Ladies and gentlemen, thank you for standing by, and welcome to the Hollysys Automation Technologies' Fiscal Year 2013 Second Quarter Ended December 31, 2012 Earnings Conference Call. [Operator Instructions]. Please be advised that this conference is being recorded today, February 19, 2013. I would now like to hand the conference over to Ms. Jennifer Zhang, the Investor Relations Director of Hollysys Automation Technologies. Thank you. Please go ahead, Ms. Zhang.

Hello, everyone, and thank you for joining us. Today our speakers will be Dr. Changli Wang, CEO and Chairman of Hollysys Automation Technologies; Ms. Herriet Qu, CFO of Hollysys; and myself, the IR Director of Hollysys. On this call Dr. Wang will provide a general overview of our business, including some highlights for the quarter, and Ms. Qu will discuss our performance from a financial perspective and financial outlook for fiscal year 2013. Both Dr. Wang and Ms. Qu will answer questions after their remarks. Before we get started, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts, including statements relating to the expected growth of Hollysys future product introductions, the mix of products in future periods and future operating results. Such forward-looking statements, based upon the current beliefs and expectations of Hollysys' management, are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the statements: business conditions in China and in Southeast Asia; continued compliance with government regulations; legislation or regulatory environments, requirements or changes adversely affecting the businesses in which Hollysys is engaged; cessation or changes in government incentive programs: potential trade barriers affecting international expansion; fluctuations in customer demand; management of rapid growth and transitions to new markets; intensity of competition from or introduction of new and superior products by other providers for automation and control system technology; timing, approval and market acceptance of new product introductions; general economic conditions; geopolitical events and regulatory changes, as well as other relevant risks detailed in Hollysys' filings with the Securities and Exchange Commission. The information set forth herein should be read in light of such risks. Hollysys does not assume any obligation to update the information contained in this press release or its filings. Please note that all amounts noted in this conference call will be in US dollars unless otherwise noted. And now I'd like to turn the call over to Dr. Changli Wang. Please go ahead, Dr. Wang.

Thank you, Jennifer, and greetings to everyone. We continue to report another quarter with solid financial and operational performance, but we are not satisfied with overall results achieved amid the unfavorable external environment. We have to say we underestimated the impact that the downturn of the macro economy brought to our businesses, including both industrial automation and the rail transportation. The restart of high-speed rail construction is slower than we expected. And more importantly, we underestimated the impact it brought to low and middle-end markets of industrial automation. So in January of this new year, we conducted a thorough introspection deeply across various levels of management and the execution team and we adjusted our strategies. Firstly, we will continue to intensify marketing efforts in the industrial automation field, expand our sales and service network across China, and enhance our market position in the low and middle-end of the industrial automation market. Secondly, we will organize professional teams to penetrate and occupy the high-end market. And thirdly, we will actively work on new business opportunities and boost these businesses' growth. All in all, we believe that we did not make our full efforts and achieve satisfactory results in the past half year. In this calendar year we will spare no efforts to achieve our originally set targets with all that we can do. What's more, the recovery of China's economy in 2013 will further support our growth, incorporating with our own efforts. Here I would like to take this opportunity to discuss some key events that took place during this quarter. Industrial automation continued its solid growth and performed as the largest growth driver for the whole group. During this quarter, we further segmented the process industries into chemical, petro-chemical, thermal power, as well as metallurgy, new energies, et cetera. We found more automation application opportunities and made several significant breakthroughs in penetrating to the high end of several industries. Also, we released several advanced technologies such as our fifth generation Distributed Control System, Safety Instrumentation System, which we believe will further complete our total solution offerings and bring us significant revenue contribution. Moreover, we believe that the intention to reduce labor cost and energy consumption, protect the environment, improve safety, and increase output with higher quality will be a major trend and bring us tremendous business opportunities. With our solid research and development capability, profound industrial knowledge, renowned brand name recognition and successful track record, we are more than confident that we will continue to drive our industrial automation growth to a higher level and create value for our customers. In the rail sector, even though the restarted pace of high-speed rail construction is not yet as fast as expected, the momentum is on the upward trend. As one of the major high-speed rail signal system providers in China, Hollysys is well-prepared for more meaningful and significant contract awards and systems providing. In this quarter, we signed a contract to provide Line-side Electronic Unit and Balise to the Chongqing-Lichuan high-speed rail line in October. In addition, we are encouraged by the contract win of approximately RMB67.6 million or USD10.75 million, to supply our ground-based signaling system to the Xiamen-Shenzhen high-speed rail line, Guangdong Section in December. Given that the Ministry of Railways of China plans to beef up investment in railway infrastructure construction as compared to last year, we are confident that with our strong research and development capability and a well-reputed track record, Hollysys will capture its fair share in China's vast high-speed rail build-out. We are also well on track in completing the development of our proprietary subway signal system and have currently reached the last phase of certification. We expect that we will soon attain the Safety Integrity Level 4 certification of subway signaling system according to international standards, which will build us to an unparalleled place to further explore China and international subway signaling business opportunities. In this quarter, we are also delighted with the outstanding achievements by our wholly-owned subsidiary, Concord Corporation Pte Ltd. In November last year, Concord signed a contract with SMRT Trains Ltd in Singapore to provide design, electrification and installation for station renovations on the North-South and East-West lines, valued at approximately USD5.59 million. Shortly after this contract, in December the same year, Concord signed a significant contract with Thales Solutions Asia Pte Ltd to provide design, installation, testing and commission for replacing the existing signaling systems for the North-South and the East-West lines and install new signal systems for the Tuas West Extension line in Singapore, valued at approximately USD19.14 million. The two successful records in this quarter further validate the rich experience and knowledge, capability and strong track record of Concord. We believe that it is a good synergy between Hollysys and Concord, which will greatly enhance Hollysys' international presence, and enable us to continuously create value for our shareholders. With that, I would like to turn the call over to Jennifer Zhang who will read the financial results analysis on behalf of the CFO, Ms. Herriet Qu. Okay, Jennifer.

