Q3 2019 Earnings Call
Greetings and welcome to the China Automotive systems third quarter 2019 earnings Conference call. At this time all participants are in a listen only mode. A brief question answer session with all the formal presentation. If anyone should require operator assistance. During the conference. Please press star there on your telephone keypad as Orlando. This conference is being recorded it does.
Now my pleasure to introduce your host Kevin Keith. Thank you Kevin you may begin.
Thank you everyone for joining us today welcome to China Automotive systems 2019 third quarter conference call. Joining us today are Mr. will you well Chief Executive Officer, Mr., Jay Lee Chief Financial Officer of China Automotive systems, they will be available to answer questions later on.
The conference call with the assistance so translation.
Before we begin I remind all listeners that throughout this call we may make statements amazing thing.
<unk> looking statements.
Certain statements represent the company's estimates of assumptions Oh God loved it stayed on this call.
As a result, the company's actual results could differ materially from those contained in these forward looking statements due to factors, including those described under the heading risk factors and the company's Form 10-K annual reports for the year ended December 31, 2018 as filed with the.
Curious in Exchange Commission on March 28, 2019.
And then other documents filed by the company from time to time, what the Securities Exchange Commission.
A company expressly disclaims any duty provide update any forward looking statements made in this call what the result of new information future events or otherwise.
Wonderful I will provide a brief overview in summary financial results well that 2019 per quarter.
Well then to conduct a question answer session.
Oh in 2019 third quarter, a nine months financial results are unaudited and our reported under U.S. GAAP.
For the purposes of our today our call today I will review the financial results in us dollars.
We will begin with review of the recent I know I would tell you ought to imobile industry in China automotive.
Market position.
D.
The growth in the third quarter 2000 lights on grew at 6% South was 6.3% from the second quarter.
Well, 6.4%.
First quarter of 2019.
The decline in China exports accelerated in the September decreased by 3.2%.
Well the nine month in September .
32000 lighting Chinese exports to the U.S. declined by 10.7% from your earlier in dollar terms.
The Chinese government is at the same time, promoting new automotive English and standards to reduce vehicle pollution.
Stricter national six emission standards were implemented on July 1st and sometimes Susan tier one cities to improve air quality.
This is that resulted in a pre buy vehicles before the national implementation.
The real dealers needed to sell their inventory of national five vehicles was a new standard for his nationally mandated.
In addition, nationalistic equals carry a higher retail price to consumers.
As a result of economic headwinds the purchasing managers index P.M.I. I gave the Chinese factory conditions was reported at 49.8, because that's core to September .
And declined to 49.3%.
That's not to 49.3 in October .
Below the 50 level economic growth still has not reached an expansion stage. According to the National Bureau of Statistics <unk>.
Index has stayed below the 50, mark with fixed rate bonds and the Chinese manufacturing activity fell to an eight month low in October 2019.
According to the data.
<unk> by the China Associates to love reveal manufacturers see I am in September 2000, like me the production on sales of passenger cars declined by 7.9% and 6.3% year over year.
Total sales of Chinese branded passenger cars declined by 9.8% year over year.
Represented 37.7% of the total sales a passenger cars they market share decline of 1.5 per cent compared with a year ago.
September the production of sale automobiles in China were down 6.2%, that's like wave 2%.
Your respectively.
I'll, just add production and sales of automobiles in China decreased.
5% and 6.9% year over year, respectively. In July the production and sales of automobiles were 11.9 for sets in four ports that 4.3%.
Respectively below last year same up.
[laughter].
First I must have production sales a passenger vehicles were down 13.1% 11, like 7% year over year.
Compared the same period, a year ago and by vehicle segments production sales of cars were down 12.4% and 12% respectively.
Production sales unless you these experienced a 12.4% 9.3% decline in for Mpvs percentages were down 23% and 22.1% respectively.
For cross passenger cars, the production and sales decreased by 10.1% and 15.1% respectively.
Sales of Chinese brands, the passenger cars were down 18.5% year over year in the first nine months of 2019, the market share of Chinese branded passenger cars decreased 3.3% year over year and had a 38.7% marketshare.
The first nine months of 2019, Chinese auto exports decreased by 8.1% year over year.
For the first nine months.
The production and sales the commercial vehicles declined by 2.1% and 3.4% respectively year over year.
