SHENZHEN, China, Aug. 14 /Xinhua-PRNewswire-FirstCall/ -- China
GrenTech Corporation Limited (Nasdaq: GRRF; "the Company", or
"GrenTech"), a leading China-based wireless coverage products and
services provider and radio frequency, or RF, technology and
product developer, today announced its unaudited financial results
for the second quarter ended June 30, 2007. Second Quarter 2007
Financial Highlights: -- Total revenue increased 12.8% over the
second quarter of 2006 to RMB203.0 million (US$26.7million)(1) --
Revenue from base station RF business increased 28 times over the
second quarter of 2006 to RMB55.0 million (US$7.2 million) --
Revenue from wireless coverage products and services was RMB148.0
million (US$19.4 million), a decreased of 16.9% from the second
quarter of 2006 -- Research and development expenses and general
and administrative expenses increased 72.5% and 42.7% respectively
over the second quarter of 2006, due to continued investment in
base station RF business -- Gross profit was RMB82.6 million
(US$10.9 million), a decreased of 7.6% from the second quarter of
2006 -- Net income was RMB16.2 million (US$2.1 million), a
decreased of RMB23.2 million (US$3.1 million) from the second
quarter of 2006 -- Diluted earnings per ADS(2) were RMB0.65
(US$0.08) Mr. Yingjie Gao, Chairman and Chief Executive Officer of
GrenTech, commented, "I am pleased to report another quarter of
solid business development, driven by continued execution of our
second stage strategic initiative to develop our base station RF
parts and components business, as well as further consolidating our
leading position as a provider of wireless coverage equipment and
integrated service for top tier Chinese carriers." "As one of our
core competencies and key growth drivers, our base station RF
business has gained significant traction with a revenue increase of
4.3 times over last quarter and 28 times year-over-year, reaching
RMB55.0 million (US$7.2 million) in second quarter of 2007. I am
greatly encouraged by this strong performance in the second quarter
of 2007, which I attribute to our focus and commitment on executing
the following steps of our RF strategy: First, expand market share
via mass production of passive modules for domestic base station
OEMs to drive top line growth; Second, strengthen our position in
the domestic market while expanding into global markets to continue
diversifying and broadening our customer base; Third, enhance
profitability and market share by developing and offering active
modules to deepen penetration among domestic and global OEMs; and
finally, build scalability by expanding manufacturing capacity and
consolidating R&D capabilities to further support sales growth
and improve bottom-line results." Mr. Gao continued, "We are
currently working on expanding sales to base station equipment
manufacturers in China and elsewhere to enhance our leadership
position in this space. As part of the implementation of our RF
strategy, we made significant investments in the second quarter to
further consolidate our leading technology position in R&D
capabilities by establishing the largest RF research and
development team in China, with 51% of such team engaged in base
station RF modules, and 32% of our total employees engaged in base
station RF business. In June 2007, we have already expanded our
manufacturing capacity to US$3.9 million from an average of US$0.5
million per month in the first quarter of 2007. In addition, we
have recently acquired a piece of land, which will be used to
further expand our manufacturing capacity, to meet the anticipated
rapid growth in RF product demand. While our RF business did not
contribute to our bottom line in the second quarter of 2007, due in
large part to our continuous investment in research and
development, we believe that this part of our business will achieve
profitability as revenue from base station RF parts and components
continues to grow." "Turning to our wireless coverage business, we
won important bids from China Mobile in the second quarter of 2007.
Although our sales revenue from these products and services in the
second quarter was affected by an unexpected delay in Chinese
carriers' capital expenditure, we believe the carriers will
accelerate their investment in the third quarter of 2007 as the
bidding process is expected to reach completion." "Overall, our
total revenue in the second quarter of 2007 increased by 12.8%
compared to the second quarter of 2006. We expect revenue from base
station RF parts and components will continue to grow steadily and
the revenue from wireless coverage will recover in next quarter."