Thank you, Dr. Wang. [In a nutshell], Hollysys financial and operational results for the fiscal year 2013 second quarter ended December 31, 2012, the company reported solid financial results. For the second quarter, total revenues increased by 8.6% to $87.2 million from $80.3 million for the same period last year. Of the total revenues, revenue from integrated contracts increased by 7% to $81.2 million as compared to $75.9 million for the same quarter of the prior year. Revenue from products sales increased by 37.3% to $6 million as compared to $4.4 million for the same period of the prior year. The company's total revenue by segment was as followings. Industrial Automation $53.9 million, Rail Transportation $21.5, Miscellaneous $11.8. As a percentage of total revenues, overall gross margin was 32.1% for the second quarter as compared to 38.5% for the same period last year. The gross margin for the integrated contracts and product sales were 29.8% and 63.8% for the three months ended December 31, 2012, as compared with 36.4% and 73.4% for the same period of the prior year respectively. The gross margin fluctuation was mainly due to the different revenue mix with different margin. For the second quarter, selling expenses were $8.1 million compared to $8.1 million for the same quarter of the prior year, representing a slight increase of 0.3% year over year. As a percentage of total revenues, selling expenses were 9.3% and 10.0% for the three months ended December 31, 2012 and 2011, respectively. General and administrative expenses, excluding non-cash stock-based compensation expense, were $4.1 million for the second quarter, representing a decrease of $3.3 million or 43.9%, as compared to $7.4 million for the same period of the prior year, mainly due to a decrease of $1.7 million of bad debt allowance. As a percentage of total revenues, G&A expenses were 4.8% and 9.2% for the three months ended December 31, 2012 and 2011, respectively. Including the non-cash stock-based compensation costs recorded on a GAAP basis, G&A expenses were $4.7 million and $7.5 million for the three months ended December 31, 2012 and 2011, respectively. Research and development expenses were $8.3 million for the second quarter compared to $6.9 million for the same quarter last year, representing a year-over-year increase of $1.4 million or 21.1%. The increase was mainly due to the company's increased R&D activities. As a percentage of total revenues, R&D expenses were 9.6% and 8.6% for the quarter ended December 31, 2012 and 2011, respectively. The VAT refunds and government subsidies amounted to $7.3 million for three months ended December 31, 2012 as compared to $13.5 million for the same period in the prior year, representing a decrease of $6.2 million. Of the total amount of $13.5 million for the three months ended December 31, 2011, $9.3 million VAT refunds was related to the VAT refund claims made for the sales from January to September 2011 that were approved in the second quarter of the prior year due to the delay in the government's issuance of the renewed VAT refund policy. Excluding this effect, the VAT refunds and government subsidies amounted to $7.3 million and $4.2 million for the quarter ended December 31, 2012 and 2011, respectively. The income tax expenses and the effective tax rate were $2.6 million and 16.8% for the three months ended December 31, 2012, as compared to $1.3 million and 6.2% for the same quarter of the prior year. The lower rate for the second quarter was mainly due to the large sum of VAT refunds recognized, which was a non-taxable income. The non-GAAP net income attributable to Hollysys excluding non-cash stock compensation expenses was $13.6 million or $0.24 per diluted share based on 56 million shares outstanding. This represents a decrease of $6.8 million or 33.4%, over the $20.4 million or $0.37 per share based on 56 million shares outstanding reported in the prior-year period. On a GAAP basis, net income attributable to Hollysys was $13.1 million or $0.23 per diluted share, representing a decrease of $7.2 million or 35.5% over the $20.3 million or $0.36 per diluted share reported in the prior-year period. The decrease of net income is mainly due to lower VAT refunds and government subsidies. Hollysys' backlog as of December 31, 2012 was $359.6 million, representing a decrease of 2.5% compared to $368.7 million as of September 30, 2012, and an increase of 8.3% compared to $332.1 million as of December 31, 2011.The detailed breakdown of the backlog by segment was as followings: Investor Automation $125.4 million, Rail Transportation $206.7 million, Miscellaneous $27.5. The net cash used in operating activities was $2.9 million for the three months ended December 31, 2012. Including investing and financing activities, the total net cash inflows for this quarter was $4.1 million. Of the total net cash inflows, there was a cash inflow of matured time deposits with original maturities over three months amounting to $10 million included in investing activities during this quarter. The total amount of cash and cash equivalents and time deposits with original maturities over three months were $133.5 million, $139.2 million, and $130 million as of December 31, 2012, September 30, 2012, and December 31, 2011, respectively. Of the total $133.5 million as of December 31, 2012, cash and cash equivalents were $125.3 million and time deposits with original maturities over three months were $8.2 million. For the three months ended December 31, 2012, Days Sales Outstanding were 161 days as compared to 150 days year over year and 140 days quarter over quarter. And inventory turnover days was 42 days as compared to 54 days year over year and 43 days quarter over quarter. Given our strong backlog currently on hand and sales pipeline envisioned so far, we reiterate our guidance of fiscal year 2013 with revenue in the range of $385 million to $410 million and non-GAAP net income in the range of $63 million to $67 million unchanged. At this time, we'd like to open up for the Q&A session. Please note that for Chinese-speaking participants, we can also do the Q&A in Mandarin and we will provide translation. CSL: Operator?

