Sutor Tech Group (NASDAQ:SUTR)

Third Quarter 2013 Financial Results

• Revenue was $139.6 Million vs last years 109.9 a 27% increase
• Net Income$3.88 Million vs last years$1.28 Million an increase of 203.1%
• EPS Fully Diluted was $0.10 vs last years $0.03 an increase 233.3%

Ms. Lifang Chen, CEO and Chairwoman of Sutor, commented: "Following a successful second quarterof fiscal 2013, we are pleased to report that the result of the third quarter exceeded our expectations. Further, we are on track to carry out our strategy to organically grow our production capacity, expand the asset-light B2B electronic commerce platform exclusively for the heavy industries, and selectively pursue merger and acquisition and joint-venture opportunities to accelerate our growth."

Ms. Chen concluded, The Chinese economy had a weak recovery during the last two quarters after several consecutive quarters' decline in GDP growth rate. China Purchasing Managers' Index (PMI) for the manufacturing sector has been above 50% for seven consecutive months since last October. Although the latest economic indicators showed some weakness, we believe the overall trend remains healthy. Based on the year-to-date results, we feel optimistic that we can end fiscal 2013 on a positive note. In the longer term, we believe our new cold-rolled production line of 500,000 tons annual capacity, which is expected to commence trial production later this year, our recent joint venture with China Railway Materials Wuhan Company, and our new galvolume steel products launched in January this year will become the additional drivers for our future growth. We look forward to reporting our progress in the coming months.

CHANGSHU, China, April 1, 2013 /PRNewswire-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced its subsidiary Ningbo Zhehua Heavy Steel Pipe Manufacturing Co., Ltd. ("Ningbo Zhehua") won a contract to supply 11,440 meters of spiral seam steel pipes for a water transmission pipeline project in Zhuji City, Zhejiang Province. The contract is valued at approximately $8.6 million. Deliveries are expected to begin in April 2013.

Lifang Chen , Chairwoman and CEO of Sutor commented, "We are pleased that following a bid process, Ningbo Zhehua won this major contract to supply its spiral seam steel pipes for this vital urbanization project for the city of Zhuji. This win is a demonstration of the high quality and brand recognition of our products. Ningbo Zhehua facility manufactures a variety of steel pipes, has six production lines and a total annual capacity of 400,000 metric tons. Ningbo Zhehua's large diameter steel pipe production line uses one of the most advanced technologies in the steel pipe industry."

Ms. Chen continued, "Improvement and expansion of water infrastructure remains an important element of China's urbanization plan which continues at an unprecedented rate. Currently China's urbanization ratio is approximately 48%, well below the 85% in the developed economies and the global average of 55%. The scale and pace of China's ongoing urbanization and the growth in domestic consumption are expected to drive the need for greater infrastructure investments and should increase the demand for a variety of high-end steel products. Sutor is well positioned to take advantage of these growth opportunities as our products are used in a variety of industries such as construction (buildings, bridges, water and sewage infrastructure, etc), oil and gas, household appliances, solar water heaters, medical instruments and automobiles."

CHANGSHU, China, April 1, 2013 /PRNewswire-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced its subsidiary Ningbo Zhehua Heavy Steel Pipe Manufacturing Co., Ltd. ("Ningbo Zhehua") won a contract to supply 11,440 meters of spiral seam steel pipes for a water transmission pipeline project in Zhuji City, Zhejiang Province. The contract is valued at approximately $8.6 million. Deliveries are expected to begin in April 2013.

Lifang Chen , Chairwoman and CEO of Sutor commented, "We are pleased that following a bid process, Ningbo Zhehua won this major contract to supply its spiral seam steel pipes for this vital urbanization project for the city of Zhuji. This win is a demonstration of the high quality and brand recognition of our products. Ningbo Zhehua facility manufactures a variety of steel pipes, has six production lines and a total annual capacity of 400,000 metric tons. Ningbo Zhehua's large diameter steel pipe production line uses one of the most advanced technologies in the steel pipe industry."

Ms. Chen continued, "Improvement and expansion of water infrastructure remains an important element of China's urbanization plan which continues at an unprecedented rate. Currently China's urbanization ratio is approximately 48%, well below the 85% in the developed economies and the global average of 55%. The scale and pace of China's ongoing urbanization and the growth in domestic consumption are expected to drive the need for greater infrastructure investments and should increase the demand for a variety of high-end steel products. Sutor is well positioned to take advantage of these growth opportunities as our products are used in a variety of industries such as construction (buildings, bridges, water and sewage infrastructure, etc), oil and gas, household appliances, solar water heaters, medical instruments and automobiles."

Second Quarter FY2013

Discussing second quarter fiscal 2013 results, Lifang Chen, Chairwoman and CEO of Sutor, commented, "We are pleased to report that we substantially improved our top and bottom lines, expanded our product offering, introduced new products and services, and further diversified our customer base."

CHANGSHU, China, December 17, 2012 /PRNewswire-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced that it has appointed Naijiang (Eric) Zhou as its Chief Financial Officer, effective December 14, 2012.

