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China Ming Yang Wind Power Group Limited (NYSE:MY)

Q4 2012 Results Earnings Call

April 18, 2013 8:00 AM ET

Executives

Chuanwei Zhang - Chairman and CEO

Vincent Pang - Chief Financial Officer

Beatrice Li - Director, Investor Relations

Analysts

Gloria Ho - HSBC

Scott Chui - Credit Suisse

Martin Liu - First Shanghai

Operator

Good morning and good evening, ladies and gentlemen. Welcome to the Fourth Quarter and Full Year 2012 China Ming Yang Wind Power Group Limited Earnings Conference Call. At this time, all participants are in a listen-only mode.

With us today are Mr. Chuanwei Zhang, Chairman and CEO; Mr. Vincent Pang, CFO; and Ms. Beatrice Li, Director of Investor Relations. After the management's prepared remarks, there will be a question-and-answer session.

This conference call contains forward-looking statements. These statements constitute forward-looking statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by terminology such as will, expect, anticipates, future, intends, plans, believes, estimates, targets, goals, strategy and similar statements.

Such statements are based upon management's current expectations and current market and operating conditions, and are relating to events that involve known or unknown risk, uncertainties or other factors, all of which are difficult to predict, and many of which are beyond Ming Yang's control, which may cause Ming Yang's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further informations regarding these risks and other risks and uncertainties or factors is included in Ming Yang's filings with the U.S. Securities and Exchange Commission. Ming Yang does not undertake any obligations to update any forward-looking statements as a result of new information, future events or otherwise except as required under applicable law.

I would now like to turn the call over to Beatrice Li, Director of Investor Relations. Ms. Li, please proceed.

Beatrice Li

Thank you, Operator, and thank you for joining us today. We have already issued our fourth quarter and full year 2012 earnings press release. I hope you have a chance to view it. The presentation used for this call is also available on our IR website.

In today's call, Mr. Zhang will discuss the latest business and operational developments of Ming Yang and Mr. Pang will walk you through the company's financial performance for the fourth quarter and full year 2012. After that, we will open the floor to the questions from audience.

Now I would like to turn the call to Mr. Zhang.

Chuanwei Zhang

Good morning and good evening, ladies and gentlemen. I’m Chuanwei Zhang, Chairman and Chief Executive Officer of China Ming Yang Wind Power Group. Thank you for attending our fourth quarter and full year 2012 earnings conference call.

In the fourth quarter of 2012, we recorded total sales of RMB201 million up by 11.4% year-over-year, recognized revenue equivalent to the wind power project, an output of 258.5 megawatts, including 163 units of 1.5 megawatt WTGs, 7 units of 2.0 megawatt, importance were we entered into new sales contract for wind power project with a total amount of 157.5 megawatt which includes 105 units of 1.5 megawatt WTGs.

Now I’d like to share with you our understanding of the wind power industry. As you all know that after a period of rapid growth, China’s wind power industries started to decline at the end of 2010 between the second half of 2011 and the first half of 2012. The industry has been shaping up by just trading itself and they consolidated in terms of the cash flow and the quality issues, the industry went through what was probably the worst period between May to August 2012.

After that with turbine prices picking up, the industry has started to recover just in form of the recent national policies and the newly approved projects by the 12th five-year plan in China. We are about to see a stable and healthy divestment of the wind power market. After that up to three years of divestment, China’s wind industry is maturing and realizing economies of scale, resulting in lower costs, higher technology and better business models.

Based on what happened in the industry, our assessment that our growth trend back in 2010 has proved correct. Since our IPO in 2010, Ming Yang established a second phase of growth strategies and identified our strategic stream work and the market positioning for the next three years.

In the past three years, especially in 2012 when the industry was facing severe challenges, Ming Yang has been considerably making our best efforts to take full advantage of the reallocation and the consolidation of resources and achieve our strategic plans.

In 2012, Ming Yang’s market share increased from 6.7% in 2011 to 8.7%. Also in 2011, among the top five, we were the only wind turbine manufacturer that achieved increase of a market share. Our investments are also starting to payoff and have won some historic growth opportunities for us.

In the meantime as environmental problems are increasing, it has become more critical to optimize the energy structure, think through and reduce emissions. According to China Wind Energy Association, in 2012, grid-connected connected wind power accounted for 2% of the country’s total power generation, making wind power the third biggest energy source in China in the most economic and the most stable clean energy source.