We will now begin the question-and-answer session. [Operator Instructions]. And your first question comes from Chapman Deng from JPMorgan. Please ask your question.

Good morning. Thanks. I actually have got two questions here. The first question is, first, previously mentioned that Hollysys is actually gaining market share from overseas competitors. Just my question here is, is this still the case given the slower demand growth in China right now? In addition, given the slower demand growth, do you expect more competition and hence pressure on gross margin for Industrial Automation segment? And lastly, can you [attribute my answer for] your growth outlook for Industrial Automation in FY '13 and '14? That's the first question. The second question is mainly on the gross margin. In second quarter, gross margin continued to trend down from the previous quarter, and you explained that it is mainly because of revenue mix change. Can you remind me the gross margin range for -- of each segment again? And more importantly, on an apple-to-apple basis, do you see margin contraction for each segment? Thank you.

Okay. Thank you, Chapman. For the first question, about Industrial Automation, okay, and just as I mentioned just a few minutes ago that, first of all, we're very disappointed with our results and also I regret that we didn't follow through closely before. But these few months we have been having meetings with all levels of managers and we made a lot of investigation about what happened and why we slowed down, not growth, as fast as before. First of all, we, as I said, we underestimated the market effect because last year the Chinese economy is not growing as before, and also most of here is part of the business affected by the downturn impact towards the lower end. The higher end, especially the state-owned companies made progress as well in the last few years. So during this time, we started the market and also we analyzed our capabilities and especially our products after two years of great investments in the R&D. We are very confident and with a few adjustments in our policies. First of all, as I said, we are strong in being a -- our sales team for the lower end, we still expand the networks in China and also we made a few adjustments for the managers as well this year. Originally, we have eight big divisions to organize and to manage the whole 60 sales teams -- sales teams in China. This year we break the 16 divisions, into 16, so we made -- and made up of most young, dynamic managers to make them more accountable directly to results. So [inaudible] and we will, in the future, we will make bigger progress as well, although the market is -- was not as good as we expected, but we hope and we expect that this year should be better because the government has to change and also the government will put more efforts for the development of the economy. Secondly, originally, we did not pay too much attention on the higher end of the market, and which was directly a result, Chapman, because the higher end originally was mainly occupied by the international players, mainly occupied by the international players. And we have been gaining market share from the lower end these few years and make a lot of progress. But now most of the lower-end market was occupied by the Chinese players and some of the local distributors of their companies -- of their international companies, still some space [inaudible] the higher end was mainly occupied by the international players. So, just last year, Hollysys announced our fifth-generation DCS which is a very big progress in our system level, and we have made a lot of comparisons of other DCS and the international DCS systems. We believe that our new-generation DCS has a lot of advantages in the competition. And secondly, we released the safety system which is a very big breakthrough in Chinese market, and we got a lot of positive feedback from the markets, and later on, with the combination of these capabilities, we are sure we are more competent in the higher-end markets as well. And also in the last few years, we have made a lot of demonstrations of our capabilities in the rail field. For example, as I mentioned before, in the power plant area, we have done 1,000 megawatts power plants and also