China Ming Yang Wind Power Group Ltd (MY)
Q2 2013 Earnings Conference Call
August 29, 2013 8:00 a.m. ET
Chuanwei Zhang – Chairman, CEO
Calvin Lau – CFO
Beatrice Li – Director, IR
Good morning and good evening, ladies and gentlemen. Welcome to China Ming Yang Wind Power Group Limited Second Quarter 2013 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. Calvin Lao, 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 US Securities Exchange Act of 1934 as amended and as defined in the US 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 information regarding these risks and other risks and uncertainties or factors is included in Ming Yang's filings with the US 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.
Thank you, operator, and thank you for joining us today. We have already issued our 2013 earnings press release and I hope you have a chance to review 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. Lau will walk you through the Company's financial performance for the second quarter 2013. After that, we will open the floor to questions from the audience.
Now, I would like to turn the call over to Mr. Zhang.
(Translated) Good morning and good evening, ladies and gentlemen. I am Chuanwei Zhang, Chairman and Chief Executive Director of China Ming Yang Wind Power Group, and thank you for attending our second quarter earnings conference call of 2013.
Before I turn into the business segment of the quarter, I would like to share with you first on the one – our industry.
In the second half last year after the index adjustment and the additions of the industry, our cost foot forward successfully, a series of team policies to stir up and encourage the divestment as wind power, after the rise of the (inaudible) was dedicated to the provincial network this May. Adjustment further increased the budget for power rate to guarantee their faith in tariff, expanded market capacity to first one procurement and the plan on the introduction on environmental taxes to solve subsidy problems of renewable energy.
Starting 2013, we can sense that the power industry is recovering.
Our 2013, 2017 and the 2020, the (inaudible) as three horizontals and the two verticals, two horizontals and a two verticals, three horizontals and a three verticals, as was horizontals and the (540) post.
For our long-distance transmission of electricity, transferred developed and they utilized renewable energy on a large scale.
As I see it, all of these policies suggest that the Chinese Wind power Industry has set into the season of spring with considerable momentum and a promising prospect.
For the dramatic changes in the industry on the market, there's subsequent direct opportunities for divestment that can be into a series of measures in Q2 to beat our power strength, facing our (inaudible) market, operations and momentum and the promotion of new products , as follows.
Best of all, we ran new audits and the expedited collection of renewables to fully expand the market.
In the second quarter, we put together our superior to take more orders and to collect more receivables.
At the end of 2012, we started to develop the concept of customization turns it's full implementation this year. We'll have many customized technologies, such as lengthening place, heightening power, improving basis and reducing itself for men power to increase availability and a generation capacity of one form.
In Q2, we entered into new sales contract for wind power projects (inaudible) amounting to 6 megawatts.
According to the incomplete statistics by turning wind power association for the first part of the year, Ming Yang ranked the third place of the country, in terms of installation to the market share of products 10%.
Meanwhile by the end of August, Ming Yang won new bidding orders of therefore (7) megawatts for 2013, which include a phase of company in the industry.
Based on our prime recommendation, we have also intensified our efforts for receivables bringing in RMB2 billion in the first – in the second quarter with an amount of RMB480 million for EPC receivables.
On the basis of our superior’s covers and the good customer base of our five great companies, for capital, financing, business model, innovation and a customized comprehensive solution, not only enhance our cooperation with our plant but also made great efforts to extend the market and fix new plant.
In June, we signed with – we signed a contract with China net many new operations of strategic agreement of partnership and a joint venture, which covers 200,001 project in one end province. We also carried out all around corporation. China (Guodian) corporation. This made India and the Guangdong corporation signed a strategic corporative agreement for offshore wins power projects in Guangdong province, which further show onshore and offshore win power projects.
Secondly, we conducted a pioneer operations and the mentioned in the (inaudible) and the WPG with greater emphasis on product policies.
And the April, the confirmation plan for engineerings for this are with the entire operations for three months will yield the future results from engineering contact solutions, and they look like operations model from operations and a measurements that wind farm and the (WTG). Not on this but the cost of engineering of this but also improve the efficiency of the work.
