China Ming Yang Wind Power Group Limited (NYSE:MY)
Q1 2014 Results Earnings Conference Call
May 21, 2014, 03:30 AM ET
Beatrice Li - Director, IR
Chuanwei Zhang - Chairman and CEO
Calvin Lau - CFO
Carl Liu - Bank of China International
Vincent Yu - SWS Research
Eva Hou - Morgan Stanley
Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2014 China Ming Yang Wind Power Group Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, there will be a question-and-answer session. [Operator Instructions] I must advice you that this conference is being recorded today, Wednesday, 21 May, 2014.
I would now like to hand the conference over to your speaker today, Ms. Beatrice Li. Thank you. Please go ahead.
Thank you, operator and thank you for joining us today. We have already issued our first quarter 2014 earnings press release and I hope you had the 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 first quarter 2014. After that, we will open the floor to questions from audience.
Now I would like to turn the call over to Mr. Zhang.
[Interpreted] Ladies and gentlemen, good afternoon. I'm Zhang Chuanwei, Chairman of the Board and CEO of China Ming Yang Wind Power Group. Welcome to 2014 Q1 business performance briefing. Our briefing will have three parts.
First of all, I would like to talk about energy and power field and market situation. In general, the market is having a positive momentum and the industry is having a positive momentum and the market is having a larger and larger capacity.
China is determined to do what pays in their crucial regions. This gives wind power industry the leader in clean energy new development opportunities.
Similarly [indiscernible] once stated clearly, China will accelerate energy structure adjustment carried out across regions, power transmission project, develop long distance, large capacity power transmission technology.
In January this year, [Xinjiang Hami through Zhengzhou HVDC] (ph) power lines were put into operation. Recently state grade also confirmed that the Central Government is approving the construction of 12 power transmission lines besides west power to east.
12 power lines will address the issue of power transmission of new energy and the wind and solar power bundle up from the west region and the issue of power so far in Northeast China, Inner Mongolia and other regions, these power lines will gradually solve issue of grade curtailment of Northeast towards Northwest China. More investment into new energy project can is vastly inspired.
Besides National Energy Administration announced that wind power development plan further would be optimized. Offshore wind power project will be gracefully promoted. Shanghai has confirmed the feed-in tariff mechanism of offshore and offshore -- onshore and offshore power.
The Nation's offshore wind power feed-in tariff standard will be reduced. Meanwhile, renewable energy power quota management method which has caught your attention from the [inventories] (ph) drafted.
The Central Government is requiring attention from the industry and other provinces to finish using up the quota from 2015.
In terms of market capacity, we are trying to increase our full strength from the Central Government. The wind power industry welcomes new development opportunities.
In February, NEA announced a full-fledge approved plan, reaching a capacity of 27.6 gigawatts is to include a [previous batch approval] (ph), the wind power industry now has more than 50 gigawatts yet to be implemented.
In Q1 this year, all the tenders reached 7 gigawatts in total, which is largest now in the past three years.
On 16th of May, [NVRC] (ph) promulgated work plan on enhancing energy industry's prevention and treatment of air pollution, mentioning the guarantee of clean energy supply driving up power transmission to key regions, which include, Beijing, Tianjin, Hebei, Shandong, [Shanxi] (ph) and etcetera.
The total power transmission by the end of 2015 will reach 2 million KW. To realize this goal, new energy power from Xinjiang, Qinghai, Gansu, Inner Mongolia and other north region will be transmitted and market capacity can be increased greatly.
Let me review our 2014 Q1 business performance. In general, the market momentum has been positive. Ever since 2013, thanks to increase in events and the nation's investment into infrastructure, the positive momentum of industry downstream has got it upswing.
We are planning deployment promoting [indiscernible] and have gained quality wind and solar strategic resources from Xinjiang Hami and Changj. In Inner Mongolia Xinjiang, Jilin, [Gansu] (ph), we've signed a contract of resources development that is not lower than 2 million KW and started to implement wind and solar power co-development.
