sorl auto parts, inc. nasdaq: sorl
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Roth China Comes to Vegas ConferenceNovember 2008
SORL AUTO PARTS, INC.SORL AUTO PARTS, INC.NASDAQ: SORLNASDAQ: SORL
SAFE HARBOR STATEMENTSAFE HARBOR STATEMENTThis 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.
BUSINESS DESCRIPTIONBUSINESS DESCRIPTION
Market Position Established in 1987; over 20 years of history The largest air brake system supplier for commercial vehicles in China Rapid growth
Facilities
Total floor area of over 700,000 square feet Located in Ruian (China’s biggest region for automotive parts production) Enjoy the benefits of logistics, outsourcing and professional labor force World Class Manufacture Facilities
Main Business Air brake system used in commercial vehicles larger than 3 tons Penetrating Bus and Agricultural Vehicle Market Since 2007
Sales Network OEM: Sales to top 50 domestic OEM customers Aftermarket: 28 authorized distributors and over 800 sub-distributors Exports: 3 distributors in UAE, Australia, USA;
exports to over 81 countries and regions worldwide
CAPITAL MARKETS SUMMARYCAPITAL MARKETS SUMMARY
Ticker Symbol NASDAQGM: SORL
Recent Price (as of 10/31/08) $2.72
Shares Outstanding 18.3 Million
Market Cap $49.7 Million
Legal Counsel Morris, Manning & Martin, LLP
Auditor Rotenberg & Co., LLP
Revenue (ttm, as of 09/30/08) $138.3 million
Net Income (ttm, as of 09/30/08) $13.0 million
Book Value (mrq) $88.6 million
INVESTMENT HIGHLIGHTSINVESTMENT HIGHLIGHTS
High Growth Market
•Commercial vehicle market has grown at a CAGR of 14% since 2002 •Chinese is the second vehicle market at present, will be No 1 in 2010•Market Driver (GDP of China; Fundamental Structure; Logistic; Development of highway , government policy etc.)•Our niche market
Leading Market Position in China
51 OEMs customers in China Nationwide network of 28 distributors and 800 sub-distributors Unmatched in China
Proven Record of Organic Growth
Sales: $47 million in 2004 to $116 million in 2007; 35% CAGR Net income: $4.8 million in 2004 to $10.7 million in 2007; 31% CAGR TTM revenue (as of September 30, 2008): 138 million TTM net income (as of September 30, 2008): 13.0 million
World-Class Manufacturing Ability
ISO/TS16949 Quality Management System OHSAS18001 System ISO14001 Environmental Management System; Lean manufacturing implemented
INVESTMENT HIGHLIGHTS INVESTMENT HIGHLIGHTS
Moving from components to systems (enhances margins) Electronics initiative is expected to further distance SORL from competitors
Competitive Value (Domestic)
Low-cost supply network Local cost structure Cheap labor force China-based R&D efforts, closer to the end market Sales network
Experienced Management Team
Competitive Value (Abroad)
Management Team
Product Development and R&D Advantage
Brand recognition Scale and scope efficiency Sophisticated management Competitive quality Strong R&D capabilities
PRODUCTSPRODUCTSAir BrakesAir Brakes
Use compressed air to provide the force used for service and park brakes Found in all large commercial vehicles
40 categories sold by SORL40 categories sold by SORL Over 1000 specifications Key components include Spring Brake Chamber,
Clutch Servo, Air Dryer, Relay Valves, and Hand Brake Valves
Focus on air brake systems vs componentsFocus on air brake systems vs components Eg, air preparation units vs. air dryers Higher margins Required technical ability serves as barrier to entry
ADVANCED R&D CAPABILITIESADVANCED R&D CAPABILITIES SORL currently owns 12 patentsSORL currently owns 12 patents
6 pending patent application in China
3 additional in US
68 technical staff, including 43 engineers or senior engineers 68 technical staff, including 43 engineers or senior engineers
Partnerships for new automobile technology research:Partnerships for new automobile technology research: Leading Universities
Research groups of OEM customers
Helping to further product development and management
Budget expanded to develop new products that will generate future Budget expanded to develop new products that will generate future global growth and increase profit margins: global growth and increase profit margins:
SORL is closing the gap with foreign suppliers by constantly improving products
SORL launched electronic part development program two years ago
MARKETS AND CUSTOMERSMARKETS AND CUSTOMERS
(million USD) 2005 2006 2007 CAGR
China OEM 20.6 27.1 41.2 41.4%
China AfterMarket 20.2 23.9 31.1 24.1%
Export 23.4 33.9 43.4 36.2%
Total 64.2 84.9 115.8 34.3%
Sales channels include Chinese OEMs, the aftermarket in China, Sales channels include Chinese OEMs, the aftermarket in China, and exports to the aftermarket in 81 countries around the world. and exports to the aftermarket in 81 countries around the world.