Wind power had clearly shown its advantages in the new Chinese government, it is going to attach greater attention to energy, especially wind power which has become a major source of energy. And in 2012, according to the statistics that in the 12th five-year plan, among the third that type of projects that were approved but not yet developed, there were only over 14 million megawatts of installations were not being developed. So this leads that we expect growth to develop more in 2012 in the future.

The second part of my presentation, I’m going to introduce to you our integration of our resources as well as strategies. In 2012, we seized the opportunities brought back by the massive consolidation in the industry, adjusting your divestment and the integration of the funds, talent, technology and the business models and we cultivated our capabilities, thereby realizing our mid to long-term current assets sustainable, sustained our divestment for the company.

In terms of development and integration of our client resources in 2012, we continued to pace market generation and increasing market share as our top priority and increase the development of our client resources and our necessary investments in the market development.

Last year, Ming Yang entered into sales contract with new clients including China Nuclear Power, China Guandong Nuclear Power, Three Gorges, [Guohua] and Sinohydro which are among China’s major wind developers. With the enhanced and optimized pool of client base, we were able to achieve our output value of $5 billion under which 30% share of the China’s market.

In terms of a development and integration of human resources during the challenging period, we took the opportunity to further reinforce our talents under human resources. In 2012, we completed our domestic recruitment programs on a highest group for senior management and elated technical staff dedicated in offshore wind power technology and offshore engineering.

We have also stepped up our efforts in people development and the integration further improving our current human resources structure and achieved greater operation management and R&D capabilities to support the mid-to-long term development plan of Ming Yang.

In terms of development and integration of technical resources, in 2012, Ming Yang’s advantages in SCD WTGs begin to show after passing the low-voltage-ride-through the test and the power quality test in Zhangbei Wind Power Test Base in Hebei Province. Ming Yang’s 3.0 megawatt SCD WTG is now grid connected and operating in their Huadian wind farm in XinJiang province in the Huadian project.

Our 6.5 megawatt SCD offshore WTG has also been put into operations very soon. At the same time, we have also developed testing and R&D platform for our SCD products infrastructure through capitalizing our R&D capabilities in SCD. We have invested substantially capital in the divestment and integration of our technology resources and developed competitive large late models MY 1.5 megawatts 89 meters long and MY 2.0 megawatts 100 to 110 meters long which provides customized products targeting onshore-offshore low temperature and high plateau to support the mid-to-long term strategy of Ming Yang. All this has further strengthened our competitive needs.

In terms of development and integration of our financial resources in our business model to back up the construction and collective receivables of wind power project as far as building our order book portfolio, we are providing customers with integrated solutions to solve the financing concerns, putting to certain terms and conditions, our $5 billion credit facilities from the China National Bank are successfully accessible and we have also successfully issued mid-term note.

Although the cost is up for collecting receivables and the capital have both increased, however the agitation of our financial strength into our innovative business model have to ease pressure on our business in our financial operations and allocated more financial and capital resources to support our divestments.

The third part of my presentation will consist of our focus to execute our four-pronged strategy to realize our transaction -- transition from the investment stage to payback period. In 2012, Ming Yang continue to execute our mid-to-long term strategy in an extremely difficult business environment to transition from investment stage to payback period. And we are pleased to have achieved initial results in the following aspects.

Now first of all, in establishing leadership position in SCD strategy, our SCD product portfolio currently offer both offshore and large megawatt WTGs, which are key product that helped to establish Ming Yang as the industry leader player -- leading player.

We have now fully integrated the supply chain of our SCD WTGs and have the whole advantage and capability to manufacture our own SCD gear boxes, generators and turbine fiber blades.

First, our SCD WTG prototype in Zhangbei Wind Power Test Base has already obtained the low voltage by through the certificate.

Secondly, our SCD offshore WTG demonstration project in Yudean has entered into installation stage.

And third, the Dabancheng wind farm in Xinjiang, China’s first wind farm that operate SCD WTGs is already agreed to connect it and fully operating, reporting a gross profit margin of 21%. We have planned our gross step by step from the testing stage through the development of the supply chain to the demonstration project under our prudent scientific approach.

As of today, we have already achieved a leadership position in our SCD 3 megawatt and SCD 6.5 megawatt model, as well as processing the competitive advantage in our offshore WTGs and the large megawatt WTGs offering.

