Lentuo International Inc. Reports Third Quarter 2010 Financial Results

Lentuo International Inc. (NYSE: LAS) (“Lentuo” or the “Company”), the largest non-state-owned automobile retailer in Beijing, China as measured by new vehicle sales revenues in 2009, today announced its unaudited financial results for the third quarter of 2010.

Third Quarter 2010 Financial Highlights
  • Revenues in the third quarter of 2010 increased 56.0% year-over-year to RMB945.9 million ($141.4 million).
  • The number of vehicles sold in the third quarter of 2010 increased 29.5% year-over-year to 4,871 units.
  • The average unit price for the third quarter 2010 increased 23% year-over-year to RMB176,000.
  • Net income was RMB45.0 million ($6.7 million), an increase of 2.5% from RMB43.9 million in the comparable period of 2009. Diluted earnings per American depositary share (“ADS”) were RMB1.06 ($0.16). Each ADS represents two ordinary shares of the Company.

Mr. Hetong Guo, Founder and Chairman of Lentuo, commented, “We are pleased with our third quarter financial results and our first quarter reporting as a public company. Our rapid revenue growth in the third quarter of 2010 again demonstrates our unique competitive position. Driven by our strong brand, proven business model, and experienced management team, we are very proud that we have grown to become the #1 non-state-owned dealership group in Beijing. Although new traffic control measures in Beijing may negatively impact certain aspects of Lentuo’s business, they may create new opportunities for us as well. We intend to broaden our portfolio of luxury brands, increase the relative contribution of maintenance services to our total revenues, and leverage our leading brand in the Beijing market, stronger financial position and operational scale to acquire smaller dealerships at attractive prices.”

Ms. Ping Yu, Chief Financial Officer of Lentuo, added, “We are delighted to have delivered record revenues in the third quarter. Despite Beijing’s new quota system for new licenses, we remain optimistic about the automobile market potential in Beijing. According to the Provisional Regulations, the quota for new vehicle license plates for 2011 is 240,000. In addition, purchasers of automobiles to replace old vehicles may continue to use the previous license plates and are not subject to the quota. Recent statistics indicate that the number of new vehicles purchased to replace old automobiles, or upgrades, has been approximately 250,000 to 300,000 per year in recent years in Beijing. Therefore, assuming this trend of upgrading continues, and taking into account the 240,000 new licenses to be granted, we believe it is reasonable to estimate the total number of new vehicle purchases in Beijing in 2011 to range from 490,000 to 540,000 units. This range would be similar to the 2009 sales level of 520,000 units, and considerably higher than the 2008 level of 350,000 units. We believe Lentuo is well-positioned to execute on our expansion plans, deliver sustainable financial results and create more value for our shareholders.”

Third Quarter 2010 Financial Performance

Revenues in the third quarter 2010 increased by 56.0% to RMB945.9 million ($141.4 million) from RMB606.3 million in the same period of 2009. The revenue growth was driven by the increased sales volume of new vehicles and increased average unit price, as well as the increased volume of automobile repair and maintenance services.

For the third quarter 2010, we sold 4,871 vehicles, representing a 29.5% increase from 3,761 in the same period of 2009. The average unit price for the third quarter 2010 was RMB176,000, a 23% increase from RMB143,000 in the same period of 2009. In addition, we serviced approximately 32,210 vehicles at our dealerships in the three months ended September 30, 2010, representing a 15.4% increase over the third quarter of 2009. The growth was primarily driven by the increased market demand and our enhanced sales efforts, consistent with the trend in recent quarters.

Cost of goods sold increased by 64.6% to RMB851.8 million ($127.3 million) in the third quarter of 2010 from RMB517.4 million in the same quarter of 2009, primarily as a result of increased sales of new vehicles, as well as automobile repair and maintenance services. As a percentage of revenues, cost of goods sold increased to 90.1% in the third quarter of 2010 from 85.3% in the third quarter of 2009.

Gross profit increased by 5.8% to RMB94.1 million ($14.1 million) from RMB88.9 million for the third quarter of 2009. The increase in gross profit was primarily due to the increase in revenues both from new vehicles sales and automobile repair and maintenance services.

