Once again Orsus Xelent (ORS – $0.75) reported excellent results. The Chinese designer and manufacturer of mobile phones for the Asian market announced revenues in the second quarter ended June 30, 2009 of $23,332,000, compared with $28,894,000 in the second quarter of 2008, a decline of 19.25%. However, net income increased 53.19% to $2,307,000 or $0.08 per share, up from $1,506,000 or $0.05 per share in the same period last year.
We get a similar picture for the six months period ended June 30, 2009. Revenues declined 13.22% to $43,056,000, down from $49,613,000 in the first six months of the prior year. At the same time, net income advanced 29.77% to $4,442,000 or $0.15 per share in the first half of 2009, compared with $3,423,000 or $0.12 per share in the same period in fiscal year 2008.
Strong Gains in Gross Margins
The Company attributed the gains in net income in both periods to substantial improvements in gross margins despite telecom industry conditions in which more than 90% of phones sold were lower end models (under RMB1000 or $146) in the highly competitive rural markets.
However, the Company was able to include a greater number of somewhat higher end phones it developed in its product mix, in particular model T303 customized 3G phones for the telecomm operators sector and a large volume of higher margin full featured X780 phones. The best selling X780 contributed more than 58% of sales in the most recent quarter and approximately 54% of sales in the first six months of 2009. Sales of these handsets substantially boosted the Company’s gross margins, which grew to 13.2% in the second quarter.
Mr. Guoji Liu, CEO of the Company, stated: “Some of the same factors affecting results in the second quarter may continue in the remainder of the year, but we believe the reorganization of the industry will improve the environment somewhat and the new 3G technology is likely to encourage market demand.”
“As a consequence,” he said, “we will continue to explore the possibility of selling more GSM phones in traditional markets while continuing to create new telephone models that target customer needs. Additionally, we intend to launch our own 3G phones and look forward to developing a share of this emerging market. We also will continue to seek funds from Chinese domestic banks on a favorable basis to improve liquidity and permit acquisitions that we believe will enhance our business near term as well as in the future. We also will focus on more timely collection of accounts receivable which should improve in an improving economic environment.”
He concluded, “We remain cautiously optimistic that full year revenues will improve moderately, although they may not reach our goal of a 15% advance. At the same time, we believe it will be possible for our full year bottom line results to outpace the growth in revenues.”
It’s incredible this stock is only selling at 75 cents. In the second half of FY 2008 ORS reported, excluding one time earnings, a profit of $5.55 million or 18 cents per share. If we assume earnings will be flat in the second half of FY 2009 compared to last year, keep in mind that earnings almost rose 30% in the first half of FY 2009, we derive full year earnings of $10.18 million or 33 cents per share.
At today’s stock price that’s a P/E of 2.27! Do you have an idea why Orsus is trading where it is? If you do, feel free to drop us a comment. We’re curious to find out.