Over the last three years, Mr. Zhou has served as the Vice President of Finance of Sutor Technology Group. Before that, Mr. Zhou worked for Rich Fields Investment, Roth Capital Partners, American Electric Power, The Wing Group and U.S. Global Investors in various capacities including executive vice president & chief financial officer, research analyst, financial analyst and principal financial planner. He has more than 15 years of professional experience covering private equity and mutual fund investment, equity research and Fortune 500 corporate financial planning and analysis in the U.S. and in China.

Mr. Zhou received a Ph.D. in Energy and Mineral Resources and an MBA in Finance degree from the University of Texas at Austin, and a B.Sc. in Petroleum Engineering from China Petroleum University. He holds the Chartered Financial Analyst (CFA) designation.

Yongfei Jiang resigned as the Chief Financial Officer, Treasurer and Secretary of Sutor Technology Group, effective December 14, 2012. Mr. Jiang will continue to work for Sutor Technology Group and will be responsible for planning and supervising the corporate development and strategies. His resignation is not the result of any disagreement with the Company on any matter relating to its operations, policies or practices. Mr. Zhuo (Jason) Wang, currently the Director of Investor Relations, was appointed as Treasurer and Secretary of Sutor Technology Group, effective December 14, 2012.

First Quarter Fiscal Year 2013

• Revenue. For the three months ended September 30, 2012, revenue was $117.2 million, compared to $130.2 million for the same period last year, a decrease of $13.0 million, or approximately 10.0%.
• Net income. Net income, excluding foreign currency translation adjustment, decreased by $3.2 million, or 63.2%, to $1.8 million in the three months ended September 30, 2012, from $5.0 million in the same period in 2011 
• EPS was $0.05 vs last years $0.12.

Ms. Lifang Chen, Chairwoman and CEO of Sutor, commented, "Although our products are used in a variety of applications in several major sectors of the economy, we were not immune to the slowdown in the Chinese economy. While many China-based steel companies suffered losses during a period of slow economic growth and the over-capacity in the upstream segment of the steel industry, Sutor, as a fine finished steel manufacturer in the downstream segment of the steel industry, has remained profitable.  More importantly, during the first quarter of fiscal 2013, we generated $7.3 million in cash flow from operations."

Ms. Chen continued, "To reduce the impact of the cyclicality of the steel industry and fully utilize our assets, we have been seeking investment opportunities that require relatively small investments but have the potential to generate high returns." 

Ms. Chen added, "Using the recently established joint-venture as a starting point, we are increasing the service component of our businesses to smooth out operations and enhance profitability."

Ms. Chen concluded, "As the slowdown of China's economy seems to have bottomed out, the country's economy remains strong and it is poised for healthier and sustainable growth in 2013 and beyond.   We believe cyclical industries such as ours have the potential to greatly benefit from an economic recovery, as domestic demand is expected to be the major growth driver going forward.  Sutor is well positioned to take advantage of opportunities that might arise from this economic recovery, and we look forward to reporting our progress in the months to come."

CHANGSHU, China, November 13, 2012 /PRNewswire-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced that it has regained compliance with the NASDAQ Stock Market Listing Rules (the "Listing Rules") that require maintenance of a minimum $1.00 per share bid price.

As previously disclosed, the Company received a notice from The NASDAQ Stock Market on June 25, 2012, indicating that, for the last 30 consecutive business days, the bid price for the Company's common stock had closed below the minimum $1.00 per share required for continued inclusion on The NASDAQ Capital Market under the NASDAQ listing Rule 5550(a)(2). The Company was granted a period of 180 calendar days, or until December 24 2012, to regain compliance with the minimum bid price requirement.

On November 9, 2012, the Company received notification from The NASDAQ Listing Qualifications department that it had regained compliance with the minimum bid price requirement under the Listing Rule 5450(a)(1) after maintaining a closing bid price of the Company's common stock equal to or in excess of $1.00 per share for the last 10 consecutive trading days, from October 24, 2012 to November 8, 2012.

Fourth Quarter 2012 Results

• For the fiscal 2012 fourth quarter, Sutor generated revenue of approximately $183.6 million vs.  $109.9 million in the prior year.
• Net income of $3.3 million and EPS of $0.08 vs $1.2 million and $0.03 in prior year.

Ms. Lifang Chen, Chairwoman and CEO of Sutor, commented, "We are pleased that despite the challenging economic conditions in China and abroad, we generated record revenue and have continued to grow our business by developing new products, increasing our customer base, and by establishing a joint venture, and therefore positioned our Company well for sustainable growth in fiscal 2013 and beyond."

Ms. Chen concluded, "We believe our stock is extremely undervalued. Although factors like investors' sentiment and macro-economic conditions are beyond our control, we are doing everything we can as a public company to restore investor confidence. We have taken steps to strengthen our internal control procedures, engaged a top five globally-ranked audit firm, maintained a complete Board of Directors of both U.S. and Chinese experts, retained a reputable U.S. law firm as our legal counsel, and hired a U.S. based IR firm to improve shareholder communications. We encourage investors to visit our website for additional corporate news and to learn more about our Company. We'll continue to explore all options to protect and maximize shareholder value."

CHANGSHU, China, August 21, 2012 /PRNewswire-Asia-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based non-state owned manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced that it has entered into a supply agreement for 12,000 metric tons of spiral seam steel pipes with Middle East Dredging Company ("MEDCO"), a company established in Qatar and specialized in capital dredging works, through a complementary fleet of dredging vessels, reclamation and other equipment. MEDCO intends to use the steel pipes for an oil transportation project in Qatar.

