Published:

Digital China Announces 1Q FY08/09 Results

HONG KONG, Aug. 20 /Xinhua-PRNewswire/ --China's leading IT service provider, Digital China Holdings Limited ("Digital China" or the "Group"; Stock Code: 00861.HK) today announced unaudited consolidated results for the three months ended 30 June 2008.

    Highlights:
    For the three months ended 30 June 2008:
    -- Revenue increased 27.38% YoY from Q1 FY08 to HK$10,011 million
    -- Profit attributable to shareholders amounted to HK$114 million,
       representing a 74.70% YoY growth
    -- Gross profit up 33.24% to HK$662 million on YoY basis
    -- Overall adjusted gross profit margin and net profit margin were 7.65%
       and 1.14% respectively, representing a respective improvement of 58bps
       and 31bps
    -- Basic earnings per share was 11.83 HK cents up 58.58% as compared to Q1
       FY08/09

Financial Review

During the period under review, the Group recorded a turnover of HK$10,011 million, an increase of 27.38% as compared to the same period last year. Gross profit amounted to HK$662 million, an increase of 33.24% compared to HK$497 million for the same period last year. Taking into account the effect of Renminbi appreciation on procurement costs, the Group's overall adjusted gross profit margin for the three months ended 30 June 2008 was 7.65%, up 58 basis points from 7.01% Q1 FY08/09. The enhancement on business value also contributed to significant profit growth for the Group during the period. Profit attributable to equity shareholders amounted to approximately HK$114 million, representing a 74.70% growth compared to approximately HK$65 million for the same period last year. Net profit margin surged to 1.14% from 0.83% year over year. Basic earnings per share grew 58.58% to 11.83 HK cents, from 7.46 HK cents in Q1 FY08/09.

Mr. Guo Wei, Chairman of Digital China, commented on the results, "Chinese enterprises' demand for IT products and related services will continue to increase despite the macroeconomic slowdown necessitating more prudent IT investments. The Group succeeded in continuing our business transformation by adopting the 'Customer-Focused & Service-Oriented' strategy. We managed to achieve stable growth for the first quarter of FY08/09, exceeding the average growth ofChina's IT market. Our recognition by the capital market enabled us to obtain new investment of not more than RMB500 million in July 2008. We believe our strategy and this funding will further strengthen our leading position inChina's IT industry."


    Segment Results

                                  Three months ended 30 June
    (HK$ million)                         2008          2007  Change (%) YoY
    Distribution Business
     Turnover                            5,461         4,766           14.57
     Gross profit                          235           206           14.05
     Segment Results                        91            77           18.24
    Systems Business
     Turnover                            3,278         2,253           45.46
     Gross profit                          271           186           45.55
     Segment Results                        82            68           20.91
    Services Business
     Turnover                            1,272           839           51.63
     Gross profit                          156           104           49.12
     Segment Results                        27           (10)            N/A


    Business Review

Services Business (with a primary focus on Industry Market)

During the period under review, the Group's Services business continued its transformation from a start-up into a profit contribution stage. The contract value of the Group's Services business for the period was HK$1,525 million, up by 60.28% compared to the same period last year, due mainly to the deeper cooperation and value enhancement with major customers in the Services business. Cooperation with major customers in the financial sector was further consolidated. Continual upgrades of credit and loans solutions and fee-based businesses banking solutions have led to securing new customers among regional banks. In the telecommunications sector, Anhui Mobile and Shanxi Mobile signed up for our core business systems as a new-generation of core telecom operating systems (BOSS 3.0) were launched following completion of research and development. Our leading position in the telecommunication application solutions sector was further enhanced. Turnover of the Group's Services business for the first quarter of this financial year was HK$1,272 million, an increase of 51.63% compared to the corresponding period of last year. In particular, turnover contributions from financial and telecommunications sectors for the first quarter of the current financial year grew by 195.34% and 88.56% respectively, significantly outpacing average industry growth rates in these sectors.

Although the Distribution business experienced a slowdown in turnover growth because of theSichuan earthquake, it has raised society's awareness for contingency catastrophe planning. The Group conducted research and development solutions in an intensive and orderly manner for disaster alarms, emergency management and networked customs supervision systems. The disaster alarm system and emergency management system will provide unique support and services for disaster relief while the Group has signed contracts for a number of projects applying the 3+1 solution for networked customs supervision.

