China GrenTech Corporation Limited Announces Second Quarter 2009 Results

China GrenTech Corporation Limited Announces Second Quarter 2009 Results

      Total revenue increased by 127.1%; gross profit increased by 70.4%                   Positive Operating income and net income   

SHENZHEN, China, Aug. 13 /PRNewswire-Asia-FirstCall/ -- China GrenTech Corporation Limited (Nasdaq: GRRF, "the Company", or "GrenTech"), a leading China-based radio frequency ("RF") technology and product developer and a leading wireless coverage products and services provider, today announced its unaudited financial results for the second quarter ended June 30, 2009.

   Second Quarter 2009 Financial Highlights   -- Total revenue increased by 127.1% year-over-year to RMB423.2 million      (US$62.0 million)(1)      - Revenue from wireless coverage products and services increased by        116.7% year-over-year to RMB340.4 million (US$49.8 million)      - Revenue from base station RF products increased by 182.9%        year-over-year to RMB82.9 million (US$12.1 million)   -- Gross profit increased by 70.4% year-over-year to RMB105.9 million      (US$15.5 million)   -- Operating income was RMB29.6 million (US$4.3 million), compared to      operating loss of RMB4.9 million in the second quarter 2008   -- Net income attributable to the equity shareholders of GrenTech was      RMB13.3 million (US$2.0 million), compared to net loss attributable to      the equity shareholders of GrenTech of RMB17.0 million in the second      quarter 2008   -- Basic and diluted net income per ADS(2) was RMB0.56 (US$0.08)     (1) The Company's reporting currency is Renminbi ("RMB"). The translation       of amounts from RMB to United States dollars is solely for the       convenience of the reader. RMB numbers included in this press release       have been translated into U.S. dollars at the noon buying rate for U.S.       Dollars in effect on June 30, 2009 in the City of New York for cable       transfers in RMB per U.S. dollar as certified for customs purposes by       the Federal Reserve Bank of New York, which was US$1.00 = RMB6.8302.       No representation is made that RMB amounts could have been, or could       be, converted into U.S. Dollars at that rate or at any other rate on       June 30, 2009.   (2) Each ADS represents 25 of our ordinary shares.   

Mr. Yingjie Gao, Chairman and Chief Executive Officer of GrenTech, commented, "During the past quarter, one of the key drivers of our growth was the strong demand from all three telecommunications operators in China as they need to upgrade their existing wireless coverage systems to simultaneously support both 2G and 3G networks. As a result, our total revenue in the second quarter grew by 127.1% over the same period last year, resulting in the strongest second quarter in our history from a revenue perspective. Revenue from China Unicom was particularly robust as demand was bolstered by the quick pace of the operator's network coverage construction. We believe that with our leading position in the market and our long-term relationship with China Unicom, we have been able to capture this growth opportunity and our revenue from China Unicom increased by 325.6% over the same period last year. I am very pleased that our strategy to drive rapid revenue growth and implement more stringent cost control measures has again successfully delivered a quarter of positive results."

   Second Quarter 2009 Unaudited Financial Results    Revenue  

Revenue for the second quarter 2009 increased by RMB236.9 million (US$34.7 million), or 127.1%, to RMB423.2 million (US$62.0 million) from RMB186.3 million in the second quarter 2008. Revenue from wireless coverage products and services increased year-over-year by RMB183.3 million (US$26.8 million), or 116.7%, to RMB340.4 million (US$49.8 million), primarily due to increased revenue from all three telecommunications operators in China. Revenue from China Unicom increased by RMB130.0 million (US$19.0 million) and revenue from China Mobile and China Telecom increased by RMB15.9 million (US$2.3 million) and RMB48.4 million (US$7.1 million), respectively. At the same time, revenue from base station RF products increased year-over-year by RMB53.6 million (US$7.8 million), or 182.9%, to RMB82.9 million (US$12.1 million), primarily as a result of 3G network construction in China.