Secondly, we have formed an international strategic framework after several years of research in the international market. We have now leveraged the combined advantages of Ming Yang’s product technology lower cost business model and finance to enter strategic emerging market such as Eastern Europe, India and South Asia, as well as South Africa and South America. In the first half of this year we established an Eastern European joint venture in Romania to come into the Eastern European and the Middle Asian market.

In the second half last year we established a joint venture wind turbine company with Reliance Energy, the largest electricity company in India, we -- to expand -- to expand into South Asia centering on India.

Over the past three years particularly in 2012 we have made investments and formed an international strategic framework with Eastern Europe and India as centers, which is expected to generate 30% of the total revenue of Ming Yang in 2013 and the next three years.

Thirdly, we established integrated capability in wind power, we have and we’ll continue focus on building our integrated capability, utilizing marine engineering technology, offshore team and the unique geographical advantages of China’s Guangdong province where we are based.

Guangdong has a plant for 12 megawatt offshore wind power, covering the offshore wind power of the coastal area of China. We will soon start the construction and the delivery of the first 200 megawatt offshore demonstration project in China, completing the investments of our total solutions offering in offshore wind power which will represent our capability and the competitiveness.

Thanks to the reliability and the economic efficiency of our offshore wind power and the low costs of construction. Our integrated capability will give us a full competitiveness and take us to another high level becoming a stronger driving force that will empower the company to enter the global market.

And finally, we have to realize economies of scale and gain for our new business model. We have formed a transformation model in which Ming Yang is shifting from the wind power manufacturing sector to total solutions offer in wind power investment, which means the profit model we will extend beyond manufacturing and into services, and the entire industrial chain.

Regarding marketing management, we are now focusing more on customer need and product strategy, and enhancing the innovation and business models like EPC, [COT] and BT based upon the new innovation -- the new customer business model and the total solutions offering.

We have also issued RMB1 billion mid-term notes, enhancing the operation of capacity of our business model. In the past three years, we have successfully started Huaneng project and the Tianjin project, with the Huaneng project starting to generate profit.

For the full year, revenue from EPC reported RMB636 million and the capitals gains were RMB69 million. This change of business model is the key to our transformation from a product oriented-manufacturer to a service oriented one.

In 2012, Ming Yang further strengthened our internal core competency, fully supporting the stable divestment of the company. We established the standard to improve internal governance, reducing and to control internal costs, formed business units to increase the flexibility of the business and improved our lean operations setup that we established at engineering service division to transform the engineering services model.

Despite, the current loss that has impacted the income of the company and the industry down the cycle, we are pleased to have achieved good progress in the overall divestment of Ming Yang in 2012 and avoided the industrywide issue of quality problems, concerning the loss price of component.

This year, we have also actively advanced our full prong state of strategy, supported all strategic sectors to shift from investment stage to earning stage and have moved forward step-by-step in accordance with our set goals to ensure a healthy and stable divestment of the company.

All this have accumulated power from Ming Yang mid to long-term percent of all divestment and have laid a solid foundation for building the company’s core competitiveness.

With that, I will now hand over to our CFO, Mr. Pang to walk you through the company’s financial performance of the fourth quarter and the full-year 2012. Thank you.

Vincent Pang

Good morning or good evening, ladies and gentlemen. As we have already issued earning release, I will focus on just a few important metrics from our financial performance. Please note that all numbers are in RMB and all comparisons prefer to year-over-year comparisons unless otherwise stated. I will go with the figures for fourth quarter first and then get to the full year performance.

In the first quarter of 2012, revenue was up 11% to RMB901 million, reflecting an increase number of wind turbines, commissioned in the quarter. The wind turbines for which revenue were recognized amounted to an equivalent wind power project output of 258.5 megawatt or 153 units of 1.5 megawatt wind turbines and 7 units of 2 megawatt wind turbines.

The increase in revenue was primarily due to an increase in the revenue derived from sales of raw materials of RMB54.1 million in the fourth quarter of 2012, compared to RMB15.3 million in the fourth quarter of 2011.

Gross profit for the fourth quarter was up 35% to about RMB76 million, while gross margin was 8.5% compared to 7% in the fourth quarter of 2011. The increase was a result of the favorable mix of high margins sales contracts for wind turbines, recognized during the fourth quarter of 2012.

In terms of operating costs, selling and distribution expenses in the fourth quarter were down 43% to RMB42 million. The decrease was due to the decrease in transportation expenses as a result of a fewer number of wind turbine deliveries and less bidding charges incurred due to less bidding activities.

