Reply to Work Letter of Shanghai Stock Exchange

Ming Yang Smart Energy Group Ltd

13 July 2023

 

MING YANG SMART ENERGY GROUP LIMITED

(GDR under the symbol: "MYSE")

(a joint stock company established under the laws of the People's Republic of China with limited liability)

Announcement on Shanghai Stock Exchange's Reply to the Work Letter on Information Disclosure Supervision under the Company's 2022 Annual Report

Ming Yang Smart Energy Group Limited (hereinafter referred to as "Ming Yang Smart Energy" or the "Company") recently received the "Work Letter on Information Disclosure Supervision under Ming Yang Smart Energy Group Limited's 2022 Annual Report" (SZGH [2023] 0722) (hereinafter referred to as the "Work Letter") issued by Shanghai Stock Exchange, to which the Company attached great importance and immediately organized relevant personnel to carefully analyze and verify the issues contained. Now, the reply to relevant issues in the Work Letter, the opinions of the annual audit accountant and the opinions of the sponsor are announced as follows:

Issue 1 in the Work Letter: About operation situations. According to the Annual Report, the Company achieved an operating income of RMB30.748 billion in 2022, up 12.98% year-on-year, and the net profit attributable to the parent company of RMB3.455 billion, up 9.4% year-on-year; however, it suffered a loss in the fourth quarter, with a net profit of RMB-110 million and a net profit of RMB-230 million in the first quarter of 2023, down 116% year-on-year. The gross margin of the Company's main products declined, among which the gross margin of wind farm power generation decreased by 6.79 percentage points. The Company is requested to: (1) disclose the details of income and cost composition by product, and list cost contents, amounts, changes, reasons, etc.; (2) illustrate quantitatively the reasons for the decline in gross margin of the Company's main products in the current period in combination with the market environment, main raw materials and product price fluctuations, and compare with companies in the same industry to explain the rationality; and (3) analyze the specific reasons why the Company started to turn from profit to loss in the fourth quarter in combination with industry policies, competition pattern, industry cycle, capacity utilization rate, orders of major customers and customer stability. The annual audit accountant is expected to give his opinions.

I. Reply from the Company

(A) Disclose the details of income and cost composition by product, and list cost contents, amounts, changes, reasons, etc.

1. The breakdown of the Company's income and cost by product for the year 2022 is as follows:

By Product	Operating Income (in Hundred Million Yuan)	Operating Cost (in Hundred Million Yuan)	Gross Margin (%)	Movement in Operating Income over the Previous Year (%)	Movement in Operating Cost over the Previous Year (%)	Movement in Gross Margin over the Previous Year (%)
Sales of wind turbines and related accessories	228.07	187.54	17.77	-9.67	-8.12	-1.39
Wind farm power generation	13.36	5.36	59.88	-9.03	9.50	-6.79
Power station product sales	56.74	44.18	22.14	-	-	-
Others	4.89	4.83	1.17	249.83	253.48	-1.02
Total	303.06	241.91	20.18	12.85	14.99	-1.49

2. The breakdown of the Company's operating cost for the year 2022 is as follows:

By Product	Cost Component	Current Amount (in Hundred Million Yuan)	Proportion of Current Amount to Total Cost (%)	Prior Amount in the Same Period (in Hundred Million Yuan)	Proportion of Prior Amount in the Same Period to Total Cost (%)	Proportion of Change in Current Amount to Prior Amount in the Same Period (%)
Sales of wind turbines and related accessories	Raw materials	179.66	95.80	196.60	96.32	-8.62
	Labor cost	4.79	2.55	3.86	1.89	24.05
	Other expenses	3.09	1.65	3.65	1.79	-15.19
	Total	187.54	100.00	204.11	100	-8.12
Wind farm power generation	Raw materials	0.03	0.58	0.03	0.53	20.29
	Labor cost	0.35	6.61	0.31	6.39	13.29
	Other expenses	4.97	92.80	4.56	93.08	9.18
	Total	5.36	100.00	4.89	100	9.50
Power station product sales	Raw materials	17.02	38.52
	Labor cost	0.34	0.76
	Other expenses	26.82	60.72
	Total	44.18	100.00
Others	Raw materials	1.54	31.98	0.40	29.32	285.48
	Labor cost	0.15	3.08	0.05	3.57	204.31
	Other expenses	3.14	64.95	0.92	67.1	242.11
	Total	4.83	100.00	1.37	100	253.48

3. Income by product, corresponding cost changes and reasons

The Company's products mainly include sales of wind turbines and related accessories, wind farm power generation, sales of power station products and others.

(1) Cost changes and reasons for the sales of wind turbines and related accessories

In 2022, the sales cost of wind turbines and related accessories was RMB18,754 million, down 8.12% from RMB20,411 million over the same period last year.

The sales cost of wind turbines and related accessories mainly consisted of raw materials, labor cost and other expenses. In 2022, the Company's external wind turbine sales scale was 7,306MW, up 21.14% year-on-year. With the continuous growth of the Company's sales scale, the proportion of high-power wind turbine products increased rapidly due to the leading technology of large-scale and lightweight wind turbines. In the meantime, the Company implemented an active supply chain policy, and the procurement cost of main raw materials for the sales of wind turbines and related accessories was reduced under the influence of a series of measures such as strengthening the control over the upstream supply chain, conducting multiple rounds of business negotiations with a series of strategic suppliers and jointly promoting the cost reduction and landing of the wind power manufacturing industry chain. In 2022, among the main raw materials and components for the Company's wind turbines, the average purchase price of Component A decreased by 15.45% year-on-year, the average purchase price of Component B decreased by 24.20% year-on-year, the average purchase price of Component C decreased by 13.03% year-on-year, the average purchase price of Component D decreased by 10.88% year-on-year, the average purchase price of Component E decreased by 23.15% year-on-year, and the average purchase price of Component F decreased by 24.78% year-on-year. On the whole, the average purchase price of main raw materials and components of the Company's wind turbines generally decreased by 15.45% to 24.78% year-on-year, ultimately affecting an 8.62% decrease in the cost of raw materials carried over by the Company's current wind turbines.

The labor cost for the sales of wind turbines and related accessories in the Company was mainly composed of the annual salary of employees, which was mainly affected by the number of employees and their salaries. In 2022, the sales scale of the Company's external wind turbines increased by 21.14% year-on-year, and the number of employees for the Company's wind turbine manufacturing unit has increased correspondingly. In 2022, the Company newly constructed or built a total of 14 production bases, and the number of power station operation and maintenance projects increased by 82 projects, bringing an increase in the number of corresponding employees. In addition, the Company increases the annual salary of employees to a certain extent every year. To sum up, all of the above factors ultimately affect the labor cost of the sales of wind turbines and related accessories to increase by 24.05%.

Other expenses for the sales of wind turbines and related accessories of the Company are mainly composed of outsourcing fees and other related expenses. In 2022, the Company implemented effective control measures on related expenses, resulting in an overall decrease of 15.19% in other expenses for the sales of wind turbines and related accessories in 2022.

To sum up, the business costs of wind turbines and related accessories decreased by 8.12% compared over the same period last year.

(2) Cost changes in and reasons for wind farm power generation

In 2022, the cost of the Company's wind farm power generation was RMB536 million, an increase of 9.50% compared with RMB489 million over the same period last year.

The power generation cost of wind farm mainly consisted of raw materials, labor cost and other expenses. In 2022, the Company increased the business scale of wind farm power generation projects, hence the cost of wind farm power generation also increased. By the end of 2022, the scale of power stations in operation increased by 25.94% compared with that in the beginning of the year, resulting in a year-on-year increase of 9.18% in other expenses (mainly depreciation expenses); and meanwhile, due to quality assurance of some wind farm power generation projects operated by the Company, the technical transformation of wind turbines, etc., the operation and maintenance costs have increased. Besides, the increase in scale has also led to a year-on-year increase of 20.29% and 13.29% in raw materials and labor costs, respectively.

(3) Reasons for cost changes in power station product sales

In 2022, the costs of the Company's power station product sales was RMB4,418 million. Since the accounting policy for new energy power station projects BT mode has been implemented since 2022, there is no comparative analysis of cost changes over the same period last year.

(4) Cost changes in and reasons for other businesses

In 2022, the cost of the Company's other businesses was RMB483 million, an increase of 253.48% compared with RMB137 million over the same period last year. The Company's other businesses were mainly wind farm EPC business, and other business costs were mainly reflected in the wind farm EPC business cost of RMB453 million, accounting for 93.75% of other costs.

The cost of wind farm EPC business mainly consisted of raw materials, labor costs and other expenses. In 2022, the Company increased the construction scale of wind farm EPC business, making the scale of wind farm EPC business of the Company up to 1,104.96 MW, an increase of 384.63% compared with 228MW in 2021. Under this circumstance, the Company's wind farm EPC business income in 2022 was RMB471 million, an increase of 288.41% compared with 2021. Due to substantial increase in the scale of the Company's wind farm EPC business, the costs of raw materials and labor forces of wind farm EPC business increased by 285.48% and 204.31% year-on-year, respectively. Meanwhile, due to increased complexity in the implementation of new projects, other expenses for wind farm EPC business increased by 242.11% year-on-year.

To sum up, the cost of the Company's other businesses increased by 253.48% compared over the same period last year.

(B) Illustrate quantitatively the reasons for the decline in gross margin of the Company's main products in the current period in combination with the market environment, main raw materials and product price fluctuations, and compare with companies in the same industry to explain the rationality;

1. In 2022, the gross margin of sales of wind turbines and related accessories was 17.77%, down 1.39 percentage points from 19.16% over the same period last year. The main reasons for the decline in gross margin were as follows:

(1) The prices of new orders for wind turbines of the Company gradually decreased

In 2022, domestic onshore and offshore wind power projects no longer enjoyed electricity price subsidies, basically achieving grid parity. Under this background, the single development scale of superimposed wind power projects is gradually increasing, and there is a certain degree of disorderly competition among major complete machine manufacturers in the process of participating in bidding, which leads to a gradual decline in the winning bid price of onshore wind turbines. Since 2022, the average bidding price of domestic onshore wind turbines (excluding towers) has dropped to about RMB1,800/kW, a year-on-year decrease of 30%. Over the same period, the unit price of domestic offshore wind turbines decreased from over RMB6,500/kW in 2021 to about RMB4,000/kW, a year-on-year decrease of 38%.

The Company is a company in the same industry as Goldwind Technology (002202.Shenzhen Stock Exchange), Windey Shares (300772. Shenzhen Stock Exchange), Sany Renewable Energy (688349. Shanghai Stock Exchange) and Envision Energy (unlisted). The Company has made incomplete statistics on the bid opening prices of onshore and offshore wind power industries of the above comparable companies from 2021 to 2022 as follows: Statistics on Bid Opening Price of Onshore Wind Power Orders of Domestic Mainstream Wind Turbine Manufacturers from January 2021 to December 2022 RMB/kW
Period of Bid Opening Price	Ming Yang Smart Energy	Goldwind Technology	Windey Shares		Sany Renewable Energy		Envision Energy		Mean Value
Onshore in January 2021	3,170	3,080	2,900		3,390		3,050		3,118
Onshore in July 2021	2,750	2,680	2,780		2,400		2,699		2,662
Onshore in December 2021	2,000	2,007	2,000		2,150		1,904		2,012
Onshore in January 2022	2,077	2,000	1,940		2,000		1,830		1,969
Onshore in July 2022	1,786	1,827	1,762		1,779		1,638		1,758
Onshore in December 2022	1,950	1,542	1,598		1,565		1,930		1,717
Cumulative decline range	-38.49%	-49.94%	-44.90%		-53.83%		-36.72%		-44.93%
Statistics on Bid Opening Price of Offshore Wind Power Orders of Domestic Mainstream Wind Turbine Manufacturers from November 2021 to December 2022 RMB/kW
Period of Bid Opening Price	Ming Yang Smart Energy	Goldwind Technology	Windey Shares	Sany Renewable Energy		Envision Energy		Mean Value
Offshore in November 2021	3,997	4,402	3,998	/		3,550		3,987
Offshore in January 2022	4,188	4,287	4,398	/		3,996		4,217
Offshore in July 2022	3,468	4,000	3,934	/		3,478		3,720
Offshore in December 2022	3,870	4,243	3,798	/		3,350		3,815
Cumulative decline range	-3.18%	-3.61%	-5.00%	/		-5.63%		-4.30%

Data Source: Internal statistical data of the Company

From the same industry comparison, as shown in the above table, the bid opening price of onshore wind power projects won by the Company from January 2021 to December 2022 decreased by 38.49%, while the bid opening price of the comparable onshore wind power projects won by Goldwind Technology, Windey Shares, Sany Renewable Energy and Envision Energy decreased by 49.94%, 44.90%, 53.83% and 36.72%, respectively, with an average decline in the comparable companies of 44.93%. The price of new orders for onshore wind power has declined, and such price fluctuations have a comprehensive impact on the industry.

