SORL Auto Parts, Inc.NASDAQ: SORL Investor Presentation Roth Capital OC conference Feb 2007
Safe Harbor Statement This presentation contains "forward-looking statements" within the meaning of the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including changes from anticipated levels of sales, future national or regional economic and competitive conditions, changes in relationships with customers, access to capital, difficulties in developing and marketing new products, marketing existing products, customer acceptance of existing and new products, and other factors. Accordingly, although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The Company has no obligation to update the forward-looking information contained in this presentation.
Corporate Profile • Leading manufacturer of commercial vehicle air brake valves in China • Spin-off from Ruili Group which was established in 1987 • Revenue: $47M in ‘04; $64M in ‘05; $79M LTM ending Sept ‘06. Strong export: $12M in ‘04, $23M in ’05, $31M LTM in Sept ‘06 • Based in Wenzhou City, Zhejiang Province • the “Hub of auto parts” in China • 1295 employees
Production • 15 Production lines in 270,000 square feet of production space • State-of-the-art testing facilities • Advanced equipment from US, Korea and Taiwan • ISO/TS16949 Quality Management System, OHSAS18001 System, and ISO14001 Environmental Management System
Major Products • 40 categories of air brake valves in 800 specifications mainly for heavy vehicles • All products export-ready and global systems certified • Aggressive focus on new product R&D in cooperation with leading automotive engineering institutes • State-of-the-art testing and production facilities with advanced equipment from US, Korea and Taiwan • Parking BrakeValves • Foot Brake Valves • Clutch Servos
Research & Development • 4 patents, 8 pending patent applications, other proprietary technologies • 44 technical staff, including 32 engineers or senior engineers • Partnerships with leading automotive engineering institutes: • Beijing Jiaotong University • Tsinghua University E-Tech Technology Co., Ltd • Zhejiang University • Huazhong University of Science and Technology • Four-circuitProtection Valves • Spring BrakeChambers • Air Dryers
2005 Export Revenues Breakdown Asia 42% Replacement 32% OEM 32% Americas 25% Africa 15% Export 36% Europe 15% Australia 3% Balanced Revenue Sources 2005 Rev OEM $21M ::Aftermarket Replacement $20M ::Export $23M
Strategic Long Term Relationships • Local OEMs dominate the market with 90% share • Chinese made heavy duty trucks are more durable and less expensive comparing with imported trucks • Imports have a poor after market and low maintenance and repair skill at local garages • Strong relationships with all of the largest manufacturers in China • OEM – currently has 39 customers in China • Aftermarket – large, national, well-established distribution network • International / Exports – growing quickly with Tata, India’s largest automobile company ($5.5 billion in revenue), as a leading customer in India
Customers: OEM • SORL is the leading supplier to the dominant truck manufacturers in China Two largest customers, FAW and Dongfeng, accounted for 54% of the Chinese total heavy duty truck sales in 2005 FAW Qingdao and FAW Jiefang Changchun are the only two heavy truck makers within FAW family
Customers: OEM • SORL’s customers continue to dominate TOP 10 heavy truck maker (‘000 units) Big 5 takes 84% China Market Source: JD Power 2005 , UBS equity research, CAICA
Customers: Aftermarket • $12.2mm in revenue in ’04 to $20.2mm in ’05 • 26% of revenue in 2004 to 32% of revenue in 2005 • 27 authorized distributors and over 800 sub-distributors
Customers: Aftermarket • Success factors to win in the intensified aftermarket competition
Customers: International • $12.6M in revenue in ’04 to $23.4M in ’05 • 27% of revenue in 2004 to 36% of revenue in 2005 • Mostly replacement but beginning to explore OEM opportunities (TATA Motors) • 3 authorized sales centers (Australia, UAE, and USA)
4,500,000 2004 4,000,000 2005 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 GD Auto MICO FP MITA POLMO Air-Fren KTC Customers: International • Top 7 export customers continue to show confidence in SORL product quality
