's investments, risks and uncertainties regarding fluctuations in earnings, its ability to sustain its previous levels of profitability including on account of its ability to manage growth, intense competition, wage and inflation increases in China, its ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, its ability to successfully complete and integrate potential acquisitions, withdrawal of governmental fiscal incentives, political instability and regional conflicts, and legal restrictions on raising capital or acquiring companies outside China.

Additional risks that could affect the company's future operating results are more fully described in its filings with U.S. Securities and Exchange Commission. These filings are available at www.sec.gov and at www.chinapower-equipment.com.

The company may, from time to time, make additional written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 10-K, 10-Q, and 8-K, in its annual report to shareholders, in news releases and other written materials, and in oral statements made by its officers, directors, or employees to third parties. The company does not undertake to update any forward-looking statements that may be made from time to time by or on its behalf, except as required under law.

For more information about China Power Equipment, please visit its website at www.chinapower-equipment.com.

For more information, please contact:

COMPANY:

Ms. Nicole Chen (English and Chinese)
Vice President of Finance
China Power Equipment, Inc.
Telephone: +86 (29) 6261 9758
Mobile: +86 186 1633 1170
Email: xa-fj@xa-fj.com

SOURCE China Power Equipment, Inc.