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Edited Transcript of CXDC earnings conference call or presentation 15-Apr-19 1:00pm GMT

Q4 2018 China XD Plastics Company Ltd Earnings Call

Haerbin Heilongjiang Apr 19, 2019 (Thomson StreetEvents) -- Edited Transcript of China XD Plastics Company Ltd earnings conference call or presentation Monday, April 15, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jie Han

China XD Plastics Company Limited - Chairman, CEO & President

* Qingwei Ma

China XD Plastics Company Limited - COO & Director

* Shaojie Wen

China XD Plastics Company Limited - IR Contact of New York, US

* Zhang Dahe

China XD Plastics Company Limited - CFO, Secretary & Director

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Conference Call Participants

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* Graham Yoshio Tanaka

Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director

* Matthew Larson

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter 2018 China XD Plastics Company Limited Earnings Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, Monday, 15 of April, 2019. And I'd now like to hand the conference over to your speaker host today, Mr. Shaojie Wen. Thank you, sir. Please go ahead.

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Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [2]

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Thank you. Hi, everyone. Thank you all for joining us for the China XD Plastics Fourth Quarter 2018 Financial Results Conference Call. Joining me on the call today are Mr. Jie Han, Chairman and CEO; Mr. Qingwei Ma, Chief Operating Officer; Mr. Taylor Zhang, Chief Financial Officer; Mr. Junjie Ma, Chief Technology Officer; and Mr. Rujun Dai, Deputy General Manager of Heilongjiang Subsidiary.

Earlier today, China XD Plastics issued a press release announcing the fourth quarter 2018 results.

Before management's presentation, I would like to refer to the safe harbor statements in connection with today's conference call and remind our listeners that management's prepared remarks during the call may contain forward-looking statements, which are subject to risk and uncertainty and that management may make additional forward-looking statements in response to your questions.

All statements other than statements of historical fact contained are forward-looking statements, including, but not limited to the company's growth potential in the international market; the effectiveness and profitability of the company's product diversification; the impact of the company's product mix shift to more advanced products and related pricing policies; the volatility of the company's operating results and financial condition; the company's projection of performance in 2018 and other risks detailed in the company's filings with the SEC and available on its website at www.sec.gov.

These forward-looking statements involve known and unknown risk and uncertainties and are based on current expectations, assumptions, estimates and projections about the company and the industry. The company, therefore, claims the protection of the safe harbor for forward-looking statements and is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed to date, and we refer you to a more detailed discussion for the risk and uncertainties in the company's filings with the Securities and Exchange Commission.

In addition, any projection as to the company's future performance represents management's estimate as of today, April 15, 2019. China XD Plastics assumes no obligation to update these projections in the future as market conditions shift.

To supplement the financial results present in accordance with the U.S. GAAP, management will make reference to earnings before interest expense, income taxes, depreciation and amortization, which we refer to as EBITDA. EBITDA is a non-GAAP financial measure reconciled from net income, which the company believes to provide meaningful additional information to better understand its operating performance. A table reconciling net income to EBITDA can be found on the earnings press release issued earlier today.

I would now like to turn the call over to our Chairman and Chief Executive Officer Mr. Han. Mr. Han will be speaking in Chinese and I will translate his opening remarks into English. Mr. Han, please go ahead. (foreign language)

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [3]

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(foreign language)

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Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [4]

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[Interpreted] Our fiscal 2018 results were consistent with the less anticipated severe slowdown in China auto industry, the first drop in 28 years. In addition, the reduction of the duty on import vehicles by an average of 46% is expected to have a profound impact on the entire auto industry in China. Although we applaud the implementation of such supply side reform by the policymakers for the wellbeing of the long-term benefit of China auto industry, it will have short-term impact to the auto market as companies throughout the supply chain when they are adjusting themselves and adapting to such change. We are pleased with our successful trial production at our production base in Dubai and remain optimistic about our business expansion overseas, especially after positive results and feedbacks after product trial runs from customers in various countries and regions overseas.

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [5]

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(foreign language)

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Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [6]

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[Interpreted] In November 2018, the company had a successful trial production at our production base in Dubai and has tried to develop new overseas customers besides the existing customers. The company has established business relationships with new customers in UAE and India, and shipped product to the end users in Europe in the fourth quarter of 2018. Dubai Xinda primarily offers long chain nylon alloy and other high-end engineering plastics.

