China XD Plastics Company Limited
Q1 2016 Earnings Call Transcript

Published: 12 May 2016

[Operator:]

Thank you for standing by and welcome to the First Quarter 2016 China XD Plastics Co Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advice you that this conference is being recorded for today, Tuesday May 10, 2016. I would now like to hand over the conference over to your moderator for today, [Indiscernible]. Please go ahead. Thank you

[Unidentified Company Representative:]

Thank you all for joining us for the China XD Plastics first quarter 2016 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; Mr. Shi Young, General Manager of Dubai Subsidiary; and Mr. Lou Jintai, General Manager of the Heilongjiang Subsidiary. Earlier today, China XD Plastics issued a press release announcing the first quarter 2016 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 the risks and uncertainties 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 international markets, the effectiveness of the profitability of the Company's product diversification, the impact of company's product mix shift to more advanced products and related pricing policies, the volatility of the Company's operating results and the financial condition, the Company's projections of performance in 2016 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 risks 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 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 a more detailed discussion for the risks 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, May 10, 2016. China XD Plastics assumes no obligation to update these projections in the future as market conditions change. To supplement the financial results presented in accordance with the U.S. GAAP, management will make reference to earnings before interest expenses, income taxes, depreciation and amortization, which we refer to as EBITDA. EBITDA is a non-GAAP financial measure reconciled from the 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 Chinese and I will translate his opening remarks into English. Mr. Han, please go ahead.

[Jie Han:]

[Foreign Language] Thank you, Vicky, and thank you all for joining us today. [Foreign Language] Our first quarter 2016 results were consistent with stabilizing industry fundamentals as domestic revenues increased year-over-year. However, our overseas sales fell substantially and impacted our average selling price and gross margin. As previously disclosed, the collection of the outstanding balance due from an overseas customer is virtually complete with a small remaining balance to be collected within the second quarter. To buoy our overseas efforts, we have completed testing trials and a pilot trial is also underway with one of the new customers we have been working with and commercial orders are expected to be received in the second quarter of 2016. [Foreign Language] We remain focused on maintaining our position as an industry leader in China's auto market while also strategically expanding our business into new markets. Our expansion in Sichuan will enable us to more effectively market our products and provide timely service to our customers in the market and its neighboring regions. In particular, the Southwest region is rapidly becoming a major auto manufacturing hub as well as a center for high speed rail, shipping and aviation. The new facility in Sichuan will include state-of-the-art and precision equipment that will facilitate product deployment into an array of high growth verticals. We plan to begin production in our new Sichuan facility in the second half of this year with an expected 60,000 metric tons of production capacity. When fully operational, the Sichuan plant will increase our total production capacity by 300,000 metric tons. [Foreign Language] We continue to stay ahead of the competition by working closely with our customers and offering new products with more cost-efficient formulations. Our ability to generate a 10.7% increase in sales volume in the first quarter was driven by our technological prowess as well as by the momentum in customer acquisition and the ability for us to increase commercial order sizes among our existing customers in the attractive Southwest and East China markets. We have already begun to penetrate the Southwest and East China markets with year-over-year revenue growth in these regions of 80.5% and 15.3%, respectively. These are critical points of differentiation for China XD Plastics among our peers. [Foreign Language] We are pleased to announce that our Phase 2 of Dubai plant will add 14,000 metric tons of capacity and is currently under construction and expected to be operational in early 2017. Our presence in Dubai will provide numerous advantages including the development and production of high-end products and more active participation in markets in Europe, the Middle East and other international regions. [Foreign Language] We continue to anticipate a steady recovery throughout the Chinese automotive supply chain this year and reiterate our 2016 financial guidance. We believe that our deep customer relationships and the culture of innovation will enable us to succeed in new applied plastics verticals and enable us to optimally adapt to market conditions. We remain confident in the resilience of our business model and our ability to capitalize our exciting growth opportunities. With that, I’ll now turn the call over to Taylor Zhang, our CFO to take you through our financials. Taylor?