"This second quarter demonstrates our ability to execute our
strategic plan, our commitment to invest for the long term growth
of the business and our focus on growth, operational efficiency and
profitability, which we believe will ultimately generate positive
returns for shareholders." Business Highlights Base Station RF
Parts and Components -- Production capacity for base station RF
parts and components has reached RMB30 million (US$3.9 million) in
June from RMB4 million in the first quarter of 2007, and is
expected to remain at similar level in the following months in
order to support the increasing demand from customers in the third
quarter and the rest of the year. -- The Company became a major
supplier of base station passive RF modules for ZTE Corporation. --
The Company began bulk production of base station passive RF
modules to Huawei Technologies Co., Ltd. -- The Company started
development of the TD-SCDMA RRU product for next generation 3G
networks with Potevio Co., Ltd. Wireless Coverage Products and
Services -- By the end of the second quarter of 2007, actual
investment in wireless coverage products and services by Chinese
carriers was behind their previously budgets. The major reasons for
the investment delays are 1) a change in China Mobile's centralized
procurement policy, the implementation of which will take time to
be reflected among its subsidiaries; 2) centralized bidding for
China Mobile's TD-SCDMA coverage equipment and bidding for
integrated service suppliers to local subsidiaries were postponed
to the second quarter of 2007; and 3) as a result of the
"calling-party-pay" (CPP) policy, China Netcom's and China
Telecom's PHS network revenue decreased, leading to reduced PHS
investments from China Netcom and China Telecom. -- The Company won
contracts from China Mobile to provide coverage equipment and
integrated services in the first TD-SCDMA expanded technique trial
network bidding. -- The Company won contracts from China Telecom to
provide coverage equipment and integrated services in the first
TD-SCDMA expanded technique trial network bidding. -- The Company
qualified as an integrated service provider for China Netcom in its
TD-SCDMA expanded technique trial network. -- The Company secured a
contract to supply coverage equipments and services for the China
Mobile Olympic WLAN network through China Mobile's centralized
bidding process. -- The Company successfully won the bid to provide
wireless coverage for No. 1 Subway Line from Beijing Subway Co.
Ltd. Second Quarter 2007 Unaudited Financial Results: Revenues
Revenue in the second quarter of 2007 was RMB203.0 million (US$26.7
million), an increase of RMB23.0 million (US$3.0 million) from
RMB180.0 million in the second quarter of 2006, representing a
12.8% year-over-year increase. This is primarily due to strong
demand for the Company's base station RF parts and components.
Revenue from base station RF parts and components increased by
RMB53.1 million (US$7.0 million), from RMB1.9 million in the second
quarter of 2006 to RMB55.0 million (US$7.2 million) in the second
quarter of 2007. This was mainly attributable to strong demand from
base station original equipment manufacturers. In addition to sales
to ZTE Corporation, the Company also began bulk production for
Huawei Technologies Co., Ltd in the second quarter of 2007. Revenue
from wireless coverage products and services decreased by RMB30.1
million (US$4.0 million) from RMB178.1 million in the second
quarter of 2006 to RMB148.0 million (US$19.4 million) in the second
quarter of 2007. Despite increased revenue from China Telecom due
to regional market expansion, revenue from China Mobile, China
Unicom and China Netcom decreased compared to the second quarter of
2006 because of delays in wireless coverage investments. Three
Months Ended June 30, Year- 2006 2007 over- Revenue Revenue Revenue
% of Total Year (RMB'000)(RMB'000) (US$'000) Revenue Change
Wireless Coverage Products China Mobile 52,738 37,672 4,949 18.6 %
-28.6 % China Unicom 75,479 63,859 8,389 31.5 % -15.4 % China
Telecom 20,809 29,371 3,859 14.5 % 41.1 % China Netcom 19,324 9,592
1,260 4.7 % -50.4 % Overseas 3,225 5,028 661 2.4 % 55.9 %
Non-operators 6,530 2,518 330 1.2 % -61.4 % Subtotal 178,105
148,040 19,448 72.9 % -16.9 % Base Station RF Products OEMs 1,871
54,984 7,223 27.1 % 2838.7 % Total 179,976 203,024 26,671 100.0 %
12.8 % Cost of Revenues Cost of revenue was RMB120.4 million
(US$15.8 million), compared to RMB90.5 million in the second
quarter of 2006, representing an increase of RMB29.9 million
