China HGS Reports Third Quarter of Fiscal Year 2014 Results

HANZHONG, China, August 8, 2014 /PRNewswire/ — 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 third quarter of fiscal 2014 ended June 30, 2014 with the U.S. Securities and Exchange Commission. An electronic copy of the quarterly report on Form 10-Q can be accessed on the SEC’s website at www.sec.gov.

Highlights for the Quarter

  • Total revenues for the third quarter of fiscal 2014 were approximately $28.9 million, an increase of 302% from approximately $7.2 million in the same quarter of fiscal 2013. Total revenues recognized from percentage of completion method were approximately $24.2 million, which accounted for 84% of total revenues in the third quarter of fiscal 2014.
  • Net income for the third quarter of fiscal 2014 totaled approximately $8.2 million, an increase of approximately $5.9 million from the net income of approximately $2.3 million in the same period of last year. The increased net income in this quarter compared to the same quarter of last year was primarily due to the significantly increased revenue.
  • Basic and diluted net earnings per share (“EPS”) attributable to shareholders for the third quarter of fiscal 2014 were $0.18, increased by 260% from $0.05 for the same quarter last year.

“We continued to deliver satisfactory results this quarter as compared to the same period of last year,” said Mr. Xiaojun Zhu, Chairman and Chief Executive Officer of China HGS. “The overall real estate market in China remains soft, however, it is generally stable in the Tier 3 and Tier 4 cities. We are also pleased to experience some increase in our average selling prices (“ASP”) compared to the third quarter of last year. We believe that the demand for real estate in Tier 3 and Tier 4 cities and counties in China remained solid as the government policy such as the reform of “Hu-Kou” policy will continue to drive migrants to favor Tier 3 and Tier 4 cities and counties. We remain focused on providing quality housing with affordable pricing for growing new urban residents in these regions,” concluded Mr. Xiaojun Zhu.

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, 2013, 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.

Company contact:

Randy Xiong,
President of Capital Market
China Phone: (86) 091-62622612
Email: randy.xiong@chinahgs.com

CHINA HGS REAL ESTATE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

September 30,

2014

2013

ASSETS

Current assets:

Cash

$

2,672,883

$

5,878,101

Restricted cash

1,702,740

1,332,807

Advances to vendors

109,134

Cost and earnings in excess of billings

6,888,871

2,178,270

Real estate property development completed

6,733,547

11,607,164

Real estate property under development

1,580,670

Other current assets

656,522

368,377

Total current assets

18,654,563

23,054,523

Property, plant and equipment, net

919,806

977,739

Real estate property development completed, net of current portion

3,163,831

7,619,811

Security deposits for land use right

3,248,652

3,259,240

Real estate property under development, net of current portion

231,621,911

142,916,601

Accounts receivable-Local government

3,164,770

Total Assets

$

260,773,533

$

177,827,914

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Bank loan – current portion

$

9,745,955

$

4,888,860

Short-term loan -other

15,286,531

Accounts payable

25,173,845

22,527,686

Other payables

10,263,258

1,863,922

Construction deposits

367,560

357,447

Billings in excess of cost and earnings

8,656,785

5,109,758

Customer deposits

5,883,390

6,130,466

Shareholder loan

7,462,654

1,810,000

Accrued expenses

3,066,621

2,896,539

Taxes payable

10,664,083

6,612,707

Total current liabilities

96,570,682

52,197,385

Long-term bank loan, less current portion

12,994,607

11,407,340

Deferred tax liabilities

2,323,962

650,067

Customer deposits, net of current portion

24,472,081

13,410,081

Construction deposits, net of current portion

1,004,087

1,013,877

Total liabilities

137,365,419

78,678,750

Commitments and Contingencies

Stockholders’ equity

Common stock, $0.001 par value, 100,000,000 shares authorized, 45,050,000 shares
issued and outstanding June 30, 2014 and September 30, 2013