[Taylor Zhang:]

Thank you Mr. Han, thank you, Chez, and thanks 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 first quarter of 2016, unless I state otherwise. Additionally, any year-over-year comparison is to the first quarter of 2015 and any sequential comparison is to the fourth quarter of 2015. So let's go over our first quarter results. Revenues in the first quarter of 2016 were $215 million, a decrease of 3.1% year-over-year, primarily due to an 8.5% decrease in the average RMB selling price of our products and the 4.5% negative impact from the exchange rate due to a weakening RMB against the U.S. dollar, offset a little bit by 10.7% increase in sales volume. Premium products, mainly, PA6, PA66, POM, PPO, PLA and plastic alloys accounted for 77.3% of total revenues in the first quarter of 2016 compared to 78.4% in the prior year period. The Company continued to shift its product mix from traditional Modified Polypropylene and MABS to higher-end products, despite slight pricing pressure and high ASP products during the first quarter. Gross profits in the first quarter was $34.8 million, down 28.4% year-over-year. Our gross margin decreased by 16.2% as compared to 21.9% in the same quarter of 2015 due to a lower sales contribution and a lower gross margin of high-end products sold in overseas markets. In the current quarter as compared to the year-ago period, G&A expenses were $5.1 million in the quarter ended March 31, 2016 compared to $5 million in the same period of last year, representing an increase of 2%, or $0.1 million. This increase is primarily due to an increase of $0.5 million in professional fees, offset by the decrease of $0.4 million in taxation expenses. R&D spending was $4.9 million in the first quarter of 2016 or 2.3% of sales compared to $5.8 million or 2.6% of sales for the same period of 2015. We continue to recalibrate our R&D programs in the quarter in response to changing market conditions to focus on new products for advanced industrialized applications, augmenting our auto sector focus to include other sectors such as ships, aviation, high-speed rail, 3D printing material, biodegradable plastics, medical-grade materials, food packaging and other fields and thus fewer active projects during this R&D directional shift. As of March 31, 2016, we were engaged in 169 ongoing R&D projects. Operating income was $24.5 million or 11.4% of sales as compared to operating income of $37.6 million or 15.9% of sales in the same period of last year. Operating income was down 34.8% or $13.1 million over the prior-year period, primarily due to a lower gross profits and lower interest income partially offset by lower R&D expenses. Net interest expense was $9.3 million in the first quarter of 2016, compared to net interest expense of $8.2 million in the same period of 2015. This was primarily due to an increase of $0.3 million in interest expense due to increased average loan balance at a higher weighted interest rates as compared to the same period a year ago. And a decrease of $0.8 million in interest income due to a lower average deposit balance bearing a lower weighted interest rate as compared to the same period last year. Income tax expense was $4.5 million for the first quarter of 2016, representing an effective income tax rate of $28.5 million compared to a effective income tax rate of 14.3% in the first quarter of 2015. The effective income tax rates for the three months period ended March 31, 2016 differs from the PRC statutory income tax rate of 25% primarily due to first, operating losses of entities not subject to income tax decreased the consolidated income before income taxes for the three months ended March 31, 2016. Non-deductible expenses incurred in the PRC operating entities, partially offset by, R&D bonus deduction of the major PRC operating entities; and Sichuan Xinda Group's preferential income tax rates. Net income was $11.4 million in the first quarter of 2016, the difference of 55.1% compared to $25.4 million in the same period of 2015. Basic and diluted earnings per share were $0.17, compared to $0.39 per share in the first quarter of 2015. EBITDA was $33.9 million for the first quarter of 2016, compared to EBITDA of $46.3 million in the same period of 2015, representing a decrease of 26.8%, or $12.6 million. Now, let's turn to the balance sheet. Our balance sheet remained strong, even as we continue our business expansion. As of March 31, 2016, the Company had $43.1 million in cash and cash equivalents and $300 million in term deposits with commercial banks. Our working capital was $166.8 million as of end of the first quarter and our stockholders' equity increased to $594.6 million from $578 million as of fiscal year-end 2015. Also our inventories increased by 32.8% as a results of more purchases made by the Company to take advantage of the lower purchase price of the raw materials and the Company's strategy to stock up the inventory and prepare for the Sichuan plant opening. Prepayments to equipment suppliers decreased by 82.8% and was due to the equipment delivered to our Middle East plant. The aggregate short-term and long-term bank loan increased by 9.4%, or $37 million due to the overall consideration of existing lines of credit and maintaining an asset to liability ratio at a stable level. As of March 31, 2016, notes payable was $145.9 million under the 11.75% guaranteed senior notes due in 2019, net of discounts. The Company reiterates its financial guidance for fiscal 2016 with revenue to range between $1 billion and $1.1 billion and net income to range between $100 million to $110 million. This is based on the anticipation of a steady recovery throughout the Chinese automotive supply chain, the Company's belief in its ability to secure new customers and a stabilization of crude oil pricing and its impact on polymer composite materials in 2016. This forecast also assumes contributions from the Sichuan plant, which will start production in the second half of 2016. It also assumes the average exchange rates of the U.S. dollar to RMB at 6.5. This financial guidance reflects the Company's preliminary view of its business outlook for fiscal 2016 and is subject to revision based on changing market conditions at any time. Before we open to the call to your questions, I would like to note that for any questions directed to management in China, I will translate both of your questions and your answers. If you want to ask a question in Chinese, please also ask it in English for the benefits of our other listeners. With that, we will now open the call to your questions. Chez.

