SOURCE: New Oriental Energy & Chemical Corp.

August 13, 2007 16:01 ET

New Oriental Energy & Chemical Corporation Reports Record First Quarter Results

NEW YORK, NY--(Marketwire - August 13, 2007) - New Oriental Energy & Chemical Corp. (NASDAQ: NOEC), a specialty chemical and emerging alternative fuel manufacturer in The People's Republic of China (PRC), today announced first quarter fiscal 2008 results for the period ending June 30, 2007.

--  First Quarter Revenues Increased 60% to $14.7 million
--  Alternative Fuel Revenue Increased 63% to $4.5 million
--  Annual DME production capacity to double with completion of plant
    expansion in September

Financial Results

The Company reported record revenues of $14.7 million compared to $9.2 million in the year ago period, representing an increase of 59.9 percent. Revenue growth primarily resulted from increased sales of both Urea and Dimethyl Ether (DME) driven by strong market demand and increased production capacity. Alternative energy sales, which include DME and Methanol, increased 63.1 percent to $4.5 million and comprised 30.4 percent of total revenue as compared to 29.9 percent last year. Sales of DME were $4.4 million and increased 195.8 percent compared to last year with Methanol sales declining on a comparable basis as the Company utilized its Methanol production as feedstock for DME production rather than conducting sales in the open market. Revenues from the Company's core fertilizer and chemical business increased 58.6 percent to $10.2 million with Urea sales increasing 64.0 percent to $9.2 million, which was augmented by sales of existing inventory to meet demand for the summer growing season.

"We posted a record first quarter and benefited from growth in both our core Urea business and sales of emerging alternative fuels," stated Mr. Chen Si Qiang, New Oriental Energy & Chemical Corporation's Chief Executive Officer. "During the quarter we sold over 10,000 tons of DME and over 41,000 tons of Urea, both quarterly records as demand remained strong for our products. DME is commonly being substituted for Liquid Petroleum Gas (LPG) due to its lower cost and comparable efficiency; and Urea sales benefited from increased domestic consumption as farmers work to increase production from shrinking available arable land across China. We believe these trends will remain favorable as we continue to increase our marketing and sales efforts to fully utilize our pending increase in capacity."

Product Revenue Comparison:
(all numbers in  thousands, revenues shown in USD)

                    1QFY08   Tons Sold     1QFY07  Tons Sold   % Change
Urea                $9,217        42.7     $5,619         25       64.0%
Other                1,027         9.4        839         14       22.5%
DME                  4,425        10.3      1,496          3      195.8%
Methanol                58         0.2      1,254          5      -95.4%
Total Revenue   $14,727.00              $9,208.00                  59.9%

Cost of goods sold for the first quarter fiscal 2008 increased 60.7 percent as the Company experienced higher raw material costs, specifically coal, in addition to increased electricity costs while gross profit increased 56.6 percent to $2.6 million driven by the overall increase in sales levels. Gross margins declined slightly from 18.1 percent last year to 17.7 percent in the first quarter fiscal 2008. During the quarter the Company benefited from an over 2.0 percent increase in gross margins from the core specialty fertilizer business to 19.4 percent as a result of production enhancements and efficiencies most notably the first full quarter of contribution from the Company's "coal stick" production line offset by a 5.3 percent decrease in the market price of DME and 0.5 percent increase in coal costs as compared to last year. Additionally, during the quarter the Company had to purchase approximately 3,500 tons of outside Methanol to meet DME demand which increased the Company's cost of goods sold by approximately 5.0 percent. As a result alternative energy gross margins in the first quarter were 13.9 percent as compared to 20.0 percent last year.

"While fluctuations in market prices for our products, specifically DME and Methanol, in addition to the price of coal, may create some variability in our margin profile on a quarterly basis, we believe that flexibility in our manufacturing process, in addition to our new 'coal stick' initiative will enable us to show improvements in gross margins for fiscal 2008 as compared to fiscal 2007 on an annual basis. Further, during the first quarter we aggressively priced our DME product in the market to stimulate sales to facilitate customer conversions from LPG to DME. We expect this to moderate over time as DME demand increases and customers look towards DME as an attractive alternative to replace future LPG consumption," stated Mr. Chen Si Qiang.

