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Executives

Allen Wang - Chief Executive Officer

Shiliang Guo - Acting Chief Financial Officer

Dr. Zhao - Chief Technology Officer

Peter Schmidt - Financial Dynamics

Analysts

Rob Stone - Cowen & Co.

Paul Clegg - Jefferies

Lu Yeung - Bank of America/Merrill Lynch

Sanjay Shrestha - Lazard Capital Markets

Jake Greenblatt - Barclays Capital

Arch Pei - JL McGregor

China Sunergy Co., Ltd. (CSUN) Q1 2009 Earnings Call May 27, 2009 8:00 AM ET

Operator

Good day ladies and gentlemen and welcome to the first quarter 2009 China Sunergy Company Limited earnings conference call. My name is Chanelle and I will be your coordinator for today. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s call Mr. Peter Schmidt from FD. Please proceed.

Peter Schmidt

Thank you and welcome to the first quarter 2009 conference call. Joining us today are China Sunergy’s CEO, Dr. Allen Wang; Acting CFO, Mr. Shiliang Guo; and CTO, Dr. Zhao.

Before we continue, I’d like to remind you that this announcement and presentation contains forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts in this are forward-looking statements.

These forward-looking statements are based on current expectations, assumptions, estimates and projections, about the company and the industry and involve known and unknown risks and uncertainties, including but not limited to the company’s ability to raise additional capital, the effectiveness, profitability, and marketability of its products, the economic slowdown in China and elsewhere and its impact on the company’s operations, demand for and selling prices of the company’s products, the future trading of the common stock of the company, the ability of the company to operate as a public company, the period of time for which its current liquidity will enable the company to fund its operations, impact of cost-competitiveness as a result of entering into long term arrangements with raw material suppliers and other risks detailed in the company’s filings with the Securities and Exchange Commission.

The company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as maybe required by law. Although the company believes that the expectations expressed in these forward-looking statements are reasonable, they cannot assure you that their expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.

With that, I’d like to introduce Al Wang, the CEO of China Sunergy. Allen?

Allen Wang

Thank you Peter and I welcome everyone to our 2009 first quarter conference call. Our anticipation for the first quarter was that several of the negative factors we experienced in the first quarter will continue to impact our performance as we enter into 2009. As expected, our performance was hurt by the difficult sales environment that we find ourselves operating in.

Overall declining ASPs, combined with our existing high cost inventory negatively pressure our gross margins, leading to a reported loss for the quarter. However, I also believe that towards the end of the quarter, we will begin to see some of these factors being alleviate and that China Sunergy will report better operational and financial results during the first quarter than the fourth quarter of 2008. Although our quarter was not a strong one, we did achieve some improvements and expect this trend to continue into the next quarter and throughout the year.

During the first quarter we shipped 23.9 megawatt of solar cell products to a diverse set of customers, a 70% increase from the previous quarter. Of that, we shipped 8.9 megawatts of high efficiency cell, an increase from 6.5 megawatt last quarter. Although high efficiency cell sales declined as a percentage of the overall sales; this was largely due to the increase in shipment of our multicrystalline cells.

Among monocrystalline customers, the shipment of high efficiency cells increased slightly from 55.6% to 58.2% and we expect this trend to continue. Our shipments experienced a recover during the first quarter, and our results continue to be flat by our high cost inventory levels, especially early in the quarter. This inventory was purchased during 2008 and they are prior to the rapid decline in wafer costs.

As referenced, our parameter wafer cost during the first quarter was $2.74 per watt and the first quarter blended ASP at $2.97; this was a manageable though non-ideal cost base. However, we saw blended ASP fall to $1.64 per watt during the quarter, meaning the cost of this existing inventory led to severe gross margin pressure and the resulting bottom line loss. We were enabled to significantly realize the advantage of the reduced upstream cost opportunity, given our existing inventory levels at the beginning of the quarter.

Despite this inventory constraint, we do see our gross margins and our bottom line performance recover compared to the fourth quarter. I do have to acknowledge that this was in comparison to a weak fourth quarter. So far we still did not perform at their sustainable level. During the first quarter, we did make small, but important improvements.

We have been undertaking strong efforts to improve our results towards the end of the quarter and in the past months. We’re seeing several positive indications that we believe were results of continued improvement going forward, primarily involving our inventory levels and the resulting costs. While I will go into detail regarding these items with you shortly, before that I would like to review some of our operational items for the first quarter.