[Operator:]

Thank you so much, Mr. Taylor. [Operator Instructions] Our first question comes from Mr. Jason Cooper from Stuyvesant Capital. Your line is open. Please go ahead.

[Jason Cooper:]

Hi thank you for taking my questions. My first question is guess pertains to your interest coverage ratio, it seems it’s been declining recently. Now you guys have an option to call the $145 million in notes payable in February at a price of 11.75% [ph]. The rest of your debt seems to carry a cost of about 4.2% so if you were to refinance that in 2017 it seems to me that you could say the after tax about $0.12 per share, what are your thoughts on refinancing that joining into next, as well as your ability?

[Taylor Zhang:]

Hi Jason that’s a very goo question, I think, definitely we have the capital and we have – we also believe that we can also generate for the whole year, generate additional cash flow to bolster our capital. So that’s definitely something we have the ability to do. And do your assessments of both the premium and so the savings, I think are pretty close. So I think from a financial – from a cost of capital view point I think that that makes sense.

[Jason Cooper:]

Okay, thanks. And from my perspective your stock trades at a gram value above significant discount to book, significant – price to earnings of given your guidance less then five, what would you think about taking that savings and instituting a dividend in order to maybe decrease the volatility to your short sellers and also reward shareholders that have been holding your stock through this, really volatile period.

[Taylor Zhang:]

Yes, Jason, I think that we have kind of touch upon this subject to you for basically the premium account of dividends with stock repurchase. I believe our Chairman and CEO mentioned, during one of the previous calls that we would definitely consider a dividends because of the overall consideration such as the [indiscernible] and also intriguing of our stock. So from our perspective, I think pretty much all the major CapEx will be concluded this year and we’ll be in a very good position next year and consider first is depending on basically this first to improve our capital structure and second is with that taking care of and there won’t be any impacts or effects to our operation or expansion we can definitely think about increased return to shareholders. Does that answer your question?

[Jason Cooper:]

Yes. I would just say that having been a shareholder for a couple of years I would advise that you take that, consideration carefully. I really just think it will benefits us a lot from the shareholder perspective. Now also for this new customer, the foreign customer, can you give any type of preliminary guidance as to the size of the orders that we might expect for this year?

[Taylor Zhang:]

Okay on let me take for your question regarding our new potential customer to my team [ph] in China and I’ll translate your question first.

[Jason Cooper:]

Okay thanks.

[Jie Han:]

[Foreign Language]

[Taylor Zhang:]

Okay so Jason so in addition to the customary in South Korea we have mentioned, Mr. Han, our Chairman and CEO actually want to emphasize the two other potential customer we’d been working with for quite a while. One is Valeo, it’s a French company, has joint venture in China and the other is another major Germany plastic fabricators. So both companies in terms of their annual production which basically their needs so went over 1,000 tons. We do believe we can make a very good penetration and so right now we are in the process of the quality qualification process and after that I think we’re going to do some product testing. The other side and probably a little too early to estimate, but we do believe we’re making very good progress right now.

[Jason Cooper:]

Okay fair enough. Can we get some get some estimates on when Sichuan might be cash flow break-even, or may be even operating at what point that will be operating at full capacity?