Meanwhile, we'll be – we also achieved for WTGs with today's detailed reports of products and commission and the pre-inspection as I stated – mentioned.
This has greatly reduced the quality of risk of WTG and the one high proclamation from our customers.
Equipment manufactures is the wind power nowadays. Price for is already long gone, instead the only way to success if chain through product quality and optimize product portfolio.
In terms of quality regulation, we have followed international standard hopefully and the builds of quality management system that products go R&D, procurement, production, quality inspection, as well as upper sales service to provide excellent product and the services for clients.
On the place of June, we see that the (inaudible) from CRA type for MY plus networks item (77) unit becoming the first – he WTG manufacturer of anti-typhoon WTG to receive the certificate in the net in China.
Certainly, we enhance the promotion of SCD products in the market to develop new core competitiveness.
In the second quarter, we worked harder in promoting Service products in the market and with progress.
In the mix, the SCD 2.0 megawatt prototype has been completed collaboration and put in collaboration.
The primary project planning of 200 megawatt offshore than project in Croatia to a height in South Kuwait has been done but it is exactly the construction in where began in September the first, the three pieces of equipment will be installed and they deliver by December. And the other offshore project of 400 megawatt were also coming to constructions definitely.
In the second half this year, the Guangdong province will approve the project of about 600 megawatts in (Shantao, Shangwei and Yangtze) regions.
Not only will we provide WTGs but also we will be responsible for the construction from the Cpex to the entire WPG island.
On the 28th of June, our SCD 6.5 megawatt also WTG, the first of its kind in the world went successfully offline. We have installed and commissioned in (Jiangsu) in the third quarter this year. The successful commissioning of the offshore WTG with the largest in capacity are in it and they also across that China's offshore wind power has ended a phase of divestment.
As our SCD product grows rapidly, we will develop our new core competitiveness. We have placed ourselves in Guangdong province and we play a key role in the country. We are now on our way to realize the strategic goal of leading the offshore wind power in the market.
In the first quarter last year, we saw there was control – established a control shareholding in GWPL company in India. And in the past six months, we started all around consolidation and integration in the Indian company by investing management, technology, talent as of the whole system, in order to expand the market in the India.
We have already been working very hard and we're trying to recognize the first order with 155 sector megawatt that EPC contract.
Meanwhile, we are working together with the top five – one of the power companies in India, and we signed a prework agreement with them with a total amount of 1000 megawatts in this agreement. And among these, about 100 megawatts will be kicked off in the – from W – ETC contracts this year.
Now, the GWPL company has been restored in this capacity in operations. However, it was built thereof in three consecutive financial report in the past month. This is because of the dilution of our profit because due to the debt of the company.
Yet also this year we started restructuring at this at the company and we have made active progress in this regard.
I have full confidence of – in the market because of the size of the market and we are – and the size of the months and how much. We believe that they will be great opportunities there, and we have confidence that we can convert this – there are lots DWPS company in the profit one and we have something that we've been turning to – turn this company into a good forward for overseas market and saw operators for the company.
In the past six months, we have envisioned forward very actively and consolidated our basis in the traditional period from investment to CapEx in order to increase our core competition, where there take good advantage of the investments policy to contribute to a more progress in the divestment of our company.
With that, I will now hand over to our CFO, Mr. Calvin Lau, to walk you through the Company's financial performance of the second quarter this year. Thank you.
Thank you, Chairman. Good morning or good evening, ladies and gentlemen. I hope you have had a chance to review our earnings release that was released couple of hours ago, and I will focus on just a few important metrics from our quarter's financial performance.
Please note that all numbers are now in the – are on comparison with over year over year comparison, and as other stated.
Revenue in the second quarter of 2013 was RMB537.4 million, equivalent to $87.6, representing a decrease of 32.7% from RMB798 million in the corresponding period in 2012.
Wind turbines for which revenue was recognized amounted to an equivalent wind power project output of 161 megawatts or 90 units of 1.5 megawatt wind turbine and 13 units of 2.0 megawatt wind turbines. This is comparing to 198 megawatt or 99 units of 1.5 megawatts wind turbines and 17 units of our STD wind turbines for the corresponding period in 2012.