From the same industry comparison, as shown in the above table, the bid opening price of offshore wind power projects won by the Company from November 2021 to December 2022 decreased by 3.18%, while the price reduction of comparable companies like Goldwind Technology, Windey Shares and Envision Energy were 3.61%, 5.00% and 5.63%, respectively, with an average decline in the comparable companies of 4.30%. The price of new orders for offshore wind power remained basically stable, the fluctuation range was basically close to that of mainstream comparable companies in the same industry.

To sum up, as affected by the development cycle of the wind power industry, the fluctuations in the prices of new orders for onshore and offshore wind power of the Company are consistent with industry trends, and their changes are reasonable.

(2) The cost of the Company's wind turbines and related accessories has declined

The proportion of high-power wind turbine products increased rapidly due to the leading technology of large-scale and lightweight wind turbines. In the meantime, the Company implemented an active supply chain policy, and the procurement cost of main raw materials for wind turbines and related accessories was reduced under the influence of a series of measures such as strengthening the control over the upstream supply chain. In 2022, among the main raw materials and components for the Company's wind turbines, the average purchase price of Component A decreased by 15.45% year-on-year, the average purchase price of Component B decreased by 24.20% year-on-year, the average purchase price of Component C decreased by 13.03% year-on-year, the average purchase price of Component D decreased by 10.88% year-on-year, the average purchase price of Component E decreased by 23.15% year-on-year, and the average purchase price of Component F decreased by 24.78% year-on-year. On the whole, the average purchase price of main raw materials and components of the Company's wind turbines generally decreased by 15.45% to 24.78% year-on-year, ultimately affecting an 8.62% decrease in the total cost of raw materials carried over by the Company's current wind turbines.

The labor cost for the sales of wind turbines and related accessories in the Company was mainly composed of the annual salary of employees, which was mainly affected by the number of employees and their salaries. In 2022, the sales scale of the Company's external wind turbines increased by 21.14% year-on-year, and the number of employees for the Company's wind turbine manufacturing unit has increased correspondingly. In 2022, the Company newly constructed or built a total of 14 production bases, and the number of power station operation and maintenance projects increased by 82 projects, bringing an increase in the number of corresponding employees. In addition, the Company increases the annual salary of employees to a certain extent every year. To sum up, all of the above factors ultimately affect the total labor cost of the sales of wind turbines and related accessories to increase by 24.05%.

Other expenses for the sales of wind turbines and related accessories of the Company are mainly composed of outsourcing fees and other related expenses. In 2022, the Company implemented effective control measures on related expenses, resulting in an overall decrease of 15.19% in other expenses for the sales of wind turbines and related accessories in 2022.

To sum up, the business costs of wind turbines and related accessories decreased by 8.12% compared over the same period last year.

(3) Reasons for the decline in gross margin of the sales of wind turbines and related accessories and comparative analysis of peers

The main reason for the decline in gross margin of the Company during the Reporting Period is that it takes time to implement relevant cost reduction measures, which leads to the decrease in unit selling price of the Company during the Reporting Period being slightly higher than the decrease in unit cost. In 2022, the unit selling price and unit cost of the sales of wind turbines and related accessories of the Company decreased by 25.43% and 24.15%, respectively, so the gross margin of the Company in this aspect decreased slightly.

Compared with the same industry, the gross margin of the sales of wind turbines and related accessories of the Company decreased in 2022, which was in line with the overall situations of the industry.

According to the comparison of the sales of wind turbines and related accessories between the Company and listed companies like Goldwind Technology (002202.Shenzhen Stock Exchange) and Windey Shares (300772. Shenzhen Stock Exchange) in the same industry, the unit selling price and unit cost of the sales of wind turbines and related accessories between the Company and the other two listed companies declined in 2022. The data change trend of the Company is the same as that of Goldwind Technology with similar scale. As the business scale of Windey Shares is smaller than that of the Company and Goldwind Technology, the number of delivery orders is less than that of the above two companies, so the gross margin changes slightly.

Classification	Ming Yang Smart Energy			Goldwind Technology			Windey Shares
	2022	2021	Change %	2022	2021	Change %	2022	2021	Change %
Unit kilowatt income (RMB/KW)	3,121.46	4,185.91	-25.43	2,104.01	3,377.43	-37.70	2,292.18	2,877.69	-20.35
Unit kilowatt cost (RMB/kW)	2,566.75	3,384.05	-24.15	1,972.85	2,779.23	-29.01	1,900.28	2,403.94	-20.95
Gross Margin	17.77%	19.16%	-1.39	6.23%	17.71%	-11.48	17.10%	16.46%	0.64

2. In 2022, the gross margin of wind farm power generation was 59.88%, down 6.79 percentage points from 66.67% over the same period last year. And the main reasons for the decline in gross margin were as follows:

(1) Affected by the grid parity policy, the income on power generation decreased year-on-year in 2022. Due to the cancellation of subsidies from industry policies for new power grids in 2021 (grid parity), the capacity of new wind farm power generation projects of grid parity in 2022 was 592MW. The proportion of the capacity of wind farm power generation projects of grid parity to the total capacity of operating wind farm power generation projects increased from 12.57% at the end of 2021 to 39.40% at the end of 2022. The income on power generation was reduced under the same power generation.

(2) Affected by wind conditions and traded power, the power generation and income decreased year-on-year in 2022. In 2022, the national wind energy resources showed a few compared with a normal year with an average wind speed of 0.82% lower than the average of the past 10 years at a height of 10 meters, and 0.96% lower than that in 2021. The impact of wind conditions led to a decrease in power generation, which in turn led to a decrease in income on power generation; and in the meantime, the proportion of power traded in 2022 showed an upward trend compared to that in 2021. Taking into account seven power generation projects in Inner Mongolia and Tibet, the proportion of market-oriented power traded in 2022 to online power was 75.85%. In 2021, the proportion was 31.38%, along with a year-on-year increase of 44.47% in 2022. And the increase in the proportion of power traded resulted in a decrease in income on power generation.

(3) Affected by the quality assurance of some wind farm power generation projects and the technical transformation of wind turbines, the cost of power generation increased year on year in 2022. In 2022, the wind farm power generation projects under quality assurance reached 190MW, the corresponding operation and maintenance costs were borne by the involved wind farm power generation project companies. And meanwhile, some models of certain power station project were technically modified in 2022, which led to an increase in the cost of power generation for the affected power station projects.

(4) According to the data disclosed by companies in the same industry, the gross margin of wind farm power generation of the Company, Goldwind Technology, Windey Shares and Sany Renewable Energy in 2022 decreased by 6.79%, 2.98%, 29.24% and 4.65% compared over the same period last year. The gross margin of wind farm power generation in the same industry showed a downward trend as a whole. And meanwhile, due to a different power station layout of each company, and the impact of wind resources, electricity prices, construction costs and other factors, there were some differences in gross margin.

The Same Industry	Ming Yang Smart Energy	Goldwind Technology	Windey Shares	Sany Renewable Energy
Gross margin of income on power generation in 2022	59.88%	65.39%	55.68%	70.57%
Gross margin of income on power generation in 2021	66.67%	68.37%	84.92%	75.22%
Increase/decrease in 2022 compared to 2021	-6.79%	-2.98%	-29.24%	-4.65%

Note: The data extracted by Goldwind Technology here is about "wind farm development", excluding that the gross margin of such business includes business data other than power generation.

(C) Analyze the specific reasons why the Company started to turn from profit to loss in the fourth quarter in combination with industry policies, competition pattern, industry cycle, capacity utilization rate, orders of major customers and customer stability;

The net profit loss in the fourth quarter of 2022 was RMB106 million, and the specific reasons why the net profit in the fourth quarter began to turn from profit to loss included:

1. Combine with industry policies, competitive pattern, industry cycle, order of major customers and customer stability analysis

(1) The development policy environment of the new energy industry is stable

After the onshore wind power rush in 2020 and the offshore wind power rush in 2021, both onshore wind power and offshore wind power entered the era of parity in 2022, and the electricity price subsidies for new wind farms have been cancelled. Due to economic reasons, the owners of downstream wind farms have obvious pressure and demands to reduce the construction cost of wind farms. Under this background, the prices of domestic onshore wind turbines and offshore wind turbines have declined to varying degrees since 2022. Therefore, the prices of newly awarded wind turbines by major machine manufacturers have all experienced varying degrees of decline.

According to the "14th Five-Year Plan for Renewable Energy Development" jointly issued by nine departments including the National Development and Reform Commission, the annual power generation of renewable energy in China will reach about 3.3 trillion kWh in 2025. During the 14th Five-Year Plan period, the increment of renewable energy power generation accounted for more than 50% of the increment of electricity consumption in the whole society, and the power generation of wind power and solar energy doubled. In 2025, the total consumption of renewable energy will reach about 1 billion tons of standard coal. During the 14th Five-Year Plan period, renewable energy accounted for more than 50% of the increase in primary energy consumption.

Under the premise of clarifying the development goals of the above industries, the "14th Five-Year Plan for Renewable Energy Development" clearly proposes to vigorously promote the base development of wind power and photovoltaic power generation. Relevant documents pointed out that in areas with good endowment of wind and solar energy resources, superior construction conditions and sustainable large-scale development conditions, it is necessary to focus on building onshore new energy base clusters and offshore wind power base clusters, and strive to improve the local consumption and delivery capacity of new energy.

Comprehensive judgment shows that China's renewable energy will enter a new stage of high-quality leap-forward development during the 14th Five-Year Plan period, showing new characteristics including: firstly, large-scale development, on the basis of leap-forward development, it further accelerates the increase in the proportion of installed power generation; secondly, a high proportion of development, from the incremental supplement of energy and electricity consumption to the incremental main body, the proportion of energy and electricity consumption has increased rapidly; thirdly, market-oriented development, it changes from subsidy-supported development to low-priced development, and from policy-driven development to market-driven development; and fourthly, high-quality development, it features not only large-scale development, but also high-level consumption, and stable and reliable power supply. Renewable energy in China will further lead the mainstream direction of energy production and consumption revolution, play a leading role in the green and low-carbon transformation of energy, and provide main support for achieving carbon peak and carbon neutrality.

(2) The concentration and entry barriers of the wind turbine industry are high, and the industry competition pattern is stable

The wind turbine industry of China shows high concentration and entry barriers, and a stable industry competition pattern. According to the "Statistical Briefing on China's Wind Power Hoisting Capacity in 2022" officially released by the Wind Energy Professional Committee of China Renewable Energy Society, 11098 new installed units with a capacity of 49.83 million kilowatts was installed nationwide (except Hong Kong, Macao and Taiwan) in 2022, including 44.672 million kilowatts of new installed capacity in terms of onshore wind power, and 5.157 million kilowatts of new installed capacity in terms of offshore wind power.