Gross margin for the third quarter of 2010 decreased to 9.9% from 14.7% for the third quarter of 2009 for a number of reasons. Firstly, new vehicle sales as a portion of total revenues increased in the third quarter of 2010 to 90.9% from 89.2% in the same period of 2009. Secondly, gross margin of automobile repair and maintenance services decreased in the third quarter of 2010 to 54.6% from 65.1% in the same period of 2009 due to discounts on repair and maintenance we offered to existing customers.

Selling, marketing and distribution expenses increased by 4.1% to RMB10.2 million ($1.5 million) in the third quarter of 2010 from RMB9.8 million in the same quarter of 2009, primarily as a result of the increased performance-related bonuses paid to our salespersons in line with our increased revenues. As a percentage of our revenues, selling, marketing and distribution expenses decreased to 1.1% in the third quarter of 2010 from 1.6% in the third quarter of 2009.

General and administrative expenses decreased by 5.9% to RMB8.4 million ($1.3 million) in the third quarter of 2010 from RMB8.9 million in the same quarter of 2009, primarily due to our stricter expense controls. As a percentage of our revenues, general and administrative expenses decreased to 0.9% in the third quarter of 2010 from 1.5% in the third quarter of 2009.

Operating Income for the third quarter 2010 increased by 7.4% to RMB75.4 million ($11.3 million) from RMB70.2 million in the same period in 2009.

Operating margin in the third quarter of 2010 was 8.0%, compared to 11.6% in the same quarter of 2009. The decrease of the operating margin was mainly attributable to the decrease in gross margin as well as the increased selling, marketing and distribution expenses discussed above.

Income tax expenses in the third quarter of 2010 were RMB18.0 million ($2.7 million), representing an effective tax rate of 28.5%, increasing from 27.9% in the same period of 2009.

Net income was RMB45.0 million ($6.7 million), an increase of 2.6% from RMB43.9 million in the comparable period of 2009.

Diluted earnings per ADS were RMB1.06 ($0.16) in the third quarter of 2010 compared to RMB1.11 in the third quarter of 2009.

As of September 30, 2010, the Company had cash and cash equivalents of RMB266.9 million ($39.9 million), compared to RMB72.1 million as of December 31, 2009. Net cash provided by operating activities was RMB165.3 million ($24.7 million) in the nine months ended September 30, 2010, compared to RMB193.1 million in the nine months ended September 30, 2009.

Initial Public Offering

On December 10, 2010, Lentuo’s ADSs began trading on the New York Stock Exchange under the ticker symbol “LAS.” Lentuo issued 6,500,000 ADSs, each representing two ordinary shares, at a price of $8.00 per ADS and received total proceeds of US$52.0 million.

Strategic Adjustments and Financial Outlook

In light of the new regulations in Beijing, the Company has quickly and proactively made some key changes to its expansion strategy for 2011, including (i) adjusting Company’s target of new dealership openings from 6 in Beijing and 4 outside of Beijing, to 3 in Beijing and at least 7 in other cities, (ii) stepping up the proposed pace of merger and acquisition activities in the first quarter of 2011, (iii) continuing to increase the proportion of the contribution of maintenance services to overall revenues and profit, and taking necessary measures to achieve this and (iv) further adjusting the mix of brands sold and models sold to drive more sales of high-end vehicles.

The Company estimates that its revenues for the fourth quarter of 2010 will be approximately RMB1,180 million (US$176 million) to RMB1,220 million (US$182 million), representing a year-over-year growth rate of approximately 81% to 88%.

This guidance is based on the current market conditions and reflects the Company’s current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.

Exchange Rate

This announcement contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the exchange rate of RMB6.6905 to US$1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on September 30, 2010.

About Lentuo International Inc.

Lentuo is the largest non-state-owned automobile retailer in Beijing, China as measured by new vehicle sales revenues in 2009, according to the China Automobile Dealers Association (“CADA”). Lentuo operates six franchise dealerships, ten automobile showrooms, one automobile repair shop and one car leasing company in Beijing, the largest new passenger vehicle market among all cities in China. Three of Lentuo’s six dealerships are among the leading dealerships in China for their respective brands, as measured by the volume of new vehicle sales by individual dealership.