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [7]

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(foreign language)

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Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [8]

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[Interpreted] So the macroeconomic environment for Chinese auto industry is still to be improved. Thanks to the Chinese government's current policy to support non-State-Owned Enterprise in China. Earlier this year, the company signed deleveraging investment framework agreements with several domestic major banks in China. We are very pleased to welcome those domestic Chinese banks as our important strategic and long-term partners of China XD, Xinda. The correlation between China XD and those major Chinese banks will not only help our company deleverage its balance sheet and improve its capital structure, but assist the company to solidify its long-term position in this industry.

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [9]

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(foreign language)

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Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [10]

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[Interpreted] We believe the successful trial win in Dubai resulting in new production capacity to be added. Our expansion into new markets overseas, diversified customer base and escalation of sales categories will strengthen and augment our core automotive business. Future, our new development projects, which leverage our technical expertise, will lead to additional new business. We view ourselves as the leader in the polymer composite sector, which will enable us to provide creative technology solution for China's modernizing transportation, energy, health care and industrial sectors.

In terms of 2019 guidance, we expect revenue to range between $1.3 billion and $1.6 billion in revenue and net income to range between $90 million and $110 million.

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [11]

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(foreign language)

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Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [12]

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[Interpreted] With that, I will now turn the call over to Taylor Zhang, our CFO, to walk you through our financial. Taylor?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [13]

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Thank you, Mr. Han, and thank you, everyone, for joining the call today. Before I review the numbers, let me remind you that all figures I discuss are for this reporting period, the fourth quarter of 2019 (sic) [2018], unless I state otherwise. Additionally, any year-over-year comparison is to the fourth quarter of 2017. And any sequential comparison is to the third quarter of 2018. So let's go over our fourth quarter results.

Revenues were $349.8 million for the fourth quarter of 2018 compared to $427.6 million for the same period last year, representing a decrease of $77.8 million or 18.2%. The year-over-year decrease was primarily as a combined results of 19.9% in sales volume, offset by 5.6% increase in average RMB selling price of our products, as compared with those of last year.

According to the China Association of Automobile Manufacturers, automobile production and sales in China in the fourth quarter continued to follow the decline trend since the third quarter of 2018. China auto sales dropped 11.7%, 13.9% and 13% in our last October, November and December, respectively compared to the same periods in 2017.

Weakening macroeconomic conditions since the summer of 2018 have deteriorated business conditions. Though the company has increased gross of 73.9% in Central China and 62.9% in Southwest China, sales decreased by 51.5% in South China, 28.6% East China, 22.6% in Northeast China and 5.1% in North China.

Premium products in total accounted for 78.3% of revenues in the fourth quarter of 2018 compared to 73.3% in the prior year period. The company continued to shift its production mix, product mix from traditional low-end products to higher end products such as PA66, PA6 and PLA.

Overseas sales were -- was $15 million, accounting for 4.3% of total sales for the fourth quarter of 2018 as compared to $35.4 million and accounting for 8.3% of total sales for the same period in 2017. In 2018, the company suspended sales with existing oversea customers due to this tight funding and accounts receivable balance overdue situation. The company had a successful trial production at our production base in Dubai in November 2018 and has focused on developing new overseas customers besides the existing customers. The company has established business relationships with new customers in UAE and India, and shipped product to the end user in Europe in the fourth quarter of 2018.

Gross profits was $62.4 million for the fourth quarter of 2018 compared to $91.5 million for the same period in 2017, representing a decrease of $29.1 million or 31.8%. Gross margin was 17.8% compared to 21.4% in the fourth quarter of 2017, mainly due to lower sales from the higher end products by Dubai Xinda.

G&A expenses were $8.6 million for the fourth quarter of 2018 compared to $12.2 million for the same period of 2017, representing a decrease of $3.6 million or 29.5%. The decrease was mainly due to our approach on optimizing management structure, enhancing efficiency, leading to a decrease of $3.5 million in salary and welfare and $0.1 million in share-based compensation.

