Boyuan Construction Reports Second Quarter 2020 Financial Results

TORONTO, Feb. 14, 2020 /CNW/ - Boyuan Construction Group, Inc. ("Boyuan" or the "Company") (TSX: BOY), an established China-based construction and engineering company, today reported its second quarter financial results for the three-month period ended December 31, 2019. All figures are in U.S. dollars unless otherwise stated. The Company also provided an update on the impact that the novel coronavirus officially named COVID-19 is having on their business.

Second Quarter 2020 Highlights

• Revenue grew 15.9% to $112.6 million;
• Gross profit decreased 49.4% to $4.2 million on higher labour costs;
• Net income was $3.4 million, or $0.13 per diluted share, compared to $4.4 million, or $0.17 per diluted share, for the same quarter last year.

"We continued to achieve solid revenue growth in the second quarter as a result of the numerous material contracts secured over the past three years," said Mr. Cai Liang Shou, Chairman and CEO of Boyuan Construction Group. "However, our margins remained under pressure, largely as a result of increasing labour costs, as wages in China overall continue their upward trend. Overall, we expect to continue to benefit from our strategy to focus on real estate markets in smaller centres in the fast-growing regions of the Yangtze River Delta and Hainan Province."

Selected Second Quarter Financial Results

Review of Second Quarter 2020 Financial Results

Revenue for the second quarter increased 15.9% to $112.6 million from $97.2 million in the same quarter from last year. Revenue was derived from projects the Company commenced in 2019, 2018 and 2017, which have amounted to $136 million, $315 million and $260 million respectively. These projects are estimated to have a project duration period between one to three years.

Cost of construction for the quarter was $108.5 million, an increase of 21.9% from $89 million in Q2 2019. The two major components of the cost of construction are direct material and labour costs. Direct material costs were $70 million and labour costs were $32 million in this quarter, compared to $62.2 million and $22.2 million respectively in the same quarter from last year. The increase in labour costs over time has contributed to the Company experiencing a downward trend in gross margins over the past few years. Gross profit for the quarter was $4.2 million, 3.7% of revenue. Gross profit for the corresponding period of last year was $8.2 million, or 8.5% of revenue.

Other gain for the quarter increased to $3.6 million compared to $0.07 million in the same period last year. The increase was due to the disposal of an office building in Jiaxing.

G&A expenses were $1.7 million in this quarter compared to $1.4 million in the same quarter last year. The increase in expenses is primarily due to consulting fees and depreciation charge.

Net impairment loss for this quarter was $0.3 million versus $1.2 million in the same quarter last year. The Impairment losses were determined by doing an impairment assessment under ECL model upon application of IFRS 9 on trade balances based on provision matrix. On YTD basis, the net impairment reversed was $1.5 million this period and a net impairment loss of $0.8 million for the same period last year.

Interest expense for the quarter was $1.3 million, compared to $1.0 million for the same quarter a year ago. The higher interest expense was due to the increase of borrowings in the period.

After-tax net income for the quarter was $3.4 million, or $0.13 per diluted share, compared to $4.4 million, or $0.17 per diluted share, for the same period last year.

Boyuan had working capital of $81.7 million, including, cash, cash equivalents, and restricted cash totaling $15.6 million for the second quarter. This compares to the $55.5 million and $19 million at June 30, 2019.   

As previously announced, on December 5, 2019 and December 31, 2019, non-brokered private placements of 5,255,765 and 1,100,000 ordinary shares, respectively, were completed at a price of CAD0.31 each. Pursuant to a subscription agreement of the same dates, the proceeds were used for operating new construction projects and to provide additional working capital for the Company.

Boyuan's consolidated statements for the three-month period and six-month period ended December 31, 2019 and related management's discussion and analysis (MD&A) will be filed with securities regulatory authorities within applicable timelines and will be available via SEDAR at www.sedar.com.

Update on Business Impact of COVID-19

In response to the threat of COVID-19 in China, the Chinese government had previously issued a directive prohibiting most workers to go back to work before February 10,2020, with companies having to obtain approval from the government before resuming their normal business activities. Boyuan sought approval from the government to resume business activities on February 10,2020. The Company received approval for its office workers to return to work on February 13, 2020.  Boyuan is still waiting for approval for its construction workers to return to work. It is difficult for the Company at present to estimate when such approval will be granted.

The virus epidemic will certainly have a negative impact on our business this financial year, as the Company will experience some delay in resuming normal construction activities and in the initiation of new projects. It is however difficult for the Company to accurately assess the extent of the impact at this stage. The Company will provide further update on this situation in due course.

About Boyuan Construction Group, Inc.

Backed by a longstanding track record, Boyuan Construction Group, Inc. ("Boyuan" or the "Company") has the knowledge and expertise to design and build a wide range of commercial and residential developments, as well as municipal infrastructure and engineering projects. Based in Jiaxing City and with a growing presence in both Zhejiang Province and Hainan Province, Boyuan focuses on construction projects in China's fast-growing regions of the Yangtze River Delta and the Hainan Province. The Company's current project backlog includes residential, commercial, industrial and mixed-use developments. For more information visit www.boyuangroup.cn.

Caution Regarding Forward-Looking Information:

Certain information contained in this press release constitutes forward-looking information, which is information relating to future events or the Company's future performance and which is inherently uncertain. All information other than statements of historical fact may be forward-looking information. Forward-looking information is often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar words or phrases (including negative variations) suggesting future outcomes or statements regarding an outlook. Forward-looking information contained in this press release includes, but is not limited to, management's expectation to comply with the Alternative Information Guidelines. Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. The Company believes the expectations reflected in the forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and readers are cautioned not to place undue reliance on forward-looking information contained in this press release. Some of the risks and other factors which could cause results to differ materially from those expressed in the forward-looking information contained in this press release include, but are not limited to: risk of a general cease trade order bing issued, risk of risk of macro-economy cycle, risk from competition, risk from insufficient marketing to secure new projects, risk in obtaining additional financing, risk involving permits and licences, reliance on key management member, risk from supply of raw materials, risk of financial leverage, risk of bad debts in accounts receivables, risk involved in real estate development, foreign exchange fluctuations, political and economic conditions in China and other risks included in the Company's AIF for the fiscal year ended June 30, 2019 and in the Company's public disclosure documents filed with certain Canadian securities regulatory authorities and available at www.sedar.com. The forward-looking information contained in this press release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as otherwise required by law.

SOURCE Boyuan Construction Group, Inc.