It's actually an alignment.
Sales of our traditional hydraulic.
During products declined by 10% year over year to $82 million third quarter of 2019 this reduction.
Lower vehicle sales and market conditions in the third quarter 2019, as well as the transfer of arc, yes. Because this is the headlong, okay why be joint venture.
Oh electric power steering.
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Sales in the third quarter 2019 were $18.5 million.
11.9% decline compared with a 2018 third quarter.
What percentage of net sales.
Yes, or electronic product sales.
California, 18.4% in the third quarter of two.
2019, which was consistent with the second quarter 2000 unlikely.
I had luxury why be joint venture with Japan Kyi be company limited is a more powerful competitor in the U.P.S., fearing segment in China. It focuses on providing Chinese branded im not a Chinese branded passenger vehicles what that means.
Electronic power steering systems.
Oh, yes products have the potential to generate future exports as well.
Exclusive contract brick wall Motor company to supply, yes system for the new all electric small vehicle.
The model, Oh, or 80, or 150 is one indication of our capability.
Other Oems are evaluating <unk>, yes products for application in their vehicles.
Approximately 75000 units are expected to be shipped in 2018.
This contract.
We continue to believe our joint venture with bias on electric company to produce the best in class small electric automobile automotive moger, well electro mechanical integrated systems will benefit the quality production cost.
These products for our Oh, yes. This.
These products provide another sales channel in the future as we sell them to other vehicle Oh, yes.
We've also recently added another new program, we passed the supplier evaluation, but one of the largest commercial vehicle producers in Europe .
I V C O <unk>.
I.
Go.
S.P.A.
The review arrangement technical review that goes daily.
They have project product procedures production management product quality control and material body report testing workshop quality control aftermarket management procurement inspection and preproduction.
Rectification of verification.
After the evaluation I like awarded C. S. The development right or do you have echoed daily then project.
This new projects differently increases our presence in the European market.
Daily Dan is one of the most iconic large like you'd be commercial dance in the world whatever 3 million units sold in over 110 geographic markets.
What are increasingly sophisticated steering technology.
A global one.
That's them are headquartered in North America has designated that's to be the development of the new we circulating ball.
During system.
Oh, My Gosh RCB program.
This technology and products are intended to be an integral part of their future autonomous vehicles commercial production began in October 2019, with initial projected annual sales approximately 45000 units.
Our export sales to North America of our hydraulic steering products increased by 11.2% year over year.
$33.7 million into third quarter of 2000 in late June we continue to advance our progress let me I RCB program.
Well, new recirculating ball spirit steering systems for the here what customer in North America as.
Autonomous vehicle program.
Hi, Thanks to the changes in our product mix.
Third quarter 2018, gross margin increased to 17.2% for 14.4% then the second quarter 2019, and some 13.72nd or third quarter of 2018 income from operations in third quarter, 2018 increased 155.2% to $4.7 million a third quarter.
2019, compared with $1.8 million in the third quarter 2018.
Net income attributable to parent company's common shareholders increased to 4.2 million or diluted earnings per share of 13 cents compared to net income of zero point $4 million worth deluded earnings per share up one cents in the third quarter of 2018.
As of September Thirtyth, 2018, cash and equivalents and pledged cash or what kind of $2.3 million compared with $89.1 million.
On June 32019 in $124.6 million at December 31, 2018.
During third quarter 2019, we repurchased approximately 96000 common shares in open market transactions, you demonstrate our commitment to building shareholder value.
At the Companys annual General meeting during the third quarter 2019, Dr. Henry Lou Dr., Tom Cruise Tio were elected as being independent members of the board of directors.
We are proud of adding high caliber business and financial veterans with significant China experience to strengthen our board.
Looking forward.
Despite the challenges facing.
Finally, the economy.
We're still pharmacy aspects when the recovery of broken time.
That's what government has initiated a number of policies, including tax cuts you get regulation and monetary listening to stimulate the economy. These measures will slowly have a positive impact on the slow down trend and the Chinese economy.
Furthermore, a recent dynamics on the Chinese U.S. trade negotiations I hope that these restrictive measures will be reversed.
Part Orient fall in the future.
Got it next will develop and reform commission anything else monetary incentive to promote the purchase of autos, especially in rural areas.
