China HGS (HGSH) Reports First Quarter of Fiscal Year 2013 Results

HANZHONG, China, Feb. 6, 2013 /PRNewswire-FirstCall/ — China HGS Real Estate Inc. (NASDAQ: HGSH) (“China HGS” or the “Company”), a leading regional real estate developer headquartered in Hanzhong City, Shaanxi Province, China, today reported its financial results for the first quarter of fiscal 2013 ended December 31, 2012.

Highlights for the First Quarter of Fiscal 2013

• Total revenues for the first quarter of fiscal 2013 were $11.0 million, an increase of 339.8% from $2.5 million in the first quarter of fiscal 2012
• Total gross floor area (“GFA”) sold during the first quarter of fiscal 2013 was 13,028 square meters, more than tripled from 3,877.4 square meters sold in the first quarter of fiscal 2012
• Net income totaled $5.5 million, a significant increase compared to the net income of $1.0 million in the first quarter of fiscal 2012
• Basic and diluted net earnings per share (“EPS”) attributable to shareholders were $0.12, compared to $0.02 for the first quarter of fiscal 2012

“We are pleased to report strong financial results for the first quarter of fiscal 2013. We achieved significantly higher revenues and net income than the same quarter of last year, demonstrating our improved operational performance and higher returns on invested capital,” commented Mr. Xiaojun Zhu, China HGS’s Chairman and Chief Executive Officer. “Despite the purchase and mortgage restriction policies imposed on real estate market remained in effect, we experienced higher sales activities in the quarter driven by our sales and promotion efforts. These results are very encouraging. We believe the fundamentals underpinning real estate demand in Tier 3 and Tier 4 cities and counties remain strong as the population continues to grow in these cities and counties driven by increased urbanization.”

“We now look ahead to 2013 with expectations for somewhat relaxed government policies on the real estate industry and some rebound in the Chinese housing market,” continued Mr. Zhu. “Given these expectations, we have been focusing on the investment in three large projects – Mingzhu Beiyuan, Oriental Pearl Garden, and Yangzhou Pearl Garden. We expect to complete the construction of these three multi-building large apartment complexes in two to three years. We have already started pre-sales and signed some sales contracts with buyers. We expect these three large projects to provide us significant revenue and income growth in 2014 and beyond,” concluded Mr. Xiaojun Zhu.

Financial Results for the First Quarter of Fiscal 2013

Revenues increased by 339.8% to approximately $11.0 million for the first quarter of fiscal 2013 from approximately $2.5 million for the same period in the last year. The total GFA sold during the quarter was 13,028 square meters, representing over three times increase from 3,877 square meters sold in the same quarter of last year. A significant portion of revenue during the first quarter of fiscal 2013 was from the sales of our commercial units inventory in NanDajie Project (Mingzhu Xinju project) with a total GFA of 4,545.88 square meters for a total contract amount of approximately $5.4 million.

Gross profit was approximately $6.5 million for the first quarter of fiscal 2013 as compared to approximately $1.4 million for the first quarter of fiscal 2012, representing an increase of $5.1 million. The higher gross profit was mainly attributable to the increase in sales. The overall gross profit as a percentage of revenue increased to 58.7% during the first quarter of fiscal 2013 from 57.7% for the same quarter of last year, mainly due to higher sales of commercial units, which have higher average selling price per square meter compared to that of residential properties.

Total operating expenses increased to $722,065 for the first quarter of fiscal 2013 from $361,213 for the first quarter of fiscal 2012 as a result of more sales and marketing activities, increased sales commission, higher executive compensation, taxes, and office expenses. However, as a percentage of total sales, operating expenses declined to 6.6% from 14.4% in the same quarter of last year, demonstrating an improved operating efficiency achieved in this quarter,

The Company reported net income of approximately $5.5 million for the first quarter of fiscal 2013, as compared to net income of $1.0 million for the first quarter of fiscal 2012, representing an increase of $4.5 million. The higher net income was primarily due to the increase in revenue.

As of December 31, 2012, the Company had total cash and restricted cash balance of approximately $1.7 million, decreased by $0.5 million compared to $2.2 million cash and restricted cash balance as of September 30, 2012.

Safe Harbor Statement

This press release contains forward-looking statements, which are subject to change. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All “forward-looking statements” relating to the business of China HGS Real Estate Inc., which can be identified by the use of forward-looking terminology such as “believes,” “expects” or similar expressions, involve known and unknown risks and uncertainties which could cause actual results to differ. These factors include but are not limited to: the uncertain market for the Company’s business, macroeconomic, technological, regulatory, or other factors affecting the profitability of real estate business; and other risks related to the Company’s business and risks related to operating in China. Please refer to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012, as well as the Company’s Quarterly Reports on Form 10-Q that have been filed since the date of such annual report, for specific details on risk factors. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. The Company’s actual results could differ materially from those contained in the forward-looking statements. The Company undertakes no obligation to revise or update its forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.

About China HGS Real Estate, Inc.

China HGS Real Estate, Inc. (NASDAQ: HGSH), founded in 1995 and headquartered in Hanzhong City, Shaanxi Province, is a leading real estate developer in the region and holds the national grade I real estate qualification. The Company focuses on the development of high-rise, sub-high-rise residential buildings and multi-building apartment complexes in China’s Tier 3 and Tier 4 cities and counties with rapidly growing populations driven by increased urbanization. The Company provides affordable housing with popular and modern designs to meet the needs of multiple buyer groups. The Company’s development activity spans a range of services, including land acquisition, project planning, design management, construction management, sales and marketing, and property management. For further information about China HGS, please go to www.chinahgs.com.

CHINA HGS REAL ESTATE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
			Three months ended December 31,
			2012						2011
Cash flows from operating activities
Net income			$	5,509,077				$		1,030,462
Adjustments to reconcile net income to net used in operating activities:
Depreciation				22,404						22,081
Stock based compensation				3,412						12,175
Changes in assets and liabilities:
Restricted cash				(77,263)						(5,750)
Accounts receivable				(4,664,334)						–
Advances to vendors				(1,806,155)						51,748
Loans to outside parties				15,903						579,495
Security deposits for land use rights				–						(9,136,065)
Real estate property development completed				3,830,244						881,900
Real estate property under development				(6,376,199)						(1,898,986)
Other current assets				(9,542)						(15,367)
Accounts payables				306,655						(3,203,189)
Other payables				178,775						310,247
Customer deposits				3,019,617						3,021,626
Construction deposits				(731)						6,272
Accrued expenses				90,860						(122,461)
Taxes payable				(627,900)						(32,172)
Net cash used in operating activities			$	(585,177)				$		(8,497,984)
Cash flow from financing activities
Proceeds from shareholder loan				–						3,142,332
Repayment of shareholder loan				–						(3,142,332)
Net cash provided by financing activities			$	–				$		–
Effect of changes of foreign exchange rate on cash				4,359						25,795
Net decrease in cash				(580,818)						(8,472,189)
Cash, beginning of period				1,104,686						8,837,795
Cash, end of period			$	523,868				$		365,606
Supplemental disclosures of cash flow information:
Interest paid			$	–				$		–
Income taxes paid			$	404,003				$		18,817
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.