As I mentioned briefly earlier, during the quarter we shipped our solar products to a diverse set of customers across multiple geographies, due to a strong set of existing and newly signed supply agreements. Our new clients now include Ajit Solar in India, Solarmax Technology in U.S., another American solar firm and a Korea end user, but then we experienced reduced sales into Europe during the quarter. We will remain a key market at the China Sunergy, with our office in Germany and an enhanced sales force in the region.

Domestically, we plan to take the advantage of the Chinese rooftop solar project as we submitted a rooftop solar project application and signed multiple agreements with Chinese partners, who have submitted rooftop solar project applications for a total volume of approximately 17.6 megawatts.

Technologically we continue to enhance our cost solar sale products which post our selective immediate monocrystalline cells and HP monocrystalline cells, achieve a slight improvement in efficiency to 17.4% and 16.9% respectively.

These cells are being manufactured across our ten lines and clearly consist of five SE lines, one P-type line producing multicrystalline cells and four HP lines; three of the four HP lines which we converted last year, to be capable of producing multi-crystalline and monocrystalline cells. We are only planning to proceed with the conversion of the four HP lines as we see the market demand in the future.

We made steady progress with our efforts to develop our selective immediate multicrystalline or SEM cells, to a logo that will lead to viable commercialization. The conversion efficiency ratio of 16.5% we noted last quarter was recently confirmed by the Fraunhofer Institute in Germany and at this point we have produced just under 0.5 megawatt of SEM cells, some of which have already been shipped to our customers for verification.

Our N-type cell continues to demonstrate sustained conversion efficiency of greater than 19% at the lab level. Given the anticipated recovery of the market and the expectation of the improving financial results, we initiated efforts to commercialize this product and that several key steps have already been taken.

We have committed $10 million of capital expenditure to fund the next stage of development, which most importantly will include the construction of the facility structure that will house the N-type cell production lines in Shanghai. In our recent visibility regarding the solar market, our production expectation remains for the first half of 2010.

Overall, although our bottom line results for the first quarter were weakened by several factors, we reported some initial financial improvements and made important progress operationally. After a review of our financial results for the quarter, I would like to address the improvements we saw towards the end of the first quarter and probably anticipate for the second quarter.

Given our Acting CFO’s limited English, to save time with translation, I would like to ask our Head of Investor Relations [Mr. Randy Law] to review this session with you. Randy?

Randy Law

Thank you, Allen and hello to everyone of the call. The results that I will be discussing are denominated in US dollars and have been prepared under US GAAP, except where noted.

During the first quarter of 2009, our revenue fell 14.4% sequentially to $37 million. Revenues generated from solar cell sales were $34.4 million, representing a 15.1% decrease compared to the fourth quarter of 2008. Gross loss for the quarter was $8.8 million compared to gross loss of $14.3 million in the fourth quarter of 2008. This negative gross margin of 23.7% compared to negative 33.1% during the fourth quarter of 2008.

Blended gross margin improved from the last quarter, but were still affected by ASP erosion, as a note of orders due to the overall weak environment and our inventory of higher cost solar product. Blended ASP for the first quarter declined to $1.64 per watt from $2.97 per watt in the previous quarter, due to a continued decline in sales prices, following the start off the financial crisis in May 2008.

Wafer costs accounted for a large portion of overall manufacturing costs that have declined as a percentage. In the third quarter of 2009, blended wafer costs declined to $1.61 per watt compared to $2.74 per watt in the first quarter of 2008, as we begin to purchase raw materials on the spot market.

Other production costs which mainly constitute of other raw materials, labor and utilities were $0.37 per watt, compared to $0.43 per watt in the first quarter of 2008. Wafer costs per watt as a percentage of total production costs per watt declined from 86.3% in the first quarter of 2008 to 81.4% in the first quarter of 2009.

SG&A expenses in the first quarter of 2009 were $6.1 million compared to $4.4 million in the first quarter of 2008 and $6.3 million in the fourth quarter of 2008. G&A expenses in the first quarter included $1.4 million for bad debt provisions on account receivables. Net loss for the first quarter was $15.9 million, an improvement compared to the net loss of $26.8 million in the fourth quarter of 2008.

Regarding our balance sheet, we are financially healthy and have showed sequentially improved financial performance during the first quarter, and we have been operationally cash flow positive since the first quarter of last year. As of March 31, 2009, we had a cash and cash equivalents of $94.1 million and the net operating cash inflow for the first quarter was $7.9 million.

