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Fushi International, Inc. (NASDAQ:FSIN)

Q4 2006 Earnings Call

March 29, 2007 4:30 pm ET

Executives

Matt Hayden - IR, HC International

Chris Wang - CFO

Analysts

Bill Wells - Pope Asset

John Ma - Roth Capital Partners

Peter Siris - Guerilla Capital

John Kay - ELS Partners

Beau Johnson - Chinamerica

Presentation

Operator

Good afternoon. My name is Steve and I will be your conference operator today. At this time, I would like to welcome everyone to the Fushi International 2006 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). Thank you.

It is now my pleasure to turn the floor over to your host, Matt Hayden of HC International. Sir, you may begin your conference.

Matt Hayden

Great, thanks very much. We'd like to thank everyone who has joined us this afternoon for the Fushi International 2006 fourth quarter and full year earnings conference call. Actually, the earnings release just crossed the Wire just a minute ago, and it should be arriving in most peoples' inbox as we e-mail here momentarily.

Our call today will be hosted by Chris Wang, the Company's CFO, who will provide details on the financial results as well as commentary on the Company's operations and execution against key growth initiatives along with additional industry insights. Before we get started, I want to read the Safe Harbor Statement regarding today's conference call.

This conference call may contain forward-looking statements concerning Fushi International's business and products. The actual results may differ materially depending on a number of risk factors including, but not limited to, general economic and business conditions, development, shipment, market acceptance, additional competition from existing and new competitors, changes in technology and various other factors beyond the Company's control.

All forward-looking statements are expressively qualified in their entirety by this cautionary statement and the risk factors detailed in the Company's filings with the SEC. Fushi International undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

In relation to the GAAP and non-GAAP results, this conference call includes financial measures for net income and earnings per share on a diluted basis, which excludes certain non-cash costs not calculated in accordance with generally accepted accounting principals. Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance that enhances management and investor's ability to evaluate the Company's net income and earnings per share compared to historical net income and earnings per share.

With that out of the way, I'd like to turn the call over to Chris for prepared comments, and also provide congratulations for a very solid 4Q and full year results. Chris, the floor is yours.

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Chris Wang

Thank you very much, Matt. We appreciate all of you who have joined us today for this conference call to discuss our 2006 financial results. As many of you know, Fushi International is a low-cost manufacturer of bimetallic composite wire, termed CCA and the CCA-M in many of our filings.

We produce coaxial, which is a larger diameter regular and a fine wire product for end customers, which are manufacturers and the distributors. Our bimetallic products are used in a variety of core infrastructure applications as well as in a variety of new end markets.

During the year 2006, we sold products to 93 customers in eight provinces throughout China, and we believe we control about 17% of the domestic market, making us the largest producer based in the PRC.

On today's call, I will provide a summary of our fourth quarter and full year financials. Next, we will discuss the current expansion underway, the timeline associated with bringing new lines into production and some more clarity into our growth initiatives in the overall bimetallic market. Then we will open the floor to questions.

Now, let's turn to the financials and specifically fourth quarter performance. All comparisons noted are compared to the fourth quarter of 2005. For the quarter, our revenues increased 38.9% to $21.7 million. The increase is primarily attributed to an increase in the average selling price and the volume of bimetallics sold. Further, increased demand from both current and new customers and the new applications drove incremental sales.

The company sold a total of 3,550 tons of coaxial, regular and fine wire during the quarter. From a capacity utilization standpoint, we added an additional shift to accommodate orders. So, our actually utilization was higher than 100% compared to full capacity with two shifts.

Cost of goods increased 27.9% to $14.3 million, and as we have started raw material account for nearly 90% of this expense. Gross profit increased to 66.3% to $7.4 million. Our gross margins were 34.1% compared to 28.5% last year. Operating income increased 49.6% to $5.6 million and operating margins were 26%.

Net income increased 86.7% to $5.4 million or $0.25 per diluted share from $2.9 million or $0.18 per share. 21.3 million and 15.5 million diluted shares were utilized for the fourth quarter of 2006 and 2005 respectively.