                                      Three Months Ended June 30,                               2008                   2009                             Revenue       Revenue   Revenue   % of Total                            (RMB'000)     (RMB'000) (US$'000)   Revenue    Wireless Coverage Products    and Services     China Mobile             94,443       110,329   16,153      26.1%     China Unicom             39,913       169,886   24,873      40.1%     China Telecom             4,601        52,971    7,755      12.5%     China Netcom              3,165            --       --         --     Overseas                  2,253         6,706      982       1.6%     Non-operators            12,672           461       67       0.1%     Subtotal                157,047       340,353   49,830      80.4%   Base Station RF Products     OEMs                     29,294        82,861   12,132      19.6%     Total                   186,341       423,214   61,962     100.0%     Cost of Revenue  

Cost of revenue in the second quarter 2009 increased by RMB193.1 million (US$28.3 million), or 155.5%, to RMB317.3 million (US$46.5 million) from RMB124.2 million in the second quarter 2008, primarily due to a higher sales volume.

Operating Expenses

Research and development expenses decreased by RMB5.3 million (US$0.8 million), or 29.5%, to RMB12.6 million (US$1.8 million) from RMB17.8 million in the second quarter 2008. After the Company's large initial investment in research and development for 3G products over the last year, the outcome of which is now part of the Company's existing product offering, research and development expenses in this quarter were reduced.

Sales and distribution expenses increased by RMB13.7 million (US$2.0 million), or 44.1%, to RMB44.7 million (US$6.5 million) from RMB31.0 million in the second quarter 2008, primarily as a result of an increase in sales activities and distribution expenses driven by the increased sales volume. An increase in bonus payments for sales and marketing employees has also contributed to the year-over-year increase. However, as percentage of revenue, sales and distribution expenses decreased to 10.6% from 16.6% in the second quarter 2008.

General and administrative expenses increased by RMB0.8 million (US$0.1 million), or 4.3%, to RMB19.0 million (US$2.8 million) from RMB18.2 million in the second quarter 2008. The year-over-year increase was primarily driven by a share-based compensation expense related to the granting of the Company's share options to the Group's employees and directors in March 2008 and December 2008, and was partially offset by decrease in most of the Company's other expense items.

Accordingly, total operating expenses increased by RMB9.2 million (US$1.4 million), or 13.8%, to RMB76.3 million (US$11.2 million) from RMB67.1 million in the second quarter 2008.

Other Expense/Income

Interest income increased by RMB3.2 million (US$0.5 million), or 67.6%, to RMB8.0 million (US$1.2 million) from RMB4.8 million in the second quarter 2008, primarily due to an increase in interest income related to long-term accounts receivable.

Interest expense remained relatively stable year-over-year.

Foreign currency exchange loss decreased by RMB2.2 million (US$0.3 million), or 76.8%, to RMB0.7 million (US$0.1 million) from RMB2.9 million in the second quarter 2008, primarily due to the relatively stable RMB to U.S. dollar exchange rate and a reduction in U.S. dollar-denominated deposits.

Accordingly, total other expense decreased by RMB6.1 million (US$0.9 million), or 50.9%, to RMB5.9 million (US$0.9 million) from RMB12.0 million in the second quarter 2008.

Earnings

Gross profit increased by RMB43.8 million (US$6.4 million), or 70.4%, to RMB105.9 million (US$15.5 million) from RMB62.1 million in the second quarter 2008, primarily due to the significant increase in total revenue.

Gross margin decreased to 25.0% in the second quarter 2009 from 33.3% in the same period last year, primarily due to a decrease in the average selling price of wireless coverage equipment and the increased revenue contribution from base station RF products which have a lower gross margin.

Operating income was RMB29.6 million (US$4.3 million) in the second quarter 2009, compared to an operating loss of RMB4.9 million in the second quarter 2008.

Net income attributable to the equity shareholders of GrenTech was RMB13.3 million (US$2.0 million) in the second quarter 2009, compared to a net loss attributable to the equity shareholders of GrenTech of RMB17.0 million in the second quarter 2008.

Diluted net income per ADS was RMB0.56 (US$0.08) in the second quarter 2009.

Balance Sheet

Cash, cash equivalents and pledged time deposits decreased by RMB83.6 million (US$12.2 million), or 20.1%, to RMB332.1 million (US$48.6 million) from RMB415.7 million as of December 31, 2008, primarily attributable to working capital outflow for raw material purchases to meet increased sales demand and operating overhead.

Total accounts receivable increased by RMB237.6 million (US$34.8 million), or 18.6%, to RMB1,517.1 million (US$222.1 million) from RMB1,279.5 million as of December 31, 2008, primarily because the majority of sales generated in the second quarter 2009 have not yet entered into the collection period.