I was getting a subsidy for the purchase of newer less bleeding cars with engines of 1.6 leaders were smaller some state owned companies are also adding additional incentives to encourage the purchase of automobiles as the replacement cycle, that's coming for vehicles purchase during the boom years.
2009 2010.
[laughter].
I Love your perspective, we are well positioned to benefit from new growth opportunities across a number of passenger vehicle segments as well as into commercial vehicle market in China.
We look forward to expanding our OEM customers outside of China, as well as including additional tier one vehicle manufacturers.
Our joint ventures are developing a few market position.
In their markets, including bps autonomous nearing an evolving.
Hearing technology.
We remain committed to building, our financial stress strain and generate positive cash flow from operation.
Now, let me review the financial results for the third quarter 2000 label.
Third quarter 2019 net income.
Net sales.
So $100.5 billion compared to $112.1 billion in the same quarter of 2018. The decreased net product sales are primarily due to a change in the product mix and lower domestic sales volume due to softer demand in the Chinese domestic brands automobile market.
Net product sales to North America grew 11.2% $33.7 million compared to $30.3 million same quarter in 2018, the increase in export sales in North America was primarily due to higher sales of the company's more advanced products.
Sales for the company's electric power steering, yes products worry too I know.
$5 million for 18, 24%, let's see.
Gross profit was $17.3 million, a third quarter 2019.
Compared to $15.4 billion in the third quarter 2008, gross margin was 17.2% compared to 13.7 present for the same period of 2018, mainly due to changes in the product.
Don't expenses were 3.6 million Dr. <unk> third quarter 2019, compared to $3.4 million in the third quarter of 2018.
Selling expenses represented 3.6% of that sales in the third quarter like a 2019 compared to 3% since the third quarter of 2018.
General and admin fixed rate is expensive DNA for $4.4 million in the third quarter of 2019 compared to $3.7 million in the same quarter of 2018.
Increase was primarily due to higher professional fees DNA expenses represented 4.4% of net sales in the third quarter 2019, compared with 3.3% in the third quarter of 2018.
Research and development expenses were $6.1 billion is a third quarter 2019 compared to $7 million no third quarter 2018.
R&D expenses represented 6.1 of them that sales no third quarter of 2019.
And that compares with also 6.1 for example, third quarter last year.
The lower R&D expenses were mainly due to more strict cost control over R&D expenditures.
[noise] net financial income with $1.6 million into third quarter 2019, compared to net financial income.
0.8 million in the third quarter 2018.
Which is mainly due to the increase in foreign exchange gain as a result of significant appreciation of the U.S. dollar against the RMB.
Income from operations was $4.3 million third quarter 2018, compared to 1.8 billion bag in the same quarter of 2018.
The increase was mainly due to increased gross profit the higher gross margin.
Income before income taxes and expenses at equity and earnings of affiliated companies was $5.3 million.
Third quarter 2019, compared to $1.8 billion in the third quarter 2018.
The increase in income before income tax expenses in equity in earnings are affiliated companies was mainly due to higher operating income in the third quarter 2019, compared with it seems like a third quarter 2018.
Net income attributable to parent company's common shareholders was $4.2 million <unk> third quarter 2019, compared to net income attributable to parent company common shareholders I.
I'm zero point $4 million <unk> third quarter of 2018.
Diluted earnings per share were 13 cents in the third quarter 2019 compared to diluted earnings per share of once that third quarter 2018.
The weighted average number of diluted common shares outstanding was 31 million was 92.
Oh thousand 35 share in the third quarter 2019, compared to 31 million 645556.
In the nine months.
In.
2000, then huh.
Okay.
That was over nine months financial highlights, let's say also the first time much of 2018 with $315.5 million compared to $371 million.
In the first nine months of 2018.
Nine months gross profit was 40 point $6.5 billion compared to $54 million in the corresponding period last year.
I loved gross margin was 14.8%, Greg Unfortunately, when 5% for the corresponding period in 2018.
Well the nine months ended September 32018 gain on other sales amounted to $4.9 million compared to $3 million with a corresponding period in 2018.
Income from operations, but equally $1 billion compared to $7 million in the first nine months of 2000 then they.
Operating margin was 2.6 cents compared to 1.9% for the corresponding period of 2018.
