Transcript SORL

SORL Auto Parts, Inc.
NASDAQ: SORL
Investor Presentation
Roth Capital OC conference
Feb 2007
Safe Harbor Statement
This presentation contains "forward-looking statements" within the meaning
of the “safe-harbor” provisions of the Private Securities Litigation Reform Act
of 1995. Such statements involve known and unknown risks, uncertainties
and other factors that could cause the actual results of the Company to differ
materially from the results expressed or implied by such statements,
including changes from anticipated levels of sales, future national or regional
economic and competitive conditions, changes in relationships with
customers, access to capital, difficulties in developing and marketing new
products, marketing existing products, customer acceptance of existing and
new products, and other factors. Accordingly, although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, there can be no assurance that such expectations will prove to
be correct. The Company has no obligation to update the forward-looking
information contained in this presentation.
Corporate Profile
Leading manufacturer of commercial vehicle air brake valves in
China
• Spin-off from Ruili Group which was established in 1987
• Revenue: $47M in ‘04; $64M in ‘05; $79M LTM ending Sept ‘06.
Strong export: $12M in ‘04, $23M in ’05, $31M LTM in Sept ‘06
• Based in Wenzhou City, Zhejiang Province
– the “Hub of auto parts” in China
• 1295 employees
Production
• 15 Production lines in 270,000 square
feet of production space
• State-of-the-art testing facilities
• Advanced equipment from US, Korea
and Taiwan
• ISO/TS16949 Quality Management
System, OHSAS18001 System, and
ISO14001 Environmental Management
System
Major Products
Parking Brake
Valves
• 40 categories of air brake
valves in 800 specifications
mainly for heavy vehicles
• All products export-ready and
global systems certified
Foot Brake
Valves
Clutch Servos
• Aggressive focus on new
product R&D in cooperation
with leading automotive
engineering institutes
• State-of-the-art testing and
production facilities with
advanced equipment from
US, Korea and Taiwan
Research & Development
• 4 patents, 8 pending patent applications, other proprietary
technologies
• 44 technical staff, including 32 engineers or senior engineers
• Partnerships with leading automotive engineering institutes:
–
–
–
–
Beijing Jiaotong University
Tsinghua University E-Tech Technology Co., Ltd
Zhejiang University
Huazhong University of Science and Technology
Spring Brake
Chambers
Four-circuit
Protection Valves
Air Dryers
Balanced Revenue Sources
2005 Export Revenues Breakdown
OEM
32%
Replacement
32%
Asia
42%
Americas
25%
Export
36%
Australia
3%
Europe
15%
Africa
15%
2005 Rev OEM $21M :: Aftermarket Replacement $20M :: Export $23M
Strategic Long Term Relationships
Local OEMs dominate the market with 90% share
• Chinese made heavy duty trucks are more durable and less expensive
comparing with imported trucks
• Imports have a poor after market and low maintenance and repair skill at
local garages
Strong relationships with all of the largest manufacturers in China
• OEM – currently has 39 customers in China
• Aftermarket – large, national, well-established distribution network
• International / Exports – growing quickly with Tata, India’s largest
automobile company ($5.5 billion in revenue), as a leading customer in India
Customers: OEM
SORL is the leading supplier to the dominant truck
manufacturers in China
Auto Makers
FAW
Qingdao
FAW Jiefang
Changchun
Dongfeng
Motors
Liuzhou
Special Auto
China Nat’l
Heavy Duty
Truck Group
Heavy Duty
Trucks Output
(unit)
55,970
71,797
14,000
45,000
Market Share
in China
23.7%
30%
5.9%
19%
18%
50%
5%
% Valves
Supplied by
SORL
40%
22%
Two largest customers, FAW and Dongfeng, accounted for 54% of the
Chinese total heavy duty truck sales in 2005
FAW Qingdao and FAW Jiefang Changchun are the only two heavy truck makers within FAW family
Customers: OEM
SORL’s customers continue to dominate
TOP 10 heavy truck maker (‘000 units)
Rank
Group
Heavy truck
1
DaimlerChrysler
244
2
Volvo Group
170
3
Paccar
125
4
IVECO Group
76
5
Dongfeng Motor
68
6
Navistar
62
7
FAW Group
56
8
MAN Group
54
9
Scania
53
10
Tata Group
50
Source: JD Power 2005 , UBS equity research, CAICA
Big 5 takes 84% China Market
Customers: Aftermarket
• $12.2mm in revenue in ’04 to
$20.2mm in ’05
• 26% of revenue in 2004 to
32% of revenue in 2005
• 27 authorized distributors
and over 800 sub-distributors
Customers: Aftermarket
Success factors to win in the intensified
aftermarket competition
Established
Nationwide
Sales
Network
Close
Relationship
with Big OEM
Manufacturers
PerformanceCost
Competitiveness
Warranty
and
Reliability
Timely
Delivery
Efficient
Customer
Services
Other Small
Manufacturers
No
No
Low
Low
Poor
Poor
SORL Auto
Parts
Yes
Yes
High
High
Good
Good
Customers: International
• $12.6M in revenue
in ’04 to $23.4M in ’05
• 27% of revenue in 2004
to 36% of revenue in
2005
• Mostly replacement but
beginning to explore
OEM opportunities
(TATA Motors)
• 3 authorized sales
centers (Australia, UAE,
and USA)
Customers: International
Top 7 export customers continue to show
confidence in SORL product quality
4,500,000
2004
2005
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
GD Auto
MICO
FP
MITA
POLMO
Air-Fren
KTC
Country:
UAE
South Africa
Canada
Taiwan
South Africa
Spain
USA
YoY