We also signed a one million KW Wind Resources Cooperation Agreement with Wulanchabu. These areas are in strategic area of power generating area that can help to tackle the heat fusion. They are located at key hubs of power transmission lines.
We have already got the leading recognition in the wind resources development in these areas and that will be a good foundation from Ming Yang business development.
In 2014, we are having a good momentum to order book amounts as big enough to cover entire year's production. Meanwhile other price has increased compared with the last year.
Q1's incremental order is 671.5 megawatt, signed order 3.3 gigawatts, successfully bid 2.5 gigawatts. Q1's recognized income is 386 megawatts. The gross margin of 1.5 megawatts WTGs is 15% to 2.0 megawatt is 15.6%. Along with the increase as a percentage of 0.0 megawatts WTGs, our total gross margin will grow.
We have included 3.3% warranty provision into our major business cost. If we adopt the Chinese Accounting Standard, the gross margin will be even higher.
Q1's average WTGs retail price has increased by 1% compared with the same period last year. Meanwhile due to large scale procurement the per KW cost of 1.5 megawatts WTGs has increased by 3.1% compared with the same period of last year. The cost of 2.0 megawatts WTGs decreased by 6.9%.
The improved order gross margin, we have deconsolidated India's GWPL, which has greatly improved our financial reporting structure. It is estimated that Q2 sales income will increase by more than 20%.
Certainly, we are fastening the state of transforming from investment period to incoming period of positive period from just manufacturing company to a company, which has both manufacturing and operation maintenance.
2014 is the key year for Ming Yang's second step development. We must hand over the key juncture of the transformation from the investment period to profit period, integrate financial, HR technology and government resources to establish an integrated platform.
Meanwhile, leveraging innovative mechanism, technology, products, business model and service to form innovative competitiveness within the company; increasing service revenue, decreasing cost, the detailed strategic measures are; first of all to promote further the new business model strategy which is to heat up the operation development.
Use well our 9 gigawatts quality wind resources in Changj, Xinjiang, Inner Mongolia, realizing wind resources surpassed, passed on to others. When the preparation is sufficient, we can try to construct and operate proprietary wind farms.
On the one hand we can develop and culture new products. On the other hand, higher margin can be achieved through operation or changing of ownership.
It was also seized well the opportunity of offshore wind power development. We are fully prepared for offshore wind power generation technology and operation. We now have total solution capability to hire offshore first phase wind power project, which we participate in, is expected to be put into production within this year.
The second phase will most likely to use 5 megawatt onwards units. Our SCD 6.5 megawatts offshore units will be installed and operated in Rudong experimental wind farm June this year. Recently, we signed an agreement with the experiment of wind farm in Norway and the Government institution on SCD 6 megawatts prototype. This will promote our big megawatt units commercial expansion.
We must continue to increase the operation and maintenance of wind farms. In recent two years we were issuing warranties gradually together with warranties, we will issue for the WTGs installed in the great growth periods. We can see the massive profit in operation and maintenance market.
In terms of overseas strategy, we will better design our current project development model, for example the 200 megawatt Romanian project. We are seeking more overseas development projects opportunities.
Productivity must be optimized. We need to file the productivity and product manufacturing according to the general plan of Wind Power development and client's requirements. From 2012 to 2013, our Ming Yang control base Gansu plant and Xinjiang Hami base have been put into production one by one. These three bases will help to decrease our transportation expenses in the northern regions.
In the third and fourth batches, approved wind power projects more northwest nearly take 50%, middle and south regions have more approvals too, taking more than 20% becoming the second key part.
They are the low wind speed and super low wind speed regions where wind power is utilized the best. Our southwest and northwest strategy will showcase its advantage this year.
Meanwhile we will improve lean operations and the connection of up, mid, downstream force, increase the comprehensive profit of multiple steps in terms of product technology, we have implemented platform strategy and technology modularization to build and integrate a development platform and testing platform.
In terms of engineering service, we will improve the power output of wind farms through 200 base projects, improve our customers at a traction degree.
We have achieved a lot in cost control large badge procurement helped us to bring down product cost. Wind operations decreased the management cost; transportation cost is reduced by a basis. Financial expenses are decreased by creating more income sources.