In the first quarter of 2009, depreciation and amortization was $2.1 million and capital expenditures were $3.4 million, which included the remaining payments for equipment we made into company’s selective emitter cell lines.

For the remainder of 2009, we will continue to cautiously manage our balance sheet whilst upholding our commitment and providing mandatory capital to the ongoing advancements we are making to our solar cells product. We will work on improving liquidity, so that we are able to effectively use our technological and the financial capabilities to commercialize future projects as and when it’s appropriate.

Thank you and I will now turn the call back to Allen.

Allen Wang

Thank you, Randy. As I began to discuss earlier, although our overall performance suffered, we begin to see positive signs near the end of the first quarter, which have been amplified in the few several months of the second quarter.

During the first quarter we were impacted by declining ASP, coupled with the high cost of our existing inventory. However, we also managed a slight recovery of our gross margins. This was largely due to our appropriate inventory management. We actively sell through our higher cost inventory during the first quarter, while beginning to purchase lower cost, high quality wafers as needed. This lower blended wafer cost to $1.61 per watt from $2.64 per watt in the fourth quarter.

Know that sales manufactured from the new lower cost wafers generate positive gross margin during the first quarter. These sales of positive margin product start to offset the impact of the more expensive wafers being used in production held up to a minor degree given the volumes shipped, which is a result of the marginal improvements we reported.

In April and May we continue to ship our inventory of high cost product by enjoying the benefit of wafer purchase at the reduced cost. The impact of lower cost wafers further offset that of the previous existing inventory. I’m pleased to report that as of this point, given our production of shipments so far in the second quarter, we have consumed the entire month of high cost inventory, even as other firms are seeing inventory level increase in the first quarter.

The outcome of our gross inventory management is our expected return to positive gross margin in the second quarter, despite declining ASPs. Meanwhile current visibility regarding customer orders and demand, we expect shipment to also show improvement between 25 megawatt to 40 megawatt during the second quarter.

Taking into account the current expectations regarding ASP, inventory levels and the cost expectation that I have just outlined, we believe that gross margin for the second quarter will be positive in the low single digit and with that, overall financial and operational results will again demonstrate sequential improvement compared with the prior quarter. We are maintaining our previous gross margin guidance of between 15% to 20% for the second half of 2009 and 150 megawatts to 200 megawatts of shipment for the full year of 2009.

The first quarter was a challenging time for many solar companies, however we have demonstrate resilience and we remain confident in our ability to follow through along the 2009 growth strategies I have outlined several minutes ago, mainly building our leadership in high efficiency cells, offering differentiated product to a increased and diverse customer base, improving our internal operation to reduce our conversion cost and taking advantage of the current wafer pricing environment. I believe we have only just started to benefit from the initial returns of those strategies and that the full impact will only become more pronounced as the year continues.

This concludes our prepared remarks and now we’d like to open the call for questions. operator.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Rob Stone - Cowen & Co.

Rob Stone - Cowen & Co.

Allen I wonder if you could just put a little more color on the ASP trend. What range of ASP erosion are you expecting this quarter and what’s your outlook on the second half?

Allen Wang

So far we see our second quarter ASP probably will be 10% to 15% lower than our Q1 number. Regarding the second half, it’s still too early to say. We still expect some minor reduction, but the rate of reduction probably will be more stable going to the second half.

Rob Stone - Cowen & Co.

So perhaps more stable Q3 and then maybe some decline late in Q4 as we prepare for lower feed-in tariffs next year?

Allen Wang

It could be. It’s still too early for us to say. I think the supply is still pretty angled right now.

Rob Stone - Cowen & Co.

You seem pretty positive about wafer costs, given that you’re still targeting 15% to 20% gross margin in the second half, correct?

Allen Wang

Yes, because based on how it’s starting, we see that on the supply side probably they have more room for the cost improvement.

Rob Stone - Cowen & Co.

So how much do you expect wafers to be down this quarter?

Allen Wang

We see probably 30%.

Rob Stone - Cowen & Co.

A question with respect to the blended gross margin that you reported in Q1; I was having a little trouble reconciling the cost per watt figures that you gave and I should say thanks for providing so much detail, it’s very helpful, but I couldn’t reconcile that cost per watt and the overall gross margin based on some guesses about the other categories. Did you sell in the other revenue? Did you sell some raw material at a loss or something, which accounted for the overall blended gross margin?

