CXDC

China XD Plastics Company Limited (CXDC)

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China XD Plastics Company Limited (CXDC)

Q1 2013 Earnings Conference Call

May 14, 2013 09:00 ET

Executives

Jie Han - Chairman and Chief Executive Officer

Taylor Zhang - Chief Financial Officer

Qingwei Ma - Chief Operating Officer

Junjie Ma - Chief Technology Officer

Analysts

Peter Siris - Hua-Mei

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2013 China XD Plastics’ Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. (Operator Instructions) I must advice you that this conference is being recorded today, May 14, 2013.

Now, I would like to hand the conference over to your first speaker today, Mr. (Tom Zhou). Please go ahead.

Unidentified Company Speaker

Thank you, operator. Good morning and good evening. Thank you for joining us for the China XD Plastics’ first quarter 2013 financial results conference call. Joining the call today are Mr. Jie Han, Chairman and CEO; Mr. Qingwei Ma, Chief Operating Officer; Mr. Taylor Zhang, Chief Financial Officer; and Mr. Junjie Ma, Chief Technology Officer. Earlier today, China XD Plastics issued a press release announcing its first quarter 2013 financial results.

Before management’s presentation, I would like to refer to the Safe Harbor statement in connection with today’s conference call and remind our listeners that management’s prepared remarks during this call may contain forward-looking statements, which are subject to risks and uncertainties. And then management may make additional forward-looking statements in response to your questions. The company therefore claims the protection of the Safe Harbor of forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today and we refer you to the more detailed discussion of the risks and uncertainties in the company’s filing with the Securities and Exchange Commission. A more comprehensive description of the company’s forward-looking statements is contained in the company’s filing with SEC. In addition, any projection as of company’s future performance represents management’s estimates as of today, May 14, 2013. China XD Plastics assumes no obligation to update those projections in the future as market conditions change.

To supplement its financial results represent accordance with the U.S. GAAP, management will make reference to the EBITDA, 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 earning press release issued today.

I would now like to turn the call over to Mr. Han. Mr. Han will be speaking in Chinese and I will translate his presentation into English. Mr. Han, please go ahead.

Jie Han - Chairman and Chief Executive Officer

Thank you, Tom and welcome to all of you who have joined us today. I am pleased to report our solid revenue growth and positive business development especially during the changing and challenging macro environment affecting different industries in China. Although gross margin declined during the first quarter of 2013 mainly due to our marketing strategy such as discounts off the original price since the fourth quarter of 2012. This strategy has helped us to achieve tremendous progress in market penetration especially in East China, the largest automobile market in China.

Revenues from East China during the first quarter of 2013 increased by 113.9% followed by 21.5% and 16.9% from Northeast China and North China compared to the first quarter of fiscal 2012. In addition the number end customers increased from 172 to 261 year-over-year. As evidenced by the higher volumes shipped we continue to experience strong demand for our products across our portfolio. As market demand grows for our high-end products as part of our long-term growth strategy, we remain committed to our investment in research and development in order to enhance our product offering especially for the high-end applications. We believe this strategy is the key feature strengthening our market position and will help us deliver long-term value for our stockholders.

Next to our high level of products customization and comprehensive technical support offered to our customers, the substantial switching cost deters customer turnover and our customer have remained very loyal to us. We are confident in our ability to leverage our bargaining power and gradually ratchet up our profitability without compromising the growth momentum created by our marketing strategy. For the second quarter of 2013, the company expects the gross margin to be approximately 18% as we start reflecting discounts. Our effective penetration in East China market serves well our strategy to make inroad to Southwest market, where we planned to build our fourth production base in Sichuan province as previously disclosed and expand our sales network coverage nationwide.

2013 marks an exciting year with both opportunities and challenges for China XD. As previously disclosed, the company has planned to establish its fourth production base with 300,000 metric tons production capacity in Sichuan province by 2015. The construction expected to commence in the second half of this year. Once our Southwest production base is up and running, we will be able to effectively cover the entire country geographically and reach our goal of 10% market penetration with our major products, with our Southwest production base covering Southwest and Central China and reaching into East China and our Northeast production bases covering Northeast and North China and reaching into East China.

As all of us said, we are confident in the future perspective of our business and the market and look forward to strengthening our leading position and delivering significant structural value over the long-term. Thank you again. And with that, I will turn the call over to Taylor Zhang, our CFO to walk you through our financials. Taylor?

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