R&D expenses were $26.9 million for the fourth quarter of 2018 compared to $11.6 million for the same period last year, representing an increase of $15.3 million or 131.9%. This significant increase was primarily due to: first, elevated R&D activities to meet the new and higher specification requirements from potential customers, especially overseas; and second, increased efforts directed towards application in new electrical equipments and electronics, alternative energy application, power devices, aviation equipments and ocean engineering. In addition to other new products primarily for advanced industrialized application in automobile sector and in verticals such as ships, airplanes and high-speed rail, 3D printing materials, biodegradable plastics and medical devices. As of December 31, 2018, the number of ongoing R&D projects was 386.

Operating income was $24.1 million for the fourth quarter of 2018 compared to $66.6 million for the same period 2017, representing a decrease of $42.5 million or 63.8%. This decrease is primarily due to the lower gross margin, higher selling expenses and R&D expenses and partially offset by lower G&A expenses.

Net interest expense was $13.1 million for the fourth quarter of 2018 compared to net increase expense of $11.2 million for the same period of 2017, representing an increase of $1.9 million or 17%.

Income tax benefit was $0.5 million for the fourth quarter of 2018, representing an effective income tax rate of negative 3.6% compared to income tax expenses of $79.8 million in the same period in 2017, representing an effective income tax rate of 134.5%. The decrease effective income tax rate was primarily due to the company recorded a charge of approximately $71 million for the repatriation tax -- on deemed repatriation to the United States of accumulated earnings in the fourth quarter of 2017. The increase of additional deduction reduction of R&D expenses resulted from new policy issued by China's tax authority in September 2018 to increase our R&D expenses additional deduction rates from 50% to 75% for PRC entities, effective from January 1, 2018 to December 31, 2020. The increase of Sichuan Xinda's profits before tax percentage within the consolidated entities and partially offset by an increase of continuous operating losses occurred in overseas subsidiaries, such as our Hong Kong and U.S. entities.

Net income was $13 million for the fourth quarter of 2018 compared to net loss of $20.5 million for the same period 2017, representing an increase of $33.5 million or 163.4%.

Basic and diluted earnings per share for the fourth quarter of 2018 were both $0.20 compared to $0.31 losses per share for the same period of 2017. The average number of share used in computation of basic and diluted earnings per share for the 3 months ended December 31, 2018 was 50.5 million compared to 49.7 million shares.

EBITDA was $38.4 million for the fourth quarter of 2018 compared to EBITDA of $82.9 million for the same period of 2017, representing a decrease of $44.5 million or 53.7%. For a detailed reconciliation EBITDA, a non-GAAP measure, to its nearest GAAP equivalent, please see the financial tables at the end our press release issued earlier today.

Now let's turn on to the balance sheet. As of December 31, 2018, the company had $367 million in the total amount of cash and cash equivalents, restricted cash and time deposits, a decrease of $241.1 million or 39.6% as compared to $608.1 million as of December 31, 2017.

Working capital was negative $180.2 million, and current ratio was 0.9 as compared to the current ratio of 1 as of December 31, 2017. Stockholder's equity as of December 31, 2018, was $748.9 million, an increase of 5.1% as compared to $712.8 million as of December 31, 2017.

Inventories increased by 47% as compared to the end of fiscal year 2017 as a result of more purchases of raw materials and the company's strategy to stock up the finished goods for the upcoming orders. The aggregate short-term and long-term bank loans decreased by 5.4% due to the loan repayments.

Now before I open the call to your questions, I would like to note that for any question directed to the management in China, I will translate both their questions and their answers. If you want to ask a question in Chinese, please also ask in English for the benefit of other listeners. Please also note that we will only be able to respond to questions about financial and operating results. For other matters, including the going private offer, we refer you to our already issued press releases. We'll now be able to respond to questions that are directed to the principles of the going private offer about the proposed transactions.

With that, we'll now open the call to your question. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Graham Tanaka.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [2]

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Yes. Congratulations Mr. Han on diversifying into other industry verticals for your end products. My question has to do with your assumptions for or projections for total consumption of plastics in the auto industry in China in the 2019 year? And then what proportion of your sales will be non-auto versus auto in 2019?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [3]

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All right. Thank you, Graham. Let me translate question for the management in China to address it. (foreign language)

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [4]

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(foreign language)

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [5]

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[Interpreted] Graham, the assumption for our 2019 revenue guidance, basically the auto accounted for less than 80%. So accordingly, non-auto will represent above 20%.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [6]

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What proportion of your overall shipments will be in China domestic shipments and outside of China?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [7]

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Overseas, okay, sure.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [8]

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Yes.

