Boyuan reports FY 2010 third quarter financial results

TORONTO, May 28 /CNW/ - Boyuan Construction Group, Inc., (TSX-V: BOY & BOY.DB) a fast-growing construction company in China of commercial, residential and municipal infrastructure projects, reported today its financial results for the three and nine-month periods ended March 31, 2010. All figures are in U.S. dollars unless otherwise stated.

    
    Selected Third Quarter Financial Highlights
    -------------------------------------------------------------------------
    In thousands except share and % data       Q3 2010    Q3 2009     Change
    -------------------------------------------------------------------------
    Revenue                                   $ 31,048   $ 15,939     +94.8%
    -------------------------------------------------------------------------
    Gross profit                              $  5,159   $  2,319    +122.4%
    -------------------------------------------------------------------------
    Gross profit margin                          16.6%      14.6%
    -------------------------------------------------------------------------
    Net income                                $  2,156   $  1,160       +86%
    -------------------------------------------------------------------------
    Earnings per share - diluted              $   0.09   $   0.05       +80%
    -------------------------------------------------------------------------
    

"We realized significant gains across each of our primary financial targets even though the third quarter is generally our weakest due to seasonal factors and work stoppages relating to the Chinese New Year holiday period," said Mr. Cai Liang Shou, Chairman of Boyuan Construction Group. "In particular, we increased our gross margins above historical norms to 16.6%, grew our after-tax net income by more than 85% to $2.2 million and signed new agreements worth $76.6 million, our largest total to date for a quarter and further validating our decision to expand into neighbouring markets in Shandong."

    
    Q3 Business and Operational Highlights

    -   Awarded a 16-storey commercial construction project in Shandong
        valued at $19 million.
    -   Signed a $17.5 million agreement to construct a 20-storey, five-star
        hotel on Hainan Island.
    -   Awarded a 200,000 square meter commercial building project in
        Shandong province valued at $22 million.
    -   Signed an $18.1 million agreement to construct a 32-storey
        residential project in Shandong province.
    -   Year-to-date revenue totalled $103.7 million, surpassing the 12-month
        total of $101.7 million for FY2009.

    Highlights Subsequent to Quarter End

    -   Awarded a 50,000 square meter residential project in Zhejiang
        province valued at $6.9 million.
    -   Signed a $23.3 million agreement to construct a 35-storey commercial
        project, Boyuan's tallest to date, in Shandong province.
    -   Initiated construction of two, separate mixed development projects on
        Hainan Island valued at $14.6 million
    -   Received conditional approval to graduate to the Toronto Stock
        Exchange (TSX).

    Selected 9-Month Financial Highlights
    -------------------------------------------------------------------------
    In thousands except share and % data       9-Month    9-Month
                                                  2010       2009     Change
    -------------------------------------------------------------------------
    Revenue                                   $103,663   $ 60,598     +71.1%
    -------------------------------------------------------------------------
    Gross profit                              $ 17,550   $  8,533    +105.7%
    -------------------------------------------------------------------------
    Gross profit margin                          16.9%      14.1%
    -------------------------------------------------------------------------
    Net income                                $  5,463   $  5,578      -2.1%
    -------------------------------------------------------------------------
    Adjusted net income(1)                    $  8,706   $  5,578       +56%
    -------------------------------------------------------------------------
    Earnings per share - diluted              $   0.24   $   0.22        +9%
    -------------------------------------------------------------------------
    Adjusted Earnings per share - diluted(2)  $   0.35   $   0.22       +59%
    -------------------------------------------------------------------------

    ---------------------------------
    (1) 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.

    (2) 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 Financial Results

Revenue for the third quarter ended March 31, 2009 was $31 million, up 94.8% from $15.9 million for Q3 of FY2009. Revenue for the first nine months of FY2010 was $103.7 million, compared to $60.6 million for the same period in FY2009.

Boyuan recognizes revenue on the percentage-of-completion method, measured by the ratio of costs incurred up to a given date to estimated total costs for each contract. The significant year-over-year growth in revenue was primarily attributable to an increase in the number of successful project bids with higher contract value by the Company as well as to an increase in demand for construction and engineering services in the Yangtze River Delta region and Hainan Island, Boyuan's core markets. Growth was also due to the Company's decision to expand into Shandong province.

Higher demand for construction and engineering services is due to ongoing urban migration and an expansion of China's middle class, which drive the need for new housing, commercial and public infrastructure projects.