Increase:
92%
77%
93%
385%
140%
165%
10%
Significant Growth Opportunity
Chinese Auto Parts Export
• China’s worldwide auto parts sales totaled $55 billion in 2004 and are
expected to reach $187.5 billion by 2010, with exports from China expected to
grow at an annual growth rate of 50%
Truck market: Infrastructure and regulation in favor of continuous growth
• Truck prices are less sensitive than passenger vehicles and hence depend
more on macroeconomic changes such as environmental and public policy
• Domestic brands have over 50% price advantage over imported heavy trucks
• Highway expansion increased by 38% during 2006-2010 The Ministry of
Construction plans to complete its massive network of arterial national
highways by 2008 prior to Beijing Olympics
• Trucks’ increasing role in solving logistic bottleneck in China
• Jan-Oct 06, China exported 128,000 trucks, $788M, 50% YoY rev growth;
China exported 21,800 buses, $427M, 150% YoY rev growth
Source: Citigroup Equity Research, CAAM, Frost & Sullivan Research - Sept 05, Feb, 06, Credit Suisse Research, Jan 06, mgmt estimate
Attractive Export Opportunity
China Auto Parts Annual Exports & Imports
$15.0
China commercial vehicle Annual Exports
‘05 Export Markets by Revenue
USD Billion
Imports
Exports
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
$10.0
$5.0
Syria
Algeria
Belgium
Iran
Sudan
Russia
Vietnam
Kazakhstan
Ukraine
Saudi Arabia
Cuba
$0.0
2000
•
•
•
•
2001
2002
2003
2004
2005
The current global market for commercial vehicle air brake valves is over $5 billion
Growth of aftermarket air brake valves market is approximately 15%
Global purchasing trend is moving to China
SORL’s exports in 2006 were 40% of total revenue (as of September 30), 36% in 2005,
27% in 2004, and 18% in 2003
Source: China Automotive Industry Information Network, Asimco Technologies, CAAM, Wall Street Journal August 2006
Growth Strategy
OEM:
• Enhance brand recognition and develop relationships with other truck
manufacturers
Export:
• Strengthen presence overseas by establishing relationships with additional
authorized distributors
• Penetrate the aftermarket segment to gain name and quality recognition and
then enter the International OEM market
M&A and JV:
• Over 1,400 auto parts companies located in the Wenzhou area can become
potential M&A targets or JV partners
R&D:
• Invest in next generation valve technology
• Continue partnerships with leading automotive engineering institutes
Cost Control:
• Reduce material and energy consumption; strict waste measurement
• Maintain high standard quality control
Significant Revenue and Profit Growth
Revenue
Net Income
($millions)
($millions)
64.2
5.0
4.8
46.8
33.1
1.2
2003
2004
2005
2003
• 39% CAGR of sales during 2003-2005
• 107% CAGR of net income during 2003-2005
2004
2005
Significant Revenue and Profit Growth
Revenue
Net Income / EPS
($millions)
($millions and dollar)
79.2
6.4
5.7
60.8
4.4
45.8
0.47
9 month ‘05
9 month ‘06
* Ended September 30, 2006.
LTM*
0.33
0.43
9 month ‘05
9 month ‘06
LTM*
Strong Balance Sheet
(US$, in thousands)
Sept 30, 2006
Dec 31, 2005
Cash
$ 1,191
$
Receivables
$31,741
$26,828
Inventories
$ 2,298
$ 2,513
Total Assets
$46,702
$39,301
Total Debt
$10,874
$16,027
Total Current Liabilities
$21,688
$21,580
Minority Interest
$ 2,419
$ 1,736
Stockholders’ Equity
$22,614
$15,984
961
• December 1st 2006, SORL completed a follow-on public offering and raised $32.7M.
Management Team
Xiaoping Zhang, Chairman and CEO
Xiaofeng Zhang, COO
• Co-founder of Ruili Group
• Co-founder of Ruili Group –
General Manager
• President of the Ruian Auto Parts
Association in Wenzhou, Zhejiang
Province
• Vice President of China Federation
of Industry and Commerce Auto &
Motorbike Parts Chamber of
Commerce
Zongyun Zhou, CFO
• Certified Public Accountant in China
• Chief Financial Officer of Shanghai
Huhao Auto Parts Manufacturing
Company Limited, a joint venture
between the Ruili Group and
Shanghai Auto Group, 2002 - 2004
• Spearheads SORL’s sales and
marketing effort
David He, Senior Manager of
Investor Relations
• Illinois CPA and awarded CFA
designation
• MBA in Finance and MS in
Accountancy from the University of
Illinois at Urbana-Champaign
• Senior Relationship Manager in
corporate banking with Credit
Agricole Indosuez in Shanghai
Investment Highlights
Market Potential
• China is the world’s 2nd largest auto market and 3rd largest in auto production
• Export potential: Current global market for commercial vehicle air brake valves is
over $5bn
• Opportunities for product line expansion and complementary acquisitions
Industry Leadership
• SORL holds a leading market position in the following products segments in China
–
OEM air brake valve segment
–
Replacement air brake segment
Solid Operating History
• Strong financials: 37% overall revenue increase year over year
• Successful expansion of export sales by 83% from 2004 to 2005 ($12.6mm to
$23.4mm) with high-quality products that meet global ISO certifications
• Sales to top seven international customers grew an average of 92% in 2005
• Strong brand equity – SORL is one of the top 10 most recognized brand names in
the automotive parts industry in China
Source: CAAM, Management estimate
SORL Auto Parts, Inc.
NASDAQ: SORL
David Ming He
Senior Manager, Capital Market
Phone:
+86 (577) 6581 7720
Fax:
+86 (577) 6581 7733
Email:
[email protected]
Web:
www.sorl.cn