Administrative expenses in the fourth quarter were up 115% to RMB198 million, which was primarily due to the provision of trade and other receivables of RMB135 million in the fourth quarter of 2012.

Research and development expenses in the fourth quarter were down 9% to RMB21 million. This decrease was due to less share based compensation expenses incurred during the period. Turning to the bottom line, total comprehensive losses for the fourth quarter of RMB165 million. Basic and diluted loss per share was $1.16.

For full-year 2012, revenue was down 48% to RMB2,893 million, reflecting a decreased number of wind turbines commissioned over the year. The wind turbines for which revenue was recognized amounted to an equivalent wind power project output of 804.5 megawatt, or 494 units of 1.5 megawatt wind turbines, 7 units of 2 megawatt turbines and 17 units of 2.5 to 3 megawatt wind turbines. The decrease in revenue was primarily due to the overall weakened market demand for wind turbines in China.

Gross profit for full-year 2012 was down 63% to about RMB317 million, while gross margin was 13%, compared to 18% in 2011. The decrease was result of overall weakened demand.

In terms of operating costs, selling and distribution expenses in 2012 were down 23% to RMB175 million. The decrease was due to the decreased transportation expenses as a result of fewer number of wind turbine deliveries during the period.

Administrative expenses in 2012 were up 47% to RMB384 million, which was probably due to the provision of trade and other receivables. Research and development expenses in 2012 were up 1% to RMB86 million.

Turning to the bottom line, total comprehensive loss for full-year 2012 was RMB304 million. Basic and diluted loss per share was $2.31. As for our cash position, our cash and cash equivalents as of the end of 2012 was RMB1.32 million, compared to RMB1.34 million as of December 31, 2011.

This concludes the financial reporting session and I would now turn the call back to Beatrice.

Beatrice Li

This concludes our prepared remarks from our Chairman and CFO. We will now open the floor for the questions. For the benefit of our listeners today, all questions and answers will be translated into English and Chinese for your benefit. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Gloria Ho from HSBC. Please ask your question now.

Gloria Ho - HSBC

Hi. Thank you for accepting my question. I have a couple of question that’s related to the financials. So probably, maybe Pang will help. Firstly, I noticed like the intangible has increased quite significantly by like 300 million. Can you explain what causes that increase?

Vincent Pang

As you know, we have acquired Indian subsidiary at the November 2012. During the acquisition, the Indian subsidiary become our group companies and being consolidator in this year. So we have acquired the intangible assets of our Indian company above 300 million. Basically, most of them are intellectual properties owned by the Indian companies.

Gloria Ho - HSBC

Well, maybe. Thanks for that question. For the intellectual property, do you mean like -- like patents or whether it’s like customer orders. And I just want to know how that Indian business is doing currently?

Vincent Pang

Basically, the Indian company has acquired a number of the license equipment with barriers, wind turbines provider. Additionally, there is a number, I mean, policy to that can be attributed to the customer order, I mean, the bank loss they owned.

Gloria Ho - HSBC

Yeah. I mean, so how is the Indian business doing right now? Is it like already profit making or can you give a little bit of that?

Vincent Pang

Basically, we have just acquired the company for a couple of months and it allows us to in the process of combining our business. Moreover, we are in the progress of arranging our customer contract with the wind farm owner. So it is at a suggestive stage and we will make the disclosure at appropriate time as the management thinks.

Gloria Ho - HSBC

Okay. So is it…

Beatrice Li

Gloria, we have to translate it.

Gloria Ho - HSBC

I’m sorry. So like this year, it was the first year, consolidating this Indian business in your financial statement, right. So what sort of impact do you think it will constitute? So is it like a positive, sort of, P&L impact or…?

Chuanwei Zhang

As you know, we acquired the company last November. And we are now still trying to combine India business with our existing one. And based on our adjustment, we believe that the acquisition will be positive for our performance in 2013.

We also started business in the Indian company as well. For example, we -- the first project was the 150 megawatt EPC project. In June, this year, the construction will start and at end of the year, the facility will be completed and delivered for operations.

Gloria Ho - HSBC

Can you give some guidance for the FY ‘13 gross margin?

Chuanwei Zhang

FY?

Gloria Ho - HSBC

Yeah.

