BOYUAN REPORTS SECOND QUARTER FY2011 RESULTS

- Revenue, gross profit and EBITDA improvements driven by growing construction
demand in core markets -

TORONTO, Feb. 14 /CNW/ - Boyuan Construction Group, Inc., (TSX: BOY & BOY.DB) a fast-growing construction company in China of commercial, residential and municipal infrastructure projects, today reported its financial results for the three- and six-month periods ended December 31, 2010.  All figures are in U.S. dollars unless otherwise stated.

Selected Second Quarter Financial Highlights

In thousands except for share and % data   Q2 FY2011 Q2 FY2010 Change
Revenue $45,464 $37,612 +20.9%
Gross profit $7,592 $6,711 +13.1%
Gross profit margins 16.7% 17.8%  
EBITDA1 $6,662 $5,749 +15.9%
Net income $3,346 $3,513 -4.7%
Earnings per share - diluted $0.14 $0.15 -6.7%
  Dec. 31, 2010 June 30, 2010  
Total Assets $131,880 $93,869 +40.5%
Cash, equivalents,  and restricted cash $17,018 $8,726 +95.0%

_________________________________
1  EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. EBITDA is not a defined performance measure under generally accepted accounting principles (GAAP).

"Our strategy of focusing on construction opportunities in Hainan province and tier two cities in the Yangtze River Delta continues to drive our strong revenue and EBITDA growth," said Mr. Cai Liang Shou, Chairman of Boyuan Construction Group.  "Although our net income for the second quarter was impacted by interest payments due to higher bank facilities and the convertible debentures issued in November 2010, these expenses are directly linked to start-up costs for new projects. Valued at approximately $80 million, these new projects have been initiated since the start of the fiscal year. As they are completed, the positive impact will be reflected in our financial and operational performance in the periods ahead."

Q2 Operational and Financial Highlights

  • Initiated three construction projects with an aggregate value of $34.5 million.  Included are two residential projects in Hainan province valued at $27 million and a commercial project, also in Hainan Province, that is focused on the building of a clubhouse facility valued at $7.5 million for the Volvo Ocean Race.
  • Total new project value for the six-month period was $78.8 million.
  • Issued CDN$15 million convertible unsecured subordinated debentures to support the Company's project backlog.

Highlights Subsequent to Quarter End

  • Initiated a $10.9 million residential project in a planned tourist district in Hainan province.

Selected  6-Month Financial Highlights

In thousands except share and % data      6-Month FY 2011   6-Month FY2010  Change
Revenue $88,508 $72,616 +21.9%
Gross profit $14,645 $12,391 +18.2%
Gross profit margin 16.5% 17.1%  
EBITDA $12,706 $10,615 +19.7%
Net income $6,152 $3,307 +86.0%
Adjusted net income2 $6,152 $6,550 -6.1%
Earnings per share - diluted $0.28 $0.14 +100%
Adjusted Earnings per share - diluted3 $0.28 $0.26 +7.7%

__________________________

2 Adjusted net income is not a recognized measure under Canadian GAAP. It excludes a stock-based compensation charge of $3.2 million related to the fair value transfer of shares under the "make-good provision" of a financing agreement signed in July, 2009. The Company believes that adjusted net income is more representative of its performance as the make good charge is a non-cash accounting charge and not related to its business activities.
3 Adjusted earnings per share is not a recognized measure under Canadian GAAP. It is calculated by dividing the Company's adjusted net income by the number of outstanding shares (diluted).

Review of Second Quarter Financial Results
Revenue for the second quarter ended December 31, 2010 was $45.5 million, up 20.9% from $37.6 million for the corresponding period of FY2010.  Revenue for the first six months of FY2011 was $88.5 million, an increase of 21.9% from $72.6 million for the same period of FY2010.

Boyuan recognizes revenue on the percentage-of-completion method. The significant year-over-year growth was primarily attributable to an increase in the number of successful project bids by the Company as well as to an increase in demand for construction and engineering services in the Yangtze River Delta and Hainan Province, Boyuan's core markets.  The growth was also due to the Company's decision to expand into Shandong Province, an emerging market with growing demand for construction and engineering services.  Higher demand in Boyuan's principal markets is due to ongoing urban migration and the expansion of China's middle class, both of which drive the need for new housing, commercial and public infrastructure projects.

Cost of construction for Q2 FY2011 was $37.9 million, up 22.6% from $30.9 million for Q2 FY2010. Cost of construction for the first six months of FY2011 was $73.9 million, an increase of 22.6% from $60.2 million for the corresponding period of FY2010. The growth was primarily the result of higher expenses associated with greater project volume and an expanded work force, including the start of the Company's largest construction project, a residential development in Hainan province valued at $44.3 million. Cost of construction includes all direct material, labor, subcontract and other related costs, such as equipment repairs.

Gross profit for Q2 FY2011 was $7.6 million, which represented a margin of 16.7% on revenue. Gross profit for the corresponding period of last year was $6.7 million, which represented a margin of 17.8% on revenue. The year-over-year decline in gross margins by 110 basis points was attributable to a higher than average gross profit margin in Q2 FY2010. Historically, Boyuan's gross profit margins have been in the range of 15% to 16%.  On a six month basis, gross profit for FY2011 was $14.6 million, which represented a margin of 16.5% on revenue. In the same period of FY2010, gross profit and gross margins were $12.3 million and 17.1%, respectively.