Randy Law

Hi Rob, this is Randy. Let me try to answer this question for you. First of all, this ASP $1.61 per watt, first of all this is not cost of goods sold divided by the total shipment in Q1. As you may know, this is actually the cost used in production okay, and actually in Q1 because we sold some, we had to account for inventory product from Q4 last year. So actually we have about $7 million inventory worth, back to cost of goods sold. This is why our gross margin actually right now, that’s one reason why the improvement in the gross margin. Does this answer your question?

Rob Stone - Cowen & Company

That’s helpful. I assume you did have a positive gross margin on totaling?

Allen Wang

Yes.

Rob Stone - Cowen & Co.

A final question if I may regarding operating expenses. I know you had an unusual item in Q1 for the bad debt provision, but R&D was also much higher than the run rate recently. So what can you say about the level in dollars of operating expenses you expect for Q2?

Allen Wang

I think for Q2 it’s probably similar.

Rob Stone - Cowen & Co.

So, your R&D is going to run at this?

Allen Wang

Rob actually, maybe I can give you some more color on why our R&D cost expenses increased right, from Q4 last year to Q1. It increased to $1.4 million in Q1, the reason because our R&D expense is primarily composed of raw material used in the R&D activities and the hiring of the R&D personnel. In Q1 we did increase relatively more raw material uses in R&D activities. That’s the reason, why you see the increase in R&D expenses in Q1 against Q4.

Rob Stone - Cowen & Co.

So would you expect to maintain this? Excluding the bad debt provision would you expect expenses to stay the same; in other words down about $1.4 million overall sequentially, or are they going to stay at the same level as Q1?

Allen Wang

Going forward it will be about the same level.

Rob Stone - Cowen & Company

About the same level as Q1; so you have another increase where, in sales and marketing, G&A; what would account for the increase if there’s not going to be another bad debt provision?

Allen Wang

What we mean is that excluding the bad debt provisions, the other expenses will be about the same.

Rob Stone - Cowen & Co.

Okay. So, it should be down in dollars a little bit to 1.4 sequentially, something like that.

Operator

Your next question comes from Paul Clegg - Jefferies.

Paul Clegg - Jefferies

I’m just trying to understand a little bit better, the rapid ASP decline you reported. I think we are all expecting a pretty significant ASP decline, but yours seems to be somewhat faster than your peers; we’re looking at about 45% on a quarter-over-quarter basis. I was wondering if you would comment on that and then I have a couple of follow-ups.

Allen Wang

I think in Q1, we actively moved our inventories okay. We see there’s still a lot of inventory in the channel and we continue seeing the ASP continuing coming down. So I think to our best advantage, is to try to get rid of those inventory as quickly as possible. So we probably have a more aggressive pricing scheme in Q1.

Paul Clegg - Jefferies

So, at this point though you’ve consumed all of that high cost inventory; during the second quarter, up until now you’ve consumed all of that high cost inventory through your sales?

Allen Wang

That’s right, yes.

Paul Clegg - Jefferies

Can you repeat how much the bad debt provision was, please?

Randy Law

$1.4 million.

Paul Clegg - Jefferies

And another housekeeping issue actually; usually you give megawatts produced and I was hoping that you could give that again this quarter versus old?

Randy Law

In Q1, 18 kilowatts.

Paul Clegg - Jefferies

Then just one other thing here; I guess there’s obviously been a lot of talk recently about the NDRC in China coming up with long term renewable goals, and I was hoping you might talk about, if you’re expecting anything different with respect to what comes out of their announcements coming up for solar. Do we expect to get the same RMB 25 per watt subsidy or could you expect to see something larger than that?

Also you mentioned in passing your interest and getting into the rooftop market directly in China; I was hoping you could expand on that a little bit?

Allen Wang

I think right now, things are only in the prospect of application for this rooftop subsidy program. We don’t have anymore detail at this moment, but right now we see that Chinese companies are very supportive of the solar industry. So we are still very optimistic about the development of this program, but really I don’t have further details.

Operator

Your next question comes from Lu Yeung - Bank of America/Merrill Lynch.

Lu Yeung – Bank of America/Merrill Lynch

I’m wondering if you could share some color on your second half pipeline and how much of your orders are coming from outside the China and how much orders you have secured and whether pricing has been fixed?

Allen Wang

I think overall we have 300 megawatts of either agreement or orders we have signed with our customers for year 2009 and probably 50% were from China, 50% from elsewhere. So, that’s the mix we have.