Chuanwei Zhang

So based on the trend of, I think, with gross margin this year will be better than last year. So our three reasons for our adjustment, number one, wind turbine generator we are getting, they are going to begin, for example, more and more, it’s 2.0 megawatt and SCD. Second reason is because of the internal consumer measures we have taken and they will be reflected in our performance this year. And thirdly, the selling price is getting back.

Gloria Ho - HSBC

Yeah. I’m also a bit curious about the shipment volume. So I’m seeing really difference in terms of what is reported here and the number being published in CWEA figure. So I think there is actually like difference of 400 megawatt. So can you explain the difference? So what I’m seeing from CWEA is something like 1.1 gigawatt versus 805 megawatt here, so can you explain?

Chuanwei Zhang

So, basically we got these statistics in different method first time for the National Statistics Bureau, the figure they got is based on the installation and the connection figure and our statistics we got it for this figure, its based on the commissioning and operations. So basically there will be a four months delay in these figures and our statistics are based on the International Accounting Standard.

Gloria Ho - HSBC

Right. So assuming like the installation after the shipment is quick, so like 400 megawatt increase to something like shipment of two quarters. So, does it mean that like the sort of great connection is getting quite slow, so it takes like half a year to get connected?

Chuanwei Zhang

Yeah. It’s purely matter of different statistics of purchase, as well as the revenue recognition criteria.

Gloria Ho - HSBC

Okay. Yeah.

Chuanwei Zhang

And for all these EPC projects, yeah, the revenue recognition is, the criteria is even more strict.

Gloria Ho - HSBC

Okay. Yeah. And maybe one more question if you don’t mind, I’m actually quite excited to see like a 2.5 gigawatt sort of shipment guidance in FY ’13 which is like three times as much as your FY ’12 sort of shipment. So how do you think this is likely and I think haven’t to see like already four months in a year, so do you think you need to cut down your guidance?

Chuanwei Zhang

Actually we don’t have any plan to lower down this guideline because this guideline was somewhat based on the contract we have our backlog and if you look at the scheduling of our all the projects in quarter one as our production plan we have confidence that we can hit the target, yeah.

Gloria Ho - HSBC

Yeah. So a bit more about that 2.5, so I would assume like maybe over 90% will be in China because like overseas stake that will be maybe up to 200 megawatt. So stake with China that 150 megawatt EPC in India. So does it mean that you will be kind of eating someone else market share because like, if you look at China, is to really install 18 gigawatt this year. So you are having 2.5 or close to 2.5, you are taking like a 14% of market share. So are you assuming like someone else share with regard to that will be close enough?

Chuanwei Zhang

Yeah. Actually, there is a place for our positioning into the market and the thing that I’ll tell you, the operations in Eastern Europe and India. So we have does did 90% for that domestic market, so that I’ll say over 10% will for the overseas market.

Actually as I said, we have a very, very good customer base and already optimized, and based on the backlog we saw from last quarter -- the fourth quarter last year and the first quarter this year, we have been able to cover the shipment for this year’s target. We don’t have to sale or any to -- to take any contracts from competitors.

Gloria Ho - HSBC

Okay. So just a final question, so what pricing are you seeing for the like latest orders that you received?

Vincent Pang

And for the first quarter the orders we win -- we won in the first quarter of 2012 to 2013 and average selling price is above RMB3,750 including tax, which is a bit higher than what we did won in the third quarter of -- the fourth quarter of 2012.

Gloria Ho - HSBC

So you believe that there will be a 10% increase like by the end of the year, like I think, you have been given the guidance like for RMB4,000 on your won?

Chuanwei Zhang

At the end of the year the price will be something between RMB3,850 to RMB4,000.

Gloria Ho - HSBC

Okay. Thank you. That’s all I have.

Operator

Next question comes from the line of Scott Chui from Credit Suisse. Please ask your question now.

Scott Chui - Credit Suisse

Two questions from Credit Suisse. Number one, what is your focus over the overall installations once the market grows, what will be the total installation and energy growth, the state energy, they are already saying that it will be 18 megawatt of total installation, do you installation is achievable?

The second question is about new orders. Last quarter -- in the fourth quarter last year, the total new order was 1.67 megawatts and little bit lower than that seen in the third quarter last year, so what was the reason for such decline and what about the new orders seen in first -- trend in following quarters? Third question about the administrative expenses due to that provision, has that increase? Please explain what you see is this provision for?