Interest expense for Q2 FY2011 was $1.2 million, up 103% or $0.6 million over the same period last year. On a year-to-date basis, interest expense for FY2011 was $1.9 million, up from $1.1 million for FY2010. The growth was primarily due to an increase in bank loans and bank notes payable needed to fund start-up costs for new projects. The increase in interest expense was also attributable to the issuance of CDN $15 convertible debentures.  On a year-to-date basis, Boyuan has signed new agreements for construction development projects valued at $78.8 million. Revenue for the projects will be recognized as the projects are completed, typically a duration of up to two years.

The Company also incurred a minimum total return (MTR) charge of $82,374 and $0.7 million, respectively, for the three- and six-month periods ended December 31, 2010.  The Company did not incur any MTR charges in FY2010.  MTR charges were determined based on the provisions of previous financing activities.  Investors of the Company's convertible debentures issued on February 2009 were entitled to a MTR right of 25% per annum on their units. The calculation is based upon the twenty day volume weighted average price of the Company's common shares, less interest paid or payable on the convertible debentures, calculated on the first, second and third anniversary of February 27, 2009 and payable, if triggered, on February 27, 2013.  The MTR expense recorded in Q2 FY2011 was a non-cash accrued expense based on calculations on December 31, 2010.

Net income after taxes for Q2 FY2011 was $3.3 million or $0.14 per share fully diluted.  This compares to a net income after taxes of $3.5 million, or $0.15 per fully diluted share, for the same period of FY2010.  The decline was principally due to higher interest expenses as well as to a stock-based compensation charge of $0.4 million in Q2 FY2011. 

On a six-month basis, net income for FY2011 was $6.2 million or $0.28 per share fully diluted. This compares to a net income of $3.3 million, or $0.14 per share fully diluted, for the same period of FY2010 when the Company incurred a non-cash, stock-based compensation charge of $3.2 million related to the fair value transfer of shares under the make-good provisions of two separate financing agreements signed respectively in March and July of 2009.  As specified by the Company's make-good provisions, Boyuan forecasted an after-tax net income of $11.5 million in March 2009 and $12.4 million in July 2009, respectively, for the fiscal year ending June 30, 2010.  Excluding the stock-base compensation charge, Boyuan had adjusted net income for the six-month period of FY2010 of $6.5 million or $0.26 per fully diluted share.  Adjusted net income is not a recognized measure under GAAP, but is more representative of the Company's operational and financial performance for FY2010.

Boyuan had working capital of $62.3 million, including cash, equivalents, and restricted cash totalling $17.0 million as at December 31, 2010. This compares to $39.9 million and $8.7 million, respectively at June 30, 2010, the Company's fiscal year end.

Outlook
"Demand for our construction and engineering services continues to be very strong in each of our core markets, principally because of the continued growth of China's middle class and the development of tier two cities as a result of urbanization. In Hainan province, in particular, we are very well positioned to leverage our experience and reputation in the region to capitalize on growth opportunities and add to our momentum in the years ahead given the levels of commitment by central and provincial governments to develop Hainan as a major international tourist destination by 2020," said Mr. Shou.

"Over the longer term, our growth will be driven by expanding our reach in tier two cities and increasing our focus on specialty construction projects, which will potentially deliver higher profit margins.  As part of this new strategic direction, we plan to upgrade our qualification and engineering standards to ensure that we can tap into this growing market potential," Mr. Shou added.

Boyuan's consolidated statements for the quarter ended December 31, 2010 and related management's discussion and analysis (MD&A) are available via SEDAR at www.sedar.com and the Company's website, www.boyuangroup.com

Conference call notice
Boyuan will hold a conference call to discuss its FY2011 second quarter financial results on Tuesday, February 15, 2011 at 10:00 am (ET). Mr. Paul Law, Boyuan's Chief Financial Officer, will host the call. All interested parties can join the conference call by dialing 647-427-7450 or 1-888-231-8191.  Please connect approximately 15 minutes prior to the beginning of the call to ensure participation.

A live audio webcast of the conference call will be available from the investor relations section of the Company's website, www.boyuangroup.com, or from www.newswire.ca.  Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast.  The webcast will be archived at the above web site for 30 days.

About Boyuan Construction Group, Inc.
Based in Jiaxing City, China, Boyuan Construction Group, Inc. is in the business of commercial building and residential construction, municipal infrastructure and engineering projects.  In its last three fiscal years ending June 30, 2010, Boyuan completed more than 80 projects for a number of private and public sector clients including Cargill and the Dalian Shide Group, a billion dollar conglomerate whose partners include DuPont, Mitsubishi and General Electric. Boyuan's current project backlog includes residential, commercial, industrial and mixed-use developments.  From its operating bases in Zhejiang Province and on Hainan Island, Boyuan focuses on construction projects in China's fast-growing regions of the Yangtze River Delta, the city of Sanya and Shandong Province. For more information visit www.boyuangroup.com or follow us on Twitter at www.twitter.com/boyuangroup.

Caution Regarding Forward-Looking Information:
Certain information contained in this press release constitutes forward-looking information, which is information relating to future events or the Company's future performance and which is inherently uncertain.  Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information.  The Company believes the expectations reflected in the forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and readers are cautioned not to place undue reliance on forward-looking information contained in this press release.  Some of the risks and other factors which could cause results to differ materially from those expressed in the forward-looking information contained in this press release have been identified in the Company's AIF for the fiscal year ended June 30, 2010 and in the Company's other public disclosure documents filed with certain Canadian securities regulatory authorities and available at www.sedar.com.  The forward-looking information contained in this press release is made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as otherwise required by law.


SOURCE Boyuan Construction Group, Inc.

For further information:

Boyuan Construction Group, Inc.   
Mr. Paul Law, CFO     
+(852) 9329 5088     
paullaw@zjboyuan.com.cn   
          TMX Equicom
Joe Racanelli
(416) 815 0700 ext. 243
 jracanelli@equicomgroup.com


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