China Automotive Systems Reports 25.2% Net Sales Growth in the 2017 Third Quarter

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WUHAN, China, Nov. 9, 2017China Automotive Systems, Inc. (Nasdaq: CAAS) (“CAAS” or the “Company”), a leading power steering components and systems supplier in China, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2017.

Third Quarter 2017 Highlights

  • Net sales increased 25.2% to $118.4 million, compared to $94.6 million in the third quarter of 2016;
  • Gross margin was19.0%;
  • Net income attributable to parent company's common shareholders was $5.1 million, or diluted earnings per share of $0.16, compared to net income attributable to parent company's common shareholders of $5.7 million, or diluted earnings per share of $0.18, in the third quarter of 2016.

First Nine Months of 2017 Highlights

  • Net sales increased 13.7% to $355.3 million, compared to $312.5 million in the first nine months of 2016;
  • Gross margin was 19.2%;
  • Diluted earnings per share attributable to parent company's common shareholders was $0.62 compared with $0.52 for the first nine months of 2016;
  • Cash and cash equivalents, pledged cash deposits and short-term investments were $110.3 million as of September 30, 2017;
  • Net cash flow from operating activities was $43.0 million.  

Mr. Qizhou Wu, the Chief Executive Officer of CAAS, commented, “Sales of our traditional hydraulic products led our strong growth in the third quarter of 2017 as sales of Chinese passenger vehicles and heavy-duty trucks remain solid.  Additionally, our new advanced hydraulic steering products have been the primary driver of our robust sales to Chrysler and Ford for use in the North American markets with sales rising by 78.3% in the third quarter of 2017.  Our electric power steering (“EPS”) business is stable and we remain optimistic about its future as we continue to develop more advanced products and production capabilities.”

Mr. Jie Li, the Chief Financial Officer of CAAS, commented, “We continue to invest in our operations to ensure we have developed the right products and can efficiently build them to add value for our customers. In addition to capital investment, we have increased our investment in our joint venture fund to develop new automotive technologies.  We intend to further penetrate our key markets in China, North America and Brazil.”

Third Quarter of 2017

In the third quarter of 2017, net sales increased 25.2% to $118.4 million, compared to $94.6 million in the same quarter of 2016. This increase was mainly due to higher volumes of traditional steering products to autos and heavy-duty vehicles in China. Also, new products drove higher sales to the Company's North American customers.

Gross profit was $22.5 million in the third quarter of 2017, compared to $20.0 million in the third quarter of 2016. The gross margin was 19.0% in the third quarter of 2017, versus 21.1% in the third quarter of 2016. The margin decline was primarily related to changes in the product mix as some higher-margin products experienced slower growth during the third quarter.

Selling expenses were $4.5 million in the third quarter of 2017, compared to $3.8 million in the third quarter of 2016. Greater unit sales led to higher transportation expenses in the third quarter of 2017. Selling expenses represented 3.8% of net sales in the third quarter of 2017, compared to 4.0% in the third quarter of 2016.

General and administrative expenses (“G&A expenses”) were $4.4 million in the third quarter of 2017, compared to $3.7 million in the same quarter of 2016. G&A expenses represented 3.7% of net sales in the third quarter of 2017compared with 3.9% in the third quarter of 2016.

Research and development expenses (“R&D expenses”) were $9.2 million in the third quarter of 2017, compared to $6.7 million in the third quarter of 2016. R&D expenses represented 7.8% of net sales in the third quarter of 2017 compared with 7.1% in the third quarter of 2016. The higher R&D expenses were mainly due to greater emphasis on accelerating the development of brushless motor EPS products as well as other new advanced products.

Net financial income was $1.0 million in the third quarter of 2017 compared to net financial income of $0.8 million in the third quarter of 2016.

Income from operations was $4.9 million in the third quarter of 2017, compared to $5.7 million in the same quarter of 2016. The decrease was mainly due to lower gross margin and higher operating expenses.

Income before income tax expenses and equity in earnings of affiliated companies was $5.7 million in the third quarter of 2017, compared to $6.7 million in the third quarter of 2016. The decrease in income before income tax expenses and equity in earnings of affiliated companies was mainly due to lower operating income in the third quarter of 2017 compared with the third quarter of 2016.

Net income attributable to parent company's common shareholders was $5.1 million in the third quarter of 2017, compared to net income attributable to parent company's common shareholders of $5.7 million in the third quarter of 2016. Diluted earnings per share were $0.16 in the third quarter of 2017, compared to diluted earnings per share of $0.18 in the third quarter of 2016.

The weighted average number of diluted common shares outstanding was31,644,271in the third quarter of 2017, compared to 31,911,722 in the third quarter of 2016.

First Nine Months of 2017

Net sales for the first nine months of 2017 were $355.3 million, compared to $312.5 million in the first nine months of 2016. Nine-month gross profit was $68.2 million, compared to $59.1 million in the corresponding period last year. Nine-month gross margin was 19.2%, compared to 18.9% for the corresponding period in 2016. For the nine months ended September 30, 2017, gain on other sales amounted to $5.9 million, compared to $2.0 million for the corresponding period in 2016. Income from operations was $23.2 million compared to $18.0 million in the first nine months of 2016. Operating margin was 6.5%, compared to 5.8% for the corresponding period of 2016.

Net income attributable to parent company's common shareholders was $19.7 million compared with $16.8 million in the corresponding period last year. Diluted earnings per share were $0.62 in the first nine months of 2017, compared to diluted earnings per share of $0.52 for the corresponding period in 2016.

Balance Sheet

As of September 30, 2017, total cash and cash equivalents, pledged cash deposits and short-term investments were $110.3 million, total accounts receivable including notes receivable were $287.6 million, accounts payable including notes payable were $230.5 million, and short-term bank and government loans were $73.6 million. Total parent company stockholders' equity was $333.4 million as of September 30, 2017, compared to $300.5 million as of December 31, 2016.