In general, 2014 will be a year of new round high level development. So Wind Power industry in China, Ming Yang will take this opportunity to promote or transformation so as to gain more profit.
As the leader of the industry, we must maintain the solid development momentum achieved both fast development speed and economic benefits.
Now the floor is given for Calvin Lau, who will report to you 2014 Q1 and the entire year's financial performance.
Thank you, Chairman. Good morning or good afternoon ladies and gentlemen anywhere you are. As we have already issued the earnings release early on, I hope you had the time to actually to review some numbers. Please note that all numbers being mentioned are in RMB and all comparisons refer to year-over-year comparison unless otherwise stated.
Very briefly, revenue in the first quarter of 2014 was RMB1.22 billion equivalent to US$196.9 million, which increased by 52% comparing to that of 2013.
The recognized revenue of wind turbine generators amounted to an equivalent wind power project output of 386 megawatt or 224 units of 1.5 megawatt wind turbine, plus 25 units of 2.0 megawatt wind turbines.
For the corresponding period of 2013, the output was 245.5 megawatts or 112 units or 1.5 megawatt wind turbines, plus 35 units of 2.0 megawatt wind turbine plus in addition, three units of 2.5 megawatt wind turbines last year.
The 52% increase of total revenue was mainly due to a 66% increase in the number of wind turbines commissioned compared with the first quarter of 2013. Gross profit in the first quarter of 2014 was RMB192 million equivalent to US$30.9 million, compared to that of RMB89.7 million in the first quarter of 2013.
Let me take this opportunity to, especially mention our adjusted gross margin figures which on an adjusted basis, which means that if we actually set aside and put 3.3% warranty provision into SG&A, our actual adjusted gross margin would be equivalent to 18.9% for the first quarter of 2014 compared to an adjusted 14.1% in the corresponding period of 2013.
And the gross improvement and the gross margin was mainly because we were able to take advantage of larger economies of scale attained in the second half of last year.
In terms of operating expenses, selling and distribution expenses were RMB13.9 million, equivalent to US$5 million for the first quarter of 2014, compared to RMB30.13 million for the first quarter in 2013 representing a decrease -- slight decrease of 1.3%.
Administrative expenses were RMB68.1 million, equivalent to US$11 million for the first quarter of 2014, compared to RMB62.2 million for the first quarter in 2013, representing a slight increase of 9.6%.
The increase was mainly due to a combined result of -- we made a slight addition of entire provision against receivables recorded in the first quarter of 2014 and also -- we also excluded certain administrative expenses incurred by our previous Indian subsidiary GWPL, as we consolidated GWPL since January, 1st 2014.
Research and development expenses were RMB19.6 million, equivalent to US$3.2 million for the first quarter of 2014, compared to RMB17.7 million for the corresponding period in 2013, representing slight increase of 10.5%.
As Chairman Zhang previously mentioned, the increase was primarily due to more research and development activities carried out in first quarter of 2014, mainly on future product pipeline development.
Our finance income during the quarter was RMB37.2 million, equivalent to US$6 million for the first quarter of 2014, compared to RMB86.8 million for the corresponding period in 2013. The general decrease was mainly due to almost RMB50 million, gained or obtained from last year for the disposal of certain shares in Huadian Fuxin Energy Corporation Limited in the first quarter of 2013, which did not recur in the first quarter of 2014.
Our finance expenses were RMB41.6 million, equivalent to $6.7 million in the quarter, compared to the RMB66.1 million for the corresponding period in 2013. The decrease in finance expenses was mainly because of the finance expenses including certain interest expenses incurred by GWPL last year, which of course did not actually occur in the first quarter of 2014.
In addition may I point out that there was one-off gain on losing control of subsidiaries of GWPL mainly to the amount of RMB124.5 million, which is equivalent to US$20 million, that was actually recognized during the quarter as a result of our deconsolidation of GWPL and accounted for -- again we begin to account for GWPL as a joint venture under equity method since January 1st, 2014.