[Taylor Zhang:]

For Sichuan we think very likely early next year is going to be cash flow positive next year.

[Jason Cooper:]

Okay. You guys have a carrying value of land use rights at about $24 million. Has that been tested for impairments recently?

[Taylor Zhang:]

No because the land use rights basically – because all the lands owned by the government that’s why either company or individual have number of years of rights to use lands. So again in addition the land we actually, the land use rights we acquired at very historical low prices, so there is no impairment there.

[Jason Cooper:]

Okay. And just for my last question you guys had a really big inventory build with getting your working capital up for Sichuan, should we expect anymore of that or is this build in latest quarter for increasing inventory?

[Taylor Zhang:]

So you are right basically the inventory build out is for one reason is to for anticipation of our China plant launch and secondly, we do think the overtime basically from the first quarter last year, we are starting to see benefits of lower import cost. But let me reconfirm with our COO about our inventory outlook.

[Jie Han:]

[Foreign Language]

[Taylor Zhang:]

Hi Jason so our COO's estimate is basically we are probably going to remain at the level we were at in the first quarter. May be possibly reduce a little bit, but basically by and large, I think, we’re going to be remain same level.

[Jason Cooper:]

Okay, thank you for the answers I appreciate it. I’m done.

[Taylor Zhang:]

All right thank you Jason.

[Operator:]

Thank you so much Jason. We would now move. Our next question is coming Mr. Graham Tanaka from Tanaka Capital Management. Your line is open, please go ahead.

[Graham Tanaka:]

Hi gentlemen how are you? I just want to ask about your cash flow and capital spending plan for this year and next year. And at what point would you be able to increase your net debt levels? Thank you.

[Qingwei Ma:]

Hi Graham, so for the debt level we think, so if you look at our debt structure you probably look at, number one, as Jason pointed out our cost of funding has been gradually decreasing as we replacing higher cost loan with longer term. And for instance in Q1 we got about $30 million of one year loan from one of the policy bank in China, China imports and exports for REITs less than 2%. So the strategy for our their management is basically to increase the maturity and secondly is to lower the cost. So we think of at that level we will gradually level out and also start decreasing as we decrease those slightly higher costs loan.

[Graham Tanaka:]

And what kind of your cash flow and capital spending are you looking for this year and for the next year?

[Taylor Zhang:]

This year we think basically the cash flow from operation obviously for first quarter was a lower compared to the same period of last year, but with trend is expected to be up and running in the second half, we think the cash flow will pick up in the following quarters. But net outflow still going to be negative because of the CapEx earmarked to complete the plants construction both in Sichuan and in Middle East. So we do think in next year going to be cash flow positive.

[Graham Tanaka:]

Sorry, next year to be cash flow positive?

[Taylor Zhang:]

Yes.

[Graham Tanaka:]

What is your capital spending estimate for this year and for next year?

[Taylor Zhang:]

For this year, there won’t be a much for next year there some has been remaining CapEx but bulk of the CapEx will be in this year, for this year basically the Sichuan and our Heilongjiang together its about $12 million and for Dubai as we previously mentioned that there is remaining about 100 to be spent. So there is additional amount, which is for our China headquarters in Beijing and that’s going to be approximately $50 million, so all-in we are looking at about 170 and there won’t be much very significant in 2017.

[Graham Tanaka:]

What is the – obviously towards the auto industry this year, this next few years I guess it’s in the five year plan and…

[Taylor Zhang:]

Okay. Let me – I would like to defer the question to my team, he can better address that.

[Jie Han:]

[Foreign Language] Okay, hi, Graham. So the answer comes from our Chairman and CEO Mr. Han so firstly, in the 13th five year plan, there is a very relevant to our industry is new material was listed as a favor industry for national economic developments and so there going to be, we believe going to be incentives and policy to basically to promote the developments and growth of industry in new material obviously ALComposites is one of the new material because of the various benefits not only in our but in many other industry and secondly we believe modified plastics as we will continue growing both in China and globally. There are some other verticals that we think can have very good gross potential such as alternative energy basically in the 13th five year plan the government releasing this tenders basically we think that’s going to be opportunity for companies who can meet such tenders. And secondly food packaging is also an area of importance because of the environmental consideration. That’s why application that we have been developing such as degradable plastics can be a very good fits in such category. That’s in addition to the although incentive that we have discussed last year basically the policy cut this sales type we have last year which also help the auto sales recovery since the end of last year through the first quarter of this year.