Under the agreement, the total contractual amount is approximately $10 million. Sutor expects to start delivering the steel pipes in September and complete the delivery by December 15, 2012.

Ms. Lifang Chen, Chairwoman and CEO of Sutor, commented, "Sutor is proud to partner with MEDCO, a leading dredging and reclamation contractor which has been involved in a number of prestigious projects in the Middle East. With this supply agreement, we believe Sutor's presence and reputation in the region have been enhanced and strengthened. In the highly competitive global steel industry, we believe that our focus on providing customers with outstanding service and superior products has made Sutor a supplier of choice for a growing list of customers in more than 30 countries."

CHANGSHU, China, June 26, 2012 /PRNewswire-Asia-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based non-state-owned manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced that on June 25, 2012 it received a letter from the staff of the Listing Qualification of the NASDAQ Stock Market LLC (the "Staff"), indicating that the Company is not in compliance with the $1.00 minimum closing bid price requirement under the NASDAQ Listing Rules (the "Listing Rules").

The Listing Rules require listed securities to maintain a minimum bid price of $1.00 per share. If a NASDAQ-listed company trades below the minimum bid price requirement for 30 consecutive business days, it will be notified of the deficiency. Based upon the Staff's review, the Company no longer meets this requirement. However, the Listing Rules provide the Company with a compliance period of 180 calendar days, or until December 24, 2012 in which to regain compliance with this requirement.

To regain compliance with the minimum bid price requirement, the Company must have a closing bid price of $1.00 per share or more for a minimum of ten consecutive business days during this compliance period.

In the event that the Company does not regain compliance within this period, it may be eligible for additional time to regain compliance by satisfying certain requirements. However, if it appears to the Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, the Staff will notify the Company that its securities will be delisted from the NASDAQ Capital Market. However, the Company may still appeal the Staff's determination to delist its securities to a Hearing Panel. During any appeal process, the Company's common stock would continue to trade on the NASDAQ Capital Market.

The NASDAQ notification letter has no immediate effect on the listing or trading of the Company's common stock on the NASDAQ Capital Market. The Company is currently looking at all of the options available with respect to regaining such compliance.

CHANGSHU, China, June 13, 2012 /PRNewswire-Asia-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based non-state owned manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced that its Board of Directors has approved a plan to form a joint venture among its indirect wholly owned subsidiary, Jiangsu Cold-Rolled Technology Co., Ltd. ("Cold-Rolled"), China Railway Materials Wuhan Company Limited ("CRM Wuhan"), a subsidiary of China Railway Materials Company Ltd., and Changshu Binjiang Urban Construction Investment & Management Company ("Changshu Binjiang").

Initially the joint venture will primarily be engaged in providing raw materials procurement, logistic and other related services to third parties. The equity interests in the joint venture for Cold-Rolled, CRM Wuhan and Changshu Binjiang are 39%, 51% and 10%, respectively. CRM Wuhan is a state-owned enterprise (SOE) supervised by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC). It is reported that China Railway Materials Company, the parent of CRM Wuhan, is one of the Fortune 500 companies. Changshu Binjiang is affiliated with Changshu municipal government. The registered capital for the joint venture is Renminbi (RMB) 100 million (approximately US$16 million), among which, RMB 39 million (approximately US$6.24 million) will be contributed by Cold-Rolled.

Ms. Lifang Chen, Chairwoman and CEO of Sutor, commented, "We are very pleased that CRM Wuhan selected us as its partner for the joint venture. It reaffirms our position as one of the leading fine finished steel manufacturers in China. We believe this joint venture will elevate our position in the industry. We also intend to take advantage of CRM Wuhan's extensive business network and vast resources to secure our raw materials procurement on more favorable terms, reduce our financial expenses and strengthen our balance sheet."

"We believe the joint venture will improve our vertically integrated business model by extending our value chain into the upstream raw materials purchases. In the long term, we also believe it will open doors for other strategic growth opportunities," concluded Ms. Chen.

CHANGSHU, China, June 4, 2012 /PRNewswire-Asia-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based non-state owned manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced that it has successfully developed self-cleaning pre-painted galvanization steel plate (PPGI) products used by large solar energy companies in China.

The self-cleaning PPGI products are featured with improved hydrophilic property and anti-contamination ability. Dust and other contaminants existing on the surface of these products can be washed away by rain. Although similar products have been used for the construction industry, Sutor improved and tailored the products for a large scale use by the solar energy industry. They are typically used to manufacture storage tanks of solar water heaters and related parts.

Ms. Lifang Chen, Chairwoman and CEO of Sutor, commented, "The introduction of the self-cleaning PPGI steel plate for the solar energy industry demonstrates our ability to produce high-end products to meet the needs of industry upgrading in China. As the only research center dedicated to fine finished steel research in Jiangsu Province, we will continue to capitalize on our leading position in the fine finished steel sector and develop new products to meet the growing consumer needs."

CHANGSHU, China, June 4, 2012 /PRNewswire-Asia-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based non-state owned manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced that it has successfully developed self-cleaning pre-painted galvanization steel plate (PPGI) products used by large solar energy companies in China.

