China Ming's (MY) CEO Chuanwei Zhang on Q4 2015 Results - Earnings Call Transcript

| About: China Ming (MY)

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

Q4 2015 Earnings Conference Call

April 18, 2016 08:00 AM ET

Executives

Chao Zhang - Director of IR

Chuanwei Zhang - Chairman and CEO

Ricky Ng - CFO

Analysts

Operator

Good morning and good evening, ladies and gentlemen, welcome to China Ming Yang Wind Power Group Limited’s Fourth Quarter and Full Year 2015 Earnings Conference Call. At this time, all participants are in listen-only mode. With us today are Mr. Chuanwei Zhang, Chairman and CEO; Mr. Zhongmin Shen, Vice Chairman; Mr. Ricky Ng, CFO and Ms. Chao Zhang, Director of Investor Relations.

After the management's prepared remarks, there will a question-and-answer session. I would now like to turn the call over to Chao Zhang, Director of Investor Relations. Ms. Zhang, please proceed.

Chao Zhang

Thank you, operator and thank you for joining us today. This conference call contains forward-looking statements. These statements constitute forward-looking statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expects, 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 risks, 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 U.S. Securities and Exchange Commission. Ming Yang does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

As a reminder, today’s call is solely to discuss Ming Yang’s financial results for the fourth quarter and full year of 2015. Management will not comment on the receipt of the going private proposal.

We have already issued our fourth quarter and full year 2015 earnings press release and I hope you had 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. Ng will go through the company’s financial performance for the fourth quarter and full year of 2015. After that, we will open the floor to questions from the audience.

Now, I would like to now turn the call over to Mr. Zhang. Mr. Zhang, please.

Chuanwei Zhang

Ladies and gentlemen, good morning and good evening. I’m Zhang Chuanwei, the CEO and Chairman of the Board of China Ming Yang Wind Power Group. Welcome to join us in the earnings release of the fourth quarter 2015.

First of all, I would like to talk about macro environment and wind power industry. For the wind power industry, the year of 2015 witnessed a surge of installation. Based on the statistics from China Wind Energy Associations, CWEA, the incremental installed capacity of wind power was 30.5 gigawatts in 2015 with a record high year-on-year growth of 31.5%, much higher than the industry expectations as China takes up half of world incremental volume last year.

In terms of wind power utilization affected by wind curtailment the average utilization hours of wind power was 1,728 hours, which is a drop of 165 hours on a year-on-year basis. In three northern regions, where there are abandoned wind resources, wind curtailments do prevail [ph] in at more than 39%. Another big concern for the sector is that the reimbursement of new energy subsidies is behind schedule while the submission of subsidy list is seriously delayed.

Industry [indiscernible] helped Chinese wind sector to grow in a more reasonable and robust manner. Market competitors switch from product focus to integrated solutions. The supply and demand relationship also shifted from individual products to full life cycle management supported by information technology. Industrial value chain is getting more granular, which raises the bar for WTG product technology, smart wind farm solutions, full lifecycle value management, operational servicing and technology for upgrading.

In order to tackle acute issues in wind power consumption and subsidy delay, the National 13th five year plan is guiding wind power sector to focus on power grid connections, consumptions, subsidy and the cost side with a principle of making progress while keeping stability. In addition to defining incremental installed capacity size and on-grid tariff there has been a series of measures to improve the quality of the industry. It is clear that there is no directional change for our country to develop renewable energy and restructuring energy mix.

According to the opinion draft from National Energy Administration, NEA by the end of 13th five year plan in 2020 the total installed capacity of wind power will reach 250-gigawatts, which translates into an incremental installed and connected capacity of 24.2 gigawatts every year in contrast to wind curtailment in three north regions wind power enjoys a faster growth in Central China, East China, as well as for offshore.

Central China and East China have well established grid infrastructure, less curtailment and lower barriers for new projects. These areas will usher in huge market opportunities together with the development of customized large blade WTGs. Offshore Wind Power Developments in Guangdong, Fujian and Zhejiang are getting started as planned and will be important growth projects for the future.

As for power grid connection and consumption on March the 3rd, NDRC released instructions on building a guidance system on development and utilization target of renewable energy, which state that, renewable energy excluding hydropower, should take up more than 9% of total generated energy by 2020. A renewable energy green certificates trading mechanism shall be established, allowing green certificate holders to participate in the trading of carbon emission reduction and energy conservation, while green profits will be generated for renewable energy.