The decrease in revenue in the second quarter was primarily due to the decrease and the number of wind turbines commissioned, with lower average selling price recognized for wind turbines commissioned compared to the corresponding period in 2012.
Gross profit in the second quarter of 2013 was RMB66.1 million, equivalent to $10.8 million, representing a decrease of 43.0% from RMB115.9 million for the corresponding period in 2012. Gross margin in the second quarter of 2013 was 12.29%, compared to 14.52% for the corresponding period in 2012. The decrease was primarily due to a decrease in the ASP of wind turbines commissioned during the second quarter of 2013, which outpaced the decrease in cost of sales.
Selling and distribution expenses were RMB34.3 million, equivalent to $5.6 million, compared to RMB24.5 million for the corresponding period in 2012, representing an increase of 40.0%. The increase was primarily due to higher marketing and bidding expenses incurred in the second quarter of 2013.
Administrative expenses were RMB70.0 million, equivalent to $11.4 million for the second quarter of 2013, compared to RMB77.1 million for the corresponding period in 2012, representing a decrease of 9.2%.
Research and development expenses were RMB20.7 million, equivalent to $3.4 million, compared to RMB22.7 million for the corresponding period in 2012, representing a decrease of 8.8%.
Net finance expense was RMB39.1 million, equivalent to $6.4 million, compared to net finance expense of RMB17.6 million in the corresponding period of 2012.
The increase was primarily due to increased interest expenses of RMB20.5 million, which is equivalent to $3.3 million on borrowings that were incurred by our subsidiary in India, GWPL, which was acquired in the fourth quarter in 2012.
Loss before income tax expense was RMB91.0 million, equivalent to $14.8 million for the second quarter of 2013, compared to a loss before income tax expense of RMB19.8 million in the corresponding period of 2012.
Income tax benefit was RMB8.0 million, equivalent to $1.3 million for the second quarter of 2013, compared to an income tax expense of RMB11.2 million in the corresponding period of 2012.
Total comprehensive loss for the second quarter of 2013 was RMB85.9 million, equivalent to $14.0 million, compared to total comprehensive loss of RMB27.5 million in the corresponding period of 2012.
Total comprehensive loss attributable to shareholders was RMB68.5 million, equivalent to $11.2 million, compared to total comprehensive loss attributable to shareholders of RMB26.6 million in the corresponding period in 2012.
For the second quarter of 2013, basic and diluted loss per share was RMB0.51, equivalent to $0.08, compared to basic and diluted loss per share of RMB0.25 for the corresponding period in 2012.
Last in cash and cash equivalents as of June 30, 2013 were RMB1.20 billion, equivalent to $196.2 million, compared to RMB1.00 billion as of March 31, 2013.
And lastly, if I can just point out as our chairman just pointed out just now, our cash received from trade and other receivables during the quarter totaled RMB1.2 billion and we have a very strong and healthy of (breaking) cash flow of just under $300 million to increment $73 million, and also generated a free cash flow of equivalent to RMB228 million, and statement of this figure are – and also the figure of second quarter 2013 only.
I will now like to turn the call back to Beatrice and for the question-and-answer session. Beatrice?
This concludes our prepared remarks for our Chairman and CFO. We will now open for questions. For the benefit of our listeners today, all questions and answers will be translated into English and Chinese. Operator, please.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). And your first question comes from the line of (Gary Lan from the Shanghai). Please ask your question.
(Translated) Two questions for the Shanghai. The first question mainly about the unit pricing for the (inaudible). If you look at the (inaudible) right now and in the future, how do think about the price change and what is the trend there? Is the price coming back?
And second question is about the lead-time, and we have the first question of the lead-time. Has the lead-time shortened? And how many days is it right now?
The second questions is about why there was such a drop in the revenue in the second quarter.
(Translated). So the chairman answered the first quarter about the price and the purchase orders.