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [9]

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Let me translate, again. (foreign language)

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [10]

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(foreign language)

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [11]

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[Interpreted] So Graham, the majority of the sales will be -- we assume will come from domestic overseas. We estimate it's going to be over 4%.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [12]

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Over 4% overseas?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [13]

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Yes.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [14]

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Yes. So we understand that Tesla is building a U.S. electric vehicle company. Tesla is building a very, very large auto assembly plant in China. And we're wondering if you are going to be providing them plastic components? And could that be significant addition to your growth in 2019?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [15]

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(foreign language)

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [16]

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(foreign language)

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [17]

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[Interpreted] Graham, so we have been in contact with the purchase of equipments person from Tesla. So we believe this is a positive developments and trend, including Tesla and other electric vehicle manufacturer will eventually benefit a company like us in the future. And we also are very interested in participating in this development.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [18]

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Do you want to -- could you guess estimate -- but could you estimate what average -- change in average selling price you expect in 2019? Will you be continuing to increase the percent in premium products?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [19]

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Okay. So Graham, just so that I understand pretty clear, basically you asked, one is the ASP, and secondly, if our premium products, their contribution will increase. Is that correct?

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [20]

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Yes, what percent of your products would be premium products in 2019 versus 2018?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [21]

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I'm sorry, Graham. I cannot hear the later part of your question. Can you say that again?

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [22]

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Yes, I just was wondering both the average selling price increase or decrease this year and then what percentage of your products will be premium priced products, premium in 2019 versus 2018's premium products?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [23]

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Okay. Got it. Yes, thank you. (foreign language)

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [24]

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(foreign language)

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [25]

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[Interpreted] Graham, so we expect slight increase both in terms of ASP and also premium high-end products.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [26]

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That's great, terrific. My last questions are about your balance -- cash flow and balance sheet. What kind of improvement do you expect in your cash flow? And what might happen to your leverage? In other words, your total loans and net loans outstanding versus cash on the balance sheet by the end of this year?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [27]

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Okay. So your first question is how we see the developments or how the DSO will be trending, right?

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [28]

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The cash flow. Cash flow in 2019 versus 2018 cash flow and then the net...

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [29]

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Okay. And leverage.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [30]

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Cash at the end of this year.

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [31]

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Okay, okay. (foreign language)

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [32]

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(foreign language)

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [33]

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[Interpreted] Graham, so we expect our cash flow situation will improve in 2019 based on the contract for a sales order we received and pattern of -- currency patterns of the customers. In terms of our leverage, we believe we'll maintain the level that we have seen in 2018.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [34]

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So you believe, you will maintain the same total debt number and the cash -- will the cash rise on the balance sheet?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [35]

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Let me confirm before I answer your question. (foreign language)

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Qingwei Ma, China XD Plastics Company Limited - COO & Director [36]

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(foreign language)

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [37]

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[Interpreted] Graham, so here's your question -- good answer from Mr. Ma, our COO. In terms of our cash position, we think will pretty much remain the same level in 2019, and the total debt will increase slightly.

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Graham Yoshio Tanaka, Tanaka Capital Management, Inc. - President, CIO, Chief Economist and Director [38]

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I'm sorry, I had one more question. What do you expect -- how large will your capital expenditures be in 2019 versus 2018? And what areas will you be investing?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [39]

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(foreign language)

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [40]

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(foreign language)

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [41]

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[Interpreted] Okay. Graham, we are currently still finalizing our 2019 CapEx budgeting in that. Because in 2018, as you probably know, the nationwide deleveraging initiative by the governments has impacted a lot of company throughout China. So we want to make sure that we can secure long-term funding before we're committed to a definitive CapEx budget.

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Operator [42]

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Your next question comes from the line of Matthew Larson.