(US$3.9 million), or 33.0%. The increase was primarily due to an
increase in total revenue and a rapid increase in revenue
contribution from lower-margin RF parts and components. Operating
Expenses Total operating expenses increased RMB15.9 million (US$2.1
million), or 34.8%, from RMB45.9 million in the second quarter of
2006 to RMB61.8 million (US$8.1 million) in the second quarter of
2007. This was due to an increase in research and development
expenses and general and administrative expenses which were
primarily related to further investments in the Company's base
station RF parts and components business. Sales and distribution
expenses also increased in the second quarter of 2007. Research and
development expenses grew by RMB6.0 million (US$0.8 million), or
72.5%, from RMB8.3 million in the second quarter of 2006 to RMB14.3
million (US$1.9 million) in the second quarter of 2007. The
increase was mainly due to the Company's expansion of its research
and development team and increased investments in research and
development. As a result, compared to the second quarter of 2006,
salary and compensation for research and development staff
increased by RMB4.0 million (US$0.5 million), office expenses
increased by RMB1.0 million (US$0.1 million), and depreciation
expenses increased by RMB0.5 million (US$0.1 million). Sales and
distribution expenses were RMB31.8 million (US$4.2 million) in the
second quarter of 2007, an increase of RMB5.2 million (US$0.7
million), or 19.7%, from RMB26.6 million in the second quarter of
2006. The increase was mainly due to strengthened marketing efforts
with China Mobile and an expanded sales and marketing team, which
led to an increase of RMB0.9 million (US$0.1 million) in salary and
compensation, an increase of RMB2.9 million (US$0.4 million) in
travelling and entertainment expenses, as well as an increase of
RMB1.4 million (US$0.2 million) in other office expenses. General
and administrative expenses were RMB15.7 million (US$2.1 million)
in the second quarter of 2007, an increase of RMB4.7 million
(US$0.6 million), or 42.7%, from RMB11.0 million in the second
quarter of 2006. The year-over- year increase was primarily due to
an increase of RMB3.4 million (US$0.4 million) in salary and
compensation and an increase of RMB1.0 million (US$0.1 million) in
connection with other office expenses. Other Expenses/Income Total
other expenses were RMB4.1 million (US$0.5 million) in the second
quarter of 2007, compared to RMB0.5 million in the second quarter
of 2006, an increase of RMB3.6 million (US$0.5 million). This is
primarily due to a decrease in interest income and an increase of
exchange loss. Interest income was RMB1.8 million (US$0.2 million)
in the second quarter of 2007, a decrease of RMB4.0 million (US$0.5
million), or 69.2%, from RMB5.8 million in the second quarter of
2006. This decrease is mainly due to a decrease in bank deposits as
portions of the proceeds from the Company's initial public offering
were used to fund working capital and capital expenditure needs.
Interest expense increased from RMB6.3 million in the second
quarter of 2006 to RMB6.5 million (US$0.9 million), a slight
increase of RMB0.2 million, or 2.4%. This resulted from an increase
in bank loans. Exchange loss amounted to RMB2.9 million (US$0.4
million) in the second quarter of 2007. This was primarily due to
the fact that a portion of the proceeds from the Company's initial
public offering were kept as bank deposits denominated in US
dollars, which suffered an exchange loss resulting from the
appreciation of Renminbi against the US dollar. Grant income was
RMB3.3 million (US$0.4 million) in the second quarter of 2007,
compared to RMB0.1 million in the second quarter of 2006. These
grants are made by the Chinese government to encourage research and
development activities. Earnings Gross profit was RMB82.6 million
(US$10.9 million) in the second quarter of 2007, a decrease of
RMB6.8 million (US$0.9 million), or 7.6%, from RMB89.4 million in
the second quarter of 2006. Gross margin was 40.7%, compared to
49.7% in the second quarter of 2006. The decrease in gross margin
was primarily due to an increasing portion of lower-margin RF
product sales in the overall product mix and a decrease in wireless
coverage product unit pricing as a result of intense market
competition. Operating income was RMB20.8 million (US$2.7 million),
a decrease of RMB22.8 million (US$3.0 million), or 52.3%, from
RMB43.6 million in the second quarter of 2006. This is mainly due
to the decrease in gross margin and increase in operating expenses.