We are clearly pleased by this performance, which we believe is much more representative of our operational capabilities than the third quarter. We ended the year on a solid note from a balance sheet perspective, which I will elaborate on in just a moment.

For the year '06, I am not going to read through all of the metrics as all of you are capable of reading the press release and our 10-K, but I do want to touch on the key financial indicators. All comparisons are made against the 2006 full year results.

Revenues increased by 100.5% to $67.6 million. We sold 11,700 tons to an ASP for $5,777 per ton compared to 8,111 tons to an ASP for $4,156. Total production capabilities were around 12,000 tons. We utilized the 20 production lines versus 14 and had capacity utilization of 97.5% compared to 96.6%.

Gross profit was up just over 101% to $24.8 million. Gross margins were 36.7%, nearly even with '05. Operating income was 104.6% to $20.4 million. Operating margins improved slightly to 30.2%.

GAAP net income was up 128.4%, including $0.84 in diluted earnings per share versus $0.50. On a pro forma non-GAAP basis, net income was $19.3 million, up 147.3% from last year and the diluted earnings per share were $0.90.

21.3 million diluted shares were utilized versus 15.7 million. The adjustment came from adding back $1.5 million non-cash charge taken in the third quarter which was associated with liquidated damage payable in common stock for a delay in the effective registration statement for an equity financing completed in December, 2005. There was no such charge during '05 and the Company does not expect any similar charge in '07.

Overall, 2006 was a very positive year on a number of fronts. One of our stated goals has been further customer diversification. For the year, our top five customers represented 28.9% of revenue compared to 41% in '05 and significantly higher during '04. This will continue to be a priority as we grow during '07. I would refer you to our 10-K, which provides a complete breakdown of customers and regions served.

As we do not typically have long-term contracts with customers, we do enter into letters of intent or master order agreements to document a long-term relationship, plus to help to provide the visibility into purchase volumes. Manufacturing is based upon projected sales orders, and the customers typically submit purchase orders one to two weeks prior to requested delivery date. During '06, actual orders exceeded indications, which was a trend we experienced also in '05.

From a balance sheet perspective, on December 31, we ended with $20.5 million in cash, up $14.3 million. Working capital stood at $18.1 million and the current ratio was 1.87 to 1.

Accounts receivables were $7 million, up only 13.6% compared to 100.5% revenue growth excluding stock collections.

Average days sales outstanding for the fourth quarter was 38 days, a metric which shows a significant improvement as the year progressed. During '06, the top five and ten customers represented 42.3% and 73.3% of our accounts receivable balance respectively.

Cash generated from operations was $13.3 million. Our total debt on December 31 was $26.7 million. In addition, on December 31, the Company had 2.06 million warrants outstanding with an exercise price of $3.67, and 425,000 with an exercise price of $3.11, which may also provides incremental working capital when exercised.

To set the stage for our discussions focused on '07, we have been working diligently to gain a more thorough understanding of the actual and potential of domestic and international bimetallic markets.

This has proven to be a challenge, but we have made a real headway during the past six months. While bimetallic products have been utilized for many years, we believe it is still in its infancy as it relates to the future potential. This means the number of market analysts and experts covering the space, is still limited.

We have been able to compile information from both the competitors and the market resources like, the China Optical and Electronic Cable Association, which forecasts 290,000 tons of total bimetallic consumption in China for '08, up from 170,000 tons this year.

In addition, the non-ferrous metal study has been off the hook. Our market research believes that CCA is expected to replace 20% of the copper wire market by year 2011, which equates to a multi-billion dollar opportunity.

According to an industrial report by research in China, the China bimetallic market is estimated to have grown at an annual compound growth rate of 91.3% from '04 to '06 and expected to continue to grow at similar rates in '07 and '08.

I would welcome you to view our PowerPoint presentation which provides additional market information, and it can be found on our corporate website, which is www.fushiinternatonal.com.

As you can tell, we're very optimistic about our growth prospects, the lead we have over our competition and the fact that we are one of the lowest cost producers in the world.