Operating expenses for the first quarter of fiscal 2008 increased by 101.2 percent to $0.9 million and were impacted by higher overall expenses related to increased revenue levels, increased marketing activities surrounding the Company's pending DME production expansion and overall higher expenses related to being a public company. Operating income increased 39.9 percent to $1.7 million with operating margins for the period declining 1.6 percent to 11.5 percent.

Net income for the quarter increased 38.5 percent to $1.0 million with earnings per weighted average fully diluted share of $0.08 as compared to $0.7 million and $0.10 per share respectively last year. The Company utilized 12.6 million weighted average diluted shares outstanding for the first fiscal quarter this year as compared to 7.5 million last year. It is important to note that because the Company did not go public until October 2006, only a portion of the fully diluted shares outstanding were used in last year's calculation. As of June 30, 2007 the Company had 12.6 million fully diluted shares outstanding.

Balance Sheet Highlights

The Company ended the first quarter of fiscal 2008 with $9.4 million in cash and restricted cash as compared to $8.1 million at the end of fiscal 2007. Cash flow from operations was a negative $0.7 million as positive net income was offset primarily by a $4.0 million reduction in customer deposits. Inventories declined by 36.1 percent to $2.4 million as the Company sold Urea in inventory to meet rising demand during the seasonally stronger growing period. The Company had a total of $11.6 million in short term debt and notes payable as compared to $7.9 million at the end of fiscal 2007. Capital expenditures were approximately $2.0 million and were related to the Company's pending 100,000 tons of DME production expansion which is expected to begin large scale production in September.

Financial Guidance

Management anticipates revenues of approximately $16.0 million for its second fiscal quarter, which represents approximately 10 percent sequential growth and 95 percent growth as compared to the second quarter of last year.

"We are actively soliciting orders from customers in advance of the pending completion of our DME production facility expansion and believe we will be able to quickly utilize our new capacity to exponentially increase revenue. At the end of 2006 it was estimated that in total there was only 300,000 tons of DME production capacity throughout China. Recently industry experts have estimated that growth in demand for DME in China alone would increase at a 66 percent CAGR over the next nine years to 28.9 million tons of demand annually. Supporting this trend is the fact that China is a net importer of LPG and purchases approximately 27 percent of its total current consumption from International sources while consuming approximately 24 million tons in 2007 equating to $16 billion in total sales. With our first mover advantage, 150,000 tons of available DME capacity, limited competition and superior product offering in comparison to LPG, we are well positioned to capitalize on this large market opportunity as consumers look to purchase DME rather than LPG. Based on these trends we anticipate that we will continue to post meaningful revenue and net income growth throughout the balance of this year," concluded Mr. Chen Si Qiang.

Teleconference Information:

The Company will conduct a conference call to discuss these results at 4:30 p.m. ET on August 13, 2007. Interested participants should call 866-225-8729 when calling within the United States or 480-629-9564 when calling internationally. There will be a playback available August 20 and to access please call when calling within the United States or +303-590-3030 when calling internationally. Please use pass code 3768718 for the replay.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link at ViaVid's website at through September 13.

About New Oriental Energy & Chemical Corp.

New Oriental Energy & Chemical Corp. is an emerging alternative fuel and specialty chemical manufacturer based in Henan Province, China. The Company is focused on the production of Dimethyl ether (DME), Methanol and fertilizer products. The Company sells its products primarily through a network of distribution partners.

Safe Harbor Statement:

This earnings release contains forward-looking statements concerning New Oriental Energy & Chemical Corp. The actual results may differ materially depending on a number of risk factors including, but not limited to, the following: general economic and business conditions, new product development, shipment timelines, market acceptance of DME and new products, additional competition from existing and new competitors, changes in technology or product techniques, and various other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement and the risks factors detailed in the Company's reports filed with the Securities and Exchange Commission. New Oriental Energy & Chemical Corp. undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of this release.