Business Outlook

Management has raised its revenue guidance for the full year 2017to US$495 million. This target is based on the Company's current views on operating and market conditions, which are subject to change.

About China Automotive Systems, Inc.

Based in Hubei Province, the People's Republic of China, China Automotive Systems, Inc. is a leading supplier of power steering components and systems to the Chinese automotive industry, operating through eight Sino-foreign joint ventures. The Company offers a full range of steering system parts for passenger automobiles and commercial vehicles. The Company currently offers four separate series of power steering with an annual production capacity of over 6 million sets of steering gears, columns and steering hoses. Its customer base is comprised of leading auto manufacturers, such as China FAW Group, Corp., Dongfeng Auto Group Co., Ltd., BYD Auto Company Limited, Beiqi Foton Motor Co., Ltd. and Chery Automobile Co., Ltd. in China, and Chrysler Group LLC in North America. For more information, please visit: http://www.caasauto.com.

Forward-Looking Statements

This press release contains statements that are “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent our estimates and assumptions only as of the date of this press release. These forward-looking statements include statements regarding the qualitative and quantitative effects of the accounting errors, the periods involved, the nature of the Company's review and any anticipated conclusions of the Company or its management and other statements that are not historical facts. Our actual results may differ materially from the results described in or anticipated by our forward-looking statements due to certain risks and uncertainties. As a result, the Company's actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those described under the heading “Risk Factors” in the Company's Form 10-K annual report filed with the Securities and Exchange Commission on March 30, 2017, and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. We expressly disclaim any duty to provide updates to any forward-looking statements made in this press release, whether as a result of new information, future events or otherwise.

For further information, please contact:

Jie Li
Chief Financial Officer
China Automotive Systems, Inc.
Email: [email protected]

Kevin Theiss
+1-646-726-6511
[email protected]

– Tables Follow –

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income

(In thousands of USD, except share and per share amounts)

Three Months Ended September 30,

2017

2016

Net product sales ($7,563 and $9,950 sold to related parties for the
three months ended September 30, 2017 and 2016)

$

118,365

$

94,626

Cost of products sold ($6,549 and $5,869 purchased from related
parties for the three months ended September 30, 2017 and 2016)

95,878

74,641

Gross profit

22,487

19,985

Gain on other sales

553

22

Less: Operating expenses

Selling expenses

4,537

3,840

General and administrative expenses

4,390

3,741

Research and development expenses

9,194

6,723

Total operating expenses

18,121

14,304

Income from operations

4,919

5,703

Other income

100

420

Interest expense

(318)

(201)

Financial income, net

1,027

800

Income before income tax expenses and equity in earnings of
affiliated companies

5,728

6,722

Less: Income taxes

991

1,167

Equity in earnings of affiliated companies

491

304

Net income

5,228

5,859

Net income attributable to non-controlling interests

169

177

Net income attributable to parent company's common shareholders

$

5,059

$

5,682

Comprehensive income:

Net income

$

5,228

$

5,859

Other comprehensive income:

Foreign currency translation gain/(loss), net of tax

6,705

(2,139)

Comprehensive income

11,933

3,720

Comprehensive income attributable to non-controlling interests

386

119

Comprehensive income attributable to parent company

$

11,547

$

3,601

Net income attributable to parent company's common shareholders per share

Basic –

$

0.16

$

0.18

Diluted-

$

0.16

$

0.18

Weighted average number of common shares outstanding

Basic

31,644,004

31,911,360

Diluted

31,644,271

31,911,722

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income

(In thousands of USD, except share and per share amounts)

Nine Months Ended September 30,

2017

2016

Net product sales ($25,684 and $28,589 sold to related parties for the
nine months ended September 30, 2017 and 2016)

$

355,333

$

312,497

Cost of products sold ($20,195 and $18,912 purchased from related
parties for the nine months ended September 30, 2017 and 2016)

287,156

253,352

Gross profit

68,177

59,145

Gain on other sales

5,896

2,008

Less: Operating expenses

Selling expenses

13,160

12,273

General and administrative expenses

14,027

11,998

Research and development expenses

23,666

18,849

Total operating expenses

50,853

43,120

Income from operations

23,220

18,033

Other (expense)/income, net

(2)

995

Interest expense

(1,193)

(524)

Financial income, net

1,909

1,270

Income before income tax expenses and equity in earnings of affiliated
companies

23,934

19,774

Less: Income taxes

4,367

3,416

Equity in earnings of affiliated companies

480

561

Net income

20,047

16,919

Net income attributable to non-controlling interests

353

164

Net income attributable to parent company's common shareholders

$

19,694

$

16,755

Comprehensive income:

Net income

$

20,047

$

16,919

Other comprehensive income:

Foreign currency translation gain/(loss), net of tax

14,148

(8,435)

Comprehensive income

34,195

8,484

Comprehensive gain/(loss) attributable to non-controlling interests

819

(143)

Comprehensive income attributable to parent company

$

33,376

$

8,627

Net income attributable to parent company's common shareholders per
share

Basic –

$

0.62

$

0.52

Diluted-

$

0.62

$

0.52

Weighted average number of common shares outstanding

Basic

31,644,004

32,038,933

Diluted

31,647,833

32,040,514

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Balance Sheets

(In thousands of USD unless otherwise indicated)

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Sarah Thompson

Sarah Thompson

Sarah is a financial reporter, focusing on technology, national security, and policing. Before joining Daily Telescope she worked as a staff writer at Fast Company and spent two years as a foreign correspondent in Turkey. Her work has been published in Al Jazeera America, The Nation, Vice News, Motherboard, and many other outlets.
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