Inventories increased by RMB296.7 million (US$43.4 million), or 57.0%, to RMB817.3 million (US$119.7 million) from RMB520.6 million as of December 31, 2008, primarily due to increased raw material purchases to meet forthcoming sales orders and a higher level of finished goods that were installed in customer sites but have not yet been recognized as revenue as completion certificates have not been received.

Total assets increased by RMB495.3 million (US$72.5 million), or 17.4%, to RMB3,334.2 million (US$488.2 million) from RMB2,839.0 million as of December 31, 2008, primarily due to increases in inventory and total accounts receivable.

Total liabilities increased by RMB479.6 million (US$70.2 million), or 34.2%, to RMB1,881.0 million (US$275.4 million) from RMB1,401.4 million as of December 31, 2008. Current liabilities increased by RMB499.7 million (US$73.2 million), or 39.4%, to RMB1,766.3 million (US$258.6 million) from RMB1,266.6 million as of December 31, 2008. The increase in liabilities was primarily due to an increase of RMB397.5 million (US$58.2 million) in accounts payable for the purchase of raw materials, and an increase of RMB80.7 million (US$11.8 million) in short-term bank loans.

   Business Outlook    Wireless Coverage Products and Services  

The Company expects revenue from wireless coverage products and services in the third quarter 2009 to increase significantly over the same period last year primarily due to the following factors:

   -- Although 3G network construction projects have been substantially      completed in China's major cities, quality of network coverage remains      the key issue for the three telecommunication operators as they      endeavor to commercialize their 3G businesses. Thus, demand from the      three telecommunication operators will remain strong in the third      quarter 2009, as they continue to build wireless coverage systems that      simultaneously support both 2G and 3G networks.   -- GrenTech placed in the top three positions in the recent China Telecom      centralized equipment bid, and according to the tender rules, China      Telecom will divide 70% of the total equipment order among the top      three companies. In addition, GrenTech believes that it has maintained      a leading market share position in both China Unicom's and China      Mobile's coverage equipment procurement program.   -- GrenTech has established an integration service network with extensive      nationwide coverage. The Company also has one of the largest and      experienced project services teams in China.     Base Station RF Products  

The Company expects demand for base station RF products in the third quarter 2009 to increase significantly over the same period last year primarily due to the following factors:

   -- GrenTech has obtained a larger share of contract value in both of its      base station RF modules procurement bids in the second half of 2009      from the two largest domestic base station manufacturers, and the      Company continues to be one of the key suppliers of CDMA and WCDMA base      station RF modules for these two base station manufacturers.   -- With the commencement of TD Phase III network construction, GrenTech      began bulk supply of RRU products to the other two domestic base      station manufacturers.    Guidance for the Third Quarter 2009  

Management estimates that revenue for the third quarter 2009 will range between RMB380 million and RMB420 million, representing a year-over-year increase of 78.8% to 97.7%.

Conference Call and Webcast

The Company's management team will conduct a conference call on Friday, August 14, 2009 at 5:00 am (Pacific) / 8:00 am (Eastern) / 8:00 pm (Beijing/Hong Kong). A webcast of the conference call will be available on the Company's website at http://www.grentech.com.cn/ .

About China GrenTech

GrenTech is a leading developer of radio frequency ("RF") technology in China and a leading provider of wireless coverage products and services in China. The Company uses RF technology to design and manufacture wireless coverage products, which enable telecommunication operators to expand the reach of their wireless communication networks to indoor and outdoor areas, such as buildings, highways, railways, tunnels and remote regions. GrenTech's wireless coverage services include design, installation and project warranty services. The Company also tailors the design and configuration of its wireless coverage products to the specific requirements of its customers.

Based on its in-house RF technology platform, the Company also develops and produces base station RF parts and components sold to base station manufacturers. GrenTech is a qualified supplier of RF parts and components to the global and domestic major base station manufacturers including Huawei Technologies and ZTE Corporation. For more information, please visit http://www.grentech.com.cn/ .