Chuanwei Zhang

The answer to the first -- first of all, thank you for your questions. The answer for your question is that total installation for 2013 will be put into the National Energy Bureau for 18 megawatt. And one month ago, there was an official disclosure, official approval for three batches up from installation accounting for 28 megawatts. And in quarter -- the second quarter, there will be another 20 gigawatts to be approved by the -- to be approved and released by the National State Bureau.

So with the total installation, if you look at the total installation of 14 gigawatts were approved but not yet fully released and they will be released in the upcoming two years. This doesn’t include any offshore projects or any project that could be approved in the future.

So the total installation for 2013, based on our adjustment will be something around 20 gigawatt instead of 18 gigawatt because 18 is quite a conservative figure. And most probably it will be something between 20 gigawatt to 22 gigawatt. I think is mostly feasible. As for the new orders, because most of the approvals were obtained in the first quarter this year for the big trade, so perhaps this can leverage more.

Vincent Pang

As you see it, the third quarter of 2011 and the fourth quarter of 2011 is about the total orders. One is about a 457 megawatt. For the fourth and first quarter, we did have a number of bidding process. However, there was only quite a few of them has allowed the result up to the end of first quarter. We won about 99 megawatt orders and signed the contracts. We expect that there will be -- the order we won in the second quarter of 2012, we will increase -- 2012.

Scott Chui - Credit Suisse

Okay.

Vincent Pang

The second quarter of 2012.

Scott Chui - Credit Suisse

Last year. This year or last year.

Vincent Pang

This year.

Scott Chui - Credit Suisse

2013.

Vincent Pang

2013. Yeah.

Scott Chui - Credit Suisse

Okay. So the new orders for the last quarter, last year was 457 megawatts and new order for the first quarter this year was 99 megawatts.

Vincent Pang

Regarding to the provision issue, due to the tightened credit condition policy, I will try and spend more time and spend more time to raise the bank financings, which deal with our collection of receivables. In addition, the government does not pay a subsidy to our customer on time, which also adds the credit pressure to our customer.

So our debt to turnover kept on increasing in the year of 2012. And so for the conservative way, we would like to provide a provision against our trade receivables. But however, we do feel confident that those receivables will cover out. And excluding those provisions of trade receivables and our ending consolidations, we will make a profit in the first quarter excluding those adjustments.

Scott Chui - Credit Suisse

So question about the selling price. Just now you said you expected the selling price at the end of the year. It will be something above RMB4,800. So is it because of the better market overall or it’s because of the improved technology in your product?

Chuanwei Zhang

Actually, talking about the selling price, as you know that the wind farm has been in operations for many years. And the customers are looking for their customized product, customized WTGs. Meanwhile, the requirements for the connection to the grid is also getting returns higher and higher.

In 2012, there were some -- there was loss for all the WTG manufacturers not only in China but also everywhere in the world. So such a loss in manufacturing were definitely part to the power generators and the operators. So last August, it was consensus that everybody with some -- calling for the price hike of WTGs. And according to them for the WTG under 2.0 megawatt, the selling price should be something between RMB3,800 to RMB4,000 each unit.

And for the WTG between 2.5 megawatt to 3.0 megawatt, it will be something between RMB4,300 to RMB4,500 per unit. So actually for all the WTG manufacturers, what we are looking at is that the unit watt cost instead of the traditional ones.

Scott Chui - Credit Suisse

So last question is about the receivables. Do you think that you’re getting -- you're collecting the receivables quickly and what do you think about the trend?

Vincent Pang

Basically, we collect about RMB3.4 billion last year which has already accounted for the 16% of total receivable in 2012. And given the pretty environment, we become easier this year. We expect to collect more money in 2013. Besides -- apart from the normal collection of the receivables, we make use of other financial instruments such as least payment method to assist our customer to collect -- to raise the pay balancings for our payment. So albeit, we do think we can collect -- that the collection issues will be resolved in this year.

Scott Chui - Credit Suisse

Thank you.

Operator

Thank you for your question. Your last question comes from the line of (inaudible) [IBSN Management]. Please ask your question.

Unidentified Analyst

This question is about SCD WTG Dabancheng products, Xinjiang. How do you think what is the stability of all the SCD WTGs there?

Vincent Pang

We have recognized the income of the Dabancheng SCD wind turbine in the second quarter of 2012. And we allowed carrying out functionality testing at the mean time. The reason why we, the timing is deferred for other alignments because the quick coalition has been done, has been completed and just in the February of 2013. We allow doing the functionality testing at the meantime and once they can be done and -- I mean, it can push that with SCD turbine to operate steadily and stable operations.