there is a big progress in the nuclear markets. The [inaudible] project and the [new] projects now [inaudible] is already in operation and [inaudible] project is prepared to put into operation. So, all our products have been proven very successful in the nuclear markets, in the nuclear power plant markets. So in that case, this will have a very good feedback for the Industrial Automation markets because we use similar systems. And also in the petrochemical areas, last year we have made a few breakthroughs in the petrochemical area. We have done some projects in quite large scale in that area. So with this real demonstration and also on the new system platform and safety systems, we are confident that we again should gain market share definitely more from the international companies. And secondly, before, you know, bidding for larger projects take longer time, so that's why our sales team people usually took more efforts on the lower-end projects because it takes shorter time and also it's much easier to get the projects. That area we have a much higher competitive advantages over the other competitors. But in the higher end, let's say international companies occupy the markets mostly, and also the bidding process is much more complicated than the lower end, and also it takes longer time than the lower end. So, our sales people [usually], they don't pay too much attention to the high-end markets. But this time, this year we'll reorganize the whole team of our operation. We promote -- we dedicate three senior managers to lead three groups of people, professional teams, set up the professional teams dedicated to the high-end markets, and they have their accountable targets. So in this case, we are confident that in the next, from now on, in the next few years, we are gaining more and more in the high-end markets as well, not only the lower end. And thirdly, as I said, we have pushed for attention on the new opportunities. So this, for the industrial, for the business. For the second question, with the competition being intensified because of the market downturn, but definitely last year was not easy for us as well. And although we are not satisfied with the results, but other people have been working very hard. And so far we found that pricing is not a critical competition weapon because the price of the DCS is already quite low, is much lower than before, and the percentage it took in the [OWA] expenditure of the whole project is a very small part of the whole investment of the project. So the customers, they pay more and more attention on the solution level and also on the price -- on the quality and also on the performance of the system. So with our big increase each year of our market share and also with so many projects proven in the field, so in the future we are confident that the competition position of Hollysys will be better and better because it's more and more large projects especially into operation, Hollysys will have a better demonstration in the competition. So, so far, we're still not using price as a major weapon for competition. And as you mentioned that the gross margin of this quarter is lower, much lower compared to the last quarter, but as we mentioned last quarter, last quarter was very high compared with the previous, so that's why we have been advertising to the investors as do not judge Hollysys gross margin, I mean the business level quarter by quarter. If we see yearly level, we will see more smooth figures. So, still, as we say, even though this quarter the [picture] is not satisfied, because a lot of negative effects took place in the last quarter, so -- but still as we see, in the future, our gross margin will remain the same as before, the high-speed rail after these two years, the Ministry of China Rail has done a lot work to -- with safety regulations to guarantee projects, et cetera, et cetera. But we do not see a significant decrease in price pressure on that level. And also on Industrial Automation part, some of the products still have a higher level of margin and some of the products have lower margin, but on overall, we are confident that in the future we still, we can remain -- can maintain that level, about 35, around 35, up and down, level. So that's the two questions for Chapman.