The self-cleaning PPGI products are featured with improved hydrophilic property and anti-contamination ability. Dust and other contaminants existing on the surface of these products can be washed away by rain. Although similar products have been used for the construction industry, Sutor improved and tailored the products for a large scale use by the solar energy industry. They are typically used to manufacture storage tanks of solar water heaters and related parts.

Ms. Lifang Chen, Chairwoman and CEO of Sutor, commented, "The introduction of the self-cleaning PPGI steel plate for the solar energy industry demonstrates our ability to produce high-end products to meet the needs of industry upgrading in China. As the only research center dedicated to fine finished steel research in Jiangsu Province, we will continue to capitalize on our leading position in the fine finished steel sector and develop new products to meet the growing consumer needs."

Third Quarter 2012 Results

• For the three months ended March 31, 2012, revenue was $109.9 million, compared to $101.4 million for the same period last year, an increase of $8.5 million, or 8.4%.
• Net income, without including the foreign currency translation adjustment, decreased by approximately $2.3 million, or 65.7%, to $1.2 million in the three months ended March 31, 2012, from $3.5 million in the same period in 2011, as a cumulative result of the above factors.

Ms. Lifang Chen, Chairwoman and CEO, commented, "Our performance was lower than that in the same quarter last year due to a combination of factors including the slowing down of the Chinese economic growth, equipment shutdown for energy-saving related renovation as well as the timing of project completion. Further, continued appreciation of the Chinese Yuan and lingering financial crises in Europe resulted in slower export sales. It was one of the most challenging quarterly performances for the last several years. We understand every industry and company may have its ups and downs."

"That being said, we are pleased with the fact that sales from our main HDG products were up approximately 36.1% during the quarter compared with the same quarter last year because demand exceeded supplies. As a result, we built up inventories and engaged in spot sales. We fully expect sequentially improved performance in the fourth fiscal quarter in an otherwise challenging but improving economic environment. I am also pleased to report that the construction of the new 500,000 metric tons of high-precision cold-roll steel production line is progressing well. We anticipate trial production will start in July."

"On the capital market, we'll continue to closely monitor the tradeoff between trading liquidity and share prices. We may resume repurchasing shares to protect and maximize shareholder value when appropriate. We may also ask the Board of Directors to approve new buyback programs after the existing program expires. Our near-term priority is to complete the new cold-roll production line on time and then try to maximize the asset value," concluded Ms. Chen.

Outlook

We believe as the inflation pressure in China is under control and the Chinese government may gradually improve monetary liquidity, the Chinese economic growth is expected to gain momentum and maintain a reasonable growth rate. For the steel industry, especially the downstream segment of the industry where our company is located in, we believe the average product price has reached a local bottom and has been stable for the last several months. As we believe the demand for our product is gradually increasing, we anticipate sequentially improved performance for the fourth fiscal quarter and for the next fiscal year.

Unaudited financial results for the second quarter of fiscal year 2012 ended December 31, 2011.

Second-Quarter 2012 Highlights:

Revenues (million)     2QFY2012  2QFY2011  Change

Revenues (million)       $107.9         $99.4       8.6%

Gross profit (million)    $10.4           $9.5         9.5%

Gross Margin               9.6%             9.6%         -

Net income (million)     $2.8             $2.9          -3.4%

EPS                              $0.07           $0.07          -

• Engaged Grant Thornton, the China member firm of Grant Thornton International, as its independent registered public accounting firm;
• Continued construction of the Company's new cold-roll production line of 500,000-tons designed annual capacity, which is expected to start commercial operations in the summer 2012;
• Repurchased 402,887 shares of the Company's common stock at the open market according to the Company's previously announced shares repurchase program; and
• Started to build a B2B (business to business) electronic trading platform exclusively for the steel industry; it is anticipated that the platform will initially be used to market Sutor's products with the option of expanding into a profit center via hosting other companies' trading activities.

Business Outlook

We maintain our previously announced anticipation that both revenue and net income of the Company will grow at a compound annual growth rate (CAGR) of approximately 25% to 35% for the next two fiscal years.

Second Quarter 2012 Results

• Revenue was approximately $107.9 million, compared to $99.4 million for the same period last year, an increase of approximately 8.6%
• Net income, without including the foreign currency translation adjustment, decreased approximately $0.1 million, or 3.4%, to $2.8 million in the three months ended December 31, 2011, from $2.9 million in the same period in 2010, as a cumulative result of the above factors.
• EPS for Second Quarter 2012 were $0.07 vs $0.07 in prior year

Ms. Lifang Chen, Chairlady and CEO, commented, "During the second fiscal quarter, we focused on seeking operating excellence and achieved growth in both revenue and gross profits despite the challenging macro-economic environment both at home and abroad. As China gradually transits from an export and investment-driven economy to a domestic-consumption economy, we will proactively develop new products to serve the growing consumer goods industries like solar water heaters, high-end household appliances, information technology and automobiles. Positioned in the downstream segment of the steel industry, we believe our businesses are affected more by the general conditions of the economy than the changes to the upstream iron and steel refining segment. We believe our integrated business model and superior geographic location near consumer centers and transportation hubs will enable us to benefit from the ongoing economic transition in China. We are looking forward to milestone events to celebrate the Company's 10th anniversary in 2012."