For the three months ended June 30
                                                       2007         2006
                                                       Amount       Amount
                                                        US $         US $
Revenues                                             14,727,290   9,208,377
Cost of Goods Sold                                  -12,118,023  -7,542,175
Gross Profit                                          2,609,267   1,666,202

Research and development                                -51,662        -198
Selling and distribution                               -435,049    -236,497
General & administrative                               -428,226    -218,118

Income from operations                                1,694,330   1,211,389
Interest expense, net                                   -99,834     -67,402
Other, net                                               10,456     -19,681
Income before tax                                     1,604,952   1,124,306
Income tax                                             -583,815    -380,573
Income from continuing operation                      1,021,137     743,733
Income from discontinued operation                        1,761      -5,080
Net income (loss)                                     1,022,898     738,653
Weighted Average Shares Outstanding, Basic and
 Diluted                                             12,640,000   7,500,000
Net Income per share, Basic and Diluted                    0.08        0.10


                                                  June 30,      March 31,
                                                    2007          2007
                                                ------------- -------------

Cash and cash equivalents                       $   3,281,435 $   2,616,149
  Restricted cash                                   6,119,099     5,430,426
  Notes receivable                                  1,339,374     1,395,858
  Inventories                                       2,418,344     3,786,130
  Prepayments for goods                               981,775       383,639
  Taxes receivable                                          -       155,863
  Due from employees                                   72,800       113,275
  Other assets                                        287,176       204,508
  Current assets of the discontinued operation         55,356        47,084
                                                ------------- -------------
      Total current assets                         14,555,359    14,132,932

Plant and equipment, net                           13,436,640    11,571,652
Land use rights, net                                1,521,297     1,510,695
Construction in progress                            4,374,297     5,208,277
Deposits                                            1,046,049       267,757
Deferred taxes                                        287,734       646,331
Other long-term assets                                 40,194        39,745
Other assets of the discontinued operation            125,398       125,875
                                                ------------- -------------

     TOTAL ASSETS                               $  35,386,968 $  33,503,264
                                                ============= =============


  Accounts payable                              $   2,935,905 $   2,259,834
  Other payables and accrued liabilities              509,423       409,025
  Short term debt                                  11,030,136     7,356,933
  Notes payable - current portion                     581,708       572,781
  Customer deposits                                 1,297,768     5,385,425
Payable to contractors                                 86,606        96,861
Due to related parties                              4,259,603     4,041,583
  Taxes payable                                       476,093        25,063
  Current liabilities of the discontinued
   operation                                           12,759        12,711
                                                ------------- -------------
          Total current liabilities                21,190,001    20,160,216
                                                ------------- -------------

  Deferred taxes                                    1,217,916     1,619,110
  Due to employees                                    119,171       115,816
                                                ------------- -------------
          Total long-term liabilities               1,337,087     1,734,926
                                                ------------- -------------

TOTAL LIABILITIES                                  22,527,088    21,895,142
                                                ------------- -------------

 Common stock, par value $0.001 per share;
  30,000,000 shares authorized, 12,640,000
  shares issued and outstanding as of June 30,
  2007 and March 31, 2007                              12,640        12,640
 Additional paid-in capital                         4,573,205     4,573,205
 Retained earnings (restricted portion was
  $440,182 and $440,182 as of June 30, 2007 and
  March 31, 2007, respectively)                     7,586,456     6,563,558
 Accumulated other comprehensive income               687,579       458,719
                                                ------------- -------------

Total Shareholders’ Equity                         12,859,880    11,608,122
                                                ------------- -------------

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY      $  35,386,968 $  33,503,264
                                                ============= =============

Contact Information

  • Company Contact:

    New Oriental Energy & Chemical Corp.
    Mr. Wang Gui Quan
    Xicheng Industrial Zone of Luoshan, Xinyang
    Henan Province, The People's Republic of China
    Tel: (011-86) 376-2169211

    Investors Contact:

    Matthew Hayden
    HC International, Inc.
    Ph: (858) 704-5065

    Mark Miller
    East West Network Group
    Ph: (770) 436-7429