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995

Statements contained in this press release that are not historical facts are forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, including financial projections and forecasts, involve risks and uncertainties that could cause the Company's actual results to differ materially from its current expectations. Factors that could cause the Company's results to differ materially from those set forth in these forward-looking statements include the Company's reliance on business relationships with the Chinese telecommunication operators and base station manufacturers; the risk that the Company will continue to experience downward pressure on the pricing of its products and services due to the telecommunication operators' bidding policies or other factors; the risk that the telecommunication operators in China will not expand or maintain their spending on 2G, 3G, WLAN or other network projects; uncertainty as to the future demand for base station RF products by domestic or international base station manufacturers, including the risk that demand in China or elsewhere for base stations may not grow as the Company's management anticipates; risks associated with large accounts receivable, long collection periods and accounts receivable cycles and uncertainty as to whether new operator policies will improve such cycles in the long-term; fierce competition in the wireless communication industry; growth of, and risks inherent in, the wireless communication industry in China, including uncertainties regarding the timing and nature of any future restructuring of the telecommunication operators in China and the risks that such restructuring will not result in expanded investments to expand network coverage or quality; uncertainty as to future profitability and the Company's ability to obtain adequate financing for its planned capital expenditure requirements; its reliance on third parties to carry out the installation of its wireless coverage products; uncertainty as to its ability to continuously develop and manufacture new RF technologies and keep up with changes in RF technologies; risks associated with possible defects and errors in its wireless coverage products or RF products; uncertainty as to the Company's ability to protect and enforce its intellectual property rights; and uncertainty as to the Company's ability to attract and retain qualified executives and personnel, particularly in its research and development department. Other factors that may causes the Company's actual results to differ from those set forth in the forward-looking statements contained in this press release and that may affect its prospects in general are described in the Company's filings with the Securities and Exchange Commission, including its Registration Statement on Form F-1 related to its initial public offering and its annual reports on Form 20-F. The Company undertakes no obligation to update or revise forward-looking statements to reflect subsequent events or changed assumptions or circumstances.