At the end of January, we announced $60 million financing with the Citadel, $40 million in the form of a five-year senior floating rate notes and $20 million in convertible senior notes. The senior floating rate notes initially carry an interest rate of LIBOR plus 7% with a step-down provision if we're able to achieve a NASDAQ listing. The convertible notes carry a 3% interest coupon and the initial conversion price of $7 with the floor of $4.50 subject to several provisions.

One of the main provisions is the earnings target the Company has committed to. To simplify for you, we have committed to report $5 million in minimum net income for quarters two, three and four during the '07 year, $6 million per quarter in net income for each quarter in '08 and $7.2 million in net income for each quarter in '09. This capital will be utilized to pursue our growth plans more specifically, and we anticipate having 40 to 50 regular CCA production lines in operation by the end of '07 with 24,000 to 30,000 tons of annualized capacity.

From our CapEx schedule, we have allocated approximately $21 million in equipment and the facility improvement as well as increased utility costs. This includes jointing devices, joint equipments and their peripherals, heat treatment equipments, finishing and copper-clad steel equipment.

We are expected to allocate $4 million for our new R&D project. Finally, we have budgeted over $12 million for working capital, mainly in copper and aluminum to accommodate increased production capabilities. Please keep in mind that this will be a progressive rollout throughout the year. So each quarter, we expect the capacity to incrementally increase.

2007 guidance: Overall, management believes that it will be able to produce and sell approximately 50% more bimetallic wire in '07 compared to '06 which would equate to approximately 17,500 tons. While the price of copper has been erratic, it has increased year-over-year for the past several years. The price of copper and aluminum is what dictates to our customers, and that's why we don't believe it's prudent to try to predict exactly what the outcome will be. However, management is comfortable providing guidance of at least $22.7 million in net income for '07, which would equate to $1 in diluted earnings per share and that represents approximately 20% increase over '06.

As we have discussed in tandem, with this ramp in production, we intend to enhance our sales force by building a top quality sales team. This will enable us to capture additional market share and build a comprehensive domestic footprint with expansion internationally.

Over the long-term, we anticipate sales growth to continue to be aggressive and broadly based. This is principally driven by increased conversion market visibility, expanding market sizes, favorable pricing environment, product profitability and the momentum to gain additional market share.

From an operational standpoint, we are initiating the process of implementing a new ERP software to improve all financial controls that will streamline product procurement and inventory and purchasing control. We believe this will also provide incremental opportunities for further margin improvement.

During the past several months, we have made further progress on implementing our Sarbanes-Oxley 404 compliance system.

As we have mentioned, we believe this proactive initiative is going to be demanding, but will benefit our company by improving our systems and accounting controls. We expect to have this in place during this calendar year.

For our NASDAQ application, we anticipate filing our application this spring. We have identified several highly qualified candidates to fill our independent Board seats. This includes prior CEOs with operating expertise and finance experts among others. We expect to name additions in the next couple of months. We don't want to make any predictions as it relates to specific timing, but it is a high priority for management to achieve the listing during '07, and we will keep you abreast of the developments.

Overall, 2006 was a very positive year for the company and things certainly have not slowed down. We are pleased thus far. We will never become complacent and our goal to become a dominant player in the worldwide bimetallic market is well underway.

Thanks very much for your continued support and we expect to continue to deliver the results, which would drive further shareholder value.

And this concludes my prepared comments. Thank you for joining us today and we are now happy to open the call to questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from Bill Wells of Pope Asset.

Bill Wells - Pope Asset

Hi, Chris. Congratulations on a good quarter and a good year. Can you tell me what caused the price increase for the better margins during this last quarter?

Chris Wang

What's that again, Bill?

Bill Wells - Pope Asset

You said you were able to get better prices this quarter?

Chris Wang

Right.

Bill Wells - Pope Asset

Was it a change in the price of copper, or just some new contracts? What allowed you get these stronger prices, in your opinion?