Thank you.

Thank you.

And your next question comes from Saiyi He from Macquarie. Please ask your question.

Hi, good morning. Happy new year. Hello, can you hear me?

Thank you.

Hello?

Hi. Hi.

Hi. Hi, hi. Happy new year, Dr. Wang, Jennifer and Ms. Qu. I have three questions. My first question is about our company's Industrial Automation business. I know you already elaborate on your new strategy. I just want to hear more guidance in terms of your view. I think you're a bit concerned because our Industrial Automation order books started to slow down and decline, and this is going to be the backbone of Hollysys' business in our opinion. So, can you just elaborate, for example, your full solution services, I mean there's a lot of new products actually came out supply at end of last year, calendar year. So when do you expect they will start to hit into the revenue? And also, for the new product development, for the new industries, and you mentioned that you have broken down the sales division from eight to 16. So, are they broke down to implement over the major industry you cover or also under the new industries. Those would be very helpful for us to look at -- to look at the outlook for your Industrial Automation business. My second question is about [inaudible] so you have mentioned about your product received successful feedback. We just want to know, I mean, what is exactly the timeline you're expecting to generate revenue on those products and what's the likely size, how much commitment you're willing to put on this. And my final question is just on your operational side, you think the slight slowdown in the second quarter FY '13 in Industrial Automation business was because of capacity constraints of your field engineers and your service teams? Thanks.

Okay, Saiyi. Happy new year. First question, I already talked a lot in the -- to answer on Chapman, but still elaborate a little more specifically for your question, okay? First of all, we break out service and sales division from eight to 16, is not for new business, it's to fill the lower-end markets, but we put more responsibility on the young, dynamic managers. So we give them more freedom to enlarge their business operations. But we did put three senior managers to set up three professional teams for the specific businesses, industries like, for example, like petrochemical process, like iron and steel industry, and some new industries. So we will have a professional team with a lot of professional engineers to provide the customers with dedicated solutions to improve our competition, and this for the Industrial Automation. And for the new products, you mentioned, that's a very good question, in fact, our fifth-generation DCS has been applied in more than 30 products now, up to now, they are already into operation. And the performance of the system is very good, in fact, is very satisfactory. It's much more stable and also much more convenient for the field installation, et cetera, and adjustments. And so we are preparing to enlarge the percentage of the fifth-generation this year, in this calendar year, and we plan to replace all old systems starting in the next few years with the fifth-generation DCS. So in the calendar year of 2014, we will sell only our fifth-generation DCS, no more previous generations. And for the safety systems, we just announced our launch of the system, and we also hold -- had a very big meeting. We invited a lot of senior engineers and also some of our managers from the related industries. And we have a very positive view on our systems. And this year we will try to sell the system into the fields, and we have made some targets for them. And we hopefully in three years, this product will grow dramatically in the real fields, because the system is -- we've already got a lot of support from our customers because they like the system. The second question, for subway signal systems, we, before, we plan to get the certification at end of 2012. But unfortunately, we underestimated the certification work, because -- it's not one system, it's about five to six systems, five big systems and one small system, to be classified in a short time. So, certification time takes longer than expected. But everything is okay now and we were told, informed that we've already got some of the certifications on the way, and we look at all of them [carefully] in the very near time. And for the when we are going to sell the system, the subway signal system, in fact, we have been preparing for the filing of the system from last year, and after we got certified, we got certification, we'll prepare and also looking some [coverage] opportunities for the system overseas and also in China. And we cannot say at this time when we'll get that breakthrough, because that breakthrough is a big event for Hollysys because that's a new product, that's basically system [inaudible] China rail. Because in China rail, we have a ministry, we have a group of people dedicated for the regulations, and also for the approval of the systems. But out of MOR, for example, [inaudible] systems, there is no official department in China who are qualified, also who are responsible for the approval of this kind of systems. So it's the market, it's the customer who will be responsible for the decision-making. So we cannot say at this time who will be that customer to do that kind of work, to be -- I mean, to take the opportunity to do the projects. So we're still looking, we cannot say, at this time we cannot see which one is appropriate, but we have quite a few targets to do that kind of work. Okay? But --