The gain was recognized as a result of such deconsolidation which in accounting balance which mainly represented a difference between carrying amount of net liabilities of GWPL including goodwill allocated at the date of deconsolidation and the carrying amount of GWPL’s non-controlling interest and finally the carrying amount of our investment in GWPL as a joint venture, which was nil at the same date. There was no such gain in the first quarter of 2013 of course.
And profit before income tax was RMB200.5 million, equivalent to US$32.2 million compared to RMB33.7 million in the first quarter of 2013. Income tax expense was RMB130.2 million, equivalent to US$2.1 million in the first quarter of 2014, compared to 0.1 million in the corresponding period in 2013.
And finally, total comprehensive income for the first quarter of 2014 was RMB185.8 million, equivalent to US$29.9 million compared to RMB4.5 million in the corresponding period of 2013.
And just to reiterate, that we actually strip out the one-off gain rising from GWPL, the underlying total comprehensive income would actually be equivalent to total of RMB60 million importantly.
For the first quarter of 2014, basic earnings per share and diluted earnings per share was RMB1.54 per share, equivalent to US$0.25 per share and RMB1.51 per share, equivalent to US$0.24 per share, respectively, compared to basic and diluted earnings per share of RMB0.19 for the corresponding period in 2013.
And finally, cash and cash equivalents as of March 31, 2014, were RMB709.6 million, equivalent to US$114.1 million, compared to RMB811.8 million as of the end of last year 2013, main difference arising from the consolidation of GWPL which we’ve previously mentioned.
And this concludes the financial reporting section. I would like to turn the call back to Beatrice.
This concludes our prepared remarks from the CFO. We will now open the floor 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) Your first question comes from the line of Carl Liu from Bank of China International. Please ask your question.
Carl Liu - Bank of China International
First of all, I’m from Bank of China. I would like to congratulate Management of Ming Yang for the good performance result of Q1 of 2014. So I have two questions.
First of all, concerning the prices on cost of wind turbine generators for 1.5 megawatt and 2 megawatt wind turbine generators, the prices and cost, would you please tell us the prices and costs of these two kinds of wind turbine generators, and also about the tender price? Thank you.
First of all, thank you very much for your questions and concerning the first question of yours, the 2 megawatt wind turbine generator in the first quarter increased by 1% in terms of its price compared with the same period of last year. And for procurement cost, 1.5 megawatt, we’ve witnessed 3% of decrease compared with the same period of last year.
For 2 megawatt wind turbine generators, 7% decrease compared with the same period of last year. And about tender price, its generally among RMB3,900 to RMB4,100 per kilowatt. So if comparing with the first quarter of last year, most of the prices have increased, but if we’re comparing to the fourth quarter of last year, the prices are slowly recovering.
And however, we’re seeing more functions being embedded into our wind turbine generators, but this does not impact any of our costs.
Carl Liu - Bank of China International
[Foreign Language] My second question, how do you think of the possibilities of the Central Government to lowering down the feed-in tariff for wind power? Is it quite likely according to your opinion and also companies like [Tungtong] (ph) electricity is trying us to getting to the Wind Power industry again, so that boost the competitiveness in the market?
[Foreign Language] First of all, the year beginning its government work report, we're seeing that NDRC were asking above the adjustment of feed-in tariff for wind power. So this is the grand trend that the Central Government is promoting.
However we're not sure about the timing. If the exact timings being announced officially, I believe all of the investors including the senior management of several companies and government department will all have their attention put to that.
So currently we don't know the exact plan of timing for the adjusting of wind power feed-in tariff.
And about your question of the competitiveness brought by probably Dongfang Electric, Shanghai Electric or [Tianjin] (ph) of all these state-owned companies, actually they have never stopped to do any business activities in wind power field.
However, judging from their development model and business model, I don't think they belong to the first year of wind power companies. So actually they are not causing any more fierce competition in the market.
And I also believe the wind power industry's grand pictured is already formed. Most of the wind power generators orders are about the large megawatt wind turbine generators. So only the first year companies have the capacity to produce such products and the offshore project is showing the same trend and they also required large megawatt wind turbine generators.