Chuanwei Zhang

So half of the unit, half of the WTGs in Dabancheng were already in operation and the other half operating the functionality test. And the test will be finished by end of May this year.

Unidentified Analyst

This question, yeah, it is about the maintenance cost of all the SCD WTGs in Guangdong because they will used for the offshore projects. So based on your knowledge on the technical level of all the products as well as the special requirement of operating over the sea. So how do you think about the overall maintenance cost?

Chuanwei Zhang

Well, talking about the maintenance cost of all the onshore and offshore SCD WTGs, actually they are international packages. Usually based on the overall activity it generated, it will be 5% to 7% for the onshore turbines and 10% to 12% for the offshore WTGs. Since this SCD is a compacted unit, it has less components inside. So therefore based on all adjustments, the maintenance cost will be about 8% of the total electricity generated.

Unidentified Analyst

So this question is about -- and first of all it’s about the SCD cost. Mr. Zhang verified whether it is the manufacturing cost or what. It is up to 1.5 megawatt. And Mr. Zhang said there are two types of 1.5 megawatts, actually one for onshore and one for offshore. And this gentleman further talked about the cost for 3.0 megawatt WTGs. So what is the cost?

Chuanwei Zhang

For this 3.0 megawatt WTG for the offshore project, currently, our selling price is between RMB4,800 to RMB5,200. And according to [South Grid], when they prepare the cost, they have budgeted RMB5,200 per unit on basis of the admission. So therefore our selling price will be RMB5,000. I’m just making an estimation of the cost. And in manufacturing, our cost per unit will be something between RMB4,000 to RMB4,300 because we have not started any batch production yet.

Once that production starts, we will be able to control it. Just not -- sorry, one correction, currently, the cost is something between RMB3,800 to RMB4,000 because we haven’t started any batch production yet. Once batch production starts, we will be able to control it below RMB3,000 -- at RMB3,400 per unit.

Unidentified Analyst

This question is about the industry. It is said that the equipment is real issue subjected to the client -- to your downstream clients quickly this year. So how do you think about this? Do you think that it will influence the new orders?

Chuanwei Zhang

Actually, it has been very one of the hot topics during the two conferences about the subsidy to the renewable energies under the ministry of finance, also responded to the requirements of using subsidies to the clients. Even before the two conferences, the 60% of the total subsidies were issued to the clients and after the conferences, the issuance was costlier than before. And also this year the ministry of finance expanded the fiscal budgeting for their subsidies in their report.

And we believe that with accelerated issuance of subsidies, the delayed impairments will be resolved very soon. And there is another reason, because of the evolution of the environment we are setting up a trading mechanism in the market, particularly in Guangdong, Beijing and Shanghai. So there will be such a trading mechanism in place very soon.

Unidentified Analyst

So the question is about the financing cost. What is the financing cost of ACA? Just notice that there was about a RMB1 billion of ACA in the financial report, that’s about the down payment payables. So can you please elaborate more?

Vincent Pang

There are two parts of bank borrowings. One is from a medium-term look, which had been raised in the January of 2012. The coupon rate is 8.5%. Taking into that consideration after underwriting charges and other commissions, the effective interest rate is about 9.1%. For the normal bank borrowings, which is most of the bank borrowings are short-term loan. The average cost is about 6.5% per annum. So, I mean if I take to average then the overall operating borrowing cost for Ming Yang Group’s is about 7.5%.

Operator

Thank you for your questions. You have new questions from Martin Liu from First Shanghai. Please ask your question.

Martin Liu - First Shanghai

Two questions. The first question is about growth province report last year. We just noticed in the province report, you paid (inaudible) somewhat is about RMB500. We did notice. It was 8% in quarter four. I would say very different from that in quarter three last year. So can you please explain why there is such a big change?

Second question is about the gross margin this year. Can you please give us any guideline for the gross margin target in 2013? The third question is about the Indian project. So for this acquisition, is it because of any investment capture in the project or just to pay to your major shareholder in the acquisition of Indian company? For the EPC project, do you think that you are going to recognize revenue for the 150 megawatt EPC projects in Indian company?

For the bank borrowing, we notice that there was a RMB1.6 billion increase in bank borrowing in comparing to that in 2011. Can you please explain how much of the borrowing was for working capital and how much for the EPC project in India?

