China HGS Announces Record Fiscal Year 2009 Results

HANZHONG, China , Jan. 4 /PRNewswire-Asia-FirstCall/ -- China HGS Real Estate Inc. (OTC Bulletin Board: CAHS) ("China HGS" or "the Company"), a leading residential property developer in Hanzhong, China , today reported financial results for the fiscal year ended September 30, 2009 .

    Fiscal Year 2009 Highlights
    -- Revenues increased 65.0% year-over-year to $28.5 million
    -- Gross profit increased 65.4% to $13.4 million with gross margin of
       47.0%
    -- Operating income increased 81.3% to $11.4 million
    -- Net income increased 83.7% to $11.1 million, or $0.28 per diluted share

"Our record revenue and net income growth during the year reflects our leading market position in Hanzhong and our growing recognition as a prominent real estate developer. During the year, our efficient pricing strategy and marketing efforts enhanced our market reputation driving rapid growth in sales of our completed residential units," commented Mr. Xiaojun Zhu , chairman and CEO of China HGS. "With the broad property market recovery in China , we have experienced increasing pre-sales of our residential projects and favorable pricing environment enhancing our overall profitability."

Fiscal Year 2009 Results

Revenues for fiscal year ended September 30, 2009 increased to $28.5 million , up 65.0% from $17.2 million for the fiscal year ended September 30, 2008 . China HGS's strong revenue growth during the year was attributable to increase in sales of the completed residential units at its two projects located in Yang County and Hanzhong City. Sales from the Company's Mingpin Plaza project in Hanzhong contributed $11.4 million or 40.2% of the year's total revenue. Sales from the Company's Weinan Lijing Garden , Mingzhu Garden , and Yangzhou Pearl Garden projects contributed approximately 21.7%, 20.0% and 18.2% of the year's total revenue, respectively.

Gross profit for the fiscal year ended September 30, 2009 was $13.4 million , up 65.4% from $8.1 million in the same period a year ago. Gross margin was 47.0%, slightly above 46.9% for the same period a year ago.

Total operating expenses for fiscal year ended September 30, 2009 totaled approximately $2.0 million , up 9.7% from $1.8 million in the same period a year ago. Selling expenses rose 35.6% to $0.4 million due to rapid sales growth and increase in advertising expenses. General and administrative expenses ("G&A") amounted to $1.6 million , up 5.3% year-over-year. The increase in G&A expenses was primarily attributable to sales growth, expenses related to going public, and related consulting services. As a percentage of revenue, operating expenses accounted for 6.9% of the year's revenue, a significant decline from 10.4% in the same period a year ago.

Operating income was $11.4 million for fiscal year ended September 30, 2009 , up 81.3% from $6.3 million in the same period a year ago. Operating margin was 40.1%, compared to 36.5% in the same period a year ago.

Interest expense for fiscal year ended September 30, 2009 was $121,372 , up 31.4% from the same period a year ago. The increase in interest expense was a result of higher interest rate on the Company's short term bank loan.

Net income for fiscal year ended September 30, 2009 was $11.1 million , or $0.28 per diluted share, up 83.7% from $6.0 million , or $0.15 per diluted share, in the same period a year ago.

Financial Condition

As of September 30, 2009 , China HGS had $0.8 million in cash and cash equivalents, down from $2.1 million at the end of fiscal year 2008. The decline in the Company's cash reserves was a result of growth and expansion of construction activity and increase in land acquisition costs. The Company expects cash flow from operating activities to turn positive in the first quarter of fiscal year 2010. At the end of fiscal year 2009, the Company had working capital of $29.1 million and no long-term debt. Shareholders' equity stood at $29.9 million , up from $18.3 million at the end of fiscal year 2008.

Recent Events

In December 2009 , China HGS announced that the Company has experienced rapid growth in sales of units at its Yangzhou Pearl Garden project in Yang County, Shaanxi Province , China .

Business Outlook

China's second-tier and third-tier cities are experiencing strong GDP growth and rising level of disposable income which continues to drive demand for residential real estate market. China HGS successfully sold all of the 192 apartment units of Phase I of the Yangzhou Pearl Garden Project and has sold or reserved approximately 87.3% of the total apartment units of Phase II. As of September 30, 2009 , China HGS has approximately $42.5 million of real estate projects under development, up 87.3% from the prior year.