[Graham Tanaka:]

Great. And what when you adding is this Sichuan plant and Dubai what will be the total capacity by the end of this year versus the end of this last year?

[Taylor Zhang:]

The total capacity the incremental capacity to be added this year we will be approximately 60,000 tons so last year we had 390,000.

[Graham Tanaka:]

390,000 tons?

[Taylor Zhang:]

Yes, yes.

[Graham Tanaka:]

And you’re adding 50 this year and then what next year?

[Taylor Zhang:]

60 this year and next year let me ask our team internal. [Foreign Language] Hi, Graham, so next year we expect the utilization of our capacity going to be basically half, which is approximately 150 so we anticipating additional approximately 95 to be adding next year?

[Graham Tanaka:]

You’re adding 90,000 next in 2017?

[Taylor Zhang:]

Yes.

[Graham Tanaka:]

What is the 150 – I’m sorry what’s 150?

[Taylor Zhang:]

150 is 90 plus 60.

[Graham Tanaka:]

I’m sorry 150 is what?

[Taylor Zhang:]

150 is 90 plus 60.

[Graham Tanaka:]

Okay, got it. Okay.

[Taylor Zhang:]

Okay.

[Operator:]

Hi, Taylor, can we move to our next questions?

[Taylor Zhang:]

Sure, please.

[Operator:]

Thank you. We will move to our next questions come from [indiscernible]. Your line is open. Please go ahead.

[Unidentified Analyst:]

Hi, thank you for taking my question. First just a housekeeping question, what’s the percentage of sale in Sichuan board this quarter?

[Taylor Zhang:]

Okay. Hold down for a second. For Sichuan, the percentage in Q1…

[Unidentified Analyst:]

Yes

[Taylor Zhang:]

Is 6.4% compared to 3.4% last year, the first quarter of last year.

[Unidentified Analyst:]

I’m sorry. Could you repeat the number please?

[Taylor Zhang:]

Sure. In the first quarter of this year, the sales contribution from our Southwest is 6.4% compared to…

[Unidentified Analyst:]

6.4%?

[Taylor Zhang:]

Yes, compares to the 3.4% last year.

[Unidentified Analyst:]

Right, okay, thank you. And regarding the gross margin, I’m curious of the decline. I see a number of plastic companies that – I see gross margin tend to go up a lot because of the lower oil price, which seems to bring down the cost of goods sold. I’m wondering – in your case what is contributing – what is just causing the gross margin to decline?

[Taylor Zhang:]

So, sure, so basically if – from our standpoint, buoy breakdown domestics and overseas on sales and also our market analysis. So, the gross margin domestically actually improved year-over-year. So, we…

[Unidentified Analyst:]

Right.

[Taylor Zhang:]

In fact you’re talking about. So the real impact for Q1 is basically because of the much lower sales overseas, which comprised of pretty much the highest margin we have of our product portfolio. So we think Q1 is definitely kind of the one off events. We do see recovery margin expansion in China.

[Unidentified Analyst:]

Yes.

[Taylor Zhang:]

And that’s on a backdrop of our significant penetration in Southwest, if China…

[Unidentified Analyst:]

Right.

[Taylor Zhang:]

So I think with new customer and also shipping to overseas, customers coming back to previous level, the gross margin will come back to the previous level.

[Unidentified Analyst:]

I see. So, that's sounds good. Now, how much is sales overseas for this quarter?

[Taylor Zhang:]

This quarter was a very, very minimum. It's less than 1%.

[Unidentified Analyst:]

Right, less than 1%. And when you book the sales overseas a bit via Dubai against like how you did it for the Korean customer?

[Taylor Zhang:]

I want to make sure I understand your question. So you mean we supply our overseas customer from our Dubai plants, is that your question?

[Unidentified Analyst:]

Yes, yes.

[Taylor Zhang:]

So before our Phase 2 in Dubai plant starts operational, it’s going to be a combination of a small production in Dubai, but majority will be supplied from our China plants using a two-step approach, which is a compromise for the interim.

