China Power Equipment Announces First Quarter 2012 Financial Results

XI'AN, China, May 14, 2012 /PRNewswire-Asia-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 three months ended March 31, 2012.

First Quarter 2012 Highlights:

• Net revenues decreased 6.1% to $7.26 million year-over-year
• Net income decreased 7.6% to $1.04 million with $0.04 in diluted EPS

"While our first quarter is typically our seasonably weakest of the year, our revenues were also impacted by a decline in the average selling prices for our amorphous alloy cores and transformers," said Mr. Song Yongxing, Chairman, CEO, and President of China Power Equipment. "This was principally due to a decline in the prices of the amorphous alloy strips, a savings which we partly passed on to our customers. Additionally, the sales ramp up at our transformer production facility is proceeding more slowly than anticipated as we are investing a significant amount of time in the recruitment and training of personnel at the facility and in our overall production preparation to ensure the highest standards of quality and reliability of our transformers and to make sure that our facility efficiently manages large orders.

"Improving capacity utilization of our amorphous alloy core production line has been a major objective for this year, increasing 9.8% year over year in the first quarter of 2012. Although revenue from amorphous alloy transformers decreased 5.6% in the first quarter of 2012 compared to the same period of 2011, we produced about 36% of all transformers in-house at our new production facility in the first quarter of 2012. Increased capacity utilization of amorphous alloy cores, improved gross margin on amorphous alloy cores and increased in-house amorphous alloy transformer production are positive developments that are consistent with our Company's long term objectives. Furthermore, our customers recognize the long term cost advantages of using amorphous alloy cores versus traditional steel cores as well as the environmental benefits and we expect continued demand for our energy saving products as China further upgrades its older electric grids and as it expands its energy infrastructure in western China," concluded Mr. Song.

Total net revenues for the quarter decreased $0.47 million, or 6.1%, to $7.26 million, compared to the same period of 2011, primarily attributable to lower average selling prices of amorphous alloy cores and transformers and lower sales of amorphous alloy transformers, partly offset by higher tonnage of amorphous alloy cores sold. For the quarter ended March 31, 2012, our average selling price of amorphous alloy cores decreased 11.2%, compared with the same period of 2011, primarily attributable to a decrease in average raw material purchase prices and a marketing strategy to attract more orders. The average selling price per unit of amorphous alloy transformers decreased 6.2% for the three months ended March 31, 2012, compared with the same period of 2011, primarily attributable to maturing amorphous alloy technologies which make amorphous alloy transformers less expensive to produce, providing industry producers with greater pricing flexibility. More competitively priced amorphous alloy transformers encourage their increased adoption and usage amongst end users. Net revenues generated by sales of amorphous alloy cores decreased 6.3% to $5.48 million for the quarter, representing 75.6% of sales. Net revenues generated by sales of amorphous alloy transformers were $1.77 million, representing 24.4% of sales, a decrease of 5.6% from the first quarter of 2011.

Gross profit for the quarter was $1.84 million, representing a slight increase of approximately 0.1% compared to the same period of 2011, primarily attributable to a lower cost of goods sold associated with amorphous alloy cores and transformers. Consolidated gross margin for the quarter increased 1.5 percentage points to 25.3% from 23.8% in the first quarter of 2011, primarily attributable to a decrease in primary raw material prices.

Selling, general and administrative ("SG&A") expenses totaled $0.53 million for the three months ended March 31, 2012, an increase of approximately 15.9% from the same period in 2011, primarily attributable to an increase in administrative personnel salaries, director and officer insurance and professional fees. Operating income decreased approximately 5.2% year-over-year to $1.3 million, with an operating margin of 18.0%.

Net income for the first quarter ended March 31, 2012 was $1.04 million, a decrease of 7.6% versus the same period of 2011, primarily attributable to higher SG&A expenses. Earnings per share based on 23.7 million fully-diluted shares were $0.04, compared to $0.05 in the first quarter of 2011.

Financial Condition

Cash and cash equivalents were $24.5 million at March 31, 2012 compared to $23.1 million at December 31, 2011. Working capital increased to $25.4 million at March 31, 2012 from $23.9 million at the end of 2011. Accounts receivable was $1.98 million at March 31, 2012, a decrease of 0.5% from $1.99 million at the end of 2011.

For the three months ended March 31, 2012, the Company generated $1.32 million of cash flow from operating activities, primarily attributable to the net income plus noncash expenses including depreciation, amortization and stock-based compensation, partially offset by cash used for working capital needs.

Business and Facilities Update

Since the Company commenced commercial production at its new amorphous alloy transformer production line during the third quarter of 2011, it has continuously hired and trained skilled employees as well as refined and adjusted production equipment to improve product quality and operational efficiency to prepare for large scale in-house transformer production. The efforts were recognized by the Company's receipt of ISO 9001 2008 certification in 2012. Previously, the Company used third party manufacturers to make transformers. With the completion of this new facility, orders that were previously subcontracted are gradually being taken in-house.

With the continuous improvement and reliability of domestically-produced amorphous alloy strip, as of the first quarter of 2012, the Company purchased an additional 4% of these domestically, compared with the fourth quarter of 2011, partially contributing to a decreased cost of goods sold and an increased gross profit margin.

According to Chinese electric grid expansion plans, since 2012 all newly installed distribution transformers must be energy-saving transformers. Furthermore, the Southern Grid plans to significantly increase its usage of amorphous alloy transformers in its electric grid projects. The Company expects these positive developments to drive demand for amorphous alloy transformers in the second half of 2012. China Power Equipment will try and expand transformer and core sales nationally, expand market share and actively promote its amorphous alloy transformers in key national engineering and energy infrastructure projects. Finally, the Company's R&D team continues to innovate and develop new technologies which are used to make China Power Equipment's amorphous alloy products more versatile and efficient and which should make the Company's products able to meet the unique needs of existing clients and attractive to a broader customer base.

Conference Call

China Power will hold its first quarter 2012 financial results conference call at 8:00 am ET on Tuesday, May 15, 2012.

To attend the call, please use the information below for dial-in access. When prompted on dial-in, ask for "China Power Equipment First Quarter 2012 Earnings Conference Call".

Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through June 15, 2012. To listen, please call +1 866 753 0743 within the United States, 800 876 5016 if calling in China, or +852 3005 2020 if calling internationally. Utilize the pass code 160773# for the replay.

The archive of the conference call will be available on China Power's website at: http://www.chinapower-equipment.com

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: [email protected]

INVESTOR RELATIONS:

Mr. Scott Powell (English)
Senior Vice President
MZ Group
Tel: +1-212-301-7130
Email: [email protected]
www.mz-ir.com

SOURCE China Power Equipment, Inc.