SmartHeat Inc. Announces Record Second Quarter 2010 Financial Results - 82% Revenue Growth, 30% Net Income Growth, Affirms Guidance for 2010

NEW YORK, Aug. 12 /PRNewswire-Asia/ -- SmartHeat Inc. (Nasdaq: HEAT; website: www.smartheatinc.com), a market leader in China's clean technology, energy savings industry today announced record financial results for the second quarter ended June 30, 2010. SmartHeat management is scheduled to host an investor conference call today at 9:00 a.m. EDT on August 12, 2010.

Financial Highlights:

• Revenues of $22.77 million, up 82% from 2Q09
• Operating income of $4.00 million, up 31% from 2Q09
• Net income of $3.39 million up 30% from 2Q09
• Better than Expected Sales from Heat Exchangers

Revenues

In the second quarter of 2010, total sales increased 82.16% to $22.77 million compared to $12.50 million in 2Q09. The higher sales came from all three of the Company's product lines, and benefited from the continued governmental stimulus in energy-saving industry, strong economic recovery in China and our successful market expansion.

The breakdown of revenues for the second quarter of 2010 was $22.24 million from PHE units and Heat Exchangers, with sales from PHE units up approximately 19%, compared to 2Q09 and sales from Heat Exchangers up approximately 204% compared to 2Q09. Sales from heat meters were up approximately 60% from 1Q10 and accounted for approximately $0.5 million in revenues for the quarter.

The following table presents the revenue contribution by percentage for each major product line in 2Q10 in comparison with 2Q09.

Net Income

Net income in the quarter totaled $3.39 million ($0.10 per diluted share), up 29.57% from $2.62 million ($0.11 per diluted share) in 2Q09. The higher net income was primarily driven by higher sales across all product lines. Diluted earnings per share in 2Q10 decreased compared to 2Q09 even though net income increased because of our secondary offering in the third quarter of 2009.

Gross Profit Margin

The gross margin for 2Q10 was 34.18% down from 36.20% in 2Q09, primarily due to higher than expected revenues from the Heat Exchanger business, which reduced our overall margins for this period. The percentage of total sales from heat exchangers increased to approximately 55.87% in 2Q10 from approximately 33.51% in 2Q09.

Higher revenues from this category were due to our diversification sales strategy, which has focused on strengthening our market position in the heat exchanger sector, a sector that has more competition from local and international players.

Based on existing backlog, the Company expects gross margins to return to higher levels in the third quarter of 2010 because we expect to increase the number of PHE units sold as a percentage of sales in 3Q10.

Operating Income

Operating income totaled $4.00 million, compared with $3.06 million in 2Q09, representing a 31.08% year over year growth. Higher operating income was mainly due to increased sales of all major product lines. Total operating expenses including selling, general and administrative ("SG&A") expenses totaled $3.78 million, compared with $1.47 million a year ago. Operating margin was 17.59% compared with 24.44% a year ago. The decline of operating margin was mainly due to increased sales and expansion of our business, including the hiring of more sales personnel, higher depreciation expense, training the marketing team, establishing new sales offices in more regions of China and restructuring our sales and distribution channels. We anticipate a lower percentage of operating expenses with bigger scale of sales in the next financial quarter and therefore higher operating margin.

Reaffirms Full Year 2010 Earnings Guidance

SmartHeat reaffirms its full year 2010 earnings guidance of $20 million to $22 million in net income and $106 million to $116 million in revenues.

Our sales of Heat Exchangers have increased more than expected in the first half with all product lines showing increases in revenues. We are pleased to maintain the annual guidance previously provided.

Outlook

Mr. James Jun Wang, Chairman and Chief Executive Officer of Smart Heat Inc., commented that: "We maintained the momentum from the first quarter of 2010 and delivered another set of strong results. We thank our hard working employees, who are dedicated to executing our operational strategy. We are quite pleased to see the significant business expansion to West China, are very satisfied with the growth across all our existing business lines and the benefits we expect to receive in restructuring our sales and distribution channels."

"Government requirements to implement energy savings and emission reduction have increased the demand of our energy-saving products in all industrial sectors. Taking advantage of economic development in West China and urbanization trends throughout China will continue to be part of our long-term strategy.  Based on the successful expansion to West China's market and some second and third tier cities, SmartHeat is well positioned to reap significant benefits," concluded Mr. Wang.

Investor Conference Call Instructions:

SmartHeat management will host an earnings conference call today to discuss its second quarter financial results and outlook.

Date and time: 9:00 a.m. U.S. Eastern Daylight Time, August 12, 2010

U.S. toll free number: +1-888-419-5570

International direct dial-in: +1-617-896-9871

Conference passcode: 91720755

About SmartHeat Inc.

Founded by James Jun Wang, a former executive at Honeywell China, SmartHeat Inc. (www.smartheatinc.com) is a NASDAQ Global Market listed (NASDAQ: HEAT) US company with its primary operations in China. SmartHeat is a market leader in China's clean technology energy savings industry. SmartHeat manufactures heat exchangers, custom plate heat exchanger units (PHE Units) and heat meters. SmartHeat's products directly address air pollution problems in China where massive coal burning for cooking and heating purposes is the only source of economical heat energy in China. With broad product applications, SmartHeat's products significantly reduce heating costs, increase energy use and reduce air pollution. SmartHeat's customers include global Fortune 500 companies as well as municipalities and industrial/residential users. China's heat transfer market is currently estimated at approximately $2.4 billion with double-digit annual growth according to China Heating Association.

Safe Harbor Statement

All statements in this press release that are not historical are forward- looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. There can be no assurance that actual results will not differ from the company's expectations. SmartHeat's actual results may differ from its projections. Further, preliminary results are subject to normal year-end adjustments. You are cautioned not to place undue reliance on any forward-looking statements in this press release as they reflect SmartHeat's current expectations with respect to future events and are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated. Potential risks and uncertainties include, but are not limited to, the risks described in SmartHeat's filings with the Securities and Exchange Commission.

SOURCE SmartHeat Inc.

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