According to the "Statistical Briefing on China's Wind Power Hoisting Capacity" officially released by the Wind Energy Professional Committee of China Renewable Energy Society over the years, in 2022, there were 15 newly installed wind power enterprises in China's wind power market, with Top 5 wind power enterprises having a total market share of 57.80% and Top 10 wind power enterprises having a total market share of 98.60%. In 2021, there were 17 newly installed wind turbine enterprises in China's wind power market, with Top 5 wind turbine enterprises having a total market share of 69.30% and Top 10 wind turbine enterprises having a total market share of 95.10%. In 2020, there were 20 newly installed wind power enterprises in China's wind power market, with Top 5 wind power enterprises having a total market share of 65.00% and Top 10 wind power enterprises having a total market share of 91.80%. By observing changes in wind power market pattern in the past three years, we can learn that the competition pattern of China's wind power industry is stable and the market share is concentrated; and moreover, the barriers to entry in the industry are high, and the number of wind turbine enterprises with new installed capacity records gradually decreases from 2020 to 2022.

(3) The Company has a solid customer base and a large scale of orders in hand

In 2022, the Company newly obtained 18.85GW external wind turbine sales orders, and its orders in hand reached 30.42GW by the end of 2022. More than 90% of the Company's orders were obtained through public bidding, and more than 90% of them were mainly from central state-owned enterprises, including five major and six minor power groups and local state-owned power enterprises. From the perspective of order structure and customer structure, the executable orders of the Company are relatively stable and evenly distributed, and the existing production capacity of the Company can be fully utilized from 2023 to 2024. In the meantime, through the integrated industrial layout of wind, light, storage and hydrogen, the Company can provide customers with a package, one-stop and more competitive new energy overall solutions, thereby making the Company more competitive in the same industry.

To sum up, the current industry policy in which the Company develops is clear and friendly; the industry concentration and entry barriers are high and the competition pattern is stable; as well as the Company has a solid customer base and a large scale of orders in hand. All of the above factors provide a stable and clear environment, good competitive advantages and a stable customer base for future development of the Company. The Company experienced losses in the fourth quarter mainly due to phased factors. Currently, the industry in which the Company operates is developing stably, its own business is in good condition and its orders in hand are delivered in an orderly manner, all of which will provide important support for stable performance of the Company in the subsequent reporting period.

2. Analysis of the specific reasons for the Company's loss in the fourth quarter

(1) As affected by the decline in the scale of offshore wind power recognized income in the fourth quarter, the Company's income on wind turbine manufacturing was only contributed by onshore wind power sales. However, the gross margin of onshore wind power fluctuated in stages due to the time difference of cost transmission, resulting in insufficient income growth in the fourth quarter and a decline in the gross margin of overall wind turbine manufacturing.

The gross margin of the Company's operating income in the four quarters of 2022 was 26.49% in the first quarter, 24.81% in the second quarter, 18.54% in the third quarter and 12.30% in the fourth quarter. The gross margin of operating income in the fourth quarter decreased by 10.91% compared with the average gross margin of 23.21% in the previous three quarters, mainly because of the following reasons:

1) Because 2021 is the last year for offshore wind farms to enjoy national subsidies, a large number of offshore wind power projects were completed and delivered by the end of 2021. Since the planning and construction period of offshore wind power projects is relatively long, most of the new offshore wind power projects have entered the construction process after demonstration and planning in 2022. Considering that an offshore wind power project normally needs a construction period lasting one and a half to two years, in fact, most of the offshore wind power projects planned to start in China are in the early stage in the second half of 2022, so the Company's offshore wind power sales have not realized income recognition in the fourth quarter of 2022. In the meantime, the gross margin of offshore wind power products of the Company is higher than that of its onshore wind power products, leading to a significant decline in the gross margin of wind turbines in the fourth quarter.

The proportions of recognized income capacity to total income capacity from the sales of offshore wind power products in the first, second, third and fourth quarters of 2022 were 39.00%, 35.07%, 41.83% and 0%, respectively.

2) Since the bidding price of wind turbines in the wind power industry continued to decline, it took time for the decline in the procurement cost of wind turbines to be transmitted to upstream suppliers, the gross margin of onshore wind power sales declined in stages in the fourth quarter.

① As affected by the grid parity policy, the bid price of wind turbines gradually declined. From the same industry comparison, as shown in the below table, the bid opening price of onshore wind power projects won by the Company from January 2021 to December 2022 decreased by 38.49%.

Industry Bid Opening Prices from 2021 to 2022 RMB/kW
Period of Bid Opening Price	Ming Yang Smart Energy	Goldwind Technology	Windey Shares	Sany Renewable Energy	Envision Energy
Onshore in January 2021	3,170	3,080	2,900	3,390	3,050
Onshore in July 2021	2,750	2,680	2,780	2,400	2,699
Onshore in December 2021	2,000	2,007	2,000	2,150	1,904
Onshore in January 2022	2,077	2,000	1,940	2,000	1,830
Onshore in July 2022	1,786	1,827	1,762	1,779	1,638
Onshore in December 2022	1,950	1,542	1,598	1,565	1,930
Cumulative decline range	-38.49%	-49.94%	-44.90%	-53.83%	-36.72%

② In 2022, due to the continuous downward trend of wind turbine prices in the implementation projects, the gross margin of onshore wind power sales of the Company gradually declined in the four quarters, and the gross margin of onshore wind power sales in the fourth quarter was only -4.62%.

(2) Impact of exchange gains and losses: As at the end of 2022, the Company had USD457 million in monetary funds due to the issuance of GDR. As affected by the decline in the exchange rate of USD against RMB, the Company recognized an exchange loss of RMB54 million in the fourth quarter.

(3) Impact of credit impairment: Based on the collection progress in the first three quarters and the slowdown in the payment collection progress, a credit impairment loss of RMB 69million was accrued in the fourth quarter.

(4) Impact of asset impairment: Based on the actual situations in the first three quarters and in accordance with accounting standards, an asset impairment loss of RMB179 million was accrued in the fourth quarter, including inventory depreciation loss of RMB88 million, construction in progress impairment loss of RMB41 million, prepayment impairment loss of RMB16 million, fixed assets impairment loss of RMB15 million, development expenditure impairment loss of RMB14 million, as well as contract assets and other non-current assets impairment loss of RMB5 million.

To sum up, the Company's loss in the fourth quarter was mainly due to the decrease in the delivery of offshore wind turbines and the time difference in the cost transmission of onshore wind turbines, which led to gradual decline in the gross margin of onshore wind turbines. As affected by the processing time of the owner's preliminary procedures such as for forest requisition, land acquisition, power grid access, sea area use right, military affairs, environmental protection, etc., different project delivery cycles, the low overall yield of orders delivered in the fourth quarter, as well as the impact of exchange gains and losses and losses on asset impairment, its changes were reasonable. Subsequently, along with the gradual implementation of the Company's cost reduction measures for onshore wind turbines, the gross margin of onshore wind turbines is expected to recover; and the gradual recognition of income from orders with a high gross margin of offshore wind turbines will also help to improve the income and gross margin of overall wind turbine manufacturing. Currently, the Company has sufficient orders in hand, its production and operation are carried out in an orderly manner, and its construction and transfer of new energy power stations are progressing smoothly, all of which provides sufficient support for the Company's net profit to gradually return to normal level in the following quarters.

II. Reply from the accountant

(A) Verification procedures

We have designed and implemented relevant procedures in accordance with the requirements of the Auditing Standards for Chinese Certified Public Accountants. The main procedures we have implemented targeted at the above problems include:

1. Understand, evaluate and test the effectiveness of internal control design and operation related to the sales and procurement of Ming Yang Smart Energy;

2. Identify revenue recognition as a key audit item, spot-check sales contracts, original production records, product delivery logistics information, and carry out customer confirmation procedures to evaluate the accuracy of the amount and time of revenue recognition of Ming Yang Smart Energy;

3. Carry out IT system testing for cost collection and allocation, evaluate whether the Company's product cost accounting is correct; as well as conduct detailed testing and certification procedures for raw material procurement sampling;

4. Implement analytical procedures for income, cost and gross margin, and analyze the reasons for and rationality of changes in gross margin; and

5. Analyze the specific reasons for the Company's transition from profit to loss in the fourth quarter.

(B) Opinions of the accountant

Based on the audit procedures we implemented, we believe that the above explanations related to the Company's operating conditions are consistent with the information we obtained and understood during the audit of Ming Yang Smart Energy in 2022, and both the change trend of the Company's gross margin and its financial performance in the fourth quarter are in line with the actual situations.

Issue 2 in the Work Letter: About accounts receivable. According to the Annual Report, the carrying balance of the Company's accounts receivable at the end of the period was RMB11.425 billion, up 81.58% year-on-year, of which the aggregate amount of accounts receivable of Top 5 closing balances as collected by debtor was RMB3.867 billion. The Company is requested to: (1) list the details of Top 5 accounts receivable collected by debtor in the past three years, including the name of the debtor, whether it is a related party, the transaction content, the balance of accounts receivable at the end of the period, the aging, and the amount and proportion of bad debts accrued; and (2) explain the reasons for and rationality of substantial increase in the balance of accounts receivable at the end of the period, and analyze whether the provision for bad debts in the early stage is sufficient and whether the substantial increase in accounts receivable has adverse effects on daily operations of the Company in combination with comparable companies in the same industry, changes in the credit policy of the Company, etc. The annual audit accountant is expected to give his opinions.

I. Reply from the Company

(A) List the details of Top 5 accounts receivable collected by debtor in the past three years, including the name of the debtor, whether it is a related party, the transaction content, the balance of accounts receivable at the end of the period, the aging, and the amount and proportion of bad debts accrued;

1. Top 5 balances of accounts receivable of the Company as at the end of 2022

Unit: RMB Hundred Million

Debtor	Whether It Is A Related Party	Name of Main Commodities for Sale		Accounts Receivable			Closing Aging
			Item Type	2022	Accrual Amount of Bad Debts	Accrual Proportion of Bad Debts	Within 180 Days	180 to 365 Days	1 to 2 Years	2 to 3 Years	3 to 4 Years	Over 4 Years
Three Gorges New Energy Yangjiang Power Generation Co., Ltd.	No	Wind turbines and accessories	Offshore	13.69	0.84	6.16%	0.08	0.65	12.71	0.26	-	-
China Nuclear Power Engineering Co., Ltd.	No	Wind turbines and accessories	Offshore	12.74	0.28	2.23%	8.06	2.95	0.16	1.47	0.10	-
SinoHydro Corporation International Engineering Co., Ltd.	No	Wind turbines and accessories	Offshore	7.05	0.05	0.76%	7.05	-	-	-	-	-
State Grid Hebei Electric Power Co., Ltd.	No	Electricity sales	Onshore wind farm	3.14	0.28	8.90%	0.51	0.61	0.64	0.55	0.59	0.25
Gansu Yumen Huineng New Energy development Co., Ltd.	No	Wind turbines and accessories	Onshore	2.05	0.02	0.76%	2.05	-	-	-	-	-
Total				38.67	1.48	3.82%	17.74	4.20	13.51	2.27	0.69	0.25

2. Top 5 balances of accounts receivable of the Company as at the end of 2021

Unit: RMB Hundred Million

Debtor	Whether It Is A Related Party	Name of Main Commodities for Sale		Accounts Receivable			Closing Aging
			Item Type	2021	Accrual Amount of Bad Debts	Accrual Proportion of Bad Debts	Within 180 Days	180 to 365 Days	1 to 2 Years	2 to 3 Years	3 to 4 Years	Over 4 Years
Three Gorges New Energy Yangjiang Power Generation Co., Ltd.	No	Wind turbines and accessories	Offshore	14.75	0.27	1.80%	10.30	3.64	0.80	-	-	-
State Grid Hebei Electric Power Co., Ltd.	No	Electricity sales	Onshore wind farm	4.03	0.26	6.35%	0.62	0.67	1.11	1.18	0.44	-
China Energy Engineering Corporation Limited Guangdong Electric Power Design and Research Institute Co., Ltd.	No	Wind turbines and accessories	Offshore	3.35	0.23	6.92%	0.47	1.92	0.96	-	-	-
State Grid Henan Electric Power Company	No	Electricity sales	Onshore wind farm	2.08	0.03	1.52%	1.83	-	0.26	-	-	-
China Datang Corporation International Trade Co., Ltd.	No	Wind turbines and accessories	Onshore	1.92	0.05	2.61%	1.57	0.14	0.01	0.20	-	-
Total				26.13	0.84	3.20%	14.79	6.38	3.14	1.38	0.44	-