The Company's major projects under development include Mingzhu Xinju in Hanzhong City and Yangzhou Pearl Garden in Yang County. During the quarter ended December 31, 2009 , China HGS recorded sales of approximately $12.1 million or GFA of 40,582 square meters from its Yangzhou Pearl Garden Project and Mingzhu Xinju Project. In the next three years, the Company plans to maintain its leading position in the Hanzhong market and expand into nearby markets with solid economic growth, including Xi'an City in Shaanxi Province , to capitalize on the available high-growth opportunities.

"The recovery in the real estate market and sales pricing combined with strong fundamentals of the Hanzhong market indicate positive future growth opportunities for China HGS," said Mr. Xiaojun Zhu . "With our solid project pipeline and abundant land reserves for future development, we expect the ongoing positive trend of our financial performance to continue into fiscal year 2010 and through fiscal year 2011. We believe our aggressive marketing efforts, disciplined cost control, growing market recognition and competitive pricing strategy will further contribute to our revenue growth and profitability."

Guidance for Fiscal 2009

China HGS expects revenue for first quarter of fiscal year 2010 ending December 31, 2009 to be $12.5 million ( RMB85.2 million ) and net income of $3.5 million ( RMB23.8 million ), or $0.09 per diluted share. The Company expects revenue for fiscal year 2010 ending September 30, 2010 to be $46.4 million ( RMB317.0 million ) and net income of $13.0 million ( RMB88.7 million ), or diluted earnings per share of $0.37 .

About China HGS Real Estate Inc.

China HGS Real Estate Inc., through its wholly-owned subsidiary, Shaanxi Guangsha Investment and Development Group Co., Ltd., specializes in real estate development in China's second-tier and third-tier cities. The Company's real estate properties include multi-layer, sub-high-rise, and high-rise apartment buildings. The Company possesses the national grade II real estate qualification and was ranked as the No. 1 property developer in Hanzhong, Shaanxi Province in terms of market share in 2007 and 2008 successively.

Forward-looking Statements:

This press release contains certain statements that may include 'forward-looking statements'. All statements other than statements of historical fact included herein are 'forward-looking statements'. These forward looking statements are often identified by the use of forward-looking terminology such as 'believes,' 'expects' or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website http://www.sec.gov . All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

                           --Financial Tables Follow--



                            CHINA HGS REAL ESTATE INC.
                      (FORMERLY CHINA ARGO SCIENCES CORP.)
                           CONSOLIDATED BALANCE SHEETS

                                                              As of
                                                           September 30,
                                                        2009          2008
                           ASSETS

    Current assets:
      Cash & cash equivalents                        $820,783    $2,121,060
      Restricted cash                                 412,373       596,258
      Accounts receivable - net of allowance for
       doubtful accounts                                   --         7,294
      Loans to outside parties, net of allowance    1,762,022       210,037
      Real estate property development completed    2,392,003    13,657,042
      Real estate property under development       42,522,287    22,699,749
      Other current assets                             71,985        29,175

    Total current assets                           47,981,453    39,320,615

    Property, plant and equipment, net                713,008       401,635

    Total Assets                                  $48,694,461   $39,722,250

            LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
      Short-term loans                               $672,751    $1,312,891
      Accounts payable                                730,838     1,251,733
      Other payables                                1,021,147     1,072,600
      Customer deposits                            14,900,334    17,398,247
      Accrued expenses                                125,742        40,279
      Taxes payable                                 1,380,694       339,009

    Total current liabilities                      18,831,506    21,414,759

    Stockholders' equity
      Common stock, $0.001 par value, 100,000,000
       shares authorized, 45,050,000 shares and
       39,000,000 shares issued and outstanding as
       of September 30, 2009 and 2008,
       respectively                                    45,050        39,000
      Additional paid-in capital                   17,632,348       127,682
      Statutory surplus                             2,330,259     2,023,641
      Retained earnings                             7,904,531    14,224,594
      Accumulated other comprehensive income        1,950,767     1,892,575

    Total stockholders' equity                     29,862,955    18,307,491

    Total Liabilities and Stockholders' Equity    $48,694,461   $39,722,250



                           CHINA HGS REAL ESTATE INC.
                      (FORMERLY CHINA ARGO SCIENCES CORP.)
                        CONSOLIDATED STATEMENTS OF INCOME
                        FOR THE YEARS ENDED SEPTEMBER 30,