Actually, the price is coming back. If you look at our new price – if you look at the price is now in order. So you see yearly there was increase about 5% to 8%. Definitely, their price level last – the second half-last year. And if you look at the second half this year, with this as the price will get – will continue to improve from September to the fourth quarter this year, we believe that the price will get back to about (4000) kilowatt. That needs to say up by 10%.
About the lead-time, actually right now, it is the peak season in production and it will be very, very busy in the upcoming four months. We will be about 500 even from a 5 megawatt and the 2.0 megawatt at city to be delivered and one has concern that we can realize our target for the year.
Actually for the (inaudible) of revenue in the second quarter, there are two factors. Number one in the North East of upper China in (Vakshing) those EPP contracts there and for the phase three and phase four projects totals about 100 megawatts there.
However, because of the heavy rain in the second quarter, the construction was delayed. Therefore, our revenue was also delayed. As you know that the rain season was yet to come, and yet the construction was not finished yet. So, the (inaudible) is also delayed.
The second reason is that the (Ginah) and the greater province, which is also our – one of our major top – major markets there is about 100 megawatts contract there. In Q2, also because of the weather, the recognition was delayed. Now, that will influence our revenue recognition in the whole second quarter.
I'll then select – in the second quarter even tough the revenue was – recognition was delayed however in the third and the fourth quarter due to a peak season for operation for production as for our delivery, CFO will be more commissioning and operations in the upcoming quarters. Therefore, we have confidence that we can hit the target of revenue recognition by the whole year.
Thank you for the first question. And your next question comes from (Shaui Sing) from (The Consulting). Please ask your question.
(Translated) Two questions. The first question is about the adjustment relation as you mentioned at your last earnings call that your target for 2013 will be 18 gigawatt for relation. These are the ones that whether you have changed this target.
The second question is about your delivery plan. This year it's at the year you referred and will be totaled 2.5 gigawatts.
However, it was only 1.1 gigawatts last year. This is the one that whether there's a chance in this plan at all.
The third question is about R&D. Are you still working on the direct 2.5 megawatts as emerging unit? And what is the price of – what is the length of the value there?
(Translated) So I think that chairman said that we will maintain our target both in total installation (inaudible) this year, and we have confidence that we can hit the plan.
As for the R&D side, currently we're working very closely on the – regarding of a new (inaudible), which I picture is 2.0 megawatt per land placed with 100 – there were four (mega land). There were 108 (mega land) both for onshore and offshore power generation.
Meanwhile, we are also working on 120 meters long (execution come zero) megawatt unit. With carbon fiber plate and this is also the biggest plate in the country for all the winter – for the power generation unit.
Thank you. (Operator Instructions). Your next question comes from (Fing Shee) from (Greenwoods). Please ask your question.
It means the line has disconnected. (Operator Instructions) The next question comes from the line of (Fing Shee) from (Greenwoods). Please ask your question.
(Translated) This is from – two questions. The first question is from the unit combination on the new orders. If you look at other new orders, it seems that all of the units are 1.5 megawatt units. Now, it's 2.0 units. I just want to know why.
And the second question is about delivery. If you look at all the purchase orders in hand, some sold 6 gigawatt altogether. So, how long do you think that you can deliver all these units?
(Translated) Answer. The first question about the small unit, 1.5 megawatt in the new orders is because the adjust – all the CapEx that (inaudible) prove but basically they are not in the low wonderful opportunity areas. That's why they only need 1.5 megawatts unit.
However, it is 89 meters long or the – with prolonged place. However, there's also some 2.0 megawatt unit in our new repeat orders.
As for the delivery, we have already tied production scheduling for all the orders for the upcoming month for this year, as with the other next year. So, it's already delivered in the upcoming this year as of early next year.
(Translated) So, this is a follow-up question from attention for Greenwood about develop margin.
Last year among all the new order in the first half last year, the growth margin was that – actually, there was upcoming – there was some up going trend in the new orders.
And in the first half this year, the growth margin was 12%. So I just want to know what is the growth margin in the existing purchase orders and how do you think about the growth margin trend in the upcoming month.
(Translated) The answer is actually we're delivering the orders that we received last year with a growth margin between 10% to 15%. We have been working very hard to do the cost by better procurement with better energy – better technology at our customization. Even though we went through a contract last year with low price, however we were able to maintain the growth margins at about 12% level.
