China Automotive Systems Reports Almost 200% Increase in Net Income in the Second Quarter of 2022

China Automotive Systems, Inc. (NASDAQ: CAAS) (“CAAS” or the “Company”), a leading power steering components and systems supplier in China, announced its unaudited financial results for the second quarter and six months ended June 30, 2022.

Second Quarter 2022 Highlights

  • Net sales rose 5.5% to $127.2 million from $120.6 million in the second quarter of 2021.
  • Gross profit increased 43.7% to $22.7 million from $15.8 million in the second quarter of 2021; gross margin was 17.9%, compared with 13.1% in the second quarter of 2021.
  • Income from operations was $7.2 million, compared to income from operations of $0.1 million in the second quarter of 2021.
  • Net income attributable to parent company’s common shareholders was $9.4 million, or diluted earnings per share of $0.31, compared to net income attributable to parent company’s common shareholders of $3.2 million, or diluted earnings per share of $0.10 in the second quarter of 2021.

First Six Months of 2022 Highlights

  • Net sales grew by 5.1% to $263.6 million, compared to $250.9 million in the first six months of 2021.
  • Gross profit increased by 5.1% to $37.4 million, compared to $35.6 million in the first six months of 2021; gross margin was 14.2% in the first six months of 2022, which is consistent with 14.2% in the first six months of 2021.
  • Income from operations was $5.7 million compared with income from operations of $4.3 million in the first six months of 2021.
  • Net income attributable to parent company’s common shareholders was $9.4 million, compared to net income attributable to parent company’s common shareholders of $6.4 million in the first six months of 2021; diluted earnings per share attributable to parent company’s common shareholders was $0.30, compared to diluted earnings per share attributable to parent company’s common shareholders of $0.21 in the first six months of 2021.
  • Net cash provided by operating activities was $14.5 million in the first six months of 2022.
  • Cash and cash equivalents, and pledged cash were $143.8 million as of June 30, 2022.

Mr. Qizhou Wu, Chief Executive Officer of CAAS, commented, “Our second quarter 2022 sales grew a modest 5.5% as the Chinese economy slowed with GDP growth of 0.4% in the second quarter of 2022 and 2.5% for the first half of 2022.  However, most of our divisions reported higher sales except for our commercial vehicle business which was hindered by weak industry demand. Most encouragingly, net sales of our advanced electric power steering (“EPS”) grew by 39.7% and our sales into the North and South American markets also increased in the second quarter of 2022.”

“According to statistics from the China Association of Automobile Manufacturers, overall automobile sales in China declined by 13.3% in the second quarter of 2022 with passenger vehicles sales declining by 2.2% and commercial vehicle sales down by 50.1% in the second quarter of 2022.  For the six months ended June 30, 2022, overall car sales declined by 6.6% as passenger vehicle sales grew 3.4% and commercial vehicle sales decreased by 41.2%.”

“During the second quarter of 2022, we increased our investment in research and development by 33.9% mainly to improve and expand our EPS products portfolio. We also reduced spending in selling, and general and administrative expenses in the second quarter of 2022.”

Mr. Jie Li, Chief Financial Officer of CAAS, commented, “We maintained a strong balance sheet with cash and cash equivalents plus pledged cash of $143.8 million and working capital of $150.1 million at June 30, 2022. In the second quarter of 2022, we generated cash flow from operations of $14.5 million, and we also announced a share repurchase program of up to $5.0 million of our outstanding common shares periodically over the next 12 months. We believe that we are turning the corner and cautiously optimistic about the second half of year.”

Second Quarter of 2022

Net sales increased by 5.5% to $127.2 million in the second quarter of 2022, compared to $120.6 million in the second quarter of 2021.  Net sales of traditional steering products and parts decreased by 2.6% to $94.8 million for the second quarter of 2022, compared to $97.4 million for the same period in 2021.  Net sales of electric power steering (“EPS”) products rose 39.7% to $32.4 million from $23.2 million for the same period in 2021.  EPS product sales were 25.5% of the total net sales for the second quarter of 2022, compared with 19.2% for the same period in 2021.  Export net sales to North American customers rose by 20.1% to $38.3 million in the second quarter of 2022 compared with $31.9 million in the second quarter of 2021.