Companies like Dongfang Electric or Shanghai Electric or Tianjin do to have the ability to produce products like this to match market needs. So I don't think in the future three years, there would be strong competitors in the markets for us. Thank you.
Carl Liu - Bank of China International
Thank you for answers. And I hope you can achieve even greater results in Q2.
Thank you very much. Your next question comes from the line of Vincent Yu from SWS Research. Please ask your question.
Vincent Yu - SWS Research
[Foreign Language] So, Chairman Mr. Zhang and other senior management, I would like to congratulate on your Q1's great results. You ventured from SWS, so, I have several questions. First of all about your Q2's estimated income increase by 20%, would you please elaborate on that?
Second question, would you please talk about your development plans for this year about wind farms, where would you be sizing up the installed capacity and about CapEx? Thank you.
Okay. Thank you, Vincent, for your question. Let me quickly answer the first question first, and then Mr. Zhang will be able to give you more color on the wind farm development aspects.
To reiterate what we actually -- was actually talked about just now, during the Chairman's remarks, we expect that in Q2 the quarter-over-quarter increase in terms of revenue recognition, the amount would be roughly 20% plus or thereabout.
So that in terms of, for example, this quarter we did just under 400 megawatts in terms of revenue recognition for wind farm projects delivered, wind turbine delivered and you should be able to actually get an estimate of what we expect to actually to do in the second quarter in 2014.
About the operation of wind farm, we have been laying foundation for that in the past two years. This year, we have really kick start the actual project. We have good wind resources in West regions like Henan province, Xinjiang province, Jiangsu province and also the Inner Mongolia and Wulanchabu.
These areas have great wind resources as well as great resources. And we also have 10 million of the installed capacity in Hunan, Anhui and Shanxi. And these all help us to lay a really good foundation to our own wind farm.
And we are focusing on two activities this year. Actually, we have been forming a 5 billion fund of renewable energy industry. So, we’re cooperating with companies like China General Power company to develop relevant project and to do relevant financing.
And second activities that we are forming professional development teams and this will be shown in our Q2 financial report. And we also have got many passes to our kick start our 300 megawatts project. So we’re thinking this year we will start to construct our own wind farms who are at least part of the wind -- our wind farm project.
Next year, we’ll start to double up our development. And more resources, more wind resources of Ming Yang will be listed to our country’s approved list. And the entire install capacity will reach 500 megawatt. We’re making preparation in both good wind quality regions and also low speed wind quality regions.
Thank you very much. Your next question comes from the line of [Ted Wai Ming from China MC] (ph). Please ask your question.
Thank you very much. My question is about expenses. As I read from your Q1 financial report you have great control on the selling costs and also management costs. So how do you achieve that? Would you please predict the future trend of costs?
Okay, so allow me to take this question and maybe the answer will get translated afterward. Of course this quarter we had a high revenue base, so we were able to actually much better control in terms of percentage of revenue, the percentage of costs.
SG&A costs as a percentage of revenue we were able to actually control to be under 10% and that's always actually been on target and hopefully you can actually see that Ming Yang's numbers are actually hopefully would be easy in the future to understand.
We have a very straightforward gross margin structure and there were a lot of questions about how the warranty provision, how that actually impacts the margins. So hopefully, the 3.3% gross margin hit as you have that fair deal, where that actually you came to be please with the margin.
And in terms of, for example, the selling expenses, of course, this quarter we were like previously mentioned, we were not able to for example control our transportation expenses, which mainly mix up the selling and distribution costs. And we have actually disclosed them in our 20-F filing -- annual report filing for 2013 at how new manufacturing basis in Jiangsu and also Xinjiang provinces have actually come online. So we anticipate as we go forward.
We were able to ramp up these some manufacturing basis more effectively and more quickly to deliver turbine to our customers, wind farms in the western regions as previously mentioned by our Chairman.