Chris Wang

Well, the fourth quarter, it's a more normalized quarter. By that I mean, in the third quarter really we experienced some difficulty with working capital because of, like there's a shortfall between the rising copper prices and the lag of our customer payments. But in the Q4, it's pretty much back to normal that we are able to actually go back to the practice of make advance payments for the raw materials to, like locking the prices of raw materials, so that we are actually benefited a little bit from locking the raw material prices at lower level, but price it at a higher level when we actually sell the products, when we fulfill the order.

Okay. That's one of the things. And also, we definitely benefited from better product mix. By that I mean we actually sold more fine wire products than we did in the third quarter because the fine wire products carry a higher profitability profile.

Bill Wells - Pope Asset

Thank you. What kind of visibility we have into the first quarter?

Chris Wang

In the first quarter, generally things are on the right track, especially after we completed the financing with the Citadel. That really provided with a lot of financial resources to do what we intend with the business, particularly with the production capacity, expansion entity, further improving the working capital situation.

So, I can't commit to give you any firm number because the quarter is not finished yet, but we are just about to finish. But, I guess what I can tell you, is that we have a solid quarter. And going forward, we are thinking, the whole year, it's going to be like what I've provided in the guidance. We're going to have an awesome year, at least 50% in the top line number growth and 20% in the bottom line number growth.

Bill Wells - Pope Asset

Great. Well, that's exciting and I hope that works out. Again, congratulations on a good year.

Chris Wang

Thank you so much, Bill.

Operator

Your next question comes from John Ma of Roth Capital Partners.

John Ma - Roth Capital Partners

Hi, Chris.

Chris Wang

Hey, John, how are you doing?

John Ma - Roth Capital Partners

Congratulations on a solid quarter.

Chris Wang

Thank you.

John Ma - Roth Capital Partners

Here I have a couple of questions. Number one is, you mentioned that you have $26 million of debt?

Chris Wang

Right.

John Ma - Roth Capital Partners

That was before the Citadel financing. So my question is, when these short-term Chinese bank loans mature are you going to use the Citadel respond to repay these loans or are you going to renew these Chinese loans?

Chris Wang

We're going to definitely roll it over because it's much cheaper and it's actually a line of credit. It's really revolving facility. So, we can also tap into for the working capital needs.

John Ma - Roth Capital Partners

Okay. Yeah. And I am glad you mentioned that, you don't want to be complaisant. And my question relates to your competition and your competitor strategy, because market is growing and also competition is growing too. And through the website everybody is claiming we have a low cost, we have a good quality and also offer similar products. So my question is, going forward, how are you going to differentiate yourself from the competition?

Chris Wang

John, that's a good question. How we are going to differentiate ourselves? To begin with, we are actually apparently the market leader here. And we definitely have a leg up against the other guys who try to get in to this space because of the existing opportunities in this market. And I guess the measures that we are taking to further enhance our core competence and our competitive position is that: One, we have teamed up with the China Optical and Electronic Association to form a joint R&D center to do R&D, to further enhance our R&D capability. And the next step is we are going to work with them to draft the national standards for this industry and also for the standards for testing in this industry.

So, we believe that by taking these steps, it's going to allow us to really just elevate the barrier of entry for this industry, so that it will become more difficult for the guys who try to get in. And also we are expanding our, definitely, sales network to include to get a broader market base, client base, including our strategic major customers like [Klinkone], Leoni, [Angel]. You've got to remember that all these customers, they are quite a number of like a mom and pop stuff popping around in this country, trying to get into this business. But in terms of the quality, in terms of their ability to supply products in a sustainable manner, it's that they cannot compare to us.

So, in competing with them, we think we can differentiate ourselves in many, many ways; in quality, in quantity and in the service and obviously like after sales support and everything. I guess to sum it up, in competing with current or potential competitors, we think we have a strong R&D, we have a strong network of sales and we have the strong ability to supply the best quality product in this market in large quantity. So, we are taking the mass that we are putting in place is going to be put us even further ahead of our competitors we think.

John Ma - Roth Capital Partners

Okay. And for your Q4, you mentioned that you have to add one more step to accommodate the demand.