3. Top 5 balances of accounts receivable of the Company as at the end of 2020

Unit: RMB Hundred Million

Debtor	Whether It Is A Related Party	Name of Main Commodities for Sale		Accounts Receivable			Closing Aging
			Item Type	2020	Accrual Amount of Bad Debts	Accrual Proportion of Bad Debts	Within 180 Days	180 to 365 Days	1 to 2 Years	2 to 3 Years	3 to 4 Years	Over 4 Years
State Grid Hebei Electric Power Co., Ltd.	No	Electricity sales	Onshore wind farm	3.42	0.15	4.40%	0.53	0.70	1.18	0.84	0.18	-
Datang International Energy Services Co., Ltd.	No	Wind turbines and accessories	Onshore	2.61	0.01	0.55%	2.61	-	-	-	-	-
Haotai New Energy Equipment Co., Ltd.	No	Wind turbines and accessories	Onshore	1.54	0.10	6.69%	-	0.01	1.05	0.49	-	-
Tianjin Xiehe Huaxing Wind Power Equipment Co., Ltd.	No	Wind turbines and accessories	Onshore	1.28	0.24	18.37%	0.12	0.01	-	-	1.16	-
Southern Offshore Wind Power Joint Development Co., Ltd.	Yes	Wind turbines and accessories	Offshore	1.20	0.03	2.80%	0.71	-	0.45	0.04	-	-
Total				10.06	0.54	5.34%	3.95	0.72	2.68	1.37	1.33	-

(B) Explain the reasons for and rationality of substantial increase in the balance of accounts receivable at the end of the period, and analyze whether the provision for bad debts in the early stage is sufficient and whether the substantial increase in accounts receivable has adverse effects on daily operations of the Company in combination with comparable companies in the same industry, changes in the credit policy of the Company, etc.;

1. Reasons for and rationality analysis of substantial increase in the balance of accounts receivable

By the end of 2021 and 2022, the balances of accounts receivable of the Company were RMB6,292 million and RMB11,425 million, respectively, which increased by RMB5,133 million or 81.58% at the end of 2022 compared with the balance at the end of 2021. In 2022, there were no significant differences in the Company's credit policies compared to these companies in the same industry, and the collection ratio of advance payment, material input payment and arrival payment in the collection clauses of newly signed sales contracts decreased compared over the same period last year. The main reasons for and rationality of the increase in the balance of accounts receivable at the end of the period are as follows:

(1) The increase in income scale leads to the increase in accounts receivable. In recent years, the Company is in the stage of rapid growth of business scale, and its operating income is increasing year by year, among which the Company's revenue in 2021 was RMB27,216 million, an increase of RMB4,759 million compared with RMB22,457 million in 2020, and its revenue in 2022 was further increased to RMB30,748 million, an increase of RMB3,532 million compared with that in 2021, while accounts receivable increased with the growth of operating income scale.

(2) The collection progress of accounts receivable from offshore wind turbine products was relatively slow, and the sales proportion of offshore wind turbine products of the Company was large, resulting in a high growth rate of accounts receivable. The payment nodes for wind turbine products stipulated in the contract were related to the progress of wind turbine projects. Due to high construction difficulty, long construction period, etc. of offshore wind turbine products, the sales and payment collection period for offshore projects was longer than that for onshore projects. The delivery scale of the Company's offshore projects was large, and the sales proportion of offshore wind turbines was higher than that of peers. In 2022, the income on sales of offshore wind turbines accounted for 46.36% of the Company's sales from wind turbines, so the balance of accounts receivable of offshore projects in 2022 was huge.

(3) Before and after the rushing, the owners' willingness to pay was different. As 2020 and 2021 were the onshore rushing period and the offshore rushing period, respectively, customers had a stronger willingness to pay in order to lock in the supply to guarantee project construction period in advance. The proportions of project advance payment and material input payment had greatly increased, and part of the payment for the delivery project in 2022 had been recovered in advance. After the rushing period, the customer's willingness to pay for the project delivered in 2022 decreased, and the payment rhythm of arrival payment and pre-acceptance payment decreased obviously. In 2022, there were no significant differences in the Company's credit policies compared to these companies in the same industry, and the collection ratio of advance payment, material input payment and arrival payment in the collection clauses of newly signed sales contracts decreased compared over the same period last year.

From the perspective of comparable companies in the same industry, the turnover days of accounts receivable showed the same upward trend, while compared with comparable companies, the turnover days of accounts receivable were at a lower level. As a result, under the joint influence of the above main factors, the balance of accounts receivable of the Company increased at the end of the period, but it was still at the normal level of the industry as a whole, and there was no major risk.

The turnover days of accounts receivable of comparable companies in the same industry were as follows:

Unit: Day

Company Name	2020	2021	2022
Ming Yang Smart Energy	68	63	97
Goldwind Technology	116	157	186
Windey Shares	101	119	141

Note: Comparable company data comes from public data

In response to the rapid growth in the Company's balance of accounts receivable, the Company actively negotiated with counterparties to improve payment collection efficiency. The post-payment collection of accounts receivable of the Company were as follows:

As at the end of 2022, the book balance of accounts receivable was RMB11,425 million; and as at 31 May 2023, RMB1,824 million had been collected after the period, accounting for 15.96% of the balance of accounts receivable in 2022.

2. Adequate provision for bad debts

By considering reasonable and well-founded information about past events, current situations and forecasts of future economic situations, taking the risk of default as the weight, calculating the probability weighted amount of the present value of the difference between the cash flows receivable and the cash flows expected to be received under the contract, the Company recognizes the expected credit losses. In line with the provisions of the Accounting Standards for Business Enterprises, the provision for bad debts is reasonable and sufficient.

The provision proportions for overall bad debts and combination of the Company are both at an upper level in the same industry, and the provision for bad debts is reasonable and sufficient. The comparison of the overall provision proportion for bad debts in the same industry is as follows:

Category of Bad Debts	Ming Yang Smart Energy	Goldwind Technology	Sany Renewable Energy
Proportion of bad debts accrued by individual	100.00%	91.81%	70.54%
Proportion of bad debts accrued by combination	4.55%	1.94%	4.15%
Expected credit loss rate for bad debts accrued by combination
Within 6 months	0.78%	0.16%	2.00%
6 months to 1 year	1.89%	1.32%	2.00%
1 to 2 Years	6.12%	2.33%	13.00%
2 to 3 Years	9.73%	6.15%	31.00%
3 to 4 Years	16.64%	10.54%	57.00%
4 to 5 Years	38.18%	20.70%	68.00%
Over 5 years	90.00%	62.60%	100.00%

3. The substantial increase in accounts receivable has no adverse impact on the daily operation of the Company

Since the Company's main customers are large central enterprises and state-owned enterprises, the risk of recovering bad debts from accounts receivable is low. The significant increase in accounts receivable has a certain impact on the Company's cash flow and fund occupation cost in the short term, but currently the Company has sufficient capital reserves. Considering that the risk of recovering bad debts from accounts receivable is controllable, it is not expected to have a significant impact on daily business activities. The Company will accelerate the on-site delivery cycle and payment collection efforts, while optimizing contractual payment collection terms and increasing the ratio of progress payment and arrival payment.

II. Reply from the accountant

(A) Verification procedures

We have designed and implemented relevant procedures in accordance with the requirements of the Auditing Standards for Chinese Certified Public Accountants. The main procedures we have implemented targeted at the above problems include:

1. Understand, evaluate and test the effectiveness of internal control design and operation related to the accounts receivable of Ming Yang Smart Energy;

2. Identify revenue recognition as a key audit item, and check that sales contracts, original production records and product shipping logistics information penetrate into customer confirmation procedures to evaluate the accuracy of revenue recognition amount and time point of Ming Yang Smart Energy, as well as select samples to execute a letter of confirmation program to confirm accounts receivable based on the characteristics and nature of customer transactions;

3. Review the accrual process of provision for bad debts for the Company's prior and current accounts receivable and analyze whether the bad debt accrual is adequate and reasonable.

(B) Opinions of the accountant

Based on the audit procedures we implemented, we believe that the above explanations related to the Company's accounts receivable are consistent with the information we obtained and understood during the audit of Ming Yang Smart Energy in 2022. The increase in the balance of the Company's accounts receivable is reasonable, and the provision for bad debts in the early stage is sufficient and appropriate, conforming to the Accounting Standards for Business Enterprises and relevant regulations.

Issue 3 in the Work Letter: About monetary funds. According to the Annual Report, the Company's monetary funds at the end of the period were RMB11.157 billion and the non-current assets due within one year were valued at RMB630 million, both of which were large-amount certificates of deposit, other non-current assets were valued at RMB13.09 billion, including RMB5.618 billion of large-amount certificates of deposit, making the total large-amount certificates of deposit at the end of the reporting period up to RMB6.248 billion, up 95% year-on-year. The Company is requested to: (1) additionally disclose the deposit subject, deposit place, deposit type, term and interest rate level of monetary funds, and analyze and explain the matching between interest income and scale of monetary funds; (2) explain the reasons for and rationality of substantial increase in large-amount certificates of deposit during the Reporting Period, and verify whether there is any situation of providing certificate of deposit pledge for financing for other parties; and (3) explain whether there are other restrictions except the restrictions on monetary funds disclosed in the annual report, whether there are joint or co-managed accounts with controlling shareholders and their related parties, whether there are actual uses of funds by other parties, whether there are guarantees for other parties, etc. The annual audit accountant is expected to give his opinions.

I. Reply from the Company

(A) Additionally disclose the deposit subject, deposit place, deposit type, term and interest rate level of monetary funds, and analyze and explain the matching between interest income and scale of monetary funds;

1. Details of deposit subject, deposit place, deposit type, term and interest rate level of monetary funds are as follows:

(1) Deposit subject: As at the end of 2022, the balance of the Company's monetary funds was RMB11,157 million, including RMB8,704 million of closing balance deposited in Ming Yang Smart Energy as monetary funds and RMB2,453 million of closing balance deposited in its subsidiaries.

(2) Deposit place: Large state-owned commercial banks, National joint-stock commercial bank and local commercial banks.

Deposit Place	Closing Balance in 2022 (in Hundred Million Yuan)
Large state-owned commercial banks	62.69
National joint-stock commercial bank	41.76
Local commercial bank	5.75
Total	110.19

Note: Among other monetary funds, RMB138 million is deposited in stock accounts, excluding the data in the above table.