So, this another follow up question is about the ITP – about the collection from one from upper here the downstream.
Since they have brought better cash flow in their operations, I just want to know whether better capital collections from the upper (inaudible).
(Translated) So the answer is actually, we did have a better capital collection in the second quarter than most of the peers in the market since because here in the market, I do not (inaudible) around June and most of it appears much influenced by that.
However, as we already recall for more efforts from the government for the support, the government began out of the subsidies to the – one operators after the people of congress after the two conferences. So therefore, they've got the cash flow in their own operations and which is better for us.
Thank you. And your next question comes from (Seh Shuting) from Senior Asset Management. Please ask your question.
(Translated) So this question is about Indian market. Does that – just around the – about the operations in the Indian as of future.
(Translated) So generally speaking in the Indian market, the such features – number one.
After the governance and the integration and consolidation in the Indian subsidiary, the whole operations started to restore and the bit of fact the operation capability.
Number two, we kicked off negotiations with the Indian side about the debt spinning off arrangement. And we have reached agreement on some of the specific arrangement on the scene of the old debt.
There will be detailed results to be announced in the third quarter this year.
The third feature is about the market. We worked very hard on the – in the local market and has one EPC contract at (150) megawatts. They've put production preparation already started.
Visions of those, we also set up cooperative relationships with the top five operatives in Indian market. They entered into same works contracts with a total of 1,000 of network in with – this top five operatives.
Among which, 100 megawatts will be kicked off within this year or early next year. Meaning that is (inaudible) will be ready for that.
(Translated) So this question is about the (SED), the application and in – of 2.0 megawatt in the second quarter and in the upper part of the quarter.
(Translated). Actually we received no order for (SED) 2.0 megawatt in the second quarter. However, we management to work with (Guanang) offshore project.
In the third quarter, there's one purchase order for (SED) 2.0 megawatt, both onshore and offshore version you will hear this about this bidding results perhaps within 10 days.
As for the (SED) 120 long carbon fiber plate – obviously, the longest in the country – operate 110 meter long plate, those will be our leading product to be promoted in the upcoming month this year as far as next year.
(Translated) So, this was not about the bidding and the working precaution that SCD takes all in the bidding and what is the yearly print orders for SCD in the second quarter, and what is the growth margin for that?
(Translated) Now, the answer is there is no new order for SCD in the second quarter because order is – they are all the projects in the month and regions and it's very low when products (inaudible) below their one to – no, 2.0 megawatt unit.
In the third quarter, there will be SCD contract. It's for the wind power and offshore wind power project, and the total – it will be totaled about 200 megawatt. It should be 200 megawatts.
However, there's two phases – Phase I and Phase II. Therefore, we will announce it to be 100 megawatts at this moment.
As for the growth margin, it will be remarkable one patch over 20%, so we provide not only the wind power generation unit but also the wind – the island plus the tower and other working facilities.
(Translated) So what comments about the SCD unit?
(Translated) Actually this is what the market and investor concern both.
After three years of hard work, we have improved gradually and look at – and improve in the whole SCD product. And now, it is some our – the most competitive product in the whole portfolio.
From the new set, we have already announced that we can provide a whole series of SCD 2.5, 2.75, 3.0, 5.0 and the 3.5 megawatt is a place land of 100 meter, 110 meter, 120 meter, 140 meter, as well as 165 meter, which is the longest in the world.
So we have the capability to provide a total solution that promise both onshore and offshore projects for units step ups in the component as other fortunate facilities, and we are the only manufacturer and their provider of such SCD technology and product in the world – in China. And in the future, secondly, SCD products will be our core products in the whole portfolio.
Thank you. (Operator Instructions). At this time, there are no further questions in queue, so I'd like to hand the call back to Ms. Beatrice Li, Director of Investor Relations for closing remarks.
I once again thank you for all joining us today. We welcome you to contact me for any further questions. Thank you and good day
Ladies and gentlemen, this concludes our presentation. Thank you for your participation. You may now disconnect. Have a great day.