Dr. Wang, sorry to interrupt you. Dr. Wang, sorry to interrupt you, because based on our company's Hollysys guidance, in FY '13 we should still expect 20% year-on-year revenue growth, and if we're just to look at our Industrial Automation order backlog growth, it has slowed down because of the high base year over year, then the second quarter is almost.

Yeah.

So, do you still expect you will have -- so you're basically expecting in the first half of this calendar year you're seeing more rapid turnover of the Industrial Automation business, so that you have no risk of missing your guidance. Is this what you're planning?

Yeah, okay. We have a lot of meetings this couple of months [inaudible] and we have, not only the Industrial Automation, but even in the high-speed rail, we have some big opportunities as well in fact. We have a few projects in preparation, and if we get them, they will be recognized some revenue as well. So, not only Industrial Automation, because the [inaudible] high-seed rail has been decreased this quarter, this year as well. So they recovered later than we expected. But after this People's Congress [inaudible] we will see some acceleration in this business as well. And also, we have put all our people into full operation to try our best to increase our business both in contract and also in the, I mean in the revenue. So although I know it's quite difficult at this time to see we will keep our targets, but, you know, last year -- I mean last calendar year, since we didn't do [inaudible] we have reduced all the managers' salary. And if we miss the targets, I will reduce my salary. So we'll make -- it's a kind of [stock] promise, we have to do it with Hollysys. So we reduced a lot of their salaries. They decreased their salary automatically themselves. So we have to get the targets. It's our, you know, it's our commitment. But I mean also the market is a big factor as well. So, 2013, we expect better markets than 2012, because 2012 there's too much happening in China [inaudible] so. And for the third question, Saiyi, could you repeat your third question?

Sure. Dr. Wang, it links actually, it links to my third question. My third question is, for this second half financial year, so, first half for the calendar year 2013, do you think you have got enough service and still engineer to actually help you to meet the accelerated targets that you [inaudible]?

That's no problem. We do not have, you know, our people should be prepared for higher business growth.

Even if the implementation in the first six months of this year?

No problem. It's not a problem.

Okay.

Okay, thank you.

Thank you.

And your last question comes from Paul Gong from Citigroup. Please ask your question.

Hi, Dr. Wang; hi, Jennifer; hi, Herriet. Basically I just have two questions. The first question is regarding the Industrial Automation, and since you have launched several new products including the fifth-generation DCS and SIS system a couple of months ago, but it seems that during first two quarters, the new orders of Industrial Automation wasn't that optimistic. Given the product itself is running very well, do you think it was the wrong timing with these new products at that time? And on the other hand, I understand the whole industry of the Industrial Automation, new orders may be in some difficult situation during the past few months, but when do you foresee the recovery of the new orders in terms of timing? Is it likely to happen in the first half of calendar year 2013 or second half? Is there [inaudible] profitability you could provide with this guidance? This is my first question. The second question is, I think in last conference call you have mentioned that you considered dividend policy if there is no obvious M&A target. Could you please just give us a little bit update on how the M&A target [inaudible] and the policy -- the dividend policy planning at this moment? Thank you very much.