Net income attributable parent company's common shareholders was $8.2 million compared with $5.5 billion and the corresponding period last year diluted earnings per share with 26 cents on first nine months of 2019 compared to diluted earnings per share of 17 cents per the corresponding period of 2018.
No go some balance sheet items in cash flow incomes.
That's just not September 32019, total cash cash equivalents in pledged cash deposits were $102.3 million.
Total accounts receivable.
Your next including notes receivable for $234.3 million accounts payable, including notes payable were $176.7 million from short term loans were $56 million.
Total parent.
I think stockholders' equity was $304.9 million as of September 32019, compared to $304.8 million, that's up Decemberthirty, one 2000 Nike.
Net cash provided by operating activities was $4.1 million in the first nine months of 2019.
Compared with net cash provided by operating activities of $9 million in the first nine first nine months in 2008.
Payments to acquire property plant and equipment Cluckey $3.6 million.
Hey, with $24.3 million kind of first nine months of 2018.
Approximately 96000 shares of common stock repurchase during the third quarter of 2019, and the company expects to repurchase more shares feature.
Well the business outlook. This management has reiterated its revenue guidance for the full year 2000 $19 million to $430 million.
Just targets based on the company's current views on upgrading the market conditions, which are subject to change.
With that operator, we're now ready.
Again, the queuing it.
Operator, we will now be conducting question answer session. If you would like to ask a question. Please press star one on your telephone keypad a confirmation total indicate your line isn't the question Q you May press Star too if you would like to remove your question from the Q for participants using speaker equipment.
It may be necessary to pick up the handset before pressing the star keys.
And please while we poll for questions.
My first question comes from one of William Gregozeski with Green Bridge kept global. Please proceed with your question.
Hi did you guys say, you're still expecting 75000 units to great wall to be shipped in 2019, and if so how many were shipped through the third quarter.
Doesn't want to place you saw.
Okay cool.
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Oh yeah.
We started yeah, great wall started a year or so is there an ambitious plan for 180000 units during the second quarter. They made.
Some adjustment.
So the new number now for the full year 2019 is 75000 as you mentioned during the third quarter 2019, we ship about over 20000 units.
So we're on track.
Okay.
Uh huh.
Regarding the EPA sales in general you know there, they're still struggling I, obviously, the market as well but.
You're talking about what the customer response has been to the JV units and if you can get to at least what your sales were from U.S. when you're doing it you know on your own several years ago that higher sales public you can get back to that.
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I'll give you the all nine years okay.
You mentioned to harmonize significantly [noise].
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Yeah.
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[laughter] or.
So.
He our NPS product sales to tell the truth is all is sub <unk> is behind is below our expectation as well.
Mainly attributable to two.
Factors one as we all know no the Chinese auto industry, our or the growth how tapering off this year.
And also the domestic supply and.
Domestic Chinese all of them Brian's some market share and.
Themselves shipment.
It's been dot.
In the first nine months.
Well.
As you mentioned earlier great wall.
As one of the example, no. They said they have very ambitious playing the game then.
Beginning the year, then and start to adjust throughout the year. So.
Downward adjustment so all that its affecting all business because a we are the largest provider to the domestic brands in China.
And the second.
The factor is.
We have some competitors are oh aggressively disturbing.
The market by low borrowing the price significant low price and it's all are helping them either because the margin it cannot be too good Oh boy anybody.
This kind of environment.
However, [noise].
As we see the markets that stabilizing.
Are we see some sir.
Yes, our Oh recovering.
And and so all John Oh joint venture Oh, Yes product is that sentence.
Now a regaining momentum and I'm.
Getting some market share back.
There are some none.
Quantitative thought a fact terms all all done if at all we're having our joint venture business.
We've seen.
A noticeable improvement one in Steve.
The operational efficiency or to the.
Japanese partners, Oh, very Oh.
Yes, well managed operation and now we've seen efficiency has been improving.
[noise] significantly and secondly, the quality.
We we now see all part of quality inconsistency arm.
Our way, though for above.
Our previous product, so and so we're well become very.
We'll now even more confident than before.
Well, there's kind of product, but won't take market share.
And grow the business and certainly it is to gross margin or would this new team working with our existing.
Platform now on gross margin has been.