Systems Business (with a primary focus on Enterprise Market)

The Group's Systems business sustained robust growth during the period under review. Turnover of the Group's Systems business for the three months ended 30 June 2008 was HK$3,278 million, a 45.46% growth compare to the same period last year. Adjusted gross profit margin for this business segment was 10.09%, a stable increase from 9.95% the same period of last year. The Group has proactively developed the regional customer base resulting in continuous growth in market share. The Group realized rapid growth in networking products, packaged software and storage products with support from the sound cooperation with vendors and sales channels. Turnover from networking products, packaged software and storage products under the Systems business for the first quarter of the current financial year grew by 61.57%, 38.80% and 112.99% respectively, compared to the same period last year. Sales momentum drove rapid overall growth and was realized from significant sales to Cisco, Juniper, Polycom and EMC. To enhance this business segment's service capability, the number of technical staff 47.48% as compared to the corresponding period of last year. Turnover for Q1 FY08 from the product-related service business under the Systems business increased 52.41% year over year due to enhanced service capability.

Distribution Business (with a primary focus on SMB & Consumer Markets)

Turnover in the Group's Distribution business for Q1 FY08 amounted to $5,461 million, representing a 14.57% growth over the same period last year. Adjusted gross profit margin increased to 4.95% versus 4.59% for the corresponding period of last year. Even though the growth of the SMB and Consumer markets was curbed by theSichuan earthquake, the Group strengthened its efforts in regional penetration and sales channel development. The Group has also achieved encouraging results from its attempts to market customer- oriented solutions. Effective sales channels increased by 10.63% while cities covered increased by 50.55% as compared to 30 June 2007. Turnover from fourth- tier and fifth/sixth-tier cities also reported growth of 30.33% and 80.86% respectively, as compared to the corresponding period of last financial year. Rapid growth of the Group's Distribution business continued in notebooks, desktops, PC servers and accessories during the period under review. Turnover from the four aforementioned major business sectors reported a respective YoY growth of 15.11%, 17.33%, 18.64% and 32.23%.

Outlook

Demand in the China IT market will remain steady in the coming year. The Group should benefit from the restructuring of its service business that will outpace that in the overall IT market. Management is confident in the Group's future business development. For the Distribution business, the Group will continue to seek more IT products to enrich its product mix. At the same time, the Group will expand its regional distribution penetration rate. Both strategies will broaden its revenue sources. For the Systems business, with its solid foundation of the sound cooperation with vendors and its sales channels, will ensure a rapid revenue growth. Meanwhile, the Group will strengthen its technical teams that will further enhance its technical support capabilities and provide better value-added service to customers. Management believes that the Distribution business and System business will maintain stable revenue and earnings growth.

The Group will benefit from its Services business restructuring momentum which is expected to generate significant growth in the current financial year. The Group's promotion system and product support of the IT outsourcing and maintenance services (PSOM) is well established. A professional team of service agents, which operates on a re-selling basis, is being established to cover all regions ofChina. This lays a sound foundation for growth of the Group's Services business in the current financial year. The restructuring of telecom service providers and issuance of 3G licenses are expected to present tremendous opportunities to the Group's core system projects and value-added operations in the future. The Group will try to capitalize these opportunities to accelerate business development.

Looking into the remaining financial year, Mr. Guo Wei, Chairman of Digital China, said, "We are extremely pleased with the remarkable growth achieved during the first quarter. These satisfactory results prove that we are in the right strategic direction and well positioned to achieve our operational and management objectives set for this financial year. The 2008/09 financial year presents us with multiple opportunities and challenges. Through high operating efficiency and fine tuning of our business strategies, we are confident that we will achieve these targets and deliver greater value for our shareholders, against the backdrop of considerable uncertainties inChina's macroeconomic environment."

About Digital China

DigitalChina was listed on the main board of The Stock Exchange ofHong Kong in 2001 under stock code "00861.HK" following a successful spin off from the Legend Group. In pursuit of its "Digitalized China" corporate strategy, Digital China is focused on providing its customers with pioneer electronic business platforms, solutions and services. A one-stop IT services concept, available to individual consumers and large enterprises alike, enables its client base to span across a wide range of different industries, from banking and telecommunications to government and public sectors. Leveraging on its strong partnership with over 100 top IT vendors worldwide, Digital China has become the largest integrated IT service provider inChina.