(3) The deposit type, interest rate level and term are as follows:

Deposit Type	Closing Balance in 2022 (in Hundred Million Yuan)	Interest Rate Level	Term
Current Account	22.00	0.20%-0.35%	No fixed term
Call deposit	22.64	1.75%-2.025%	No fixed term
Agreement deposit	66.93	1.55%-2.70%	No fixed term
Total	111.57

In 2022, the closing balance of a single deposit account of Ming Yang Smart Energy and its subsidiaries is greater than or equal to RMB100 million as follows:

Deposit Subject	Deposit Place and Institution Name		Deposit Type
Ming Yang Smart Energy	Industrial and Commercial Bank of China Zhongshan Branch Zhangjiabian Subbranch	State-owned bank	Agreement deposit
Ming Yang Smart Energy	Postal Savings Bank of China Zhongshan Xiaolan Subbranch	State-owned bank	Agreement deposit
Ming Yang Smart Energy	China CITIC Bank Zhongshan Branch	Joint-stock commercial bank	Agreement deposit
Ming Yang Smart Energy	Bank of Dongguan Zhongshan Branch	Local commercial bank	Agreement deposit
Ming Yang Smart Energy	China Merchants Bank Zhongshan Branch	Joint-stock commercial bank	Agreement deposit
Ming Yang Smart Energy	Agricultural Bank of China Zhongshan Torch Development Zone Subbranch	State-owned bank	Agreement deposit
Ming Yang Smart Energy	China Construction Bank Zhongshan Torch Development Zone Subbranch	State-owned bank	Agreement deposit
Ming Yang Smart Energy	Postal Savings Bank of China Zhongshan Gangkou Subbranch	State-owned bank	Call deposit
Ming Yang Smart Energy	Bank of China Zhongshan Branch	State-owned bank	Agreement deposit
Ming Yang Smart Energy	China Construction Bank Zhongshan Torch Development Zone Subbranch	State-owned bank	Agreement deposit
Ming Yang Smart Energy	Huaxia Bank Zhongshan Development Zone Subbranch	Joint-stock commercial bank	Agreement deposit
Ming Yang Smart Energy	Bank of Communications Zhongshan East Development Zone Subbranch	State-owned bank	Agreement deposit
Ming Yang Smart Energy	Guangdong Development Bank	Joint-stock commercial bank	Agreement deposit
Ming Yang Smart Energy	Industrial and Commercial Bank of China Zhongshan Branch Zhangjiabian Subbranch	State-owned bank	Agreement deposit
Ming Yang Smart Energy	China Merchants Bank Shiqi Technology Subbranch	Joint-stock commercial bank	Agreement deposit
Ming Yang Smart Energy	Bank of Dongguan Zhongshan Branch	Local commercial bank	Call deposit
Ming Yang Smart Energy	Shanghai Pudong Development Bank Zhongshan Branch	Joint-stock commercial bank	Call deposit
Ming Yang Smart Energy	Shanghai Pudong Development Bank Zhongshan Branch	Joint-stock commercial bank	Call deposit
Ming Yang Smart Energy	Shanghai Pudong Development Bank Zhongshan Branch	Joint-stock commercial bank	Call deposit
Ming Yang Smart Energy	Shanghai Pudong Development Bank Zhongshan Branch	Joint-stock commercial bank	Call deposit
Ming Yang Smart Energy	China Merchants Bank Shiqi Technology Subbranch	Joint-stock commercial bank	Agreement deposit
Tianjin Mingzhi Runyang Technology Co., Ltd.	China Merchants Bank Tianjin Branch Sales Department	Joint-stock commercial bank	Current Account
Shanwei Mingyang New Energy Technology Co., Ltd.	China Construction Bank Zhongshan Torch Development Zone Subbranch	State-owned bank	Current Account
Jieyang Mingyang Offshore Wind Power Development Co., Ltd.	China Construction Bank Zhongshan Torch Development Zone Subbranch	State-owned bank	Current Account
Jieyuan Huanghua New Energy Co., Ltd.	Agricultural Bank of China Co., Ltd. Huanghua Subbranch	State-owned bank	Current Account
Tianjin Ruiyuan Electric Co., Ltd.	Bank of China Tianjin Hedong Subbranch	State-owned bank	Current Account

2. Matching between interest income and monetary fund scale

Upon measurement, the interest income in 2022 matches the monetary fund scale, and the interest income of monetary funds is as follows:

Deposit Type	Q1 2022	Q2 2022	Q3 2022	Q4 2022	Balance of Weighted Average Annual Deposit (in Hundred Million Yuan)	Weighted Average Interest Rate	Measured Interest Rate	Annual Interest in 2022 (in Hundred Million Yuan)
Monetary funds	120.87	105.79	123.99	111.57	115.56	1.28%-2.00%	1.66%	1.92
In which: Current account	22.94	24.94	38.09	22.00	26.99	0.20%-0.35%
Call deposit	38.31	16.41	24.39	22.64	25.44	1.75%-2.025%
Agreement deposit	59.62	64.44	61.51	66.93	63.12	1.55%-2.70%

Measured interest rate = Annual interest / Balance of weighted average annual deposit

(B) Explain the reasons for and rationality of substantial increase in large-amount certificates of deposit during the Reporting Period, and verify whether there is any situation of providing certificate of deposit pledge for financing for other parties;

1. The reasons for increase in the amount of large certificates of deposit in 2020 are as follows:

(1) The interest rate of large certificates of deposit held by the Company is higher than that of ordinary time deposits (wherein the interest rate of ordinary time deposits is 1.50%-2.75%, and the interest rate of large certificates of deposit is 3.15%-3.85%). Under the condition of ensuring the safety of funds, companies can obtain higher interest income by choosing large certificates of deposit.

(2) The large certificates of deposit held by the Company are highly liquid. Large certificates of deposit can be transferred at any time after being held for one month, and interest can be calculated by stages, which will not affect interest income when transferred in advance.

(3) No risk. Large certificates of deposit are essentially transferable time deposits, for which banks can guarantee the principal and interest.

2. Upon verification, the Company strictly implements the internal control management system for external guarantees. After checking all the large certificates of deposit held by the Company item by item, as at December 31, 2022, the large certificates of deposit pledged for the Company to obtain loans amounted to RMB259 million, and there was no case of providing pledge financing concerning large certificates of deposit for other parties.

(C) Explain whether there are other restrictions except the restrictions on monetary funds disclosed in the annual report, whether there are joint or co-managed accounts with controlling shareholders and their related parties, whether there are actual uses of funds by other parties, whether there are guarantees for other parties, etc.

There are no other restrictions except the restrictions on monetary funds disclosed in the annual report, there are no joint or co-managed accounts with controlling shareholders and accrual related parties, there are no actual uses of funds by other parties, there are no guarantees for other parties, etc.

II. Reply from the accountant

(A) Verification procedures

We have designed and implemented relevant procedures in accordance with the requirements of the Auditing Standards for Chinese Certified Public Accountants. The main procedures we have implemented targeted at the above problems include:

1. Identify "the existence and restriction of monetary funds and wealth management products" as a key audit item, as well as understand, evaluate and test the effectiveness of internal control design and operation related to the monetary funds of Ming Yang Smart Energy;

2. Obtain a list of opened bank settlement accounts, including accounts that have been canceled in the current period with a zero balance, and verify them with the book records to check the integrity of bank accounts of Ming Yang Smart Energy;

3. Obtain a corporate credit report and verify if there are any discrepancies between the credit record details and the corporate records;

4. Implement letter of confirmation procedures for all bank accounts to verify the closing balance, mortgage and pledge, and whether there is any fund pooling operations;

5. Implement supervision procedures for large certificates of deposit, and send a letter to the bank to prove whether they exist or not, whether they are mortgaged/pledged or not, etc.;

6. Check the Company's bank statements, online banking records, etc. and check them with book records; as well as check the book interest income records and analyze the matching with the scale of monetary funds; and

7. Check whether the financial products purchased by the Company are accurately classified and accounted for, and whether the disclosure is accurate.

(B) Opinions of the accountant

Based on the audit procedures we implemented, we believe that the above explanations related to the Company's monetary funds are consistent with the information we obtained and understood during the audit of Ming Yang Smart Energy in 2022, and the disclosure of the Company's monetary funds is accurate, conforming to the Accounting Standards for Business Enterprises and relevant regulations.

Issue 4 in the Work Letter: About fundraising projects. According to the Annual Report and other public information, some of the Company's fundraising projects are progressing slowly. The Company issued convertible bonds in December 2019, in which the MySE10MW Offshore Wind Power Complete Machine and Key Component Development Project was originally promised to invest RMB100 million, but later, surplus funds from other projects were transferred to this project. As at the end of 2022, the total planned use of raised funds for this project was RMB166 million, with an actual investment amount of RMB5.923 million. Besides, the Company completed the non-public offering in October 2020, in which the promised investment amounts for the 10MW Offshore Floating Wind Turbine Design, Research and Development Project, the Shanwei Offshore Engineering Base (Lufeng) Project and the hybrid tower Production Base Project were RMB616 million, RMB1.5 billion and RMB397 million, respectively, and the actual total investments by the end of 2022 were RMB115 million, RMB567 million and RMB14.2425 million, respectively. The Company is requested to make additional disclosure about: (1) the construction period, estimated completion time and project progress of the above-mentioned fundraising project, the reasons for and rationality of slow progress since project establishment, and whether there is any significant difference from the original construction plan; (2) whether necessary project demonstration is carried out and the corresponding review procedures and information disclosure obligations are fulfilled subject to actual situations and according to relevant regulations in the process of project progress; and (3) the impact of slow advance of the fundraising projects on the Company's primary business, core competitiveness and future business development, and the relevant risks. The financial adviser is expected to give his opinions.

I. Reply from the Company

(A) The construction period, estimated completion time and project progress of the above-mentioned fundraising project, the reasons for and rationality of slow progress since project establishment, and whether there is any significant difference from the original construction plan;

1. MySE10MW Offshore Wind Power Complete Machine and Key Component Development Project

As at May 2023, the prototype and blades of MySE10MW Offshore Wind Power Complete Machine and Key Component Development Project, which was fundraised by the Company, have been put into production, and the project investment progress has reached 30.49%. The construction duration of the project is 36 months, and the estimated completion time is December 2023.

The funds raised for this project were credited into the account in December 2019. As this R&D project involves major technological innovations, it is difficult and challenging to research and develop from the aspects of product structure, new material application and new production technology, which makes the preparatory period of this project longer than originally planned. The project started in August 2021, and the latest deadline for its completion is August 2024, based on the project construction period of 36 months. Up to now, the project is in the middle to late stage of implementation and is expected to be fully completed by the end of 2023, which is not significantly different from the original construction plan.

2. 10MW Offshore Floating Wind Turbine Design, Research and Development Project

As at May 2023, the 10MW offshore floating wind turbine design, research and development project, which was fundraised by the Company, has completed the production of wind turbine components and floating foundations (prefabricated parts), and the investment progress has reached 21.85%. The construction duration of the project is 36 months, and the estimated completion time is October 2024.

The funds raised for the project were credited into the account in October 2020, and the main content of the project is to research and develop high-power offshore floating wind turbines. This project places emphasis on the design of floating complete wind turbines and the research and development of floating technology for high-power offshore wind turbines. The technology content of dual-rotor floating wind turbines developed by the Company is globally leading and poses significant research and development challenges. The project started in October 2021, and the latest deadline for its completion is October 2024, based on the project construction period of 36 months. According to the current forecast, the overall construction progress of the project is normal, and it is expected to be completed before October 2024, which is not significantly different from the original construction plan.

3. Shanwei Offshore Engineering Base (Lufeng) Project

The main construction content of Shanwei Offshore Engineering Base (Lufeng) Project, which was fundraised by the Company and a project at Mingyang Smart Shanwei Offshore Wind Power Industrial Park, is a large-scale offshore wind power equipment research, development and production base, which mainly includes research, development and manufacturing of large-scale offshore wind turbines, manufacturing of offshore wind turbine blade equipment as well as electrical equipment manufacturing base, test center and related supporting facilities. By May 2023, the project has completed the infrastructure construction of workshops and office buildings, as well as the procurement of production equipment. The research and development of the floating wind turbine project and the 12-15MW offshore wind turbine unit have completed the development of blade molds. The expected completion time is December 2024, and the current input progress is 38.52%.

Shanwei Offshore Engineering Base (Lufeng) Project has completed fundraising in October 2020. By the end of 2021, the project has completed the construction of office buildings, dormitories and workshops. However, because the Company's offshore wind power manufacturing base needed supporting logistics facilities such as terminal yard before it can be used normally, the progress of supporting logistics facilities such as terminal yard was lower than expected due to policy, which led to the Company only starting the floating wind turbine project and the research and development of 12-15MW offshore wind turbines in October 2022. Therefore, the total investment and fundraising for this project in 2022 were relatively small. As at the end of 2022, the cumulative investment progress of this project was 37.8%, with a relatively small increase compared to the previous year.

The funds raised for this project were received in October 2020. Based on the 12-month construction period, the project has exceeded the original completion deadline, so the Company has postponed the implementation. Based on the current progress of the project, the first prototype production is planned to be completed in October 2023, and the prototype testing and project conclusion will be completed in June 2024, which has no significant difference from the revised construction plan.