Gross profit rose by 43.7% to $22.7 million compared to $15.8 million in the second quarter of 2021. Gross margin in the second quarter of 2022 was 17.9% compared with 13.1% in the second quarter of 2021. The increase in gross margin was mainly due to the changes in the product mix and an increase in selling price.

Gain on other sales was $2.1 million, compared to $0.7 million in the second quarter of 2021.

Selling expenses decreased by 8.5% to $4.1 million compared to $4.4 million in the second quarter of 2021, which was primarily due to lower transportation expenses.  Selling expenses represented 3.2% of net sales in the second quarter of 2022 compared to 3.6% in the second quarter of 2021.

General and administrative expenses (“G&A expenses”) decreased by 6.6% to $5.7 million compared to $6.1 million in the second quarter of 2021, which was primarily due to lower office expenses and professional service fees. G&A expenses represented 4.5% of net sales in the second quarter of 2022 compared to 5.1% of net sales in the second quarter of 2021.

Research and development expenses (“R&D expenses”) increased by 33.9% to $7.9 million compared to $5.9 million in the second quarter of 2021.  R&D expenses represented 6.2% of net sales in the second quarter of 2022 compared to 4.9% in the second quarter of 2021.

Other income, net was $2.8 million for the second quarter of 2022, compared to $1.5 million for the three months ended June 30, 2021.

Income from operations was $7.2 million in the second quarter of 2022, compared to income from operations of $0.1 million in the second quarter of 2021. The increase was primarily due to higher sales and gross profits and cost controls.

Interest expense was $0.4 million in the second quarter of 2022, substantially consistent with $0.3 million in the second quarter of 2021.

Net financial income was $2.5 million in the second quarter of 2022, compared to net financial income of $0.2 million in the second quarter of 2021.  The change in net financial income was primarily due to a higher foreign exchange benefit in the second quarter of 2022.

Income before income tax expenses and equity in earnings of affiliated companies was $12.2 million in the second quarter of 2022, compared to income before income tax expenses and equity in earnings of affiliated companies of $1.5 million in the second quarter of 2021.

Net income attributable to parent company’s common shareholders was $9.4 million in the second quarter of 2022, compared to net income attributable to parent company’s common shareholders of $3.2 million in the second quarter of 2021.  Diluted earnings per share was $0.31 in the second quarter of 2022, compared to $0.10 per share in the second quarter of 2021.

The weighted average number of diluted common shares outstanding was 30,849,009 in the second quarter of 2022 compared to 30,855,406 in the second quarter of 2021.

First Six Months of 2022

Net sales increased 5.1% to $263.6 million in the first six months of 2022 compared to $250.9 million in the first six months of 2021. Six-month gross profit was $37.4 million, compared to $35.6 million in the corresponding period last year. Six-month gross margin was 14.2%, which is consistent with 14.2% in the first six months of 2021.  The gain on other sales was $3.0 million in the first six months of 2022, compared to $2.0 million in the corresponding period last year.  Income from operations was $5.7 million in the first six months of 2022, compared with income from operations of $4.3 million in the first six months of 2021.

Net income attributable to parent company’s common shareholders was $9.4 million in the first six months of 2022, compared to net income attributable to parent company’s common shareholders of $6.4 million in the corresponding period in 2021.  Diluted earnings per share was $0.30 in the first six months of 2022, compared to diluted earnings per share of $0.21 in the first six months of 2021.

Balance Sheet

As of June 30, 2022, total cash and cash equivalents, and pledged cash were $143.8 million, total accounts receivable including notes receivable were $203.5 million, accounts payable including notes payable were $210.7 million and short-term loans were $47.6 million. Total parent company stockholders’ equity was $313.6 million as of June 30, 2022, compared to $321.0 million as of December 31, 2021.

Business Outlook

Management has increased its revenue guidance for the full year 2022 to $500.0 million. This target is based on the Company’s current views on operating and market conditions, which are subject to change.

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