"Closely working with our new auditor, we will continue to enhance our corporate governance and provide timely and accurate financial information to our shareholders. We also intend to improve our communications with our shareholders and further reach out to the investment community in general. Finally, we will explore all options to improve shareholder value," concluded Ms. Chen.

Business Outlook

We maintain our previously announced anticipation that both revenue and net income of the Company will grow at a compound annual growth rate (CAGR) of approximately 25% to 35% for the next two fiscal years.

First Quarter 2012 Results

Fiscal 2011 Results

• For the fiscal year ended June 30, 2011, revenue was $431.7 million compared to $478.7 million last year, a decrease of approximately 9.8%.
• Net income, without including the foreign currency translation adjustment, increased $2.7 million, or approximately 23.9%, to $14.0 million in fiscal year 2011, from $11.3 million in fiscal year 2010
• Earnings per share for fiscal 2011 $0.34 vs $0.29 in 2010

Commenting on Sutor's operations, Ms. Lifang Chen, Chairwoman and CEO, said, "We ended fiscal year 2011 with improved gross margin, net income and earnings per share despite challenging economic condition.

Ms. Chen continued: "Since we were listed on Nasdaq Capital Market in February 2008, we have added 400,000 metric tons of hot-dipped galvanization and 400,000 metric tons of heavy steel pipe production capacities. In addition, a cold-roll production line of 500,000 metric tons annual capacity is planned for commercial operations next year. We would like to invite our investors to visit our manufacturing facilities and witness themselves how their investments are put into use. Despite the high volatility in the capital markets, we will remain focused on seeking operating excellence and pursuing outstanding customer services. We are committed to our shareholders, employees, and customers for the years to come."

Fourth Quarter Preliminary Results

First Quarter Highlights:

"We are pleased to report another quarter of consistent profit and improved gross margin. The decline in total revenue was primarily due to our strategic decision to reduce our steel trading business. In addition, as the steel industry in China becomes more competitive and lower end products become more of a commodity, we are working hard to shift some of our high end capacity to more specialized, higher margin products. Our goal is to separate ourselves from the industry at the highest levels and to work as efficiently as possible.  As a result of this transition over the past quarter, we experienced a decrease from our overall pre-painted galvanized products. Going forward, we anticipate favorable top line growth on a year over year basis beginning next fiscal year," said Ms. Chen, Chairwoman and CEO of Sutor. "We are encouraged by the fact that demand for our products remained strong and the prices for our products increased between approximately 6.5% and 19.0% in the third fiscal quarter this year over the same quarter last year."

• Revenues were $101.4 million in the third fiscal quarter of 2011, compared to $114.5 million for the same period last year, a decrease of $13.1 million, or approximately 11.4%
• Income from operations was $5.6 million in the third fiscal quarter of 2011 as compared to $5.5 million in the same period last year, an increase of $0.1 million, or approximately 1.8%
• EPS of $0.09 vs. $0.09--flat on the year.

Rodman and Renshaw on SUTR                       5/9/2011

F3Q11 Results More or Less In-line with Expectations; Maintain Rating and PT

Sutor Technology Group (“Sutor”, Ticker: SUTR, Market Outperform) reported mixed F3Q11 results that as a whole were in-line with our expectation. Total revenue in the quarter was $101.4 million, slightly below our estimate of $103.7 million. Gross profit came in at $8.6 million, also a bit shy of our estimate of $9.3 million. Operating income, however, was helped by lower than expected operating expenses and reached $5.6 million, almost in-line with our expectation of $5.7 million. Actual interest and tax expenses were also below our expectations, resulting in net income of $3.5 million, actually above our estimate of $2.8 million. As a result, diluted EPS for the quarter was $0.09, beating our estimate by couple pennies.

As of March 31, the company had cash, cash equivalents, and restricted cash of $75.0 million as well as $133.2 million of working capital. Stockholders’ equity stood at $187.6 million.

Our Take

Cost under control We are by and large satisfied with the quarterly performance and are especially encouraged by the company’s expense management discipline. Gross margin of 8.5%, while not as impressive as the 9.5% figure reported in F2Q11, was nevertheless decent and higher than a year ago. Changes in product mix and reduced lower margin steel trading business revenue were the major reasons for the improvement. Looking forward, we expect Sutor’s gross margin will hover around 9% for the next several quarters. SG&A, which looked to be near a breakout in F2Q11 mostly because of higher international shipping costs, were now under control. To reduce shipping cost, the company wisely adopted a FOB (Free on Board) method in F3Q11 rather than continuing with the CIF (Cost, Insurance and Freight) method that it used in the previous quarter. We are heartened by such a nimble move. As a whole, considering China is entering into a more inflationary environment that could prove supportive for Sutor’s product prices, and the company has been focusing on maximizing the utilization of its production capacity, we continue to take a constructive view on the Sutor’s margin outlook.

New cold-rolling facility to come on-line in C1H12 As Sutor has been running at more than 100% capacity of its existing cold-rolling production line, we eagerly await the development of its new 500,000 metric tons cold-rolling plant, which the company expects to start operation in the first half of calendar year 2012. The new facility should alleviate Sutor’s capacity constraint and provide a new push for its revenue and profit growth. It could also broaden the company’s product offerings and enhance margins.

