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China HGS (HGSH) Posts Solid Q2 Performance with 88% Earnings Increase

China HGS Real Estate Inc., a leading residential property developer in China’s southern Shaanxi province, today reported financial results for the fiscal second quarter of its 2011 business year ended March 31, 2011, posting an 88 percent increase in earnings.

Revenue for the second quarter jumped to $26.2 million compared to revenue of $13.9 million reported in the second quarter of 2010.

Gross profit increased 124.5 percent to $12.7 million in the second quarter of 2011 compared to $12.7 million the comparable quarter of 2010.

Gross margin was 48.4 percent compared to 40.6 percent in the same period of 2010.

Net income for the second quarter increased 136.0 percent to $11.8 million, or $0.26 per diluted share, compared to net income of $5.0 million, or $0.11 per diluted share, in the year ago period

As of March 31, 2011, China HGS had $20.6 million in cash and cash equivalents, up from $12.6 million at September 30, 2010. China HGS had working capital of $39.6 million.

Xiaojun Zhu, CEO of China HGS, said solid demand drove the company’s performance for the second quarter, and outlined steps it will take in the future to ensure continued growth.

“Due to the continuing strong demand for new residential real-estate properties in our core Hanzhong market, we have achieved solid operating results in the fiscal second quarter of 2011. Several of our projects, such as the Yangzhou Pearl Garden phase III project, have experienced brisk sales thus far in 2011,” Zhu stated in the press release. “During the previous quarter, our revenue recognition was affected by the delay of government initiatives to launch an online invoicing system, which was ultimately completed and activated in late February 2011. In order to ensure that China HGS will be immune from similar factors, we have modified our internal accounting process to embrace a model that recognizes revenue only when the keys are handed over to the buyer. We believe this modified internal practice will help us to more effectively and accurately report our operating performance in the future.”

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