So all of these Pinsight, we are confident you know how we're cautiously optimistic.
In Q4, as well as 2020, Oh, you PS business too.
Regained some we became nickel gross.
Okay Alright.
Last question with all the cash you guys have in the balance sheet, what what plans do you have for that you know in a in the near future.
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Okay.
Pool and to answer your question all the cash.
We have we are on one hand, we are going to continue to.
To buy back shares from open market.
As we mentioned in this quarter with we bought back a significant chunk of shares in a in the third quarter.
And then secondly, we wanted a we are actively I'm looking for.
Good auto related on the bus.
And the opportunities.
Whether components all other technologies, so well we're looking.
Expand and portfolio and also to ER to develop a new gross engine.
Yes.
Okay, so you'd be looking not to just as bad.
Passively as you have with the fund structures.
By something outright.
Top 10 cents Incenting touches the party doesn't influence your concern that you put it just seems very distinct so the new jobs. So either post <unk>, what's the based on the completion judging than two to one or something.
Each on shelf sets, a gentle simple thing through Bloomberg news, you're trying to occur.
Yes, youre right. So it's not passive investment through a investment vehicle anymore. So we're going to be.
Actively looking for specific projects and a technology.
Okay alright, thank you.
Thank you.
Thank you. Our next question comes from line of Robert Polivich <unk>, a private Investor. Please proceed with your question.
Ah yes, good morning.
I was wondering.
What's the status is of the.
New electric motor joint venture, the Archstone Korean or electric motors the start up.
I think initially we had like to target start up of.
Late October .
Thank you okay.
Okay.
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All that together here and that's where I'm looking.
Thanks, Good morning.
Yeah.
Sure.
Our health food.
Can you give <unk> shops, you kind of something.
For the joint venture for electric Motor.
The the a than facility the workshop husband constructed completed the we have or procure they equip equipment and they just arrived from South Korea as being installed.
We are we have done the testing.
So now we are the batch.
All in a small volume production trial production stage right now so.
Everything still on track.
Okay.
You expect.
Actual production.
Oh, meaning to begin.
Maybe like in the first quarter of 2000.
A couple ticket stock, we want a sense, how tickets endomondo since arnie yarn, aarding hardening and a digital.
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Okay.
We will have some shipment and production and shipments during the first quarter, but the mass production will start in April 2020.
Okay.
I was wondering how.
Turning to automotive is doing.
In Brazil these days.
And is there any possibility where they might do.
<unk>.
Expand some manufacturing to two that location.
ER to possibly.
Supply to Mexico, and North America.
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Good day.
Good morning.
Okay.
Oh on Brazil, all production is on track were expanding or production capacity in Brazil.
And also as you may know.
We have a recently.
Sign a major contract was an F.C.A., Brazil, which is a fiat's Chrysler.
HM.
The that's that order book, it's about 300000 units a year, we're pretty excited about it.
We have the relationship was be out Chrysler come a long way all.
The way over 10 years and.
We.
Build a very strong track record with some and it was our top notch quality and engineering capability.
As you.
Or anything in the news the merger.
Between the yacht Chrysler and co Joel, we see ducts, and Oh, great opportunity before us and we being a major supplier killed one supplier to.
F.C.A. Oh, yeah, Chrysler, we Uh huh.
Already positioned ourselves in three.
Different.
Continent and markets.
Started from.
America, Troy, Michigan as Chrysler and then.
We just are not that it contract this year in Italy.
CEOC and then.
This.
Brazil.
So we are you know the Italian contracts, it's gonna start I think a 2020 and the Brazil contracts coming online as well. So all we are very well positioned and within the.
The Chrysler group.
Dan.
And was this merger we believe they give us more access to the prone Joel.
Bottom line.
Well, we're confident we will have the right product and quick quality.
To meet our global came out.
So that means that it will well pretty up a pretty excited about it the opportunities ahead of us.
Okay. Thank you.
Thank you.
Thank you as a reminder, ladies and gentlemen, if he would like to ask a question. Please press star one on your telephone keypad.
One moment, please when we report for questions.
There appear to be no further questions at this time I'd like to turn the floor back over to management for closing remarks.
Well, we thank you for participating today in our conference call. We look forward to speaking to you again.
Have a great day.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.
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