Risks

Major risks to our rating and price target include both domestic and international macroeconomic risks, steel price volatility, highly fragmented and competitive industry, revenue and customer concentration, as well as country and political risks related to operating and investing in China.


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"We remain optimistic about the remainder of fiscal year 2011. In January, we received approximately 10,000 tons of international sales orders as compared with about 10,500 tons of such orders for the whole third quarter of FY2010. In the second quarter of FY2011, Sutor was honored as a High-Tech Enterprise by Jiangsu provincial government. This certification places Sutor among a selected few value-added steel producers in China that won both government and market recognition. Further, Sutor recently opened two new offices in metropolitan  Ningbo and Shanghai in an effort to attract talents, increase brand recognition and better service our customers," Ms. Chen further commented. "As we continue our strategies of expanding sales channels, optimizing product portfolio, enhancing research and development efforts, and improving brand recognition, we believe we can capitalize on the ongoing industrial upgrading and urbanization processes in China," concluded Ms. Chen.

Rodman and Renshaw on SUTR                  2/12/2011

Below Expectation F2Q11, Lowering PT to $5 

Sutor Technology Group (“Sutor”, Ticker: SUTR, Market Outperform) announced F2Q11 results that were mostly below our expectations. Total revenue decreased 13.7% YoY to $99.4 million, lower than our estimate of $111.7 million and Street consensus of $110.5 million. Despite the significant decline in revenue, gross profit grew 9.6% YoY to $9.5 million with a gross margin of 9.5%, beating our respective estimates of $9.1 million and 8.1%. Net income decreased by 27.2% YoY to $2.9 million, or $0.07 per diluted share, below our respective estimates of $3.4 million and $0.08 as well as Street consensus of $3.6 million and $0.09.

F2Q11 Highlights and Discussions 

Revenue decrease largely due to reduced steel trading business The significant drop in revenue was primarily due to reduced trading business at Sutor’s subsidiary Ningbo Zhehua Heavy Steel Pipe Manufacturing Co. (“Ningbo Zhehua”). During F2Q11, revenue from Ningbo Zhehua decreased by $10.2 million YoY to $8.4 million from $18.6 million a year ago. In addition, lower production volume of PPGI products also contributed to lower revenue. We believe it is management’s intention to reduce the revenue contribution from trading business as it carries lower margins and to focus on production of higher-margin products. Management expects the trading volume to remain low for the remainder of 2011. An encouraging sign of revenue recovery is that Sutor received approximately 10,000 tons of sales orders from aboard in January, almost the same amount received in the entire F3Q10. 

Significant gross margin expansion as a result of favorable product mix shift Gross margin expanded 200bps YoY and 120bps sequentially to 9.5% in F2Q11. The improvement was mostly due to product mix shift to higher-margin products. During the quarter, Sutor significantly reduced trading revenue which carried lower margins and increased production of higher-margin products. Management expects the gross margin will stay around 9% for the remaining quarters of 2011. We are encouraged by this improvement because Sutor’s gross margin had not been above 8.3% since the beginning of CY2009. 

Escalating expenses diminishing net profit Selling expenses rose 89.8% YoY to $2.0 million mainly due to sharply increased international shipping costs, which reached $1.2 million compared to $0.08 million last year. We believe that the shipping expenses could go even higher during the next quarters since international sales orders soared in January. G&A expenses increased 44.3% YoY to $1.7 million from $1.2 million a year ago. The opening of two new offices in Ningbo and Shanghai, attending international trade shows, and increased allowance for bad debt resulted in spike in G&A expenses. We expect G&A as a percentage of revenue will be lower during the rest of 2011 quarters as we believe some expense items such as opening new offices should not be repetitive in the remaining year. Interest expenses reached $2.3 million, compared to $1.3 million last year. The increase was mostly due to the higher cost of discounting bank acceptance notes.


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This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

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Rodman & Renshaw on SUTR

F1Q11 Results Mixed

Sutor Technology Group (“Sutor”, Ticker: SUTR, Market Outperform) reported mixed F1Q11 results. Total revenue was $101.9 million, significantly below our estimate of $131.0 million and Street consensus of $132.0 million. The below-expectation top line performance was largely due to a lower than expected production volume of PPGI as well as decreases in steel pipe trading operations. Helped by better than expected margins, however, gross profit for the quarter was $8.4 million, slightly below our estimate of $9.8 million. Net income was $3.4 million, in-line with our expectation, but slightly below the $3.7 million Street consensus. Diluted EPS for the quarter was $0.08, also in-line with our estimate, but one penny shy of the Street consensus. At the end of September, the company had cash and cash equivalent of $17.1 million as well as $45.1 million of restricted cash and $107.5 million of working capital.