[Unidentified Analyst:]

Right, I see. So, will this sales overseas benefit from the lower tax rate in Dubai?

[Taylor Zhang:]

Yes, the sales from Dubai has zero taxation, the tax rate is zero. So once the volume pick up, we’re going to actually get more tax benefits.

[Unidentified Analyst:]

Right, right. Okay, that’s great. Thank you very much for taking my calls…

[Taylor Zhang:]

Sure, you’re welcome. Thank you.

[Unidentified Analyst:]

For taking my questions – and thanks for answering my questions. Thank you.

[Taylor Zhang:]

You’re welcome.

[Operator:]

Thank you so much. We will now move to our next question that comes from Peter Siris [Hua Mei 21st Century]. Your line is open. Please go ahead.

[Peter Siris:]

Hi. I apologize – I dropped off the call, so I apologize if this question was asked before. I want to understand the inventory numbers a little better. You have added all this inventory with a start of the Sichuan factory and I guess the potential growth in Dubai. I guess my first question is on an ongoing basis, how much inventory relative to sales should you have? So your inventory has been going up, your sales have been sort of flat. So if we were looking out as you’re buying the inventory for future growth, so what is your current inventory level say about where the sales are going to be, say six months from now?

[Taylor Zhang:]

Okay, no problem, Peter. So, basically, the inventory we have – we have by the end of first quarter was, for the reason you have stated and also we discussed with [indiscernible] we kind of taking the strategic approach of period of unusual low oil price, which felt into lower price of our input costs for a better horizon. So that's basically the combination of the two considerations. So, also our COO, Mr. Ma, he alluded, which is the inventory level probably for the remainder of this year is going to remain at similar level. We have seen by the end of Q1. So…

[Peter Siris:]

I understand, Taylor. What I’m – I guess the question I’m asking is this…

[Taylor Zhang:]

Yes, I am getting there. Basically, we like to maintain inventory basically between two to three months of sales.

[Peter Siris:]

Okay. So if you maintain inventory of two to three months of sales and I’ll take the three months because – I mean right now your inventory is – I guess maybe your inventory is 391 and quarter revenue is 180, so that’s six months of sales. So does that say that you expect sales to double going forward because you said that the inventory would stay at approximately this level or come down a little bit?

[Taylor Zhang:]

I think the sales probably will not double very soon until probably after 2017. The level we had by the end of Q1 is we want to make sure once the chain opens, if the production is running smoothly and want to make sure we have enough inventory that already there to make a various – most transitions for customers both in Southwest and also in neighboring regions.

[Peter Siris:]

Okay. So just to finish on this subject, if I’m modeling a five-year model though I should model inventory at two to three months of sales. Is that reasonable?

[Taylor Zhang:]

Yes, reasonable, yes, yes, yes.

[Peter Siris:]

Okay. So you added some, strategically, you have a cushion in case Sichuan picks up. How much of that inventory is for Dubai?

[Taylor Zhang:]

Most of the inventories are actually for Sichuan. So there’s no consideration for Dubai at our current inventory level.

[Peter Siris:]

Okay. And one last question, the original Korean customer for Dubai where you’ve now – have you gotten paid back all that money or you're still waiting for a little bit on it?

[Taylor Zhang:]

They have been continuing paying us back. As we mentioned during the end of last year, they have paid all the accounts receivable by then. So there’s still a small amount, which is approximately $10 million with the license we purchased for them. So we think by the end of this quarter, the amount will be collected and we also get payment schedule from them. And so, after that I think we will start resuming shipping to them, but we have to make sure they made their promise in their terms.

[Peter Siris:]

So if they pay you in full led you can return to doing business with them?

[Taylor Zhang:]

Yes, yes, yes.

[Peter Siris:]

Okay. Great, thank you very much.

[Taylor Zhang:]

Sure. Thank you, Peter.

[Operator:]

It appears there are no further questions at this time. I would now turn over the call back to you Ms. Vicky for any additional or closing remakes. Thank you.

[Unidentified Company Representative:]

Thank you, operator. 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 in XD's New York office. In our IR form greeting, the contact numbers for all of us are listed at the end of the press release.

[Operator:]

That concludes our conference for today. Thank you for participating. You may all disconnect.