Stock Update (NASDAQ:CNTF): China Techfaith Wireless Comm. Tech. Ltd Reports Unaudited 2H and Full Year 2016 Financial Results, and the Sale of Certain Beijing Real Estate Assets


China Techfaith Wireless Comm. Tech. Ltd (NASDAQ:CNTF) announced its unaudited financial results for the second half and the full year ended December 31, 2016, as well as the agreement to sell certain of its Beijing real estate assets for RMB 1 billion (approximately US$144 million).

2H and Full Year 2016 Financial Results

For the second half of 2016, TechFaith reported total net revenues of US$26.5 million compared to US$34.5 million in the first half of 2016 and US$15.8 million in the second half of 2015. Gross profit for the second half of 2016 was US$7.0 million compared to US$5.5 million in the first half of 2016 and US$1.2 million in second half of 2015. Gross margin for the second half of 2016 was 26.3% compared to 15.9% in the first half of 2016 and 7.8% in the second half of 2015. Operating expenses for the second half of 2016 were US$10.2 million compared to US$6.0 million for the first half of 2016 and US$8.5 million in the second half of 2015. Net income attributed to TechFaith for the second half of 2016 was US$11.3 million, or US$1.07 per basic and diluted weighted average outstanding ADS, compared to a net loss of US$1.2 million, or US$0.11 per basic and diluted weighted average outstanding ADS, in the first half of 2016, and a net loss of US$7.8 million, or US$0.74 per basic and diluted weighted average outstanding ADS, in the second half of 2015.

For the full year ended December 31, 2016, TechFaith reported total net revenues of US$61.0 million compared to US$63.7 million for the full year ended December 31, 2015. Gross profit for the full year 2016 was US$12.5 million, compared to US$5.8 million for the full year 2015. Gross margin for the full year 2016 was 20.4%, compared to 9.2% for the full year 2015. Operating expenses for the full year 2016 were US$16.3 million compared to US$17.8 million for the full year 2015. Net income attributed to TechFaith for full year 2016 was US$10.1 million, or US$0.96 per basic and diluted weighted average outstanding ADS, compared to a net loss of US$12.8 million, or US$1.21 per basic and diluted weighted average outstanding ADS, for the full year 2015.

RMB1 Billion Beijing Real Estate Sale Agreement

Through its wholly owned subsidiary, Infoexcel Technology Limited (“Infoexcel”), TechFaith has entered into a share transfer agreement (the “Agreement”) with Beijing Hongkungu Investment Company Limited (“Hongkungu”).  Under the Agreement, Infoexcel will sell its 100% equity interest in Techfaith Intelligent Handset Technology (Beijing) Limited (the “Project Company”) to Hongkungu for a total consideration of RMB1 billion (approximately US$144 million), payable in installments. The Project Company has also acquired certain land use rights related to a piece of land in Beijing comprising 139,650 square meters and is in the process of developing and constructing certain facilities on such premise. The consummation of the transaction pursuant to the Agreement is subject to certain customary closing conditions.

The Company will continue to own and manage its real estate portfolio consisting of 3 completed buildings in Hangzhou, two completed buildings in Shenyang and a variety of in progress construction, which is at various stages.

Miss Ouyang Yuping, TechFaith’s Chief Financial Officer, said, “Our improved profitability directly reflects our further reduction in operating expenses by nearly 8.5% in 2016 compared to 2015, while we effectively leveraged our existing infrastructure and resources in pursuit of growth opportunities without added overhead costs. Actions we previously took to streamline our mobile business and shift resources to R&D, sales and customer support areas also helped us win attractive enterprise opportunities that carry higher profitability levels. At the same time, we closed the sale of three floors in one of our Beijing buildings and announced the agreement today with Hongkungu for the sale of our Beijing real estate projects. As a result of the Agreement, assets covered by the Agreement have been classified as assets held for sale, and its operating results are presented as net income from discontinued operations in our consolidated financial statements.”

Mr. Deyou Dong, Chief Executive Officer of TechFaith, said, “We achieved a dramatic turnaround in our financial results underscoring the success of our continued execution on our business diversification. The powerful leverage of our strategic model is evidenced in our net income of US$0.96 per ADS, which we achieved for the full year 2016, with net income of US$1.07 per ADS coming in the second half of 2016. Our focus remains on driving operating costs lower, while evaluating and reallocating investments to support the business areas that will lead our success and profitability. Our mobile phone business continues to both stabilize and evolve as we navigate the highly competitive markets we operate in. By concentrating on areas where we have a competitive advantage based on our strong R&D and design history, track record of developing reliable tailored solutions that leverage the latest technologies, and our supply chain relationships, we are winning attractive customer orders in the enterprise segment of the mobile phone business.”Mr. Deyou Dong continued, “The Agreement announced today is a milestone achievement for the Company and our shareholders. This Agreement will deliver immediate and highly attractive cash inflow from our investment, while eliminating the routine risks associated with ongoing development and market cycles. The proceeds will be received as a series of installments, which will strengthen our balance sheet and provide the capital to support targeted growth initiatives for our existing business lines and the exploration of other opportunities. While we expect the macro environment to remain challenging in 2017, we are optimistic and well positioned for profitability at current revenue levels based on actions we took to lower operating costs and make our core business healthier.”

In the wake of the announcements, shares of China Techfaith Wireless jumped nearly 60% to 3.09. CNTF has a 1-year high of $4.29 and a 1-year low of $1.45. The stock’s 50-day moving average is $1.87 and its 200-day moving average is $2.05.

China Techfaith Wireless Communication Technology Ltd. is a holding company, which engages in the provision of mobile solutions and development of real estate properties. It operates through the Mobile Phone and Real Estate business segments. The Mobile Phone business segment designs and develops smart phones, wireless modules, and electronic components, and provides handset design services. The Real Estate business segment develops, owns, and operates commercial real estate properties in China.

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