Chris Wang

Right.

John Ma - Roth Capital Partners

How is the competitive relation for Q1? Does that continue to be a case?

Chris Wang

For Q1 of this year?

John Ma - Roth Capital Partners

Right.

Chris Wang

Right. It is still in excess of 90% of capacity utilization. I can assure you of that.

John Ma - Roth Capital Partners

Okay. All right, thanks.

Chris Wang

Yeah. No problem.

Operator

Your next question comes from Peter Siris of Guerilla Capital.

Peter Siris - Guerilla Capital

Hey Chris, how are you?

Chris Wang

Hey Peter, I am good. How are you doing?

Peter Siris - Guerilla Capital

Good, long time no see. I had actually two questions.

Chris Wang

Okay.

Peter Siris - Guerilla Capital

The first question is, you are spending a lot of money this year on G&A to gear up production. So you said, revenues will go up 50% and earnings will go up by 20% or something like that, is that correct?

Chris Wang

Right.

Peter Siris - Guerilla Capital

So, when do the expenditures from this year start to really hit the bottom line? Will the expenditures this year will lead to next year earnings growth or some more revenue growth?

Chris Wang

Yes. Definitely the reasons that we are going to have or we expect to have a higher percentage of SG&A is that, as we bring the production lines online and as we also try to get more aggressive with expanding through the international markets, those things are going to cost us. But we definitely expect in the next couple of years our business is going to benefit from these expenses. So, it's going to be a loss, I don't think.

Peter Siris - Guerilla Capital

So, everything else be equal, your earnings growth in future years should be faster than your earnings growth in the coming year.

Chris Wang

Absolutely.

Peter Siris - Guerilla Capital

Okay. I have one more question that confuses me. There were times when your margins have flipped around. And sometimes the copper prices go up and the spread between the copper and aluminum is the broadest. Like in the third quarter this year or the fourth quarter of '05, the margins actually go down and then in subsequent quarters they pick up. Is there like a lag time? In other words, logic tells me, if I look at this spread between copper and aluminum that should be best phase for you.

Chris Wang

Right.

Peter Siris - Guerilla Capital

But sometimes when copper goes up, that one quarter isn't as good and it's the subsequent quarters that are better.

Chris Wang

Actually, let me just explain it this way. I mean there is sometimes a lag between the changing prices of copper in our gross margins. As you can see that there is definitely a close relation between our margin and the copper and aluminum ratio. For example, in the third quarter of '06, the spread between copper and aluminum was the highest in that year, right. But our margins were the lowest. The same conditions occurred also in the fourth quarter of '05.

So, this means that, a high differential is extremely positive for both demand and the margins over the long-term, but increasing copper prices can sometime hurt us, hurt our margins in the short-term. But we definitely think that, as you can see that, this information is being provided in our 10-K, although there are some volatility or some fluctuations with our quarter-by-quarter gross margins. But from a long-term perspective it stays fairly stable at around 36%, 37%.

Peter Siris - Guerilla Capital

But I thought it's interesting that despite all the change, the fluctuations occurred all year and yet for the year as a whole, your gross margin actually improved.

Chris Wang

Right. That's definitely the case.

Peter Siris - Guerilla Capital

So, there will be quarters when they will move around, but you expect that over time, it stays pretty constant?

Chris Wang

Yeah.

Peter Siris - Guerilla Capital

Okay. Thanks Chris.

Chris Wang

Actually, if you look at our historical numbers, the performance there definitely has been either stayed pretty stable or even expanded a little bit, especially, with these measures that we have been implementing and particularly with regard to improving the efficiencies of the operation. We think there is still plenty of room for improvement with regard to expanding the margins.

Peter Siris - Guerilla Capital

Thank you.

Chris Wang

Yeah.

Operator

(Operator Instructions). Your next question comes from John Kay of [ELS Partners].

John Kay - ELS Partners

Hey, Chris. How are you?

Chris Wang

Hey, John. I'm good. How are you doing, John?