MARKETS: CHINESE OEMSMARKETS: CHINESE OEMS51 OEM customers in China, including all major truck 51 OEM customers in China, including all major truck
manufacturersmanufacturersSORL is the leading supplier to the dominant truck manufacturers SORL is the leading supplier to the dominant truck manufacturers
in Chinain China
The big 5 continue to dominate the market, accounting for 91% of Chinese total heavy duty truck output in Q1 2008.
Major customers are all increasing their business with SORLMajor customers are all increasing their business with SORL
Auto Makers FAW Dongfeng China Nat’l Heavy Duty Truck Group Shaanqi Beiqi Foton
Market Share in China 24.8% 21.6% 20.1% 12.6% 12.2%
% Valves Supplied by SORL 40% 19% 6% 22% 31%
(million USD) Y2005 Y2006 Y2007 CAGR
FAW Jiefang 3.49 5.62 8.77 35.9%
FAW Qingdao 2.88 4.73 5.48 23.9%
Dongfeng Axle 2.06 3.69 5.02 35.2%
Beiqi Foton Zhucheng 0.41 2.23 3.42 103.1%
Boiqi Foton Aumen 1.58 1.71 3.09 25.0%
Anhui Hualing 0.90 0.96 2.54 41.2%
FAW Shandong 0.65 1.20 1.80 40.4%
MARKETS: CHINESE MARKETS: CHINESE AFTERMARKETAFTERMARKET
Nationwide:28 distributors and over 800 sub-distributors, covering 7 regions nationwide
Aftermarket/OEM Synergy:OEM business feeds aftermarket business as owners generally prefer to replace original parts with the same brand
Competition:No other company in China, including foreign competitors, has an aftermarket distribution network comparable to SORL’s
Barrier to Entry:Serves as a barrier to entry and an asset which can be leveraged to support additional parts that may be developed or acquired
Leading Distribution Network Throughout ChinaLeading Distribution Network Throughout China
MARKETS: EXPORT MARKETS: EXPORT AFTERMARKETAFTERMARKET
(million USD)
2005 2006 2007 CAGR
U.S 3.3 5.7 8.8 39%Europe 3.6 7.4 8.0 30%Asia 9.8 10.5 14.7 15%India 0.10 0.23 0.57 76%
Cost advantage vs. foreign brands presents significant export opportunity Cost advantage vs. foreign brands presents significant export opportunity
Exports to 81 countries in 2007; will continue to add dealerships overseasExports to 81 countries in 2007; will continue to add dealerships overseas
Strategic goal of acquiring distributors in the US:Strategic goal of acquiring distributors in the US: Accelerate growth Replicate distribution advantage already established in China
MANUFACTURINGMANUFACTURINGCertifications:ISO/TS16949 Quality Management System, OHSAS18001 System, and ISO14001 Environmental Management System
Lean manufacturing:Reorganized production lines from traditional straight-line layout to U-shape track, shortening total cycle time and enabling quick adjustments to production. Other lean practices continue to be implemented.