In the same month of March NDRC officially released the management of pool [ph] acquisition of power generated from renewable energy, representing the launch of a long awaited quota mechanism for renewable energy. Later on March 17th, NEA released notice on wind power consumption in 2016 to facilitate the consumption of wind power. Quota system and green certificate set the floor and provide alternative options for wind power consumption, which is beneficial to the investment returns of wind power operators and trading earnings of green certificates and carbon emission.

In terms of subsidy, this January Ministry of Finance and NDRC raised the levy of the renewable energy development fund from RMB0.015 per kilowatt hours to RMB0.019 per kilowatt hours, which further supports the development of the renewable industry and is beneficial to restructuring energy mix as a whole.

Three, Ming Yang’s development strategies during the 13th five year plan period, the 13th five year plan emphasizes that Chinese equipment manufacturing and strategic emerging industries should aim for mid-level and high end markets, which brings about both opportunities and requirements for us at Ming Yang. The next round of competition will focus on sustainable innovations, design of business model and resource acquisitions, which will define the comprehensive competitiveness of one enterprise. To embrace new opportunities we will push forward six development strategies at Ming Yang.

One, energy Internet, in recent years Ming Yang has been working on energy ecosystem. During the 13th five year period the share of new energy and distributed energy will continue to grow. To echo this trend Ming Yang will harness technology synergies among wind power, solar power and biomass for power generation. To be more specific in power transmission we will develop smart electrical technology based on power electronic and carry smart loading management and forecasting. At the same time with the integration among Internet, Internet of things, new energy and power market strategies, together with big data we can further reduce the cost of new energy, making clean and new energy our primary energy supply in the future.

Two, technology innovation, the core is to strengthen our capabilities in product technology, integrated solution of smart wind farms, full lifecycle based value management, operational servicing and technological upgrading to maximize customers benefits. We will continue to optimize the solution for onshore low and ultra-low wind streams. After systematic research in micro site selections, WTG design, smart manufacturing, host wind farm assessment and wind power utilization as well as R&D in key components such as blade, gear case, generators and converters, we are able to launch a set of three plus MW onshore low wind speed solutions, for offshore wind power. Besides offering large megawatts, low wind speed WTG that are highly reliable we are also able to produce WTGs that can withstand typhoon in South China. Built on offshore engineering and advanced transmission technologies, we provide an integrated offshore solution for our customers. As for advanced manufacturing, Ming Yang will bring in the concept of industry’s 4.0 to customize complex systems for customer demand.

Three, investment and development of power stations; in power generation, new energy investment is regarded as Ming Yang’s strategic source of growth. We recruited talent with rich experiences in project development and construction management. Our unmanned smart power stations, with low cost but high efficiency is featured by customized technologies and full lifecycle based management. We in fact are creating or building a new investment and development model in Chinese new energy sector.

Four, large bases, with seven large bases in West China that we’ve built over the past few years, we will capture the opportunities brought by one belt, one road and power system reform. We will accelerate development of green energy as a local leading manufacturing player by innovating business model and leveraging financing advantage. We will lead the construction of large corridor. The integration of power distribution and power selling as well as the development of distributed energy. We will lead the development of new energy industrial chain in West China region.

Five, offshore wind power, Guangdong, Jiangsu and Fujian will be core markets for offshore wind power. Besides building the very first two [indiscernible] offshore wind power project as an industry benchmark, featured by high reliability and high utilization, we are also planning two more offshore wind power bases in Zhanjiang and Shandong [ph], Guangdong Province. We cooperate with local government and operators when developing offshore wind power resources and thus build Ming Yang’s unique advantages in offering an integrated solution of offshore WTG islands.

Six, One Belt, One Road oversea strategy, oversea market is one of our key strategies. Starting from India and Pakistan we will cover Sri Lanka, Bangladesh, West Asia and Southeast Asia. At the same time we are expanding our presence in Central and East Europe, starting from Russia. On the one hand we are collaborating with strong domestic EPC contractors to provide products with high reliability, large power generation and low maintenance cost.

On the other hand we are working with domestic banks in financing, which is in-line with the national goal of exporting capacity with the support of financial capital. In addition for developing countries where new energy is getting started we also export technologies and business based on local requirements.

Next, I would like to talk about Ming Yang’s recent business projects. First, industry ranking, domestically according to CWEA Ming Yang kept ranking the 3rd in 2015 and largely recognized by customers. According to Bloomberg New Energy Finances report in February Ming Yang ranked number 8th globally by installed capacity in 2015. Our ranking manifests our leading market position and technology strength, which is a solid foundation for us to expand both home and abroad.

Product lines, we developed a portfolio of new large blade products targeting at low wind speed and offshore wind power, built on the platform of two MW WTGs. We successfully launched ultra-low speed WTGs with a max diameter of 121 meters, which is the largest among WTGs with the same capacity in the world. This product makes it possible to build wind farms with an average wind speed of five meters per second. And it’s already certified by China General Certification Center and TUV in Germany.