4. Hybrid Tower Production Base Project

The main construction content of the project is the production base of wind driven generator concrete tower. As Mingyang hybrid tower project proposes to adopt an internationally leading segmented structure, so as to ensure successful implementation of the project, the Company carried out trial production in Hebei, Henan and other regions near the wind farm project before the commencement of the production base. Some equipment has been transported to Hebei, Henan and other regions for the preliminary trial production of the hybrid tower. As at May 2023, the trial production stage has been completed and it will soon enter the batch production stage.

During trial production, in view of large transportation volume of the hybrid tower, it has higher economy within a certain transportation radius from the tower production base. Based on the principle of optimal economy and on the basis of strict demonstration, the management of the Company plans to adopt the double combination mode of self-produced hybrid tower + OEM hybrid tower: for the areas where the orders of hybrid tower are concentrated, a hybrid tower production base will be set up nearby and the mode of self-produced hybrid tower for hybrid tower production will be adopted; while for the areas where orders are scattered, cooperative units will be searched nearby, and the mode of OEM hybrid towers will be adopted for hybrid tower production.

In view of the implementation mode of the above hybrid tower project is characterized by OEM production and multi-location construction, in order to ensure that the use of raised funds can be easily supervised and to further improve the efficiency of the use of raised funds, the Company plans to use its own funds to further build the Hybrid Tower Production Base Construction Project, and to adjust the use direction of raised funds of the original Hybrid Tower Production Base Construction Project to the power station construction project with high yield and better economy. Currently, the Company is planning changes to fundraising projects, and the Board Meeting and the General Meeting of Shareholders will be held according to legal procedures for deliberation and public announcement.

The funds raised for the project were credited into the account in October 2020. After a series of preparatory work in the early stage, the Company started to procure equipment to carry out trial production of the hybrid tower in August 2021. The latest deadline for its completion is August 2023, based on the project construction period of 24 months. After the completion of trial production in the early stage, the Company has repeatedly demonstrated the implementation mode of the project, resulting in the input progress of the project of 6.5% by May 2023. Upon the change of the project, the Company intends to accelerate the project with its own funds and expects to fully complete the project.

(B) Whether necessary project demonstration is carried out and the corresponding review procedures and information disclosure obligations are fulfilled subject to actual situations and according to relevant regulations in the process of project progress;

According to 6.3.9 of the Guidelines for Self-regulation of Listed Companies on Shanghai Stock Exchange No.1 - Standardized Operations: "In case of any of the following circumstances occurring to the investment projects with raised funds, the listed company shall re-demonstrate the feasibility and expected income of such projects and decide whether to continue to implement the same:

(A) Significant changes have taken place in the market environment involved in an investment project with raised funds;

(B) A project invested with raised funds has been put on hold for more than one year;

(C) A project exceeds the completion period of the latest investment plan of raised funds and its investment amount with raised funds does not reach 50% of the relevant planned amount; and

(D) Other abnormal situations occur in the investment projects with raised funds.

The Company shall disclose the project progress and the reasons for any abnormalities in its latest periodic report. If it is necessary to adjust an investment plan with raised funds, the adjusted investment plan with raised funds shall also be disclosed."

According to 6.3.24 of the Guidelines for Self-regulation of Listed Companies on Shanghai Stock Exchange No.1 - Standardized Operations: "If a fundraising project has not been completed beyond the original completion deadline and plans to postpone its implementation, the listed company shall timely disclose the specific reasons for the failure to complete on schedule, explain the current deposit and accounting of the raised funds, whether there are any circumstances affecting the normal use plan of the raised funds, the estimated completion time, relevant measures to ensure the timely completion after the extension, etc., and fulfill corresponding decision-making procedures for the postponement of the fundraising project."

According to 6.3.25 of the Guidelines for Self-regulation of Listed Companies on Shanghai Stock Exchange No.1 - Standardized Operations: "The board of directors of listed companies shall comprehensively check the progress of fundraising projects every half a year, and issue a 'Special Report on the Deposit and Actual Use of Raised Funds' (hereinafter referred to as the Special Report on Raised Funds) for the deposit and use of raised funds. If there is a difference between the actual investment progress of a fundraising project and the investment plan, the involved companies shall explain the specific reasons in the Special Report on Raised Funds."

Every half a year based on the actual progress of the fundraising project, the General Manager's Office of the Company will hold a meeting to discuss construction progress of the projects and revise the completion point of relevant projects; and the Board of Directors of the Company has considered and passed relevant resolutions on the deposit and use of raised funds, and meanwhile disclosed the Special Report on Raised Funds for each half a year in a timely manner. Among them, the Special Report on Raised Funds discloses key information such as the actual use of the funds, the progress at the end of the reporting period and the completion time.

1. MySE10MW Offshore Wind Power Complete Machine and Key Component Development Project

For the MySE10MW Offshore Wind Power Complete Machine and Key Component Development Project, it started in August 2021, and the latest deadline for its completion is August 2024, based on the project construction period of 36 months. Up to now, the project is in the middle to late stage of implementation and is expected to be fully completed by the end of 2023, which is not significantly different from the original construction plan. Therefore, the project does not fall into the situations mentioned in 6.3.9 of the Guidelines for Self-regulation of Listed Companies on Shanghai Stock Exchange No.1 - Standardized Operations, "A project exceeds the completion period of the latest investment plan of raised funds and its investment amount with raised funds does not reach 50% of the relevant planned amount", as well as its 6.3.24, "A project has not been completed beyond the original completion deadline", and its 6.3.25, "There is a difference between the actual investment progress and the investment plan".

During the committed construction cycle, in order to enhance communication and information disclosure with investors, the Company explained the MySE10MW Offshore Wind Power Complete Machine and Key Component Development Project in "XIV. Notes on Other Major Issues That Have a Significant Impact on Investors' Value Judgments and Investment Decisions" in the Annual Report for 2022 and the "Report on the Deposit and Use of Raised Funds in 2022", as follows: "For the MySE10MW Offshore Wind Power Complete Machine and Key Component Development Project: It is ranked as the first in the world, coming with disruptive technological innovation and being difficult in terms of product structure, new material application and new production technology. The actual research and development cycle is longer than originally planned, but the overall research and development progress is progressing in an orderly manner, and it is currently in the middle and late stage and is expected to be completed before the end of 2023."

2. 10MW Offshore Floating Wind Turbine Design, Research and Development Project

The project started in October 2021, and the latest deadline for its completion is October 2024, based on the project construction period of 36 months. According to the current forecast, the overall construction progress of the project is normal, and it is expected to be completed before October 2024, which is not significantly different from the original construction plan. Therefore, the project does not fall into the situations mentioned in 6.3.9 of the Guidelines for Self-regulation of Listed Companies on Shanghai Stock Exchange No.1 - Standardized Operations, "A project exceeds the completion period of the latest investment plan of raised funds and its investment amount with raised funds does not reach 50% of the relevant planned amount", as well as its 6.3.24, "A project has not been completed beyond the original completion deadline", and its 6.3.25, "There is a difference between the actual investment progress and the investment plan".

3. Shanwei Offshore Engineering Base (Lufeng) Project

The funds raised for this project were received in October 2020. Based on the current project progress, the infrastructure construction of workshops and office buildings and the production equipment procurement have been completed. The research and development of the floating wind turbine project and the 12-15MW offshore wind turbine units have been completed the blade mold development. However, due to high difficulty in the research and development of floating wind turbine projects and 12-15MW offshore wind turbines, the Company took a long time to demonstrate in the early stage, which led the Company to only start the research and development of the floating wind turbine project and 12-15MW offshore wind turbines in October 2022. Based on the 12 months of project construction period, the project has exceeded the original completion period, the Company has postponed to continue the implementation of the project; at the same time, in the Report on the Deposit and Use of Raised Funds in 2022, which was considered by the Board of Directors, the projected completion date of the project was changed from 30 June 2023 to 31 December 2024. The Company intends to convene a project meeting on a regular basis to coordinate all aspects of the Company's project construction resources, so as to ensure that the project can be completed on schedule after the extension.

4. Hybrid Tower Production Base Construction Project

The project started in August 2021, and the latest deadline for its completion is August 2023, based on the project construction period of 24 months.

At the end of 2022, based on reasonable estimates, the Company was unable to complete the construction project within the originally scheduled completion period. Therefore, the Company adjusted the construction plan of the project invested with raised funds, and disclosed in "XIV. Notes on Other Major Issues That Have a Significant Impact on Investors' Value Judgments and Investment Decisions" in the 2022 Annual Report and the "Report on the Deposit and Use of Raised Funds in 2022", as follows:

"For the Hybrid Tower Production Base Construction Project: The main construction content of this project is wind turbine coagulation + tower production base. Because the prefabricated parts of the hybrid tower adopt the international leading split-piece connection structure, the development technology is difficult, the production process is complex and the concrete strength is high, overcoming the time-consuming development of the automation system for the entire process of prefabricated parts. To ensure successful implementation of the project, the Company carried out trial production in Hebei, Henan and other regions near the wind farm project before the commencement of the production base. Currently, some equipment is transported to Hebei, Henan and other regions for the preliminary trial production of the hybrid tower. Therefore, the overall project progress has been delayed compared with the original plan, but it is progressing in an orderly manner and is expected to be completed before the end of 2023."

Hybrid Tower Production Base Construction Project is mainly used in the areas with large onshore wind shear. Since 2023, Guangdong has made great efforts in its offshore wind power construction, and there is less planning for onshore wind power, so the demand for onshore hybrid towers is relatively limited. In view of large transportation volume of the hybrid tower, it has higher economy within a certain transportation radius from the tower production base. Based on the principle of optimal economy and on the basis of strict demonstration, the management of the Company plans to adopt the double combination mode of self-produced hybrid tower + OEM hybrid tower: for the areas where the orders of hybrid tower are concentrated, a hybrid tower production base will be set up nearby and the mode of self-produced hybrid tower for hybrid tower production will be adopted; while for the areas where orders are scattered, cooperative units will be searched nearby, and the mode of OEM hybrid towers will be adopted for hybrid tower production.

In view of the implementation mode of the above hybrid tower project is characterized by OEM production and multi-location construction, in order to ensure that the use of raised funds can be easily supervised and to further improve the efficiency of the use of raised funds, the Company plans to use its own funds to further build the Hybrid Tower Production Base Construction Project, and to adjust the use direction of raised funds of the original Hybrid Tower Production Base Construction Project to the power station construction project with high yield and better economy. Currently, the Company is planning changes to fundraising projects, and the Board Meeting and the General Meeting of Shareholders will be held according to legal procedures for deliberation and public announcement.

(C) The impact of slow advance of the fundraising project on the Company's primary business, core competitiveness and future business development, and the relevant risks;

All previous fundraising plans of the Company have been demonstrated in detail by the Board of Directors, and feasibility analysis reports have been prepared for all fundraising projects, which have been considered by the Board of Directors and the General Meeting of Shareholders. By the end of 2022, the total amount of funds raised through previous financing was up to RMB10,683.6593 million, with a cumulative total of RMB8,613.8711 million invested, accounting for 80.63% of the total investment. The overall investment progress of the Company's previous fundraising projects is relatively fast, and most of the Company's fundraising projects have been completed on schedule.

Among IPO fundraising projects, Mingyang Wind Turbine Equipment Manufacturing Complete Machine Project in Yangjiang High-tech Zone and Mingyang Wind Turbine Equipment Manufacturing Blade Project in Yangjiang High-tech Zone are mainly aimed at the manufacturing of large offshore wind turbines and blades, complementing the short production capacity of large offshore wind turbines in Guangdong, enriching the product sequence of wind turbines and improving the technical leading degree of offshore wind turbines. According to the "Verification Report on the Deposit and Actual Use of Funds Raised by Ming Yang Smart Energy Group Limited in 2022" issued by Grant Thornton Certified Public Accountants LLP, both of the above two projects have achieved the expected benefits, with a total net profit of RMB847 million in 2022. The IPO fundraising projects, i.e. Jingbian Mingyang Ningtiaoliang Phase II Wind Farm Project and Gongcheng Low Wind Speed Test Wind Farm Project, are both wind farm projects constructed by the Company, which have been completed and through which the Company obtains income on power generation through the operation of such wind farms. According to the "Verification Report on the Deposit and Actual Use of Funds Raised by Ming Yang Smart Energy Group Limited in 2022" issued by Grant Thornton Certified Public Accountants LLP, both of the above two projects have achieved the expected benefits, with a total net profit of RMB78.3746 million in 2022.