John Kay - ELS Partners

Pretty good. As my question is on the yields of the previous caller, I was just wondering if you can speak generally about how the market is doing. Do you see new entrants coming in? Do you see any guys who are going to trying to undercut you in terms of pricing strength, generally how that dynamics work in the market?

Chris Wang

Right. From the conversion market visibility, definitely we don't see any pressure coming from the pricing side. As a matter of fact, we've been able to raise our markup with the products as the raw material costs have increased. So, with regard to the competitors or new entrants in to this market, just like I said previously that we cannot stop them from coming in. But we think that we can strongly differentiate ourselves, and we do not think that they pose as a serious threat to our market position here.

So, I mean basically what you are dealing with here is that a majority of the newcomers in this market are like the mom-and-pop shops. So, they just try to imitate what we do because of the profitability, because of the huge replacement opportunity here. But we think that given the magnitude of operation, given our capacity and especially given the quality and the patents that we hold, we have like many patents to push when we compete with them to keep our leadership position in this industry.

John Kay - ELS Partners

Are there, other than like mom-and-pop shops, do you guys have anything like large corporate competitors?

Chris Wang

Right.

John Kay - ELS Partners

Do you see them investing in the business too and have a similar type of growth that you have or are you taking the business away from them?

Chris Wang

Right. In terms of newcomers, no it didn't see much. But for the existing competitors, we were actually thinking of this when we did the financing with Citadel. So, one is, actually the potential use of proceed is to identify appropriate candidates for acquisitions, so that we can further enhance our competitive position in this market. And there are definitely some good candidates out there that we make take interest in.

For example, there is this company actually in the same town. It's in the city of Dalian. And they are the second largest competitor in this market. And so, at one point, we are taking a serious look at them. But then the dynamics changed. We actually also came across this other company, which is located in Fujian province that they being doing this business for a while as well. And we think that by potentially acquiring that business is going to put us much closer to the class that we currently serve.

So, we are debating the pros and cons of each potential acquisition and to see which one would make the most economic sense. And probably pretty soon we are going to make a decision to make a move on one of this.

John Kay - ELS Partners

Last question.

Chris Wang

Yeah.

John Kay - ELS Partners

Do you see more competitors than domestically or overseas like Europe and the US?

Chris Wang

Right. Yeah. Definitely not from international. Because for example, this company Copperweld then later on got acquired by Dofasco. Then their [position] got bought out by their President. They used to sell a lot of their products to China. But starting from '05, they are not selling any products to the China market. The main reason is that they are no longer competitive. The producers in China have improved so much that basically they cannot compete here.

So, I guess really from this industrial manufacturing standpoint, China has become very strong. And that's why we want to further enhance our market position here and then we can expand overseas from this base.

John Kay - ELS Partners

Okay. Perfect. Thank you

Chris Wang

Yeah. Thank you.

Operator

(Operator Instructions). Your next question comes from Beau Johnson of Chinamerica.

Beau Johnson - Chinamerica

Hello, Chris. Congratulations on a great year. You worked really hard. Please give my best to Fu and for [Mathis], we are all proud of them.

Chris Wang

I will do that. Thank you.

Beau Johnson - Chinamerica

I have got a question for you about the association you are working with in the development of standards in your industry. How long do you think that's going to take and what kind of an impact is it going to have as working directly with this association as far as your competitive advantage going forward?

Chris Wang

This association is basically responsible for writing the industry standards. So, by forming some kind of partnership with them is a huge endorsement honor in terms of, our capability, in terms of our reputation in this market. So, in terms of timeline, we signed a partnership agreement with them back in December, and we are really working very closely with them now on the R&D front.

And as a matter of fact, in the month of May, we are going to jointly host a nationwide meeting for the experts to get together and to talk about the national standards and things like that. And so, by formalizing the national standards, it's going to allow us to become the rule setter. It is basically going to write the rules in this industry. And so, that obviously is going to give us a huge backup compared to anyone else in this industry.