Net income was RMB16.2 million (US$2.1 million), a decrease of
RMB23.2 million (US$3.1 million), or 59.0%, from RMB39.4 million in
the second quarter of 2006. Diluted earnings per ADS were RMB0.65
(US$0.08) in the second quarter of 2007. Balance Sheet Total
cash(3) decreased from RMB706.0 million as of December 31, 2006 to
RMB531.7 million (US$69.9 million) as of June 30, 2007, a decrease
of RMB174.3 million (US$22.9 million), or 24.7%. This decrease was
mainly attributable to use of cash for purchase of base station RF
module production and research equipment, capital expenditures of
RMB75.9 million (US$10.0 million) for the purchase of a land use
right for future production capacity expansion, as well as other
working capital payments. Cash and cash equivalents decreased to
RMB303.6 million (US$39.9 million) as of June 30, 2007, from
RMB467.4 million as of December 31, 2006. Pledged time deposits
decreased by RMB10.5 million (US$1.4 million) to RMB228.1 million
(US$30.0 million) as of June 30, 2007 from RMB238.6 million as of
December 31, 2006. Total accounts receivable(4) were RMB1,088.6
million (US$143.0 million) as of June 30, 2007, an increase of
RMB71.8 million (US$9.4 million), or 7.1%, from RMB1,016.8 million
as of December 31, 2006. This is mainly due to the revenue increase
from RF parts and components in the second quarter of 2007 and that
revenue has not been collected yet. Inventory increased from
RMB434.4 million as of December 31, 2006 to RMB582.9 million
(US$76.6 million) as of June 30, 2007, an increase of RMB148.5
million (US$19.5 million), or 34.2%. This is primarily due to an
increase in raw materials related to the expansion of production
capacity for the base station RF parts and components and an
increase in wireless coverage finished goods that are in the
process of customer installation. Total assets increased by
RMB245.9 million (US$32.3 million), or 10.2%, from RMB2,415.8
million as of December 31, 2006 to RMB2,661.7 million (US$349.7
million) as of June 30, 2007. The increase was mainly attributable
to the increase in inventory, total accounts receivable, and
property, plant and equipment. Total liabilities increased by
RMB275.6 million (US$36.2 million), or 31.8%, from RMB866.4 million
as of December 31, 2006 to RMB1,142.0 million (US$150.0 million) as
of June 30, 2007. The increase was mainly due to an increase in
long-term debt to fund new production facilities construction and
an increase in short-term bank loans for working capital needs.
Business Outlook GrenTech estimates that revenue in the third
quarter of 2007 will be in the range of RMB260 million to RMB295
million. This forecast reflects GrenTech's current preliminary
view, which is subject to change. The Company expects to benefit
from increasing market demand for base station RF parts and
components. GrenTech believes it has sufficient orders on hand to
potentially lead to increased revenue from its RF parts and
components in the third quarter of 2007. In particular, the Company
anticipates that sales to Huawei Technologies Co., Ltd and ZTE
Corporation will continue to increase. In addition, the Company
believes that China Mobile, as the major investor in the wireless
coverage market in China, will accelerate its wireless coverage
construction after completing the bidding process, and the
deployment of large scale construction of the TD-SCDMA expanded
commercial trial network. China Unicom is also expected to increase
its spending in wireless coverage from the third quarter of 2007.
Conference Call and Webcast The Company's management team will
conduct a conference call on August 14, 2007 at 5:00 am (Pacific) /
8:00 am (Eastern) / 8:00 pm (Beijing/Hong Kong). A webcast of the
conference call will be accessible on the Company's website at
http://www.grentech.com.cn/ . About China GrenTech GrenTech is a
leading radio frequency or RF, technology developer and a leading
provider of wireless coverage products and services to
telecommunication operators in China. The Company uses RF
technology to design and manufacture wireless coverage products,
which enable telecommunication operators to expand the reach of
their wireless communication networks to indoor and outdoor areas,
such as buildings, highways, railways, tunnels and remote regions.
GrenTech derives most of its revenues from wireless coverage
products and services. Based on its in-house RF technology
platform, the Company also develops and produces base station RF
parts and components sold to base station equipment manufacturers.