Among the convertible bond fundraising projects, Mingyang 100MW Wind Power Project in Xilinhot, 50MW Wind Power Heating Project of Mingyang Wind Power Co., Ltd. in Xilinhot and Mingyang 50MW Wind Power Heating Project at Jiucaizhuang, Qingshuihe County have all been completed. The Company has obtained excess returns by transferring the above projects, and the total profit realized through transfer is RMB508.3956 million, creating higher profits for the Company.

Among the non-public fundraising projects in 2020, Beijing Jieyuan Donggouhe Phase I (50MW) Wind Power Project in Shan County, Heze, Shandong, Pingle Baimei Wind Farm Project, Mingyang Xin County Qilongshan Wind Power Project, Xin County Hongliu 100MW Wind Power Project and Beijing Jieyuan Qingtongxia Xiakou Wind Power Project are all wind farm projects built by the Company in different regions, all of which have been completed. Depending on the circumstances of each project, the Company chooses to self-sustain some projects and operate to obtain income on power generation, and to sell some projects. For Beijing Jieyuan Donggouhe Phase I (50MW) Wind Power Project in Shan County, Heze, Shandong and Pingle Baimei Wind Farm Project: The Company obtains income on power generation through the operation of such wind farms. According to the "Verification Report on the Deposit and Actual Use of Funds Raised by Ming Yang Smart Energy Group Limited in 2022" issued by Grant Thornton Certified Public Accountants LLP, both of the above two projects have achieved the expected benefits, with a total net profit of RMB43.0136 million in 2022. For Mingyang Xin County Qilongshan Wind Power Project, Xin County Hongliu 100MW Wind Power Project and Beijing Jieyuan Qingtongxia Xiakou Wind Power Project: The Company has obtained excess returns by transferring the above projects, and the total profit realized through transfer is RMB430.8653 million, creating higher profits for the Company. Mingyang Smart Offshore Wind Power Industrial Park of Shanwei Offshore Engineering Base (Lufeng) Project is still under construction, but the first phase of the project has achieved a net profit of RMB145.2032 million, and it is expected that the benefits will be better after its construction in the future.

The construction duration and benefit realization of the Company's previous financing and fundraising projects are as follows:

Financing Project	Investment Project Based on Raised Funds	Total Investment	Progress of Capital Investment As at the end of May 2023 (%)	Benefits Realized	Whether Expected Benefits Are Achieved
IPO	Mingyang Wind Turbine Equipment Manufacturing Complete Machine Project in Yangjiang High-tech Zone	48,538.09	80.71%	84,669.88	Yes
	Mingyang Wind Turbine Equipment Manufacturing Blade Project in Yangjiang High-tech Zone	20,000.00	100.00%
	Jingbian Mingyang Ningtiaoliang Phase II Wind Farm Project	35,000.00	100.00%	5,665.99	Yes
	Gongcheng Low Wind Speed Test Wind Farm Project	20,000.00	100.00%	2,171.47	Yes
Convertible bonds	Mingyang 100MW Wind Power Project in Xilinhot	65,395.25	100.00%	The project has been transferred, achieving a total profit of RMB343.316 million	Yes
	50MW Wind Power Heating Project of Mingyang Wind Power Co., Ltd. in Xilinhot	31,962.15	100.00%	The project has been transferred, achieving a total profit of RMB119.2248 million	Yes
	Mingyang 50MW Wind Power Heating Project at Jiucaizhuang, Qingshuihe County	25,364.71	100.00%	The project has been transferred, achieving a total profit of RMB45.8547 million	Yes
	MySE10MW Offshore Wind Power Complete Machine and Key Component Development Project	16,579.90	30.49%	-	Not applicable
	Supplementary working capital (convertible bonds)	29,000.00	100.00%	-	Not applicable
Non-public in 2020	10MW Offshore Floating Wind Turbine Design, Research and Development Project	61,595.00	21.85%	-	Not applicable
	Mingyang Smart Offshore Wind Power Industrial Park of Shanwei Offshore Engineering Base (Lufeng) Project	149,951.41	38.52%	Part of workshops of the project have been completed, with a net profit of RMB145.2032 million in 2022.	Not applicable
	Beijing Jieyuan Donggouhe Phase I (50MW) Wind Power Project in Shan County, Heze, Shandong	7,065.53	100.00%	2,614.96	Yes
	Pingle Baimei Wind Farm Project	38,983.98	100.00%	1,686.40	Yes
	Mingyang Xin County Qilongshan Wind Power Project	32,868.31	100.00%	The project has been transferred, achieving a total profit of RMB94.6038 million	Yes
	Xin County Hongliu 100MW Wind Power Project	60,184.88	100.00%	The project has been transferred, achieving a total profit of RMB261.201 million	Yes
	Beijing Jieyuan Qingtongxia Xiakou Wind Power Project	56,278.15	100.00%	The project has been transferred, achieving a total profit of RMB75.0604 million	Yes
	Hybrid Tower Production Base Construction Project	39,704.91	6.50%	-	Not applicable
	Repayment of bank loans	130,572.56	100.00%	-	Not applicable
Non-public in 2022	Supplementary working capital (directional private placement)	199,321.11	100.00%	-	Not applicable
Total		1,068,365.00	-		-

Objectively, except for a few projects: 1) due to high technical difficulty and subversive innovation and research and development, the preparatory period is longer than originally planned; and 2) due to strategic factors, the Company arranges the construction time of some projects later, the overall completion degree of the fundraising projects is relatively high, and the Company's previous fundraising projects continue to focus on its primary business, forming a strong synergy with such primary business, actually contributing higher profits to the Company, enhancing the Company's overall profitability and core competitiveness, as well as ensuring sustainability of the Company's future business development.

The details of the previous fundraising projects that have not been completed by the Company and their impact on the Company are as follows:

Financing Project	Fundraising Project	Project Implementation	Impact of Slow Advance of the Fundraising Projects on the Company's Primary Business, Core Competitiveness and Future Business Development
Convertible bonds	MySE10MW Offshore Wind Power Complete Machine and Key Component Development Project	The project started in August 2021, and the latest deadline for Item its completion is August 2024, based on the project construction period of 36 months. Up to now, the project is in the middle to late stage and is expected to be fully completed by the end of 2023, which is not significantly different from the original construction plan.	Not applicable
Non-public in 2020	10MW Offshore Floating Wind Turbine Design, Research and Development Project	The project started in October 2021, and the latest deadline for its completion is October 2024, based on the project construction period of 36 months. According to the current forecast, the overall construction progress of the project is normal, and it is expected to be completed before October 2024, which is not significantly different from the original construction plan.	Not applicable
	Mingyang Smart Offshore Wind Power Industrial Park of Shanwei Offshore Engineering Base (Lufeng) Project	The project has completed the construction of office buildings, dormitories and workshops. Due to high difficulty in the research and development of Phase II floating wind turbine and 12-15MW offshore wind turbines, the Company took a long time to demonstrate in the early stage, which led to the Company to start the construction of the second phase until October 2022. Currently, it is progressing smoothly. The first prototype production is planned to be completed in October 2023, and the prototype testing and project conclusion will be completed in June 2024, which has no significant difference from the revised construction plan.	Since the research and development of floating wind turbines and 12-15MW offshore wind turbines falls into the frontier fields of the industry, the slow advance of the second phase of the project may lead to slow development, promotion and mass production in new products of floating wind turbines and 12-15MW offshore wind turbines, which will thus affect the upgrade and innovation of the Company's product structure. However up to now, the Company's wind turbine technology is still at a leading level in the industry, and most companies in the industry have not made leapfrog progress in the involved contents. But the slow progress of this project will not have a significant adverse impact on the Company's primary business, core competitiveness and future business development.
	Hybrid Tower Production Base Construction Project	Due to proposed changes to the project implementation mode, the Company plans to contribute its own funds to build the project in the future. And currently, the Company is planning to raise funds for project changes.	Not applicable

Up to now, progress has been made in the previous fundraising projects that the Company has not yet completed, which would have a positive impact on the Company's future business development and lay a foundation for achieving long-term strategic development goals.

The risks related to the fundraising projects are stated as follows:

(1) The risk that the construction progress of the previous fundraising projects does not meet expectations

The previous fundraising projects were made by the Company after market research and careful demonstration, and specific plans and arrangements were made in terms of manpower and funds to ensure simultaneous construction of such projects. However, when the Company cannot keep up with project construction requirements in terms of personnel, technology, funds, etc. due to unexpected factors during the process of such fundraising projects, part of the above projects may not be completed as planned, thus adversely affecting the realization of expected benefits.

(2) The risk that the expected benefits of the fundraising projects cannot be realized

The Company's previous fundraising projects are closely related to its development strategy, and are finally determined after detailed market research and feasibility demonstration, in combination with its actual operating situations and technical conditions. Although the Company has prudently demonstrated that such fundraising projects conform to its actual development plan, there are still various uncertain factors in the implementation process, which may affect the completion progress and economic benefits of such projects, and lead to the risk that the expected benefits fail to be achieved.

II. Reply from the sponsor

(A) Verification procedures

1. Refer to and obtain preliminary feasibility study reports about the Company's fundraising projects;

2. Refer to and obtain reports on the use of raised funds, as well as ledgers and statements of raised funds;

3. Refer to the explanatory documents issued by the Company on the implementation of various fundraising projects; and

4. Refer to relevant decision-making procedures of the reports of the General Manager's Office Meeting and the Board of Directors on the previous raised investment projects and the use of raised funds.

(B) Verification opinions

1. Some previous fundraising projects of the Company have not been completed, mainly including MySE10MW Offshore Wind Power Complete Machine and Key Component Development Project, 10MW Offshore Floating Wind Turbine Design, Research and Development Project, Mingyang Smart Offshore Wind Power Industrial Park of Shanwei Offshore Engineering Base (Lufeng) Project and Hybrid Tower Production Base Construction Project, all of which have not been completed because of reasonable reasons.

Up to now, the above projects are progressing smoothly. Among them, the actual construction progress of MySE10MW Offshore Wind Power Complete Machine and Key Component Development Project, and 10MW Offshore Floating Wind Turbine Design, Research and Development Project is not significantly different from the original construction plan; and due to late start of the research and development of floating wind turbines and 12-15MW offshore wind turbines for Shanwei Offshore Engineering Base (Lufeng) Project, the Company postponed the construction, but there is no significant difference between the actual construction progress and the changed construction plan; due to the proposed change in the project implementation mode, the Company plans to use its own funds to construct Hybrid Tower Production Base Construction Project in the future, and the Company is planning for the change of the fund-raising project.

2. In the project progress, every half a year based on the actual progress of the fundraising project, the General Manager's Office of the Company will hold a meeting to discuss construction progress of the projects and revise the completion point of relevant projects; and the Board of Directors of the Company has considered and passed relevant resolutions on the deposit and use of raised funds, and meanwhile disclosed the Special Report on Raised Funds in a timely manner. Among them, the Special Report on Raised Funds discloses key information such as the actual use of the funds, the progress at the end of the reporting period and the completion time.

3. On the whole, the overall completion degree of the Company's fundraising projects is relatively high. The Company's previous fundraising projects continue to focus on its primary business, forming a strong synergy with such primary business, contributing higher profits to the Company, enhancing the Company's overall profitability and core competitiveness, as well as ensuring sustainability of the Company's future business development. The fact that some of the Company's fundraising projects have not been completed is not expected to have a significant adverse impact on the Company's primary business, core competitiveness and future business development.