Lu Yeung – Bank of America/Merrill Lynch

A few sets of pricing on those contracts?

Allen Wang

We have fixed price for those contract. Some have fixed price, some only have the volume and the price will be adjust periodically.

Lu Yeung – Bank of America/Merrill Lynch

So one more question is, in the month of June, what is your blended wafer cost?

Allen Wang

We won’t be able to disclose that information right now.

Operator

Your next question comes from Sanjay Shrestha - Lazard Capital Markets.

Sanjay Shrestha - Lazard Capital Markets

A couple of quick questions guys; in terms of the shipment guidance you are providing for the 2009, how much of that has already secured financing? Obviously things are bad in Q1, it seems to be getting better in Q2, but what level of confidence do you guys have that there’s nothing that’s going to derail the prospects of the second half of 2009?

Allen Wang

I’m not sure I follow your question. You’re talking about the confidence of us meeting our guidance?

Sanjay Shrestha - Lazard Capital Markets

Correct.

Allen Wang

I think if we give our guidance that means we are confident in meeting those guidance.

Sanjay Shrestha - Lazard Capital Markets

Okay. So let me then maybe try to ask it somewhat differently, do you guys sort of already have your customers that have financing in place to move forward with these projects?

Allen Wang

We do not have that level of details, but based on how we see it starting in March, April, May and June, we are seeing a pretty encouraging sign of the market.

Sanjay Shrestha - Lazard Capital Markets

Another quick follow-up guys; I’d like to see that R&D’s going up and you guys seem to be getting good traction of the high efficiency solar cells, is there any further discussion or any opportunity for a lot more of a partnership type structure, with other larger players that have got a bigger idle capacity into place or can we see something like that materialize for you people?

Allen Wang

We have not engaged in the discussion, but if they’re making sense we are definitely willing to discuss.

Sanjay Shrestha - Lazard Capital Markets

Okay, but nothing given sort of at the early stages of the conversation at this point in time.

Allen Wang

Not at this moment.

Sanjay Shrestha - Lazard Capital Markets

Another thing; finally the poly is now going your way, so in that inventory that actually declined pretty nicely on a sequential basis. What would you say is the mix of the raw material and the cost of that?

Second, to sort of support the shipment number you guys are talking about is there anything that comes under long term contract or would you be buying all of it in the spot market and hence one can do the math and be very comfortable with that 15% to 20% gross margin for your second half of the year?

Allen Wang

Mostly from the spot

Sanjay Shrestha - Lazard Capital Markets

Okay

Operator

Your next question comes from Vishal Shah - Barclays Capital.

Jake Greenblatt - Barclays Capital

Hi this is Jake for Vishal. A couple of quick questions for you; one, so you had said that wafers are mostly coming from the spot market and you mentioned the 30% decline in Q2. Do you have any sort of idea about where you expect wafer prices to be in the second half of 2009?

Allen Wang

We don’t have any quantitative number. We continue to expect the poly prices were going down; now to what level is really hard to predict.

Jake Greenblatt - Barclays Capital

But you mentioned the 30% decline in Q2; do you think it will be mostly flat in the second half or sequentially down Q3 and Q4, any color out there?

Allen Wang

Based on our study I think everyone have their own study, their own guess. We anticipate the second half probably will go down further, but to what extend is really hard to say.

Jake Greenblatt - Barclays Capital

Then the other question is, for your sales is this quarter were most of them to contract to companies that you have previous contracts with or did you sell any sort of product into the spot market or anyone?

Allen Wang

I think in Q1 we increased our sales in China. Some of those are new customers, but many of those are old existing customers as well. We did have new customers coming in Q1.

Jake Greenblatt - Barclays Capital

Do you expect those new customers to be continued customers in the second half of the year or do you think they are one-time customers that were trying to take advantage of a lower ASP?

Shiliang Guo

Right now we only work with the ones we believe are a long term perspective.

Operator

(Operator Instructions) Your next question comes from Arch Pei - JL McGregor.

Arch Pei - JL McGregor

I just want to know how many of your shipments in Q1 came from tolling business and how may of your shipments do you expect and to get from tolling business in the rest of the year?

Allen Wang

Just a second, we’re trying to pick out the numbers. If you talk about OEM expertise, we have the number from our press release. In Q1 we shipped 23.9 megawatts solar product okay, most of course is solar cells, including 2.8 megawatts processed under OEM arrangement.