Cost of construction for the third quarter of FY2010 was $25.9 million compared to $13.6 million for Q3 of FY2009. Cost of construction for the first nine months of FY 2010 was $86.1 million, up from $52.1 million for the comparable period in FY2009. The increase was primarily as a result of higher expenses associated with greater project volume and an expanded work force. Cost of sales includes all direct material, labor, subcontract and other related costs, such as equipment repairs.

Gross profit for the third quarter of FY2010 was $5.2 million, or 16.6% of revenue, compared to $2.3 million, or 14.6% of revenue, for the same period of FY2009. Gross profit for the first nine months of FY2010 was $17.5 million, or 16.9% of revenue, compared to $8.5 million, or 14.1% of revenue, for the same period of FY2009. The year-over-year improvement in gross profit margins in Q3 by 200 basis points was due to a higher percentage of revenue contributed from higher margin projects, particularly in Hainan Island, where the Company experiences strong demand for its services but faces limited competition, and a slightly lower than average gross margin in Q3 FY2009. Historically, the norm for the Company's gross margins is 15%.

After-tax net income for the third quarter of FY2010 was $2.2 million, or $0.09 per fully diluted share, compared to net income of $1.2 million, or $0.05 per fully diluted share, for Q3 of FY2009.

After-tax net income for the nine-month period was $5.5 million, down 2.1% from $5.6 million for the same period of FY2009. The decline is attributable to a non-cash stock-based compensation charge of $3.2 million that the Company incurred in the first quarter of FY2010. As previously reported, the charge related to the fair value transfer of shares under the make good provision of a financing agreement signed in July 2009. The charge is in full compliance with Canadian generally accepted accounting principles.

Excluding the make-good provision charge, adjusted net income for the nine-month period ended March 31, 2010 was $8.7 million, or $0.35 per share diluted, which compares to $5.6 million, or $0.22 per share diluted, for the same period in FY2009. The Company believes that adjusted net income is more representative of its profitability and performance since the make good charge is a non-cash accounting charge and not related to its business activities.

The Company had working capital of $38.2 million, including cash, restricted cash and cash equivalents of $6.1 million for the period ended March 31, 2010. This compares to $22.4 million and $5.5 million, respectively, at June 30, 2009.

Outlook

"We are very encouraged by our short-term prospects and believe that we are well on track to realize our after-tax net income target of $12.4 million for FY 2010 given our backlog and the number of projects currently under way," added Mr. Shou. "Over the longer term horizon, we believe that our focus on Hainan Island and our recent decision to expand into Shandong provides tremendous opportunities for sustained growth, particularly as demand for quality construction and engineering services in these markets remains high and the competitive landscape continues to be fragmented."

Boyuan's consolidated statements for the three and nine-month periods ended March 31, 2010 and related management's discussion and analysis (MD&A) will be filed with securities regulatory authorities within applicable timelines and will be available via SEDAR at www.sedar.com.

About Boyuan Construction Group, Inc.

Based in Jiaxing City, China, Boyuan Construction Group, Inc. is in the business of residential and commercial building construction, municipal infrastructure and engineering projects. In its last four fiscal years ending June 30, 2009, Boyuan completed more than 125 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 GE. Boyuan's current backlog includes residential, industrial and mixed-use developments, including a five-star hotel and a project at the Qingshan Nuclear Plant, China's first and largest nuclear facility. 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. All information other than statements of historical fact may be forward-looking information. Forward-looking information is often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar words or phrases (including negative variations) suggesting future outcomes or statements regarding an outlook. Forward-looking information contained in this press release includes, but is not limited to, the Company's outlook on higher demand for construction and engineering services in China, China's ongoing urban migration and expansion of middle class, need for new housing, commercial and public projects in China, strong economic indicators in China, optimism on Chinese construction industry over the short term, and impact of economic trends (such as rising property value) on tier-two Chinese cities. 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 include, but are not limited to: risk of macro-economy cycle, risk from competition, risk from insufficient marketing to secure new projects, risk in obtaining additional financing, risk involving permits and licences, reliance on key management member, risk from supply of raw materials, risk of financial leverage, risk of bad debts in accounts receivables, risk involved in real estate development, foreign exchange fluctuations, political and economic conditions in China and other risks included in the Company's AIF for the fiscal year ended June 30, 2009 and in the Company's 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 are 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.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

    
    Boyuan Construction Group, Inc.
    Consolidated Balance Sheets
    (Expressed in US Dollars)