Issue 5 in the Work Letter: About operating cash flow. According to the Annual Report, the net cash flow generated by the Company's operating activities during the Reporting Period was RMB-796 million, down significantly from the previous year's RMB5,358 million, but turned from positive to negative year-on-year. In addition, the net cash flow generated from the Company's operating activities from the first quarter to the fourth quarter was RMB-4,061 million, RMB1,646 million, RMB-2,805 million and RMB4,424 million, respectively, with wide fluctuations from quarter to quarter. The Company is requested to: (1) explain the reasons for and rationality of large fluctuations in net operating cash flows in each quarter and whether the Company's payment collections show seasonal characteristics in combination with the purchase and sales mode, settlement method, payment collection policy, etc.; and (2) further explain the reasons for sharp drop in net operating cash flows and for turning from positive to negative in combination with the situations of comparable companies in the same industry. The annual audit accountant is expected to give his opinions.

I. Reply from the Company

(A) Explain the reasons for and rationality of large fluctuations in net operating cash flows in each quarter and whether the Company's payment collections show seasonal characteristics in combination with the purchase and sales mode, settlement method, payment collection policy, etc.;

1. The purchase and sales mode as well as settlement and payment policy adopted by the Company are as follows:

(1) The sales mode is basically consistent with comparable companies in the same industry. The Company adopts the direct selling mode to sell wind turbines, and most of its customers are state-owned and local large-scale power generation groups that have the qualifications for wind farm investment and construction. Due to different climates, regions and grid access conditions of wind farm projects scattered in different places, wind turbines need to satisfy different technical and quality requirements and commercial terms, and power generation enterprises generally purchase wind turbines through public bidding. As a result, the Company mainly obtains sales orders through public bidding, and directly concludes wind turbine sales contracts with power generation enterprises.

(2) The procurement mode is basically the same as that of comparable companies in the industry. Main products of the Company are complete sets of large-scale wind turbine equipment that follow the procurement mode of "procurement based on production", through which mode it can procure supporting parts and related raw materials based on production needs. Except for the blades and other parts produced by the Company, the procurement of supporting parts for manufacturing wind turbines mainly follows the method of specialization and cooperation, during which the supplier produces them according to the technical standards provided by the Company, and the Company monitors the quality.

(3) The sales payment collection policy is basically the same as that of comparable companies in the industry, mainly showing that the owner makes clear the payment method when bidding, and all wind turbine manufacturers must respond accordingly. The main terms of sales payment collection of the Company include: 10% for advance payment, 20% for material input payment, 30-40% for arrival payment, 20-30% for pre-acceptance payment and 10% for quality guarantee deposit.

(4) Procurement payment policy of the Company: The main procurement policy for domestic parts is generally to pay 95% fund plus 5% quality guarantee deposit within 3 months after arrival acceptance. And foreign imported parts should be ordered in advance at the beginning of the year according to the estimated consumption of the whole year, and the consumption for 6 months should be locked, with the payment method of 100% prepayment.

2. The main reasons for fluctuations in the net operating cash flow of the Company during the year include:

(1) The net operating cash flow in the first quarter was negative and most significant, which was mainly affected by bad weather in the first quarter of the northern China; and the owners of northern projects started less in the first quarter, which led to the decrease in delivery and collection of the Company in the first quarter and the decrease in operating cash flow inflow. However, in terms of operating cash outflow, with a view to meeting delivery demands in time, the Company continued to procure, stocked up in advance and paid more for procured materials.

(2) The payment collection of the Company is generally low at the beginning of the year but relatively good at the middle and end of the year; and the payment collection is mainly related to the Company's collection efforts and the state-owned enterprises' fund settlement in the middle and end of the year, so the cash flow in the industry generally fluctuates to a certain extent during the year.

Based on all of the above, the Company's net operating cash flow fluctuates to some extent in each quarter, basically conforming to the quarterly characteristics of the industry.

(B) Further explain the reasons for sharp drop in net operating cash flows and for turning from positive to negative in combination with the situations of comparable companies in the same industry;

1. In 2022, the net operating cash flow of the Company was RMB-796 million, mainly due to the following reasons:

(1) As 2020 and 2021 were the onshore rushing period and the offshore rushing period, respectively, customers had a stronger willingness to pay in order to lock in the supply to guarantee project construction period in advance. The proportions of project advance payment and material input payment had greatly increased, and part of the payment for the delivery project in 2022 had been recovered in advance, resulting in higher operating cash inflow in 2020 and 2021 than that in 2022.

(2) After the rushing period, the customer's payment rhythm of arrival payment and pre-acceptance payment for projects delivered by customers in 2022 decreased obviously. In the meantime, the payment terms of new project contracts were more stringent, and the proportions of prepayment, material input payment and arrival payment have decreased compared to the same period last year, resulting in a decrease in operating cash inflow in 2022.

(3) The payment nodes for wind turbine products stipulated in the contract were related to the progress of wind turbine projects. Due to high construction difficulty, long construction period, etc. of offshore wind turbine products, the sales and payment collection period for offshore projects was longer than that for onshore projects. And due to the influence of the construction window period of offshore projects in the fourth quarter, the arrival payment and the acceptance payment failed to be recovered in time, resulting in a decrease in operating cash inflow in 2022.

(4) Due to further expansion of production scale, the Company's demands for raw material increased; and in the meantime, the Company made moderate concessions in payment method during the business negotiation of reducing supply chain costs, the proportion of cash payment for material procurement increased and the cash payment for material procurement increased as well, resulting in an increase in operating cash outflow in 2022.

Based on all of the above, the cash received from selling goods and rendering labor services in 2022 decreased by RMB1,125 million compared over the same period last year, and the cash paid for procuring commodities and receiving labor services increased by RMB4,531 million compared over the same period last year, which led to a significant decline in the net operating cash flow of the Company and a turn from positive to negative.

2. Comparison with the same industry

Compared with these enterprises in the same industry, the operating cash flows of Goldwind Technology and Windey Shares were negative in the first three quarters and turned positive in the fourth quarter. On the whole, the volatility of peer companies was basically consistent with the seasonal characteristics of the operating cash flow of the Company.

The comparison of operating cash flows of companies in the same industry is as follows:

Unit: RMB Hundred Million

Company Name	Total in 2021	1st Quarter in 2022	2nd Quarter in 2022	3rd Quarter in 2022	4th Quarter in 2022	Total in 2022	1st Quarter in 2023
Ming Yang Smart Energy	53.98	-40.61	16.46	-28.05	44.24	-7.96	-17.64
Goldwind Technology	48.87	-37.47	-0.8	-11.92	109.01	58.81	-75.37
Windey Shares	22.98	-10.91	-9.58	-11.21	33.63	1.93	-18.02

II. Reply from the accountant

(A) Verification procedures

We have designed and implemented relevant procedures in accordance with the requirements of the Auditing Standards for Chinese Certified Public Accountants. The main procedures we have implemented targeted at the above problems include:

1. Understand, evaluate and test the effectiveness of internal control design and operation related to the sales collections and purchase payments of Ming Yang Smart Energy;

2. Understand the sales and procurement models of the Company, and check relevant contracts, settlement methods as well as actual sales collections and procurement payments;

3. Obtain the drafts of cash flow statement in each quarter, check their accuracy, as well as analyze and compare the cross-checking relationship between cash flow statement items and balance sheet and income statement items; and

4. Implement analytical procedures for two-period changes in net operating cash flows.

(B) Opinions of the accountant

Based on the audit procedures we implemented, we believe that the above explanations related to the operating cash flow of the Company are consistent with the information we obtained and understood during the audit of Ming Yang Smart Energy in 2022, and the relevant changes in the Company's operating cash flow are in line with the actual situations.

Issue 6 in the Work Letter: About general and administrative expenses. During the Reporting Period, the Company incurred general and administrative expenses of RMB825 million, up 22.7% year-on-year, among which the employee compensation was RMB435 million, up 56.47% year-on-year. Please explain the reasons for and rationality of substantial increase in the employee compensation among the general and administrative expenses in combination with the changes in the number of relevant personnel and the salary level during the Reporting Period. The annual audit accountant is expected to give his opinions.

I. Reply from the Company

The main reasons for substantial increase in employee compensation among general and administrative expenses of the Company in 2022 are as follows:

1. Due to the expansion of the Company's wind power manufacturing industry, the addition of heterogeneous photovoltaic, storage and hydrogen energy industries, as well as the increase in power station operation and maintenance engineering projects, the number of employees who got paid under the general and administrative expenses increased by 575. As a result of the increase in personnel, the employee compensation who got paid under the general and administrative expenses in 2022 increased by RMB95.5595 million compared over the same period last year. The increase in main personnel is as follows:

Business Sector	Number of People Increased
Wind power manufacturing	456
Heterogeneous photovoltaic industry	46
Storage energy and hydrogen energy	37
Power station development, operation and maintenance management	24
Headquarters functions	12
Total	575

(1) The number of employees in the wind power manufacturing industry increased by 456.

① The Company has strengthened the construction of its operational management system, supplier management, and the production of new bases. And meanwhile it has added 208 personnel for customer demand and plan management, operation management, scheduling, procurement management, logistics management, warehousing management, terminal management, financial management, personnel administration and logistics support.

 ② The Company has strengthened its quality system management and increased production capacity, resulting in an increase of 199 quality management personnel.

 ③ Due to the gradual commissioning of hybrid towers and floating foundations, and the expansion of gearbox production capacity, the Company has increased 49 functional personnel for operation management, quality, safety and technology.

(2) 83 new employees have been increased for heterogeneous photovoltaic, storage and hydrogen energy industries.

Heterogeneous photovoltaic, storage and hydrogen energy are all new business forms cultivated by the Company. In 2022, the photovoltaic company was put into operation, and the business in the storage and hydrogen energy industries gradually developed. Relevant personnel were enriched in the corresponding industry's supply chain development, procurement and material control, operation management, financial management, administrative and logistics functions, etc., resulting in an increase in the number of employees.

(3) The number of employees for power station development, operation and operation and maintenance management increased by 24.

By the end of 2022, the scale of operating power stations was 1502MW, a year-on-year increase of 25.90%. In 2022, the scale of power stations under construction was 2152MW, up 19.76% year-on-year; and in the meantime, with a view to strengthening the development of new energy power station resources, the number of new energy power station resource developers has been appropriately increased, so the number of employees has increased accordingly.

(4) The number of employees for functional departments in the headquarters increased by 12.

In summary, the increase in the number of employees in the Company has its business background and rationality.

2. Social security premium and provident fund increased by RMB24.9223 million in 2022 compared with the same period last year due to the increase in personnel, the rise in payment base and the social security reduction and exemption during the pandemic in 2021.

3. Considering the impact of inflation and combining with the annual performance appraisal, the Company made an appropriate salary adjustment to outstanding employees, making their salary increased by RMB6.4854 million in total, with a comprehensive salary adjustment ratio of about 4%.

4. Other factors comprehensively affected the salary increase by RMB27.651 million.

To sum up, due to the all-round development of wind, light, storage and hydrogen business format and industrial layout by the Company in 2022, the number of corresponding employees increased by 575, which thus affected the increase of employee compensation in the general and administrative expenses by 56.47% year-on-year, with its changes having a clear business background as well as reasonableness and necessity.

II. Reply from the accountant

(A) Verification procedures

We have designed and implemented relevant procedures in accordance with the requirements of the Auditing Standards for Chinese Certified Public Accountants. The main procedures we have implemented targeted at the above problems include:

1. Understand, evaluate and test the effectiveness of internal control design and operation related to the general and administrative expenses of Ming Yang Smart Energy;

2. Check the increase in the number of management personnel in the Company's new manufacturing bases, new power station development, new photovoltaic business segments, etc., and analyze the matching and reasonableness of the new business segments and personnel requirements;

3. Conduct spot checks on recruitment records, labor contracts, company rosters, attendance records, payroll, personal income tax payments and other information about newly added management personnel to verify their authenticity; and

4. Implement analytical procedures for compensation to management personnel, and analyze the reasons and rationality of changes.

(B) Opinions of the accountant

Based on the audit procedures we implemented, we believe that the above explanations related to general and administrative expenses of the Company are consistent with the information we obtained and understood during the audit of Ming Yang Smart Energy in 2022, and the changes related to employee compensation under the general and administrative expenses of the Company are in line with the actual situations.

Ming Yang Smart Energy Group Limited

12 July, 2023

 

END