Increased Efficiency:Output per person has increased 30% last years
Quality Audit:Never failed a quality audit by a supplier, which is crucial in developing OEM business
COMPETITION: DOMESTICCOMPETITION: DOMESTIC
Auto parts is a highly fragmented market with many smaller players
Chinese OEM requirements relative to quality, delivery, inventory, and technical support are not easy to meet
SORL’s aftermarket distribution network is difficult to duplicate
In terms of manufacturing, quality, distribution, product development, and technical support, it will be difficult for others to catch up with SORL
Nationwide Sales
Network
Close Relationship
with Big OEMs
Performance-Cost Ratio
Warranty and
ReliabilityTimely
Delivery
Efficient Customer Services
Other Small Suppliers No No Low Low Poor Poor
SORL Auto Parts Yes Yes High High Good Good
SORL has a leadership position that will be difficult to challengeSORL has a leadership position that will be difficult to challenge
COMPETITION: FOREIGNCOMPETITION: FOREIGNForeign companies have limited themselves to the high end of Foreign companies have limited themselves to the high end of
the market in Chinathe market in China Do not have an aftermarket distribution network like SORL Have not been able to develop the technical support levels that SORL has
As a result, foreign companies are losing market share in China As a result, foreign companies are losing market share in China as SORL’s quality improvesas SORL’s quality improves
Foreign share of air brakes estimated to be 10%, down from 25% 2 years ago
Overseas, SORL’s cost advantage and constantly improving Overseas, SORL’s cost advantage and constantly improving quality will drive future export growthquality will drive future export growth
STRATEGIC VISIONSTRATEGIC VISIONGlobal LeaderWe aim to be a leading global supplier of air brake valves and related products
Capacity ExpansionExpand production capacity to meet the growing demand in China market and support the future international expansion plan
New ProductsDevelop scalable product technologies and capacities, focusing on electronics and controls; establish position as a integrated system provider in China
New SectorsAccelerate growth into public transportation segment
Overseas AcquisitionEnhance export potential by acquiring US distributors or parts makers
MANAGEMENT TEAMMANAGEMENT TEAMXiaoping Zhang, Chairman and CEOXiaoping 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, COOXiaofeng Zhang, COO• Co-founder of Ruili Group – General
Manager• Spearheads SORL’s sales and
marketing effort
Zongyun Zhou, CFOZongyun 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
FINANCIAL HIGHLIGHTSFINANCIAL HIGHLIGHTS
Steady Revenue Growth($, millions)
Improved Profitability
SUMMARY INCOME SUMMARY INCOME STATEMENTSTATEMENT
($MM)
Revenue
Gross Profit
Operating Profit
Net Income
Revenue Growth
Net Income Growth
Gross Margin
Operating Margin
Net Margin
12/31/2005
64.2
14.3
5.5
4.9
37.1%
3.0%
22.3%
8.6%
7.7%
12/31/2006
84.9
19.3
9.9
7.7
32.3%
55.5%
22.7%
11.6%
9.1%
12/31/2007
115.8
27.0
12.0
10.7
36.4%
39.6%
23.3%
10.4%
9.3%
Q307
29.7
6.6
2.7
2.1
39.5%
19.6
22.3%
9.0%
7.1%
Q308
33.0
8.4
2.9
2.3
11%
10.9%
25.5%
8.8%
7.1%
SUMMARY BALANCE SHEETSUMMARY BALANCE SHEET
(In '000 $USD )Sep. 30, 2008 Dec. 31, 2007 Dec. 31, 2006
Cash and cash equivalents 5,951 4,340 11,138
Accounts receivable 36,211 30,586 26,751
Inventory 20,832 8,220 4,529
Total Current Assets 76,149 58,169 54,370
Property, plant and equipment, net 24,220 21,795 16,312
Total Assets 115,153 93,974 70,880
Accounts payable 5,094 5,305 4,621
Total Current Liabilities 16,789 13,453 7,175
Total Liabilities 16,789 13,453 7,175
Total Shareholders' Equity 88,550 72,497 57,369
Total Liabilities and Shareholders’ Equity 115,153 93,974 70,880
SORL AUTO PARTS, INC.SORL AUTO PARTS, INC.NASDAQ: SORLNASDAQ: SORL
Ben Chen Ben Chen
Senior Manager, Investor RelationPhone: +86 (577) 6581 7720Fax: +86 (577) 6581 7733Email: ben@sorl.com.cn Web: www.sorl.cn
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