Vincent Pang

First of all, regarding gross margins, the revenue of the gross margins in the fourth quarter as you know, as we have told before there was sales of raw materials about RMB64 million at the first quarter of 2012. However, the gross margin, I mean, the sales of raw materials is simply the sales of the spare parts to our customer, which genuinely is a carry over of the margin, which is about a 2%.

So we view lowered overall profit margin for the Ming Yang Group, first of all. Secondly, at the year end we did something in our retesting, I mean there would be a large product testing on our stock holdings. So we did have a profile of RMB33 million stock provisions against on our total inventory. So based on this cumulative impact, we should grow our overall cost profit margin in the quarter four. In 2013, basically we did all usually give guidance about our 2013 figures. But we are optimistic that we can maintain our gross profit margin in the 2013.

For the second question in relation to the Indian capital injections, it is the Indian company, I mean the company owned by the Reliance Capital. They issued new shares to the Ming Yang. In others words, we are injecting new cash into the company rather than acquiring old shares from the original shareholders.

Regarding to the EPC projects, which we carry out in Indian company because we have adopted a very tight accounting principles, especially in the area of the recognitions. So, I mean the Indian subsidiary is our top companies. So the sales -- our sales to the Indian subsidiaries will be regarded into the company’s sales and purchase, which will be eliminated during the consolidations. So, I think the EPC project will recognize income in the year of 2013 and to the project, I mean the wind farm projects will be ultimately sold to the wind farm owner.

Martin Liu - First Shanghai

[Foreign Language]

Vincent Pang

Regarding the implement of the 1.6 billion down payment about 1.730 million payments was acquired just on the Indian Group companies and the amount spend by 1.120 million payments acquired from the another for the -- another acquisition projects of Tianjin facility and the remaining about -- remaining…

Beatrice Li

(Inaudible)

Vincent Pang

… 6 million, I mean, remaining 6 million incremental that we attributed to the Ming Yang itself, most of the newly raised bank borrowings will be available for the working capital use.

Martin Liu - First Shanghai

[Foreign Language]

Vincent Pang

Regarding the first question about the position of the raw materials, I think, basically, I mean, as you, as the management has already explained the price of the wind turbine is coming back and lastly it will be the same for the credit -- for our suppliers, which means the cost of sales will remain the same and even going upwards.

So, we according -- accordance with our current principle, we will keep an eye on relative position in the future but however we do have confident that, the chance of our provider position is quite small in the coming year.

Martin Liu - First Shanghai

Okay. Fine. Yeah. So three questions, the first one is about the provision for the raw material, because the price was lowering last year and reducing statistics will at least will become momentum this on year it will keep going down in 2013.

So, the second question is about the Indian EPC project in Indian company. So there is interest income. So how do you think about -- how do you handle the interest income financially and do you think that you’ll be capitalized that income?

And so, the third question is about the share price because it is very low currently since the over market expecting by reducing by zero buyback in share in future.

Vincent Pang

So the answer to the first question is [Foreign Language]

Chuanwei Zhang

So let me answer your first question, it’s about the, first of all, about the provision for the raw material. Currently as you know that we haven’t started much production for all the SCD WTGs and if you look at the purchase price for all the components for the WTG product for the first batch and the all that production, the purchase price was much higher one year ago than the purchase price right now.

So particularly for the first batch of SCD products, the revenue has not being recognized hence therefore we prepared a provision in the (inaudible) impairment preparation only. So we don’t think that it will be something regular.

As for the Indian product -- Indian project, actually we haven’t paid any -- actual for any once -- on any once behalf. The principle capital was held by Reliance and the infrastructure cost was lend from Construction Bank of China to Reliance Group, so we don’t have to anything from anyone on behalf so it isn’t discussed.

So third question about share price, last year the Board approved a total sum of US$15 million for the repurchase of our shares and US$14 million has not being yet used, and it was available for us to use at anytime. We personally I do think that the share price is very, very low right now and after the meeting -- after the annual discloser personally I will start my own put it back again for our shares. [Foreign Language]

Operator

Thank you for your questions. At this time, there are no further questions in queue, so I would like to hand the call back to Ms. Beatrice Li, Director of Investor Relations for closing remarks.

Beatrice Li

Once again thank you for all joining us today, we welcome you to contact me for any further questions. Thank you and good day. Bye.

Operator

Ladies and gentlemen, this conclude our presentation. Thank you for your participation. You may now disconnect. Have a great day.

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