Okay. Thank you, Paul. Good question. [inaudible] Industrial Automation concern a lot. So, you know, the main reason for not, I mean grow fast enough for the Industrial Automation, is not because our new system, Paul, but because after two years, so far as I analyzed, personally I see this, after two years of a very high growth, I mean over 40, 35, our team has been -- has become a little bit complacent. They were too confident of themselves' work. So they didn't watch the market closely enough. So when the market turned down a little bit, they're not well-prepared for this. So that's why this year [inaudible] and myself, we took a lot of meetings with every level of managers, and we promoted some, we replaced some and we removed some managers just to make sure that later on they will not make this kind of mistakes again. And also -- so the new system definitely will help us to grow faster in the future, because the -- compared to our old systems, it's much, much better than the old systems. So this one, there's no problem for that. And also we will see that the other mistake we didn't -- I mean didn't realize before is that we didn't put enough professional efforts on the high end of the markets, although we have done a lot of breakthroughs, but they didn't become large-scale business for Hollysys. So this year, this calendar year, we put dedicated professional teams on the high-end markets, different branches. So they have their accountable targets onto themselves. So I'm sure with this kind of arrangement, Hollysys will -- Industrial Automation, we will recover our normal growth rate above 25% to 30% growth in the future. I'm confident of that, very confident. And for the M&A, as I mentioned last time, that by the end of this year, if we cannot find qualified candidates for the M&A, we will pay dividends. And fortunately, we did find one candidate, which is a very good one, but we still, we need to do more investigation on the candidates. But it will be very soon to -- for us to make the decision whether we make the merger and acquisition or not. If we make it, we will announce the results. If we give up, we will announce it next time -- call. Thank you.

Just a follow-up, Paul Gong, I think my question is more regarding on the Industrial Automation regarding the whole market rather than Hollysys [inaudible]. I understand the whole market is on a down-cycle, and do you have any like visibility when do you expect or foresee the market itself will recover? Because [inaudible] recovery in market, you'll find it much easier to resume the growth of new orders and the revenue of Industrial Automation. I [inaudible] execution of the companies, but I just worry on the overall market environment.

Okay. On that side, Paul, you see, our new government, they have stressed a lot on the development of the economy, and also Premier Li Kequiang, the Premier-will-be, Li Kequiang, he mentioned that the new development of economy based on two factors. One is reform and the other is we call urbanization. If China really start this urbanization process, this will create a great market for us, because urbanization, they need a lot of materials. This kind of materials, they are in large the process industry. So expect that -- I mean, after this new People's Congress next month, only a few days left, next month, we will see more clearly when we'll start this new market again -- I mean, the new market [inaudible].

Okay. And also you mentioned you have some good candidates and you need to spend more time to do the due diligence work before you announce -- yeah, yeah. [inaudible] what is the expected size of this acquisition? And is this domestically or from overseas?

Overseas. It's a similar size as we did last year -- last time.

Okay. Thank you very much.

The equity under management. Okay.

Okay. Thank you very much.

Thank you.

And we have one final question from Chapman Deng. Please go ahead.

Hi, thank you. I got two follow-up questions. The first one is actually on the high-speed rail. Actually, do you have any idea of like the new order -- when the new order will come through? Because I think the new order has been delayed for several months. And what's growth outlook for the high-speed rail segment in FY '13 and '14? That's the first question. The second question is actually on the operating cash flow. I noticed that operating cash flow turned into negative in the quarter, and actually, may I know what's the reason behind and actually which segment is dragging down operating cash flow? Thank you.

Okay. I'll answer the first question and the second question will be answered by our -- Ms. Qu, okay?

Thank you.

For the high-speed rail, we have been expecting quite significant contracts win, I mean for a long time. But I mean, because of the management change of the high-speed rail, so there is slowdown. But some of the projects have been pending there for too long, and we expect that that will realized very soon. But how soon, I cannot -- really cannot tell you, Chapman. But definitely it should be done, I mean, we didn't -- a couple of months.

Thank you.

And for the second question, I think Ms. Qu will answer. Okay, Herriet?

(Chinese language spoken)

Okay. The main reason for the operating cash flow is negative is mainly because of especially the high-speed rail business, the cash traction and payment is fluctuation each quarter, it's not equal other quarter.

(Chinese language spoken)

At the end of last quarter we received [inaudible] payment from MOR, so -- but end of last quarter, the operating cash flow was USD29 million.

(Chinese language spoken)

So in this quarter we will [inaudible] payments within this period, so it will turn the operating cash flow to be negative.

(Chinese language spoken)

So we believe in the future we can maintain a growth status of -- performance of operating cash flow.

Okay, thank you, everyone.

Xie-xie.

Thanks. Bye. Okay, thank you, everyone for participating in the call.

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