45,050

45,050

Additional paid-in capital

17,759,349

17,759,349

Statutory surplus

8,977,230

8,977,230

Retained earnings

87,924,885

63,257,918

Accumulated other comprehensive income

8,701,600

9,109,617

Total stockholders’ equity

123,408,114

99,149,164

Total Liabilities and Stockholders’ Equity

$

260,773,533

$

177,827,914

CHINA HGS REAL ESTATE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

Three months ended June 30,

Nine months ended June 30,

2014

2013

2014

2013

Real estate sales

$

28,854,104

$

7,174,974

$

92,902,437

$

37,561,349

Less: Sales tax

1,746,835

489,971

5,700,706

2,349,413

Cost of real estate sales

17,538,690

3,549,401

58,077,310

18,057,656

Gross profit

9,568,579

3,135,602

29,124,421

17,154,280

Operating expenses

Selling and distribution expenses

154,007

184,518

522,273

643,526

General and administrative expenses

557,779

542,836

1,684,253

2,221,352

Total operating expenses

711,786

727,354

2,206,526

2,864,878

Operating income

8,856,793

2,408,248

26,917,895

14,289,402

Interest income

3,401

12,406

Interest (expense)

(17,793)

(18,100)

(164,304)

(54,300)

Other income (expenses) – net

(319)

7,640

Income before income taxes

8,842,401

2,389,829

26,765,997

14,242,742

Provision for income taxes

681,130

127,284

2,099,030

704,400

Net income

$

8,161,271

$

2,262,545

$

24,666,967

$

13,538,342

Other comprehensive income (loss)

Foreign currency translation adjustment

124,287

1,337,601

(408,017)

2,015,309

Comprehensive income

$

8,285,558

$

3,600,146

$

24,258,950

$

15,553,651

Basic and diluted income per common share

Basic

$

0.18

$

0.05

$

0.55

$

0.30

Diluted

$

0.18

$

0.05

$

0.55

$

0.30

Weighted average common shares outstanding

Basic

45,050,000

45,050,000

45,050,000

45,050,000

Diluted

45,125,144

45,115,382

45,125,144

45,115,382

CHINA HGS REAL ESTATE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine months ended

June 30,

2014

2013

Cash flows from operating activities

Net income

$

24,666,967

$

13,538,342

Adjustments to reconcile net income to net cash used in operating activities:

Deferred tax provision

1,681,415

Depreciation

54,933

67,151

Stock based compensation

7,612

Changes in assets and liabilities:

Accounts receivable

(3,174,981)

(2,474,262)

Advances to vendors

109,130

1,517,734

Loans to outside parties

(943,110)

Cost and earnings in excess of billings

(4,732,899)

Real estate property development completed

9,297,037

8,512,382

Real estate property under development

(87,876,687)

(33,833,410)

Other current and non-current assets

(290,275)

(120,144)

Accounts payables

2,728,118

8,968,016

Other payables

8,432,511

622,260

Billings in excess of cost and earnings

3,575,124

Customer deposits

10,913,504

5,127,523

Construction deposits

4,793

152,481

Accrued expenses

179,365

282,239

Taxes payable

4,085,999

446,139

Net cash provided by (used in) operating activities

(30,345,946)

1,870,953

Cash flow from financing activities

Restricted cash

(375,470)

(136,176)

Proceeds from shareholder loan

7,577,486

Repayment of shareholder loan

(1,906,593)

Proceeds from bank loan

8,147,834

Repayment of bank loan

(1,629,567)

Proceeds from short-term loan

15,335,854

Net cash provided by financing activities

27,149,544

(136,176)

Effect of changes of foreign exchange rate on cash

(8,816)

49,333

Net increase (decrease) in cash

(3,205,218)

1,784,110

Cash, beginning of period

5,878,101

1,104,686

Cash, end of period

$

2,672,883

$

2,888,796

Supplemental disclosures of cash flow information:

Interest paid

$

1,143,784

$

Income taxes paid

$

291,776

$

243,474

Non Cash transaction:

Transfer of security deposit for land use rights to real estate

under development

$

$

12,589,971