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” “target,” “going forward,” “outlook” and similar statements. Such statements are based upon management’s current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the Company’s control, which may cause the Company’s actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the Company’s filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.
   

LENTUO INTERNATIONAL INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
As of December As of September 30,
31, 2009 2010
(in thousands) RMB RMB   US$
ASSETS
 
Current assets:
Cash and cash equivalents 72,082 266,872 39,888
Restricted cash 169,887 334,756 50,035
Accounts receivable (net of allowance for doubtful accounts of nil as of December 31, 2009 and September 30, 2010) 15,935 50,103 7,489
Inventories, net 290,298 388,887 58,125
Advances to suppliers 251,632 258,555 38,644
Prepaid expenses and other current assets 17,932 36,955 5,524
Amounts due from related parties 308,085 54,821 8,194
 
Total current assets 1,125,851 1,390,949 207,899
 
Non-current assets:
Property and equipment, net 267,696 221,189 33,060
Land use rights, net 9,142 5,842 874
Deferred initial public offering costs 3,635 10,104 1,510
Deferred tax assets 465 464 69
 
Total non-current assets 280,938 237,599 35,513
 
TOTAL ASSETS 1,406,789 1,628,548 243,412
 
As of December As of September 30,
31, 2009 2010
RMB RMB US$
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable 8,052 7,582 1,133
Bills payable 409,584 593,141 88,654
Advances from customers 25,821 36,702 5,486
Deposits from third parties 162,114 78,999 11,808
Accrued expenses and other current liabilities 92,553 135,556 20,261
Amounts due to related parties 1,229 - -
Unrecognized tax benefits 49,525 4,963 742
Taxes payable 50,082 126,148 18,854
Short-term loans 325,460 251,537 37,596
 
Total current liabilities 1,124,420 1,234,628 184,534
 
Total liabilities 1,124,420 1,234,628 184,534
 
Commitments and Contingencies
 
Shareholders’ equity:
Ordinary shares, par value US$0.00001 per share
Authorized – 500,000,000 shares as of December 31, 2009 and September 30, 2010 1 1 -
Issued and outstanding – 39,908,389 shares as of December 31, 2009 and 45,937,912 as of September 30, 2010
Additional paid-in capital 53,973 176,200 26,336
Retained earnings 228,395 217,719 32,542
 
Total shareholders’ equity 282,369 393,920 58,878
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 1,406,789 1,628,548 243,412
 
 

LENTUO INTERNATIONAL INC

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three months ended September 30
2009   2010
RMB RMB   US$
(in thousands)
Revenues:
Sales of automobiles 540,672 859,381 128,448
Automobile repair and maintenance services 64,685 82,051 12,264
Other services 980 4,418 660
606,337 945,850 141,372
 
 
Cost of goods sold: (494,735) (814,088) (121,678)
Sales of automobiles (22,606) (37,237) (5,566)
Automobile repair and maintenance services (60) (466) (70)
Other services - - -
(517,401) (851,791) (127,314)
 
Gross profit 88,936 94,059 14,058
 
Operating expenses:
Selling, marketing and distribution expenses (9,767) (10,230) (1,529)
General and administrative expenses (8,921) (8,445) (1,262)
 
Total operating expenses (18,688) (18,675) (2,791)
 
Operating income 70,248 75,384 11,267
 
Interest income 86 158 24
Interest expenses (9,224) (12,321) (1,842)
Exchange loss - 49 7
Other income (expenses), net (279) (300) (45)
 
Income before income tax expenses 60,831 62,970 9,411
Income tax expenses (17,026) (17,955) (2,684)
 
Income from continuing operations 43,805 45,015 6,727
Income from discontinued operations, net of tax 72 - -
 
Net income attributable to ordinary shareholders and comprehensive income 43,877 45,015 6,727
 
Earnings per share:
From continuing operations 1.10 1.06 0.16
From discontinued operations 0.01 - -
 
Basic and diluted earnings per share 1.11 1.06 0.16
 
Weighted average ordinary shares outstanding:
Basic and diluted 39,908,389 42,595,459 42,595,459
 

Copyright Business Wire 2010

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