Beau Johnson - Chinamerica

Wonderful. Now you were saying at the Roth Conference that you are really one of the only few in the fine wire space, for your margins are better. Have any competitors in this market are risen or do you think as you expand your business it's going to become more and more important to your growth going forward?

Chris Wang

Right. Okay, that's a good question. With regards to the fine wire business, actually a lot of people with the copper wire, they are also doing this. But why couldn't they do it with bimetallic? The reason is that, it has more to do with the material that we use that allow us -- we actually have this proprietary process at the very beginning of the process. We do the first treatment or the processing of the aluminum core, so that when it gets joined on to really, really thin, but is still bimetallic. We have the technology that it would not -- this proprietary element of this first treatment at the beginning of the process ensures that it will not break when it gets really, really altered, like some hair thin, it doesn't break. Nobody else in this industry can do that yet.

Beau Johnson - Chinamerica

So, do you think that this is going to be the more and more important part of your business going forward?

Chris Wang

We sure hope so. We actually estimate that it's going to become a bigger piece of the revenue because of the better profitability profile of this product. So, we are really looking to grow this business bigger.

Beau Johnson - Chinamerica

Regarding, the fact to the opposite end of this term, you also mentioned a few months ago that you were working on electrical transmission wire?

Chris Wang

Right.

Beau Johnson - Chinamerica

I assume it's going to be really big and fat. Now, is there anybody else in that and what's kind of potential does that pose for you?

Chris Wang

First of all, that really begins with 12 orders from the [Zhengzhou Delna] which is one of the top ten wire and cable producer in China for the power transmission industry. But although that was just a pilot project; the size of the 12 orders was 200 to 300 tons per month. So, we are talking about, if this market takes off, it's going to be multiple, multiple of the current market size. So definitely, that comes with whether you have the capability or you have the capacity to handle this big quantity and is feasible to do.

So, the only barrier from these guys making sizeable long-term order with us is: One, the national standards; two, the capacity. As a matter of fact, that we got questions from guys making increase with this all of the time that whether you have the enough capacity to handle these orders in sustainable manners, if we place order with you. Because, once we switch to bimetallic, we don't want to switch back to copper. So, it's like the extra assurance that we are able to handle, to fulfill all the orders when they are made. So, that's the point there.

Beau Johnson - Chinamerica

Yeah. Once you have the Chinese standards established, do think this is going to help you also in international markets?

Chris Wang

With regard to the international market, it actually works quite differently than the Chinese market. For example, in the Japanese market, they is quite a bit of protection business going on there. Because it's not just the matter of economic consideration that you have this perfectly viable but low-cost, cost effective alternative available there, then people would switch. Because they have these industry associations that carry a lot of cloud and have a strong influence that would potentially prevent you from adopting, although it's perfectly viable or make the best business or economic sense.

So, I guess, that's why we are focused on China market now because all these producers, they are very cost sensitive. But the next step is that we want to start with this base in China to expand internationally, to build some more solid international footprint. Then the question is, we have got to learn this market carefully and we have got to play by their rule. So, that's why we are looking to hire someone like international talent to help with this.

Beau Johnson - Chinamerica

Wonderful. Once again, Chris, thank you very much. We look forward to seeing you next time in China.

Chris Wang

Thank you so much. Look forward to seeing you too, Beau. Thank you.

Operator

I am showing we have no further questions. I now turn the floor back over to Chris Wang for closing remarks.

Chris Wang

Okay. Well, as a closing comments I would say that we are more comfortable, confident than ever that we have all the necessary pieces in place now to grow Fushi into a really world-class company. And so, I will very much look forward to seeing you all at the next earnings call to report the first quarter's numbers.

Thank you so much for your support. Good night. Bye, bye.

Operator

This now concludes today's conference call. You may now disconnect and have a great evening.

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China Direct (ticker: CHND.OB) is a diversified management and consulting company. Our mission is to create a platform to empower medium sized Chinese entities to effectively compete in the global economy. As your direct link to China, our organization serves as a vehicle to allow investors to participate directly in the rapid growth of the Chinese economy.

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