Our Take 

We believe Sutor reported a respectable quarterly performance with the miss in revenue being buffered by improvements in gross margin and SG&A. Actual gross margin during the quarter was 8.4%, almost a whole percentage point higher than our estimate of 7.5%. A greater focus on advanced PPGI products with higher margins but requiring more sophisticated processing procedures and production time was a major reason for the improvement in gross margin but the decline in production volume. SG&A during F1Q11 were $3.0 million, below our estimate of $4.2 million. Net margin during F1Q11 was 3.3%, representing a 60bps improvement from F4Q10, also 70bps higher than our estimate. With the company’s focus on maximizing the utilization of its production capacity as well as searching for potential downstream acquisition targets, we take a constructive view on the company’s margin outlook in the near to medium term future. We also expect the company will continue to adjust its product mix in order to adapt to China's increasingly inflationary environment.

Maintaining Market Outperform Rating and $6 Price Target 

In light of the F1Q11 results, we have tweaked our financial model and projections. For fiscal year 2011, we now expect the company will realize revenue, gross profit, and net income of $454.4 million, $37.2 million, and $14.3 million, respectively. This also translates to a diluted EPS of $0.35 for F2011. We are maintaining our Market Outperform/Speculative Risk rating on the shares of Sutor and our price target of $6. The price target is based on Sutor shares trading at 15x our CY2011 EPS estimate of $0.40.

Risks 

Major risks include macroeconomic risk, steel price volatility, highly fragmented and competitive industry, revenue and customer concentration, as well as country and political risks related to operating in China.


Notice Regarding Privacy and Confidentiality: 

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

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Rodman & Renshaw on Sutor

4Q FY10: SUTR announced its 4Q FY10 (ended on June 30, 2010) revenue and net income of $125.3 MM and $3.4 MM, with a fully diluted EPS of $0.08. Top-line for the quarter grew by 14.1% Y-o-Y from $109.8 MM in 4Q FY09 helped by demand from China and abroad. 

 Full Year FY10: On a full year basis, SUTR generated total revenue and net income of $478.7 MM and $11.3 MM, with diluted EPS of $0.29. This compares to FY09’s results of $429.8 MM, $18.7 MM, and $0.49, respectively. Top-line growth reached 11.4%, primarily driven by a 27.1% increase in sales volume. Total shipment volume for FY10 was 746K tons, compared to 587K tons in FY09. By product mix, HDG (Hot Dip Galvanized Steel) contributed the largest portion of total sales, accounting for 48%, compared to 17% from PPGI (Pre-Painted Galvanized Steel), 12% from Cold Rolled Steel, 13% from Welded Steel Pipe, 8% from Acid Pickled Steel, and 2% from other steel products. 

 Export Sales Remain Robust: For FY10, export sales contributed $53.7 MM in revenue or ~11.2% of total, representing 18.3% Y-o-Y growth. This compares to $45.4 MM or 10.6% of total in FY09. This indicates continued penetration of SUTR’s higher-end products in overseas market. Management expects international sales to continue to grow in FY11 at a 12%~ 15% growth rate. 

Margin Pressure May Persist: We remain cautious on SUTR’s gross margin for the remainder of 2010 given the mixed signals from China’s soft-landing policy and production cuts in steel industry. In our view, steel makers’ production cuts could potentially affect the growth of the company’s processed volume, with COGS remaining at a relatively high level in the near-term. 

FY11 Estimates: Now we are projecting revenue and net income of $131.0 MM and $3.6 MM, with diluted EPS of $0.09 for 1Q FY11. For full year FY11, our estimates are $543.0 MM, $15.6 MM, and $0.39, respectively. Our full year revenue projection is based on our assumption of 820K tons of total shipment volume and ASP of $662 per ton. 

 Valuation: At current levels SUTR is trading at P/E multiples of ~5.2x, and ~4.3x to our CY2010 and CY2011 earnings estimates. On EV/EBITDA basis, the company is trading at ~5.5x and ~4.8x to our CY2010 and CY2011 forecasts. These multiples are below industry averages for similar players in the US and China. We believe SUTR should be trading at a minimum in line with industry averages given the growth opportunity associated with it. We are comfortable maintaining a $7.00 price target for SUTR. 

Investment Risks: (1) Revenue Concentration (2) Highly Fragmented and Competitive Industry (3) Steel Price Volatility (4) Change in government regulation Liquidity. 

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

    Fiscal Fourth quarter results highlights:

                                  4Q 2010    4Q 2009             Change
    Revenues (million):           $125.3     $109.8              14.1%
    Gross profit (million):       $10.5      $6.3                66.7%
    Net income (million):         $3.4       $1.8                88.9%
    EPS:                          $0.08      $0.05               60.0%

    Fiscal year 2010 results highlights:

                                  FY2010      FY2009             Change
    Revenues (million):           $478.7      $429.8             11.4%
    Gross profit (million)        $32.8       $36.3             -9.6%
    Net income (million)          $11.3       $18.7             -39.6%
    EPS                           $0.29       $0.49             -40.8%

Commenting on Sutor's operations, Ms. Lifang Chen, Chairwoman and CEO, said, "We are pleased with our performance in the fiscal fourth quarter which demonstrated significant improvement over the same period last year. The record high annual revenues were the result of our continued effort to expand our markets despite the uncertainties during economic recovery. In the fourth quarter sales volume increased approximately 3.9% over the same period last year. For the fiscal year, sales volume was approximately 27.1% higher than fiscal year 2009. Demand for our products remained strong as our products are extensively used in almost all major sectors of the economy. Last fiscal year was a year of consolidation and stabilization and hence we are optimistic about the overall performance in fiscal year 2011."