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Matthew Larson, [43]

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Okay. Question, all things considered, it was a very good fourth quarter. In my judgment, you exceeded your revenue estimates and then your projections for 2019 are inspiring, are positive. You're growing your top line, your book value is growing. But the metric that you're trading at now is extremely frustrating for investors. You know that from previous conversations that we had on conference calls because not only am I a large shareholder, but I represent a lot of retirees, okay, who've been involved in your company for number of years, primarily because you have a nice company and a good niche, and your competitors in the PRC traded significantly higher valuations. But also Morgan Stanley's presence has given a certain level of comfort. Since they own such a large percentage and they have some people on the Board, there's a certain safety there that we can feel that there is someone looking after you as shareholders there. And frankly, being such a large shareholder, they do have a fiduciary responsibility to be sure that they protect or at least treat other public shareholders fairly. It's a fiduciary responsibility. And also this conflict of interest they have. They are a private equity firm at least the -- who has invested in you via MSPEA. And if they were involved in private firms, that's one thing. But if you decide to play in the public markets, the rules are significantly different here. And they've actually gotten to be more -- they've changed dramatically as there's a lot of scrutiny by regulators, by politicians and elsewhere that the term fiduciary responsibility is taken on a significantly higher importance level. And so if they are playing in the public markets, their rules are different. And yet, you guys have grown the company very nicely over the years. You have a nice niche, and the stock is a fraction of where it was many, many, many years ago. I mean, just looking at your metrics today, you did a $173 million EBITDA last year, in a down year. And so your company is trading at well below 1x EBITDA. And then going forward, if you do a $100 million, this thing is trading at 1.3x earnings. I mean, that's just something you would never see. And then the book value grew, right? So that metric continues to grow. And your revenues are going to grow, let's say, you do $1.5 billion, I'm rounding. So the company is trading at about 12x its current market valuation. So by any measure, it's something that just would never occur in the U.S. and yet, this company is listed here. So with that being said, I'm just kind of running through things that people either they don't know if they're new to the conference call, it's just -- it's frustrating. And then I'll just finish up with this is that -- finish up with this preamble. You all signed up 6 banks, some of them the largest in the entire world to make some at least verbal commitments to help fund your refinancings and include the terms for privatization and M&A, mergers and acquisition. And yet, none of that was reported in the United States, okay? We know about that because that sort of media releases were made in the PRC and some in the South China Post and they were translated by people here. But wasn't that kind of material information that should have been released here in the United States that you had some banks for the first time in many years that were lining up. It's like $1.5 billion or more and that seems to me to be extremely material. Can you tell me why there was a suppression? Or just a reluctance to make that news known because investors couldn't react to that. Some people might have sold stock not knowing that that's occurring. Others might actually want to buy your stock and make it go up. Is there a reason why that extremely material information wasn't released?

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [44]

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Okay, Matthew, thank you for your question. Let met translate your question for the benefit of management in China. (foreign language)

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Jie Han, China XD Plastics Company Limited - Chairman, CEO & President [45]

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(foreign language)

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [46]

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[Interpreted] Matthew, so the answer came from our Chairman and CEO Mr. Jie Han. And so if we look back 2018, we have double headwinds. First of all is the deteriorating macroeconomic condition. Secondly, lending environments is not ideal because of the tightening credits in China by the commercial banks. However, fortunately, towards the end of 2018, the central government has changed its direction 180, which the government directed major commercial banks to basically look for certain industry and high-quality companies to provide funding for those company, including some non-SOE, which means -- which stands for non-State-Owned Entities -- Enterprises. We so far appear to be one of the beneficiaries. And it's not a company does not want to disclose material significant information. So at present, all the discussion or intention are basically very similar to letter of intent. So there is no binding effects from legal perspective. So once we enter into the binding definitive agreements with any bank, we will disclose accordingly -- in accordance with the relevant disclosure requirements.

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Matthew Larson, [47]