                                                     (Unaudited)    (Audited)

                                                       March 31,     June 30,
                                                           2010         2009
                                                              $            $

    Current Assets
      Cash and cash equivalents                       4,290,223    2,365,738
      Restricted cash                                 1,805,123    3,101,189
      Accounts receivable                             1,512,641    4,447,059
      Unbilled revenue                               47,284,891   35,528,915
      Other receivables                               8,715,421    2,216,873
      Inventory                                           1,967      658,150
      Advances to suppliers and prepaid expenses     14,705,932    2,971,020
    -------------------------------------------------------------------------
                                                     78,316,198   51,288,944

    Deferred transaction costs                          209,763       55,222
    Due from related parties                                  -      113,010
    Property and equipment                            6,947,936    5,946,748
    Land use rights                                     117,746      112,243
    -------------------------------------------------------------------------
                                                     85,591,643   57,516,167
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Current Liabilities
      Bank loans                                     19,119,088   12,926,776
      Accounts payable and accrued liabilities       15,218,596   12,842,823
      Income taxes payable                            4,993,128    1,318,874
      Deferred revenue                                  135,370    1,454,145
      Automobile loans                                   82,823      118,292
      Due to related parties                            386,843       22,839
      Future income tax                                 148,569      202,000
    -------------------------------------------------------------------------
                                                     40,084,417   28,885,749

    Future income tax                                   719,214      573,000
    Convertible debentures                            6,213,251    1,880,200
    -------------------------------------------------------------------------
                                                     47,016,882   31,338,949
    -------------------------------------------------------------------------

    Shareholders' Equity
      Share capital                                   7,372,376    6,139,860
      Contributed surplus                             7,345,221    1,890,711
      Reserve                                         2,760,648    1,928,732
      Equity component of convertible debentures        372,533      137,295
    -------------------------------------------------------------------------

                                                     17,850,778   10,096,598
    -------------------------------------------------------------------------

      Retained earnings                              18,958,365   14,326,995
      Accumulated other comprehensive income          1,765,618    1,753,625
    -------------------------------------------------------------------------

                                                     20,723,983   16,080,620
    -------------------------------------------------------------------------

                                                     38,574,761   26,177,218
    -------------------------------------------------------------------------

                                                     85,591,643   57,516,167
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Boyuan Construction Group, Inc.
    Consolidated Statements of Income and Comprehensive Income
    (Expressed in US Dollars)
    (Unaudited)

                              Three Months Ended        Nine Months Ended
                             March 31,    March 31,    March 31,    March 31,
                                 2010         2009         2010         2009
                                    $            $            $            $

    Construction revenue   31,047,790   15,938,724  103,663,405   60,598,237

    Cost of construction   25,888,544   13,619,467   86,113,559   52,065,027
    -------------------------------------------------------------------------

    Gross profit            5,159,246    2,319,257   17,549,846    8,533,210
    -------------------------------------------------------------------------
    Expenses
      Amortization
       of property and
       equipment              149,460        2,179      438,690      205,777
      General and
       administrative
       expenses             1,135,091      516,636    2,910,749      555,745
    -------------------------------------------------------------------------

                            1,284,551      518,815    3,349,439      761,522
    -------------------------------------------------------------------------

    Income from operations  3,874,695    1,800,442   14,200,407    7,771,688
    -------------------------------------------------------------------------

    Other Income (expense)
      Interest and other
       income                  28,264        1,248      215,042      (14,892)
      Foreign exchange loss   (21,071)           -      (88,569)           -
      Interest expense       (547,253)    (169,068)  (1,684,514)    (247,466)
      Stock-based
       compensation          (101,028)                 (101,028)
      Make good provision           -            -   (3,243,192)           -
    -------------------------------------------------------------------------

                             (641,088)    (167,820)  (4,902,261)    (262,358)
    -------------------------------------------------------------------------

    Net income before
     income taxes           3,233,607    1,632,622    9,298,146    7,509,330

    Income taxes           (1,077,153)    (472,978)  (3,834,860)  (1,931,315)
    -------------------------------------------------------------------------

    Net income for the
     period                 2,156,454    1,159,644    5,463,286    5,578,015

    Other Comprehensive
     Income
      Unrealized gain on
       foreign exchange
       translation             15,950       28,921       11,993       72,837
    -------------------------------------------------------------------------

    Comprehensive income
     for the period         2,172,404    1,188,565    5,475,279    5,650,852
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE Boyuan Construction Group, Inc.

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


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