Hollysys Automation Technologies, Ltd. (HOLI)

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HLS Systems International Limited (HOLI)

F4Q09 (Qtr End 06/30/09) Earnings Call

August 18, 2009 9:00 am ET


Wang Changli - CEO

Peter Li - CFO

Herriet Qu - Treasurer


Mark Tobin - Roth Capital

Michael Weisberg - Crestwood Capital

Adam Hershey - SIAR Capital

Robert Chu - Jim Cowan

Alice Ku - Broadwell Capital



[Call Starts Abruptly]

lumpy quarter-to-quarter.

Moving to the balance sheet Hollysys have maintained a strong financial position as of June 30, ‘09 Hollysys cash and cash equivalents were $128.9 million compared to $106.2 million at March 31, ‘09 and $64.3 million at beginning of the fiscal year.

Inventory turnover is 79 days for the fiscal year ended June 30, ‘09, compared to 84 days at beginning of the fiscal year. DSO for fiscal ‘09 is 147 days, significantly reduced from 167 days for the prior year.

During this quarter the long-term bank loan increased by $24.9 million this is the government subsidized loan, which is virtually a free lending to Hollysys.

In conclusion from the management perspective, we are very pleased with our performance results for fiscal '09 with substantial financial and operational improvement. Given the great prospect we see in the market segments we target and our current leadership position, we project our fiscal 2010 revenues to be in the range of $185.9 million to $192.2 million.

We expect our fiscal 2010 non-GAAP net income to be in the range of $30.3 million to $31.4 million, which will translate into EPS of $0.61 to $0.63, based on expected 50 million shares outstanding.

We are confident to continue delivering superb financial performance for the coming fiscal and creating long-term value for our shareholders.

Herriet Qu

Thank you, Peter. At this time we would like to open up the floor for questions-and-answers. Operator, please go ahead open up the Q&A session.

Question-and-Answer Session


(Operator Instructions). Your first question comes from the line of Mark Tobin with Roth Capital.

Mark Tobin - Roth Capital

The question I guess, looking for little bit more color on the 2010 guidance. Can you give us an indication of your expectations for each of the segments and how those get those to that 20% growth?

Peter Li

Sure, Mark. From the historical record of fiscal ‘09, our high margin, high growth segments, such as high-speed rail, subway and nuclear increased by approximately 100% year-over-year compared to ‘08. Our industrial core business increased roughly by about 5%.

Going forward we continue to see strong market sales pipelines in these high growth, high margin business areas. So, we expect to continue to see the percentage of high-speed rail, subway and nuclear taking a more and more percentage of the total revenues. I think with regard total revenue guidelines, we provide this range, we are confident given the current market opportunities.

Mark Tobin - Roth Capital

In following up on that, I noticed that there is more mention of subway, are you gaining traction within that segment or you looking to finally break into some higher margin projects there?

Peter Li

Yes. As you know, we increased our R&D activities from the beginning of this calendar year '09. Subway signaling system is one of the key initiatives we undertake in R&D areas. As you know, in this Subway signaling system market in China, currently mainly dominated by foreign players and currently in 10 major cities in China including Beijing, Shanghai, Guangzhou, there are altogether about 393 kilometers of subway in operation.

According to government plan by 2050, there will be 125 lines in operation with total operating kilometers reaching 2,600 kilometers. So, according to government statistics between 2009-2011 the subway lines which will be started for construction amounted to about 32 lines.

So, with such huge market, mainly driven by China's Urbanization and Economic Development and we view this market just as large as high-speed rail going forward, but with much longer timeframe in terms of government spending and market expansion.

So with our investment in this area, especially in the subway signaling system, we expect to crack through this foreign dominating market in a near future by winning the first couple contracts while definitely signaling the foothold of Hollysys in this fast expanding market.


Your next question comes from the line of Michael Weisberg with Crestwood Capital.

Michael Weisberg - Crestwood Capital

A couple of things. The rail business you did in the fourth quarter, I saw it was a little unusual than that you received in order and shifted really within the same quarter. Was that a sort of an unusual situation or is that more like what might happen in the future in the rail business?

Wang Changli

Actually it is an unusual situation. Within the month we shifted system, this is very unusual, but from this we can see that the speed of and the timeframe before, it would have take 18 months or 20 months or 24 months. Now they have tracked the time interval between the signing of the contract to the delivery of the system, but nevertheless one month is too short. We expect maybe in the future for this material market because this is a project, it's for the 250 kilometers of rail system, but this kind of material products and the material lines, we’re expecting the time interval between six months to nine maybe that's normal.

Michael Weisberg - Crestwood Capital

I see. Your level of revenues, it was a huge jump to 15 million in the quarter. Is that a sustainable level of revenues or should we expect that to drop down and then build up during the course of the year?

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