              China GrenTech Corporation Limited and Subsidiaries                Unaudited Condensed Consolidated Balance Sheets                   As of December 31, 2008 and June 30, 2009                      (RMB and US$ expressed in thousands)                                              December       June       June                                            31, 2008     30, 2009   30, 2009                                               RMB          RMB         US$   Assets   Current assets   Cash and cash equivalents                 293,353      149,514     21,890   Pledged time deposits                     122,368      182,567     26,729   Accounts receivable, net                  728,260      931,487    136,378   Inventories                               520,619      817,284    119,657   Other current assets                      115,066      156,423     22,902   Total current assets                    1,779,666    2,237,275    327,556   Long-term accounts receivable             551,210      585,622     85,740   Other non-current assets                  508,094      511,335     74,864   Total assets                            2,838,970    3,334,232    488,160    Liabilities   Current liabilities   Short-term bank loans                     480,207      560,886     82,119   Other current liabilities                 786,410    1,205,411    176,483   Total current liabilities               1,266,617    1,766,297    258,602   Long-term debt                            130,000      110,000     16,105   Other non-current liabilities               4,752        4,716        690   Total liabilities                       1,401,369    1,881,013    275,397   Total GrenTech's shareholders equity    1,433,247    1,448,859    212,125   Non controlling interests                   4,354        4,360        638   Total liabilities and equity            2,838,970    3,334,232    488,160                 China GrenTech Corporation Limited and Subsidiaries             Unaudited Condensed Consolidated Statements of Income     (RMB and US$ expressed in thousands, except share and per share data)                                              For Three Months Ended June 30,                                             2008         2009         2009                                             RMB          RMB          US$   Revenues                                186,341      423,214       61,962   Cost of revenues                       (124,216)    (317,326)     (46,459)   Gross profit                             62,125      105,888       15,503   Operating expenses:   Research and development costs          (17,815)     (12,557)      (1,838)   Sales and distribution expenses         (31,014)     (44,705)      (6,545)   General and administrative expenses     (18,225)     (19,017)      (2,784)   Total operating expenses                (67,054)     (76,279)     (11,167)   Operating (loss)/income                  (4,929)      29,609        4,336   Other (expense)/income:   Interest income                           4,764        7,984        1,169   Interest expense                        (13,990)     (14,565)      (2,132)   Investment income                             --           --           --   Foreign currency exchange loss           (2,904)        (675)         (99)   Grant income                                 91        1,342          196   Total other expense                     (12,039)      (5,914)        (866)   (Loss)/earnings before income tax    (expense)/benefit                      (16,968)      23,695        3,470   Income tax (expense)/benefit               (277)     (10,383)      (1,520)   Net (loss)/income                       (17,245)      13,312        1,950   Less net income/(loss) attributable    to non controlling interest                202           (3)           0   Net (loss) /income attributable to    the equity shareholders of    GrenTech                               (17,043)      13,309        1,950   (Loss) /earnings per share    available to the equity    shareholders of GrenTech:       - Basic and diluted                   (0.03)        0.02        0.003   Weighted average number of common    shares outstanding:       - Basic and diluted             613,898,342  599,105,858  599,105,858                                               For Six Months Ended June 30,                                             2008         2009         2009                                              RMB          RMB          US$   Revenues                                257,730      708,507      103,732   Cost of revenues                       (173,636)    (529,505)     (77,524)   Gross profit                             84,094      179,002       26,208   Operating expenses:   Research and development costs          (33,143)     (25,890)      (3,791)   Sales and distribution expenses         (59,824)     (78,420)     (11,481)   General and administrative expenses     (32,383)     (34,088)      (4,991)   Total operating expenses               (125,350)    (138,398)     (20,263)   Operating (loss)/income                 (41,256)      40,604        5,945   Other (expense)/income:   Interest income                          10,236       18,008        2,637   Interest expense                        (27,232)     (28,543)      (4,179)   Investment income                           296            --           --   Foreign currency exchange loss           (9,933)        (702)        (103)   Grant income                              2,121        1,666          244   Total other expense                     (24,512)      (9,571)      (1,401)   (Loss)/earnings before income tax    (expense)/benefit                      (65,768)      31,033        4,544   Income tax (expense)/benefit              6,769      (11,413)      (1,671)   Net (loss)/income                       (58,999)      19,620        2,873   Less net income/(loss) attributable    to non controlling interest                428           (6)          (1)   Net (loss) /income attributable to    the equity shareholders of    GrenTech                               (58,571)      19,614        2,872   (Loss) /earnings per share    available to the equity    shareholders of GrenTech:       - Basic and diluted                   (0.10)        0.03        0.004   Weighted average number of common    shares outstanding:       - Basic and diluted             613,981,171  600,542,317  600,542,317            China GrenTech Corporation Limited and Subsidiaries       Unaudited Condensed Consolidated Statements of Cash Flows          For Six months Periods ended June 30, 2008 and 2009                (RMB and US$ expressed in thousands)                                              For Six Months Ended June 30,                                              2008       2009        2009                                               RMB        RMB         US$    Net cash used in operating activities   (197,803)    (54,098)    (7,920)   Net cash used in investing activities     (2,613)    (99,933)   (14,631)   Net cash (used in) / provided by    financing activities                    (71,344)     10,894      1,595   Effect of exchange rate changes on    cash                                     (1,929)       (702)      (103)   Net decrease in cash and cash    equivalents                            (273,689)   (143,839)   (21,059)   Cash at beginning of the period          316,778     293,353     42,949   Cash at end of the period                 43,089     149,514     21,890     For more information, please contact:    Investor Contact:    Kent Lo, Investor Relations Manager    China GrenTech Corp Ltd.    Tel:   +86-755-2650-3007    Email: investor@GrenTech.com.cn    Investor Relations (HK):    Ruby Yim    Taylor Rafferty    Tel:   +852-3196-3712    Email: GrenTech@taylor-rafferty.com    Investor Relations (US):    Delia Cannan    Taylor Rafferty    Tel:   +1-212-889-4350    Email: GrenTech@Taylor-Rafferty.com    Media Contact:    Jason Marshall    Taylor Rafferty    Tel:   +1-212-889-4350    Email: GrenTech@taylor-rafferty.com  

Source: China GrenTech Corporation Limited

CONTACT: Investor Contact: Kent Lo, Investor Relations Manager of China
GrenTech Corp Ltd., +86-755-2650-3007, or investor@GrenTech.com.cn; Investor
Relations (HK): Ruby Yim of Taylor Rafferty, +852-3196-3712, or
GrenTech@taylor-rafferty.com; Investor Relations (US): Delia Cannan of Taylor
Rafferty, +1-212-889-4350, or GrenTech@Taylor-Rafferty.com; Media Contact:
Jason Marshall of Taylor Rafferty, +1-212-889-4350, or
GrenTech@taylor-rafferty.com

Web Site: http://www.grentech.com.cn/

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