And in terms of some of the other expenses for example, administrative expenses, of course, with GWPL figures no longer actually appearing in G&A, doesn’t actually substantially helped to pay up what the underlying cost structure is more likely to be. And this quarter is more indicative percentage of what we expect to be able to achieve in the near future.
And of course, in terms of R&D, it’s always a trade-off between spending and of course developing for the future. And like our Chairman has mentioned as well, we anticipate the offshore wind turbine market to present a lot of opportunity in China and beyond and that’s why we’ve actually put a lot of effort into build our tree and also the 6 megawatt turbine for offshore use.
So I just want to reiterate what Mr. Zhang has said in terms of 3 megawatt turbine, we hopefully, we can actually complete construction for the too high Zhuhai Guishan project and also -- we’ve also obtained -- hope to actually to install the first 6 megawatt turbine in Jiangsu, Rudong in the test site.
And also we’ve gotten -- we’re working with Norwegian Government in terms of putting 6 megawatt prototype overseas in Europe, which is of course one of the forefronts of offshore wind turbine development. So I hope that’s information of our wind product -- wind turbine product development roadmap. But unfortunately, of course that have been necessitated by the slight increase in terms of a 10% in R&D spending in Q1. Thank you.
I have a point to add. Actually in the past five years, our finance development has proposed a very unique expense and cost control model, which is called a close loop project cost control. And it means from the very beginning of cost of tender, to contract signing, all the control -- all the cost is controlled in a close-loop way.
We must ensure that every separate way our gross margin can achieve to not lower than 15%, which means after the signing of the contract, the procurement, the manufacturing, the transportation and also the engineering service, all of the cost in these steps will be controlled in a closed loop way. We should ensure the gross margin to reach not less than 15% and all of the stakeholders are closely linked to this index.
We're carrying out strict lean operations and that means other expense is fixed. If the cost increased, stakeholders will be held accountable. I believe we're the first in the industry to come up with such management model and to actually carry it out.
Actually, this model has already shown its benefit, Q1 financial reports. We estimate that more advantageous will be shown on our financial reports in the future because this is a really great lean method.
Thank you very much. Your next question comes from the line of Eva Hou from Morgan Stanley. Please ask your question.
Eva Hou - Morgan Stanley
[Foreign Language] Hou Eva from Morgan Stanley, I have three questions. First of all, on your Q1 report, I read an item called loss of controlled subsidiaries. Is that a one time out or will that be influencing our Q2, Q3 and Q4's reports as well. Would you please elaborate on this loss of controlled subsidiary items?
The second question is about cost. On your financial report you stated that, there is 3.1% of cost decrease for 1.5 megawatt wind turbines and 7% of decrease for 2 megawatts wind turbine. How do you achieve that? Would you please predict the higher unit cost decrease?
The fourth question is about the fourth batch approval list, and now around 1.53 million [owners] (ph) are not confirmed yet, so, how many projects has Ming Yang -- does Ming Yang has exactly? And as we all know that many of the carriers or operators they are having capital issues, also related to bank problems. So, are you seeing any of your customers paying you late? Thank you.
Okay. Thank you Eva, let me take the first question first about the RMB124 million one-off gains. Like I mentioned, is it actually a one-off gain due to the change in accounting policy with regard to GWPL.
Throughout from the fourth quarter 2012 up to the fourth quarter 2013 we've been consolidating GWPLs subsidiary. So basically, line by line consolidation and into being consolidated fully into the income statement and also into the balance sheet.
And due to the change in the accounting status of GWPL itself, we were able to actually recognize the one-off gain of RMB124 million in the first quarter 2014. And like I said, this is one-off item, so we will not be actually be recurring in subsequent quarters.
And again, it's mainly to do with the fact that we've incurred, pretty heavy losses throughout 2012 and 2013 and due to the accounting change from the beginning of 2014, the so-called gain appearing on the income statement in the first quarter of 2014 is mainly because of the difference between how do we actually would account for GWPL itself.
Eva Hou - Morgan Stanley
This is to with our recognized revenue in terms of, for example, recognized 386 megawatt work of wind turbines in Q1, so we expect to at least have 20% increase in Q2.