 Ms. Chen continued, "We are pleased to see the continued increase in annual revenue attributable to our efforts to expand market share in both domestic and overseas markets. Although the record annual revenue did not transform to increased annual net income as a result of rising production costs and increased selling expenses, the widened sales channels have laid a solid foundation to expand future sales. Additionally, we made significant efforts to differentiate ourselves from other competitors through investing in research and development. We applied for 15 patents in fiscal year 2010, two of which have been approved. As of June 30, 2010, we held 23 patents and had 36 patent applications pending and believe our R&D initiatives will enhance Sutor's long-term competitive edge."

"Looking to fiscal year 2011, our priority is to maximize the capacity utilization rate, especially for our 400,000 MT hot-dip galvanization production lines that began operations at the end of September 2008. While we expect lingering uncertainty regarding general economic conditions, we will focus on generating cash from operations, reducing expenses, and improving operations to grow Sutor from both the top and bottom line. In addition, we aim to take advantage of the overcapacity situation in the upstream segment of the Chinese steel industry and reduce the costs of production. Further, we plan to expand our research center to develop high-performance and high margin steel sheets and composite steel sheets to enhance our product offerings and profitability. Finally, even though we believe our current corporate transactions are transparent, we will take additional measures to further improve corporate transparency and earnings quality. We will continue to pursue our vision of becoming the largest private fine processed steel manufacturer and contribute to the on-going industrial upgrading and urbanization processes in China," concluded Ms. Chen.

Added to the GeoSpecial list on July 20, 2009 @ $3.57

Catalyst: Re-pricing of Risk Premium.
Peak performance: Reached a high of $4.45 on July 28, 2009
Current Price: $2.04
 
Current road block:  No U.S. investor relation representation; Related party transactions are on the high side; Low pre-tax margins of 3.8%; High debt position of $107.7 million; Debt to Equity is a whopping 64.6%; Current ratio (current liabilities divided by current assets) is less than 2:1; Cash flow from operations is negative.

"Net cash used in operating activities was $7.2 million for the nine months ended March 31, 2010, a decrease of $61.7 million from $54.5 million net cash provided by operating activities for the same period last year.  Such decrease of net cash provided by operating activities was primarily attributable to decreased net income, increased advances to suppliers, partially offset by a reduction in account receivables. During the nine months ended March 31, 2010, we made more advances to our suppliers for the purchase of raw materials in anticipation of increased orders in the coming months."

Removed from the GeoSpecial list.  From a financial statement point of view, SUTR has a high risk profile, especially as most of its debt obligations are short-term. From an EPS growth point of view, SUTR’s picture has improved and is forecast to continue to improve entering into its fiscal 2011 year ending in June, when EPS is expected to grow 58.8%. The question becomes, how do we view SUTR as an investment option with its less than desirable financial statement position albeit an improving EPS picture? The GeoTeam is a big believer that EPS growth is the force that drives stock prices higher with quality considerations helping to determine the level of valuation multiples.  A most realistic scenario is that SUTR trades somewhere between its book value per share and 5 times 2011 EPS estimates of $0.54 . A most optimistic scenario, if the risk profile improves,  is that SUTR can attain a P/E multiple of 10 times earnings.  We are placing SUTR on the GeoSpecial on the Radar list as we await the release of its 2010 fourth quarter financial results.

The need for liquidity will likely continue to loom in the short-term.

"Our major sources of liquidity for the periods covered by this quarterly report were borrowings through short-term bank and private loans.  Our operating activities used $7.2 million of cash in the nine months ended March 31, 2010. As of March 31, 2010, our total indebtedness to non-related parties under existing short-term loans was $104.2 million, our short-term notes payable to related parties was $0.6 million, and our long-term notes payable to non-related parties was $2.9 million. We had no long-term notes payable to related parties."

"Short-term bank and private loans are likely to continue to be our key sources of financing for the foreseeable future, although in the future we may raise additional capital by issuing shares of our capital stock in an equity financing. We expect to renew our short term loans when they become due."

Excerpt from GeoBargain & Special Update - Performance Laggards Article

Sutor Tech Group (NASDAQ:SUTR)

SUTR has yet to see benefits as it reported its fourth straight decline in sales and EPS after missing 2010 first quarter analyst estimates. We will keep the stock coded as low end special situation play for long-term investors due to its low P/E and analyst estimates that show growth picking up in the second half of its fiscal year. However, by no means is our stance overly confident at this time.

See discussion notes

Ms. Lifang Chen, Chairperson and CEO of Sutor said, 'Like many companies in our industry, we are affected by the current global economic downtown. Despite the fact that we continued to face challenges during our third fiscal quarter, we nonetheless realized profits in the quarter while many companies in the steel industry suffered losses. Compared to the second fiscal quarter of 2009, our revenue increased by 8.0% in the third fiscal quarter, which we view as a positive sign and as validation of our development strategy and that our reaction to the volatile economic crisis has been swift and effective. We anticipate that we will continue to grow by taking advantage of a long-awaited resurgence in manufacturing and industrial development and activity and favorable economic results from the implementation of PRC government's active stimulus policies during the coming quarters.'

Source: See Release, May 14, 2009