Significant Growth Opportunity • Chinese Auto Parts Export • China’s worldwide auto parts sales totaled $55 billion in 2004 and are expected to reach $187.5 billion by 2010, with exports from China expected to grow at an annual growth rate of 50% • Truck market: Infrastructure and regulation in favor of continuous growth • Truck prices are less sensitive than passenger vehicles and hence depend more on macroeconomic changes such as environmental and public policy • Domestic brands have over 50% price advantage over imported heavy trucks • Highway expansion increased by 38% during 2006-2010 The Ministry of Construction plans to complete its massive network of arterial national highways by 2008 prior to Beijing Olympics • Trucks’ increasing role in solving logistic bottleneck in China • Jan-Oct 06, China exported 128,000 trucks, $788M, 50% YoY rev growth; China exported 21,800 buses, $427M, 150% YoY rev growth Source: Citigroup Equity Research, CAAM, Frost & Sullivan Research - Sept 05, Feb, 06, Credit Suisse Research, Jan 06, mgmt estimate
Attractive Export Opportunity China Auto Parts Annual Exports & Imports China commercial vehicle Annual Exports • The current global market for commercial vehicle air brake valves is over $5 billion • Growth of aftermarket air brake valves market is approximately 15% • Global purchasing trend is moving to China • SORL’s exports in 2006 were 40% of total revenue (as of September 30), 36% in 2005, 27% in 2004, and 18% in 2003 USD Billion • ‘05 Export Markets by Revenue • Syria • Algeria • Belgium • Iran • Sudan • Russia • Vietnam • Kazakhstan • Ukraine • Saudi Arabia • Cuba Source: China Automotive Industry Information Network, Asimco Technologies, CAAM, Wall Street Journal August 2006
Growth Strategy • OEM: • Enhance brand recognition and develop relationships with other truck manufacturers • Export: • Strengthen presence overseas by establishing relationships with additional authorized distributors • Penetrate the aftermarket segment to gain name and quality recognition and then enter the International OEM market • M&A and JV: • Over 1,400 auto parts companies located in the Wenzhou area can become potential M&A targets or JV partners • R&D: • Invest in next generation valve technology • Continue partnerships with leading automotive engineering institutes • Cost Control: • Reduce material and energy consumption; strict waste measurement • Maintain high standard quality control
Revenue($millions) Net Income ($millions) 64.2 5.0 4.8 46.8 33.1 1.2 2003 2004 2005 2003 2004 2005 Significant Revenue and Profit Growth • 39% CAGR of sales during 2003-2005 • 107% CAGR of net income during 2003-2005
Revenue($millions) Net Income / EPS($millions and dollar) 79.2 6.4 5.7 60.8 4.4 45.8 0.47 0.43 0.33 9 month ‘05 9 month ‘06 LTM* 9 month ‘05 9 month ‘06 LTM* Significant Revenue and Profit Growth * Ended September 30, 2006.
Strong Balance Sheet • December 1st 2006, SORL completed a follow-on public offering and raised $32.7M.
Xiaoping Zhang, Chairman and CEO • Co-founder of Ruili Group • President of the Ruian Auto Parts Association in Wenzhou, Zhejiang Province • Vice President of China Federation of Industry and Commerce Auto & Motorbike Parts Chamber of Commerce • Xiaofeng Zhang, COO • Co-founder of Ruili Group – General Manager • Spearheads SORL’s sales and marketing effort • David He, Senior Manager of Investor Relations • Illinois CPA and awarded CFA designation • MBA in Finance and MS in Accountancy from the University of Illinois at Urbana-Champaign • Senior Relationship Manager in corporate banking with Credit Agricole Indosuez in Shanghai • Zongyun Zhou, CFO • Certified Public Accountant in China • Chief Financial Officer of Shanghai Huhao Auto Parts Manufacturing Company Limited, a joint venture between the Ruili Group and Shanghai Auto Group, 2002 - 2004 Management Team
Investment Highlights Market Potential • China is the world’s 2nd largest auto market and 3rd largest in auto production • Export potential: Current global market for commercial vehicle air brake valves is over $5bn • Opportunities for product line expansion and complementary acquisitions Industry Leadership • SORL holds a leading market position in the following products segments in China • OEM air brake valve segment • Replacement air brake segment Solid Operating History • Strong financials: 37% overall revenue increase year over year • Successful expansion of export sales by 83% from 2004 to 2005 ($12.6mm to $23.4mm) with high-quality products that meet global ISO certifications • Sales to top seven international customers grew an average of 92% in 2005 • Strong brand equity – SORL is one of the top 10 most recognized brand names in the automotive parts industry in China Source: CAAM, Management estimate
David Ming He Senior Manager, Capital Market Phone: +86 (577) 6581 7720 Fax: +86 (577) 6581 7733 Email: firstname.lastname@example.org Web: www.sorl.cn SORL Auto Parts, Inc.NASDAQ: SORL