Arch Pei - JL McGregor

Okay. So what percentage of shipment will come from OEM in the next two quarters, do you think?

Allen Wang

I think probably will be 10% to 15%.

Arch Pei - JL McGregor

Of shipment?

Allen Wang

On shipment.

Arch Pei - JL McGregor

Also, what was your depreciation cost in Q1 and it seems that demand is getting stronger in Q2 and will you consider to expand your capacity again mid-year?

Allen Wang

I’m sorry; you’re asking our depreciation cost in Q1?

Arch Pei - JL McGregor

Yes, and also do you have any plan to expand the capacity in Q2 or in Q3?

Allen Wang

Let me talk about the expansion first. I think right now the only expansion plan we have is for the N-type, which we plan to put in Shanghai and that we’ll now put into mass production into the first half of next year.

Arch Pei - JL McGregor

What about the depreciation costs?

Allen Wang

Actually, in our projection, I just already announced that in the first quarter of 2009, depreciation and amortization was $2.1 million in Q1.

Arch Pei - JL McGregor

My last question is, can you give us a breakdown of your inventory assets you run at between finished goods working for us as well as raw materials?

Allen Wang

I think in Q1 that’s 50% each, roughly half-half.

Arch Pei - JL McGregor

50% of finished goods and 50% of raw material?

Allen Wang

Yes, this is in terms of the megawatt.

Operator

Your next question comes from Lu Yeung - Bank of America/Merrill Lynch.

Lu Yeung - Bank of America/Merrill Lynch

I have a follow-up on your processing costs. What is your expected processing cost in the second quarter and as volume picks up in the second half, how much reduction should we expect?

Allen Wang

In Q1 we reported a $0.37 per watt processing cost. We expect we may have slight reduction in Q2. In the second half we still have an internal target to reach $0.22 per watt by the end of the year.

Lu Yeung - Bank of America/Merrill Lynch

So how many cents of improvement in the processing cost should we expect for every 10% increase for a utilization rate?

Allen Wang

Can you repeat?

Lu Yeung - Bank of America/Merrill Lynch

How many cents of improvement in your processing cost for every 10% increased utilization rate?

Allen Wang

I think it probably will be about $0.03.

Lu Yeung - Bank of America/Merrill Lynch

Also on the N-type progress, do you expect higher processing cost from your N-type factoring in and what about the CapEx per watt for the N-type?

Allen Wang

The cost for the N-type cells we have estimated would be slightly higher than the SE cells.

Lu Yeung - Bank of America/Merrill Lynch

What about CapEx?

Allen Wang

CapEx is $100 million per line, each line is 55 megawatt.

Operator

(Operator Instructions) Your next question comes from Rob Stone - Cowen & Co.

Rob Stone - Cowen & Co.

I couldn’t quite hear the CapEx per watt or the CapEx per line for the N-type that you just mentioned?

Allen Wang

It’s $20 million for 35 megawatt of line.

Rob Stone - Cowen & Co.

A follow-up related to the tax rate that you saw this quarter. I think the benefit amounted to a rate of about 22%, which is higher than the rate I was assuming. Perhaps that was skewed by derivatives or something. How should we be thinking about the tax rate or potential tax benefit later this year?

Shiliang Guo

Our biggest tax rate is 12.5%. The tax benefit you can see from the changed estimate is because of the tax loss, because of deferred tax impact.

Rob Stone - Cowen & Company

I’m sorry, I missed it. What you said the 10% to 15% is the normalized rate?

Shiliang Guo

Actually, that the statement tax credit is near 12.5%.

Rob Stone - Cowen & Company

Finally, I notice there was a fairly significant increase in amount due from related parties on the balance sheet, any comment on the trend there?

Randy Law

This is Randy. This is a good question, because I’ll give you some color on this question, okay. Actually at the end of Q1, about 50% of the receivables was RMB100 million of approximately note issued to the related party earlier this year, to secure cheap poly supply. The remaining 50% was mainly caused by credit sales to related parties, which are module producers. Usually we give like one month credit terms.

Operator

At this moment there are no further questions in the queue. I would now like to turn the call back over to management.

Allen Wang

Thank you for your attention. I look forward to updating you on our progress in the future. Thank you.

Operator

Ladies and gentlemen that concludes the presentation. Thank you for your participation. You may now disconnect. Have a wonderful day.

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