China GrenTech is a qualified supplier of RF parts and components
to six major base station equipment manufacturers such as Huawei
Technologies and ZTE Corporation. For more information, please
visit our website at http://www.grentech.com.cn/ . Safe Harbor
Statement under the Private Securities Litigation Reform Act of
1995 Statements contained in this press release that are not
historical facts are forward-looking statements, as that term is
defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements, including financial projections and
forecasts, involve risks and uncertainties that could cause the
Company's actual results to differ materially from its current
expectations. Factors that could cause the Company's results to
differ materially from those set forth in these forward-looking
statements include the Company's reliance on business relationships
with the Chinese telecom operators, in particular China Mobile, and
base station OEMs; the risk that demand for base station RF parts
and components will not continue to grow rapidly for whatever
reason; the risk that the Company will not win the bid for China
Mobile's TD-SCDMA indoor wireless coverage equipment or any other
bids it participates in whether due to pricing, product performance
or other factors; risk that the telecommunication operators in
China will not accelerate their capital expenditures on wireless
coverage products and services; risks associated with large account
receivable, long collection periods and accounts receivable cycles;
fierce competition in the wireless communication industry including
the risk that the Company will continue to experience downward
pressure of the pricing of its products; uncertainty as to future
profitability and the Company's ability to obtain adequate
financing for its planned capital expenditure requirements; its
reliance on third parties to carry out the installation of its
wireless coverage products uncertainty as to its ability to
continuously develop and manufacture new RF technology and keep up
with changes in RF technology; uncertainty as to the issuance of 3G
licenses by the PRC governmental authorities; future changes to the
regulations and policies governing the telecommunications industry
in China, including possible future industry restructuring;
limitation on the Company's production capacity for RF products;
risks associated with possible defects and errors in its wireless
coverage products or RF products; uncertainty as to the Company's
ability to protect and enforce its intellectual property rights;
and uncertainty as to the Company's ability to attract and retain
qualified executives and personnel, particularly in its research
and development department. Other factors that may cause the
Company's actual results to differ from those set forth in the
forward-looking statement contained in this press release and that
may affect its prospects in general are described in the Company's
fillings with the Securities and Exchange Commission, including its
Registration Statement on Form F-1 related to its initial public
offering, and its annual report on Form 20-F. The Company
undertakes no obligation to update or revise forward-looking
statements to reflect subsequent events or changed assumptions or
circumstances. (1) The Company's functional and reporting currency
is Renminbi ("RMB"). The translation of amounts from RMB to United
States dollars is solely for the convenience of the reader. RMB
numbers included in this press release have been translated into
U.S. dollars at the noon buying rate for U.S. Dollars in effect on
June 30, 2007 in the City of New York for cable transfers in RMB
per U.S. dollar as certified for customs purposes by the Federal
Reserve Bank of New York , which was US$1.00=RMB7.612. No
representation is made that RMB amounts could have been, or could
be, converted into U.S. Dollars at that rate or at any other rate
on June 30, 2007, or at any other date. (2) Each ADS represents 25
of our ordinary shares. (3) Total cash = cash and cash equivalents
+ pledged time deposit. (4) Total accounts receivable = accounts
receivable, net + long-term accounts receivable. - FINANCIAL TABLES
TO FOLLOW - China GrenTech Corporation Limited and subsidiaries
Unaudited Condensed Consolidated Balance Sheets As of December 31,
2006 and June 30, 2007 (RMB and US$ expressed in thousands, except
share and per share data) December June 30, June 30, 31, 2006 2007