                                                     2009            2008

    Real estate sale, net of sales tax of
     $1,745,490 and $1,155,106, respectively     $28,459,176     $17,249,539

    Cost of real estate sales, exclusive of
     depreciation                                 15,084,017       9,161,948

    Gross profit                                  13,375,159       8,087,591


    Operating expenses
    Selling and distribution expense                 353,907         261,030
    General and administrative expense             1,618,926       1,537,524
    Total operating expenses                       1,972,833       1,798,554

    Operating income                              11,402,326       6,289,037

    Other expenses
    Interest expenses                                121,372          92,347
    Other expenses                                       309          53,442
    Total other expenses                             121,681         145,789

    Income before income taxes                    11,280,645       6,143,248

    Provision for income taxes                       223,095         123,517

    Net income                                   $11,057,550      $6,019,731

    Other comprehensive income
    Foreign currency translation adjustment          $58,191      $1,287,479

    Comprehensive income                         $11,115,741      $7,307,210

    Basic and diluted income per common share
      Basic                                            $0.28           $0.15
      Diluted                                          $0.28           $0.15

    Weighted average common shares outstanding
      Basic                                       39,513,836      39,000,000
      Diluted                                     39,513,836      39,000,000



                          CHINA HGS REAL ESTATE INC.
                     (FORMERLY CHINA ARGO SCIENCES CORP.)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                       FOR THE YEARS ENDED SEPTEMBER 30,

                                                       2009          2008

    Cash flows from operating activities
      Net income                                  $11,057,550    $6,019,731
      Adjustments to reconcile net income to
       net cash used in operating activities:
        Depreciation                                   66,589        35,348
        Loss on disposal of fixed assets                  309        42,191
      Changes in assets and liabilities:
       (Increase) decrease in -
        Restricted cash                               185,205       187,971
        Accounts receivable                             7,304            --
        Loans to outside parties                   (1,549,723)     (194,051)
        Real estate property development
         completed                                 11,287,430    (8,612,453)
        Real estate property under
         development                              (19,742,469)    4,412,656
        Other current assets                          (42,686)      (16,356)
      Increase (decrease) in -
        Accounts payables                            (523,516)   (1,372,573)
        Other payables                                (54,137)      526,568
        Customer deposits                          (2,539,616)   (5,867,984)
        Accrued expenses                               85,264       (70,190)
        Taxes payable                               1,039,661       317,074

            Net cash used in operating
             activities                              (722,835)   (4,592,068)

    Cash flow from investing activities
      Purchase of fixed assets                       (376,898)     (401,928)
      Proceeds from disposal of fixed assets               --       114,674

            Net cash used in investing
             activities                              (376,898)     (287,254)

    Cash flow from financing activities
      Proceeds from (repayment for)
       shareholder loans                             (438,263)      421,905
      Repayment of short-term loans                  (204,523)      (70,317)
      Capital contribution                            438,722            --

            Net cash provided by (used
             in) financing activities                (203,063)      351,588

    Effect of changes of foreign exchange rate
     on cash and cash equivalent                        2,520       432,045

    Net decrease in cash and cash equivalents      (1,300,276)   (4,095,689)

    Cash and cash equivalents, beginning of
     year                                           2,121,060     6,216,749

    Cash and cash equivalents, end of year           $820,783    $2,121,060

    Supplemental disclosures of cash flow
     information:
      Interest paid                                  $109,420       $96,895
      Income taxes paid                               $14,002       $42,190

    Non-cash financing activities:
      Capital contribution converted from
       dividend payable                            $5,483,508           $--
      Capital contribution converted from
       retained earnings                          $10,788,349           $--
      Capital contribution converted from
       surplus                                       $799,137           $--


    For more information, please contact:

    Company Contact:
     Mr. Ran Xiong, Deputy GM
     Email: [email protected]
     Tel:   +86-916-2622612

    Investor Relations Contact:
     CCG Investor Relations
     Crocker Coulson, President
     Email: [email protected]
     Tel:   +1-646-213-1915 (NY office)

     Elaine Ketchmere, Partner
     Email: [email protected]
     Tel:   +1-310-954-1345 (LA office)

SOURCE China HGS Real Estate Inc.

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