SHANGHAI, China, Feb. 10 /PRNewswire-Asia/ -- China Precision Steel (Nasdaq: CPSL), a niche precision steel processing company principally engaged in producing and selling high precision, cold-rolled steel products, announced today its fiscal 2009 second quarter results for the period ended December 31, 2008.

    Second Quarter Highlights
    -- Revenue increased 32.9% period-over-period to $17.6 million
    -- Gross profit was $3.5 million, down 26.6% versus second quarter 2008
    -- Net loss of $2.0 million resulting from a $3.8 million allowance for
       bad debt
    -- Fully diluted loss per share of $0.04
    -- Exports generated 75.3% of total sales

'Export demand remained healthy during the quarter resulting in stable sales of our low carbon steel products while the domestic demand for our high carbon steel products declined as our customers moved to reduce their inventory,' commented Dr. Wo Hing Li, China Precision Steel's Chairman and CEO. 'Although our domestic sales were adversely impacted by the global economic downturn, we believe our business will benefit from the Chinese government's economic stimulus plans including a rejuvenation plan for the steel industry and a Chinese auto industry bailout. Furthermore, precision steel products tend to be a leading economic indicator and as such, our industry is the first to experience the impact of a purchasing slowdown and will be the first to benefit from the economic recovery.'

Revenue for the second quarter of fiscal 2009 increased to $17.6 million, up 32.9% from $13.2 million in the second quarter of fiscal 2008. The growth in revenue was mainly attributable to the increase in sales volume of 852 tons to 14,862 tons during the second quarter of fiscal 2009 combined with a 25.3% increase in the average selling price. High carbon and low carbon products accounted for 6.1% and 87.3% of sales, respectively, compared to 38.5% and 47.6%, respectively, from the prior year period. Exports contributed to 75.3% of total revenue compared to 26.5% in the second quarter of 2008.

Gross profit in the second quarter was $3.5 million, down 26.6% from gross profit of $4.7 million in the second quarter of fiscal 2008. Gross margin was 19.6% compared to 35.5% in the same period a year ago. The decline in gross margin was mainly due to the exceptionally high gross margin in the second quarter of fiscal 2008 as a result of strong sales of the Company's high margin products for both high carbon and low carbon steel in addition to the inability to pass on all of the higher raw material cost to customers and lower sales of the higher margin products during the second quarter of fiscal 2009. While China Precision Steel always strives to maximize its gross margin, the Company believes a healthy and achievable gross margin target for its business for the current economic environment is in the low 20%.

Selling expenses for the second quarter of fiscal 2009 were $1.1 million, or 6.4% of revenue, compared to $180,744, or 1.4% of revenue, in the second fiscal quarter of 2008. The increase in selling expenses was primarily attributable to an increase in agent commission associated with the order from Salzgitter Mannesmann International GMBH, which represented 64% of sales for the quarter, as well as an increase in transportation costs and custom clearing charges in relation to the increase in exports. Administrative expenses were $587,105, or 3.3% of revenue, compared to $846,220, or 6.4% of revenue. The decline in administrative expenses was mainly due to the lower SEC compliance costs and professional fees as there was no financing activity during the quarter.

Operating loss for the second quarter was $2.1 million compared to operating income of $3.6 million in the same period a year ago. Contributing to the operating loss for the quarter was an allowance for bad debt in the amount of $3.8 million due to a dispute over services rendered by the Company. This was a one-off event and its impact on financial statements has been fully reflected.

Net loss for the second quarter of fiscal 2009 was $2.0 million compared to net income of $3.5 million in the prior year period. Fully diluted loss per share was $0.04 compared to fully diluted earnings per share of $0.08 in the comparable period a year ago. Weighted average diluted shares outstanding for the quarter increased to 46.6 million from 43.6 million in prior year period.

Six Months Financial Results

Revenues for the first six months of fiscal 2009 were $42.9 million, up 6.2% from revenues of $40.4 million in the first six months of fiscal 2008. Gross profit was $7.4 million, down 36.4% from gross profit of $11.6 million for the six months of fiscal 2008. Gross margin was 17.2% compared to 28.8% for the comparable period a year ago. Operating income was $1.1 million, down 87.8% from operating income of $9.3 million in the first six months of fiscal 2008. Net income was $900,753, down 90.3% from net income of $9.3 million in the same period a year ago. Fully diluted earnings per share were $0.02 compared to $0.23 in the first six months of fiscal 2008. Diluted weighted average shares outstanding were 46.6 million compared to 40.8 million in the first six months of fiscal 2008.

Financial Condition

As of September 30, 2008, China Precision Steel had $14.8 million in cash and cash equivalents, no long-term debt, total liabilities of $41.3 million and working capital of $53.4 million. Shareholders' equity was $122.2 million, compared to $120.3 million as of June 30, 2008. Days Sales Outstanding were 122 days, down from 138 days in the second quarter of fiscal 2008. The Company generated $8.7 million in cash flow from operating activities in the first half of fiscal 2009.

Business Outlook

China Precision Steel has begun the construction of its third cold rolling mill and expects the mill to begin production in June 2009. The new mill is designed to process steel with a width up to 1450 mm and will be a tandem mill with best-in-class gauge control and shape performance capable of producing high quality steel for exposed and unexposed products.