It’s very hard to bring down the cost. Then we achieve it through technology innovation. We have already conducted approved version of wind turbine innovation in quarter one and I think that will benefit the rest of the quarters of this year as well.
And about 2 megawatts wind turbine cost decrease is mainly due to the large batch of procurement. And you will be seeing a slight decrease in entire year due to that.
And we are having strategic corporation with our supply chain. We want them to corporate with us well and we want them to earn some benefit, showing the profits or else we will be sacrificing our quality for lower cost and that will further increase our post sale maintenance cost.
And we’re majorly bring down our costs -- bringing down our cost through operations optimization, meaning we have set a fixed amount of costs and fixed amount of expenses for the entire year.
And about your second question, the 1.5 million of wind farm of Fujian Province, actually some of the onshore wind farm were approved previously, but were not implemented. So on the fourth batch of the approved list these projects will be implemented.
And some projects are starting to call for tenders and we’ve participated in these tenders and we believe, we will get two-thirds of the orders from them and we will surely achieve 150% of installed capacity.
And this year, we’ve already got some approval by ourselves and we will think about how to utilize them to develop our own wind farms and to operate them by ourselves or change the ownership to others, so that we could earn some benefits through the process that fund and it is quite true that the market size is increasing and many developers achieve some profits in the past when they want to size up now.
Companies like [indiscernible] are having refinancing plans but the bank side does seem pretty tight. So we are using some financial tools to enhance our fund or payment correction, for example, financial rentals.
We've done some financial rentals for clients before, but we took most of the cost this year. We started to bear small amount of costs. So this is an improvement.
I believe the major challenges for ourselves is to ensure the safety of the entire fund chain or capital chain and to further innovate our business model as well as to enhance the payment correction.
Ming Yang certainly has some trust on this front. However, we are still having an innovative and also stable growth compared with other companies in the industry.
Eva Hou - Morgan Stanley
Mr. Zhang, I have another follow-up question. As the Central Government is decentralizing the authority of approving wind farm and wind turbine approvals to provinces to localities, are you seeing any structural change; for example, previously the five groups, the five big groups that are having the market share, but now do you think the provinces or localities will have some authorities as well?
Actually, the way you’ve mentioned is just a contract because national energy administration is still controlling the entire development schedule. It is the provinces or municipalities, which are doing the ground work. So without schedule or say if you’ve not included into the general schedule, there won't be any ground work.
So some aspect, I would be saying the local government is having a lower level of authority now compared with previously, but if we can combine the state subsidies together with project development, that will be great.
So in general, the structure that was mentioned, the five groups as the mainstream stay unchanged. And it is actually getting more centralized because the capital cost is higher now.
Eva Hou - Morgan Stanley
Thank you. That is all for me.
Thank you. And your last question from the line of [Shee Pun from Greenwood Asset Management] (ph). Please ask your question.
[Foreign language] Thank you, Mr. Zhang and the management -- senior management. I am from [indiscernible] I would like to congratulate on your great results of Q1. My question is about incremental orders for this year. Would you please predict the incremental orders amounts for this year and also who will be the major upstream owner for you this year?
The entire year's target is 3 gigawatts and judging from our current market percentage -- market share and also the industry position, we have great confidence to achieve the 3 gigawatts target and our customer base, besides the traditional strategic customers like our [indiscernible] or China Power Investment, we also have gained new strategic clients like our [indiscernible], China General Power Corporation, China Clean Energy, Datang and China Nuclear Power Company.
So Ming Yang in the past few years have already formed the best quality of customer base and we are actually the top three WTG assemblers for many of our customers.
We also have the leading position in the west region of China. We've got a great structure of customer base and we've won many new customers during the process. We are already seeing order grow from these new customers. So the entire customer base for Ming Yang is quite solid and healthy and that will facilitate our future development.
Thank you very much. There is no further question. I will turn the floor back to the management for closing remarks.
Once again thank you for joining us today. We welcome you to contact me for any further questions. Thank you and good day.
Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect. Good bye. Have a nice day.
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