Hong-Kong-based China Precision Steel (Nasdaq: CPSL) is a niche precision steel processing company engaged in the production and sale of high precision cold-rolled steel products and other specialty services. The company today announced its fiscal 2009 first-quarter results for the period ended September 30, 2008, noting that despite a tight economic environment the company is securing business with competitive pricing.
Revenues for the first quarter of fiscal 2009 were $25.4 million, down 6.8 percent from $27.2 million for the same quarter of 2008. The company attributes the slide to a decline in high-carbon, cold-rolled coils and reduced orders from auto components customers.
“Despite the global economic slowdown which resulted in reduced demand from manufacturers for auto components, we remain optimistic about our market position,” Dr. Wo Hing Li, China Precision Steel’s chairman and CEO stated in the press release. “We believe that our competitive pricing and service is attracting manufacturers who are looking to reduce production costs. We continue negotiating new contacts with manufacturers who are switching from higher cost imports. However, the lead time for developing new customers’ products can range from six months to over a year, depending on the complexity of the products.”
Gross profit in the first quarter was $4.0 million, down 43 percent from $6.9 million reported in the same quarter of fiscal 2008. To compensate for the decline in steel prices experienced during the quarter, China Precision took measures to reduce inventory through direct sales of raw materials.
China Precision reported net income for the first quarter of fiscal 2009 was $2.9 million, down 51 percent from $5.8 million in the prior year period.
According to the press release, as of September 30, 2008, China Precision had $10.3 million in cash and cash equivalents, no long term debt, total liabilities of $44.3 million and working capital of $59.7 million. Shareholders’ equity was $123.5 million, compared to $120.3 million as of June 30, 2008.
China Precision is looking forward to the construction of its third mill scheduled for November 2008. The company expects to inject a $5.5 million investment to complete the mill, which is set to commence production in the fourth quarter of fiscal 2009. Management anticipates that the mill will boost production capacity by 33 percent and allow the company to expand its product line offerings and generate company growth.
“Precision steel products are used in many consumer end markets making our industry a leading indicator for the economy. As such, our industry is the first to experience the impact of consumers’ purchasing slowdown and will be the first to benefit from the rebound in consumer products,” Dr. Li stated. “We believe we are appropriately positioned for these challenging economic conditions with a solid competitive position. By leveraging on our high technology in steel processing in China as well as relatively low raw material price in China compared to the rest of the world, we are confident to obtain an increasing number of customers switching from higher cost imports, expanding our customer portfolio and diversifying our revenue stream.”
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