2007 RMB RMB US$ Assets Cash and cash equivalents 467,423 303,642
39,890 Pledged time deposits 238,618 228,065 29,961 Accounts
receivable, net 747,859 806,760 105,985 Inventories 434,406 582,934
76,581 Total current assets 1,948,407 1,999,177 262,635 Long-term
accounts receivable 268,957 281,830 37,024 Total assets 2,415,834
2,661,738 349,676 Liabilities and shareholders' equity Short-term
bank loans 336,050 426,050 55,971 Total current liabilities 866,435
992,003 130,321 Long-term debt -- 150,000 19,706 Total liabilities
866,435 1,142,003 150,027 Ordinary shares US$0.00002 par value;
2,500,000,000 shares authorized, 625,000,000 shares issued and
outstanding as of December 31, 2006 and June 30, 2007, respectively
103 103 14 Total shareholders' equity 1,530,428 1,501,790 197,292
Total liabilities and shareholders' equity 2,415,834 2,661,738
349,676 China GrenTech Corporation Limited and subsidiaries
Unaudited Condensed Consolidated Statements of Income (RMB and US$
expressed in thousands, except share and per share data) For Three
Months Ended June 30, 2006 2007 2007 RMB RMB US$ Revenues 179,976
203,024 26,671 Cost of revenues (90,505) (120,378) (15,814) Gross
profit 89,471 82,646 10,857 Research and development costs (8,306)
(14,326) (1,882) Sales and distribution expenses (26,606) (31,854)
(4,185) General and administrative expenses (10,967) (15,655)
(2,057) Total operating expenses (45,879) (61,835) (8,123)
Operating income/(loss) 43,592 20,811 2,734 Interest income 5,761
1,776 233 Interest expense (6,369) (6,525) (857) Investment income
-- 318 42 Exchange gain/(loss) -- (2,941) (387) Grant income 100
3,310 435 Total other expense (508) (4,062) (534) Income tax
(benefit)/expense (3,583) (1,360) (179) Income/(loss) before
minority interests 39,501 15,389 2,022 Net income/(loss) 39,433
16,173 2,125 Net income/(loss) per share available to ordinary
shareholders: - Basic 0.06 0.03 0.00 - Diluted 0.06 0.03 0.00
Weighted average number of ordinary shares: - Basic 619,770,291
625,000,000 625,000,000 - Diluted 620,879,121 625,000,000
625,000,000 For Six Months Ended June 30, 2006 2007 2007 RMB RMB
US$ Revenues 194,772 234,310 30,782 Cost of revenues (97,292)
(138,678) (18,218) Gross profit 97,480 95,632 12,564 Research and
development costs (16,699) (27,527) (3,616) Sales and distribution
expenses (50,744) (60,453) (7,942) General and administrative
expenses (22,076) (29,060) (3,818) Total operating expenses
(89,519) (117,040) (15,376) Operating income/(loss) 7,961 (21,408)
(2,812) Interest income 6,620 4,232 556 Interest expense (15,266)
(12,587) (1,654) Investment income 238 318 42 Exchange gain/(loss)
1,101 (5,729) (753) Grant income 227 3,430 451 Total other expense
(7,080) (10,336) (1,358) Income tax (benefit)/expense 2,348 2,081
273 Income/(loss) before minority interests 3,229 (29,663) (3,897)
Net income/(loss) 3,694 (28,638) (3,762) Net income/(loss) per
share available to ordinary shareholders: - Basic 0.01 -0.05 -0.01
- Diluted 0.01 -0.05 -0.01 Weighted average number of ordinary
shares: - Basic 543,491,666 625,000,000 625,000,000 - Diluted
560,773,481 625,000,000 625,000,000 China GrenTech Corporation
Limited and subsidiaries Unaudited Condensed Consolidated
Statements of Cash Flows (RMB and US$ expressed in thousands) For
Six-months Ended June 30, 2006 2007 2007 RMB RMB US$ Net cash (used
in) operating activities (147,830) (198,654) (26,097) Net cash
(used in) investing activities (100,123) (180,792) (23,751) Net
cash provided by financing activities 767,096 217,628 28,590 Effect
of exchange rate changes on cash -- (1,963) (258) Net increase /
(decrease) in cash and cash equivalents 519,143 (163,781) (21,516)
For more information, please contact: Investor Contact: Dora Li, IR
Director China GrenTech Corp Ltd. Tel: +86-755-8350-1796 Email:
Investor Relations (US): Delia Cannan Taylor Rafferty Tel:
+1-212-889-4350 Email: Investor Relations (HK): Ruby Yim Taylor
Rafferty Tel: +852-3196-3712 Email: Media Contact: John Dooley
Taylor Rafferty Tel: +1-212-889-4350 Email: DATASOURCE: China
GrenTech Corporation Limited CONTACT: Investor Contact, Dora Li, IR
Director of China GrenTech Corp Ltd., +86-755-8350-1796, or ; or
Investor Relations (US), Delia Cannan, +1-212-889-4350, or , or
Investor Relations (HK), Ruby Yim, +852-3196-3712, or , or Media
Contact, John Dooley, +1-212-889-4350, or , all of Taylor Rafferty
for GrenTech Web Site: http://www.grentech.com.cn/
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