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I mean, I understand that. I mean, right now, you have President Trump and Mr. Xi discussing trade cooperations, but there is no binding agreement between the 2 of them. There is no -- nothing has been signed, but it's certainly material and it has moved the markets. I mean, the markets in Shenzhen and Shanghai, they're up dramatically this year as are markets around the world. So they're up probably to a great degree that may be a trade agreement might come about, but it isn't definitive or signed, but it's still material. So people are buying stocks based on a good outcome. And so that's just what I'm saying, is it doesn't have to be signed to be material, all right? So I'll just say that, number one. And it just seems there -- I speak with a number of investors, small and large, in your company's stock. And there is a feeling that there is an effort to keep the price low, okay? Because most managements want to get their price up because they own a lot of stock themselves, so it is self-serving. And that's the whole reason to be listed. You want to grow, okay? Because a higher stock price gives you a lot of things. It grows your own wealth and your shareholders, but also gives you some currency at some point. Just think of your stock was $10. You could deleverage by doing an equity financing, okay, but you can't do it at $2. So I'll just say this that Morgan Stanley has $100 million invested in your firm. And Morgan Stanley's business model is to make money, okay? That's it. And they're frankly, good at it, all right? So they're sitting on a 65% loss on this thing. And their shareholders in their private equity Asia fund -- I'm -- if I was in it, I'd be questioning what are they doing about this, all right? Because I want my money back. It's been well over -- that fund frankly had to be extended because of this and a few other investments in it. So I know with a great deal of certainty that Morgan Stanley have to get something done, all right? They're under pressure to do so. And their goal is to take it private at some point at the lowest price, I guess, even though it's a conflict. And then they could go -- either go public again in China, it's been done many times with these small companies, or merge, or there are many number of things where they could do very well on this. But in the meantime, they're not working hard to do it. So I'm going to put them on notice that they're creating some animosity out there, it's a distress. And I've mentioned on the conference call in the past, I worked there for half my career and there are good people there and it's a good firm.

So with that being said, okay, I just had to get that out because I like to get that out on the record, all right, that this is just, it's been very frustrating, okay? And the stock price has no bearing to the true value of your company. Now that you have 6 banks that literally could fund any privatization at several times your current price just to get rid of us, okay. You wouldn't have to deal with us on this phone call. Since there is only about 12.5 million shares outstanding roughly, that's about 1/4 of your current float, once Morgan, I know, converts its 66 million shares, but that's 3x the current price. So I just feel that it's time to move on because everybody wants to benefit. I'm sure Mr. Han would love to be worth 5 or 6 or 7x his current valuation here. I mean that the bragging rights of having a U.S. listing probably have some value over in the PRC. But I'm sure having a $2 stock is almost embarrassing if not, it would be for me. So listen, next year looks good. Again, you guys have done a good job in a difficult environment, it seems. The numbers speak for themselves. And now that you've got the bank loans, I applaud you for getting those because these are real big banks and I look forward to a very nice year going forward. I've been a holder for so long that I'm not -- I'm going to be with you until -- and I'm going to see this thing through because I know for a fact that Morgan Stanley needs to get their money out. And they could only go through me and other shareholders, that's it. And they've done it before. I was involved in another public company that they lowballed on a price that was a number of years ago. I won't name it, but people can look it up, and the same type of thing occurred. So I just want to be on record to say that, that I'm on your team because I'm a shareholder. I've never sold any shares, all right? I bought a lot down here because I'm either stubborn or I believe in the long term of your company. So, I implore you guys to try and get these things done. If it's not the privatization, you could buy back shares, there's any number of things that can get the stock price higher. You have to give confidence to the shareholders here in the U.S. The larger institutions don't buy companies that have such a small market cap. So you're really relying on a handful of institutional accounts. And the rest are sophisticated retail investors. So if you can just treat them fairly and try and grow their wealth and your own at the same time, it would be really, really nice and very typical. So thanks for your time, and thanks Mr. Han for his answer.

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Zhang Dahe, China XD Plastics Company Limited - CFO, Secretary & Director [48]

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Thank you, Matthew. And we appreciate your points. We'll take them very seriously. As for the disclosure matter, I think I have one thing to add is, in general, the company always follow advice from their legal counsels. So their advisers will play a role. But by and large, I think, as Chairman Han mentioned before, once the definitive binding agreement is in place, we will announce and disclose in a timely fashion. And your point of the political is probably true, but running a public company may be a little different but your point is very valid and we appreciate it.

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Operator [49]

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That's all the time we have for questions today. I'll now turn the call back to the today's presenters for the closing remarks. Please continue.

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Shaojie Wen, China XD Plastics Company Limited - IR Contact of New York, US [50]

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On behalf of China XD Plastics, we want to thank you for your interest and participation in this call. If you would like to speak with us further, please call either myself or Taylor Zhang. The contact numbers for all of us are listed at the end of the press release. Thank you.

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Operator [51]

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Ladies and gentlemen that does conclude our conference for today. Thank you for participating. You may all disconnect.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]