Through effective guiding, Digital China provides fully integrated IT services to customers with different needs and at various stages of development to create value and success for them. For further information on its products and services, please visit http://www.digitalchina.com.hk .



                      CONDENSED CONSOLIDATED INCOME STATEMENT


                                                 Three months ended 30 June
                                                     2008             2007
                                                (Unaudited)      (Unaudited)
                                                  HK$'000           HK$'000

    Revenue                                      10,010,710        7,858,762
    Cost of sales                                (9,348,504)      (7,361,756)

    Gross profit                                    662,206          497,006

    Other income and gains                          129,825           91,305

    Selling and distribution costs                 (397,424)        (309,392)
    Administrative expenses                         (83,774)         (70,606)
    Other operating expenses, net                  (141,236)         (92,203)
    Total operating expenses                       (622,434)        (472,201)

    Finance costs                                   (40,818)         (39,439)
    Share of profits and losses of:
    Jointly-controlled entities                         700           (1,155)
    Associates                                        2,446             (167)

    Profit before tax                               131,925           75,349
    Tax                                             (19,031)         (12,414)

    Profit for the period                           112,894           62,935

    Attributable to:
      Equity holders of the parent                  114,034           65,273
      Minority interests                             (1,140)          (2,338)

                                                    112,894           62,935

    Earnings per share attributable to
     ordinary equity holders of the parent
      Basic                                  11.83 HK cents    7.46 HK cents
      Diluted                                11.83 HK cents    7.33 HK cents



                   CONDENSED CONSOLIDATED INCOME STATEMENT


                                                   At 30 June    At 31 March
                                                        2008           2008
                                                   (Unaudited)      (Audited)
                                                      HK$'000        HK$'000
    NON-CURRENT ASSETS
    Property, plant and equipment                     405,034        401,124
    Investment properties                             239,955        234,212
    Prepaid land premiums                              15,024         14,765
    Intangible assets                                   5,308          5,526
    Interests in jointly-controlled entities            5,645          7,894
    Interests in associates                            38,058         35,612
    Available-for-sale investments                     31,611         31,611
    Deferred tax assets                                20,970         19,480
    Total non-current assets                          761,605        750,224

    CURRENT ASSETS
    Inventories                                     2,683,075      2,559,364
    Trade and bills receivables                     4,985,337      3,772,820
    Prepayments, deposits and other receivables     1,213,010      1,233,629
    Cash and bank balances                          1,652,439        998,454
    Total current assets                           10,533,861      8,564,267

    CURRENT LIABILITIES
    Trade and bills payables                        3,499,136      3,334,519
    Other payables and accruals                     1,803,881      1,695,420
    Tax payable                                        65,757         66,405
    Interest-bearing bank borrowings                2,014,475        400,066
    Total current liabilities                       7,383,249      5,496,410

    NET CURRENT ASSETS                              3,150,612      3,067,857

    TOTAL ASSETS LESS CURRENT LIABILITIES           3,912,217      3,818,081

    NON-CURRENT LIABILITIES
    Interest-bearing bank borrowings                  919,410        952,803
    Bond payable                                      227,015        221,582
    Total non-current liabilities                   1,146,425      1,174,385

    NET ASSETS                                      2,765,792      2,643,696
    EQUITY
    Equity attributable to equity holders of the
     parent
    Issued capital                                     96,362         96,362
    Reserves                                        2,512,727      2,389,347
      Proposed final dividend                         140,210        140,210
                                                    2,749,299      2,625,919
    Minority interests                                 16,493         17,777

    TOTAL EQUITY                                    2,765,792      2,643,696



    For investor and media inquiries:

     Wycee Liu
     Digital China Holdings Limited
     Tel:   +852-3416-8089
     Email: liuyqa@digitalchina.com

     Jane Liu
     PRChina
     Tel:   +852-2522-1838
     Email: jliu@prchina.com.hk

     Winnie Wang
     Digital China Holdings Limited
     Tel:   +852-3416-8090
     Email: wangminh@digitalchina.com

     Vivian Shi
     Digital China Holdings Limited
     Tel:   +852-3416-8076
     Email: vivianshi@digitalchina.com

     Henry Chik
     PRChina
     Tel:   +852-2522-1838
     Email: hchik@prchina.com.hk

SOURCE Digital China Holdings Limited

Tags: ,CPR,ECM,STW,ASI,ERN,Digital-CN-1Q-Results

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