Highway Holdings Reports Fiscal 2007 First Quarter Results

Sales Up 11.1 Percent as OEM Focus Gains Momentum


HONG KONG, Aug. 3, 2006 (PRIMEZONE) -- Highway Holdings Limited (Nasdaq:HIHO) today reported results for its first fiscal quarter ended June 30, 2006 -- reflecting the initial benefits of its divesture of non-core businesses completed in fiscal 2006.

Net income for the fiscal 2007 first quarter increased 5.6 percent to $570,000, or $0.16 per diluted share, from $540,000, or $0.16 per diluted share, last year -- which included a one-time $940,000 net gain related to the sale of a portion of the company's rights to its Kienzle trademark. Net sales for the 2007 fiscal first quarter increased 11.1 percent to $7.3 million from $6.6 million a year earlier.

"Our strategic divestiture initiatives over the past year have established a solid foundation for growth and profitability within the OEM sector. Results for the first fiscal quarter are particularly encouraging given the company's $400,000 loss a year ago before the one-time gain noted above and an 11 percent sales increase this quarter, despite the approximate $1.0 million loss of sales due to divestiture of the clock and camera businesses. We fully expect to now capitalize on the opportunities available to the company without the distractions and costs associated with non-core operations that impacted the company in recent years," said Roland Kohl, chairman and chief executive officer of Highway Holdings.

Metal, mechanical and electronic OEM net sales represented $6.74 million, or 92.39 percent of the company's total net sales, for the first fiscal quarter -- highlighting the company's successful strategy to concentrate on its core OEM operations. As anticipated, sales of clocks and watches declined to $423,000 from $860,000 -- representing current OEM customers. Sales of cameras also, as expected, declined to $132,000 from $711,000 in the same fiscal period a year earlier.

Gross profit as a percentage of sales for the first fiscal quarter of fiscal 2006 was 21 percent compared with 21 percent in the same period a year ago. Gross profit increased 10.5 percent to $1.53 million from $1.38 million last year, reflecting increased OEM sales and the elimination of watch and clock business not directly related to the company's watch and clock OEM business. The company noted that margins for the current fiscal quarter were impacted by: increases in the cost of raw materials, such as metal and plastic materials, which increased, from the same period a year ago, in the range of five to 20 percent; gasoline price increases of approximately 35 percent; increases in labor and facility costs; and, set-up expenses associated with the recent formation of a new metal company and tool-making operation located in Wuxi, China, approximately 160 kilometers west of Shanghai.

Selling, general and administrative expenses for the fiscal quarter declined by $152,000, or 11.35 percent, from the same period a year ago -- primarily due to the significant reduction of staff in Germany, as reported last quarter. The company cautioned that this trend is not necessarily indicative of future trends given planned strategic growth initiatives, such as operations in Wuxi, China, noted above, and other current and potential developments highlighted in the company's Form 20-F report for its fiscal year ended March 31, 2006.

Kohl noted the company's balance sheet remains strong. Cash and cash equivalents increased to $6.6 million at June 30, 2006, compared with $6.4 million at March 31, 2006, despite investments in fixed assets for new machinery and equipment. At June 30, 2006, the company had working capital of 10.2 million compared with $10.0 million at March 31, 2006. Total shareholders' equity at June 30, 2006, was $12.8 million compared with 12.3 million last year. The company's current ratio was 2.55:1 at June 30, 2006.

The company recently declared a cash dividend of $0.20 per share, payable August 10, 2006 to holders of record on July 28, 2006. This follows a $0.20 per share dividend paid on December 12, 2005 and August 15, 2005 -- representing a combined payout of $0.60 over a one-year period.

About Highway Holdings

Highway Holdings produces a wide variety of high-quality products for blue chip original equipment manufacturers -- from simple parts and components to sub-assemblies. It also manufactures finished products, such as LED Lights, radio chimes and other electronic products. Highway Holdings is headquartered in Hong Kong and operates three manufacturing facilities in the People's Republic of China.

Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements which involve risks and uncertainties, including but not limited to economic, competitive, governmental, political and technological factors affecting the company's revenues, operations, markets, products and prices, and other factors discussed in the company's various filings with the Securities and Exchange Commission, including without limitation, the company's annual reports on Form 20-F.



                  HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES
                      Consolidated Statement of Income
               (Dollars in thousands, except per share data)
                               (Unaudited)


                                                    Quarter Ended
                                                       June 30,

                                                   2006       2005
                                                 -------    -------
 Net sales                                       $ 7,295    $ 6,563
 Cost of sales                                     5,769      5,182
                                                 -------    -------
 Gross profit                                      1,526      1,381
 Selling, general and administrative expenses      1,187      1,339
 Gain on sale of industrial property rights            0       (940)
                                                 -------    -------
 Operating income                                    339        982

 Non-operating items
  Interest expenses                                  (47)       (29)
  Exchange gain (loss), net                          248       (398)
  Interest income                                     46         10
  Other income/(expense)                              10          5
                                                 -------    -------
  Total non-operating income (expenses)              257       (412)

 Net income before income tax                        596        570
 Income taxes                                         26         30
                                                 -------    -------

 Net Income                                      $   570    $   540
                                                 =======    =======

 Earning per share -- basic                      $  0.16    $  0.16
                                                 -------    -------
 Weighted average number of shares -- basic        3,539      3,302
                                                 =======    =======
 Earning per share -- diluted                    $  0.16    $  0.16
                                                 -------    -------
 Weighted average number of shares -- diluted      3,543      3,455
                                                 =======    =======


                     HIGHWAY HOLDINGS LIMITED AND SUBSIDIARIES
                            Consolidated Balance Sheet
                       (In thousands, except per share data)

                                               June 30,    March 31
                                                 2006        2006
                                               --------    --------
                                              (Unaudited)
 Current assets
  Cash and cash equivalents                    $  6,553    $  6,384
  Restricted cash                                   965         965
  Short term investment                             299         300
  Accounts receivable, net of doubtful accounts   4,236       3,789
  Inventories                                     3,970       4,118
  Prepaid expenses and other current assets         799         546
                                               --------    --------
   Total current assets                          16,822      16,102

 Property, plant and equipment, net               3,008       2,787
 Investment and advance in affiliate                  2           2
                                               --------    --------
   Total assets                                $ 19,832    $ 18,891
                                               ========    ========
 Current liabilities:
  Accounts payable                             $  3,243    $  2,498
  Short-term borrowings                           1,482       2,015
  Current portion of long-term debt                 441         481
  Accrual payroll and employee benefits             363         292
  Accrued mould charges                             213         246
  Other liabilities and accrued expenses            820         610
  Income tax payable                                 26           0
                                               --------    --------
   Total current liabilities                      6,588       6,142
                                               --------    --------
 Long-term liabilities:
  Long-term debt                                    243         322
  Deferred income taxes                             153         153

 Shareholders' equity:
  Common shares, $0.01 par value, authorized
   20,000,000 shares                                 35          35
  Additional paid-in capital                     10,245      10,245
  Retained earnings                               2,703       2,133
  Accumulated other comprehensive income            (82)        (86)
  Treasury shares, at cost-37,800 shares            (53)        (53)
                                               --------    --------
   Total shareholders' equity                    12,848      12,274
                                               --------    --------
   Total liabilities and shareholders'
    equity                                     $ 19,832    $ 18,891
                                               ========    ========


            

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