Excellent product performance leads to positive market response. In Early November last year, the first small batch project in Wuxue Dajin using MY 2MW-118 meter WTG recorded a 720 hours non breakdown operation after commissioning. Based on our comparison, this product generates 20% to 30% more power than other WTGs with the same power capacity.

As for the platform of 3MWs we have finished installation and configuration of SCD 3MW-121 meter onshore WTGs in [indiscernible] province. This is a three blade solution customized for mid and low wind speed areas build on the heritage of high efficiency of transmission chain and easiness in transportation. We applied the concept of full lifecycle and carried out various tests across different levels of the model in factory workshops. Hence we are able to finish commissioning at full capacity within only one week.

This is another knockout model at Ming Yang in addition to SCD 3.0 MW and SCD 6.5 MW dual blade WTGs. What’s more for SCD 3.0 MW 135 meters WTGs we have customized design for low wind speed areas, which will be installed and connected to grid in middle of the year. We firmly believe that MY SCD's three blade solution is well prepared for wind farms located in difficult geographies. As for 6.0 MW platform we continue to optimize the offshore SCD demo machines in Rudong, Jiangsu and finish the design of larger anti-typhoon models.

For downstream business, we speak to the investment principle of risk control plus return focus. We have selected locations with strong grid consumption and low electricity ration [ph]. Projects with high quality resources, high tariff and better grid infrastructures are prioritized for investments. By the end of 2015 we have 250-megawatts of wind power projects under construction in Hunan, Hebei, [indiscernible]. The project in [indiscernible] already started power generation, while other projects are expected to connect to grid in the second half of 2016.

Last but not least, I would like to talk Ming Yang’s orders in the fourth quarter. The newly signed order in Q4 was 642-megawatts contributing to a total order backlog of 3.7 gigawatts by the end of Q4 2015. In recent months, Ming Yang’s tender price stabilizes at a range of RMB3,900 to RMB4,400 per kilowatt.

Next, I would like to give the floor to our CFO, Ricky Ng to talk about the financial performance of the fourth quarter 2015.

Ricky Ng

Thank you, Chairman. Good morning or good evening ladies and gentlemen. As we have already issued the earnings release, I will focus on just the few important metrics from of our financial performances. Please note that all figures are in RMB and all comparison refers to year-over-year comparisons unless otherwise stated I will mainly go over the figures of the full year performances.

Revenue in 2015 was RMB6,797 million, an increase of 16% compared with 2014. The increase was mainly due to the increase in sales of wind turbines in 2015, with an equivalent wind power project output of 2,032 megawatt or 507 units of 1.5 megawatts wind turbines and 636 units of 2.0 megawatts wind turbines. As such the 2.0 megawatts wind turbines become the most popular products of the company in 2015.

We see a significant increase in gross profit and gross profit margin. Gross profit was RMB1,103 million, which is an increase of 36% compare with 2014. Gross margin in 2015 was 16.2% compared to 13.8% in 2014. The increase in gross profit margin was mainly due to the increase in average selling price on a per kilowatt basis and as well as the decrease in production cost as a result of the synergy effect from acquisition of RENergy in May 2015.

Selling and distribution expenses and administrative expenses increased as the business volume increase. Financial income was RMB125 million, which decreased by 25% compared with 2014. The decrease was mainly due to the decrease in interest income from bank deposits and entrusted loans. At the same time the financial expenses in 2015 was RMB115 million and which decreased by 33% and the decrease is mainly due to the decrease in average loan balances.

And in 2014, there is a gain on loss of control of subsidiaries of RMB124 million as a result of our deconsolidation of our previous subsidiaries namely Global Wind Power Limited, which has become a JV company since January 1, 2014 and there was no such gain in 2015.

Lastly, as a result of the foregoing the total comprehensive income for 2015 was RMB298 million. So this concludes the financial reporting session and I will now turn the call back to Zhang Chao.

Chao Zhang

Thank you and this concludes our prepared remarks for the Chairman and CFO. We will now open the floor for questions for the benefit of our listeners today all question-and-answer will be translated into English and Chinese.

Question-and-Answer Session

Operator

Chao Zhang

Thank you. Thank you all once again for joining us both today and tonight for Ming Yang’s 4Q and full year 2015 earnings call. We like to keep in touch and welcome investors to either call us or email us with any further questions. We are more than happy to answer them.

Operator

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

Chuanwei Zhang

Okay, thank you. Bye-bye.

Chao Zhang

Thank you.

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