Q1 2021 China Automotive Systems Inc Earnings Call

Greetings and welcome to the China Automotive systems first quarter 2021 conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

And if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Kevin <unk> Investor Relations for China Automotive systems. Thank you you may begin.

Thank you everyone for joining us today welcome to the China Automotive systems 2021 first quarter conference call. Joining us today are Mr. Christopher <unk>, Chief Executive Officer, and Mr. Jay Li Chief Financial Officer of China Automotive systems, They will be available to answer questions. Later on the conference call with the assist.

And Oh translation.

Before we begin I'll remind all listeners that throughout this call. We may make statements may contain forward looking statements forward looking statements represent the company's estimates and assumptions only as the date of this call as a result, the company's actual results could differ materially from those contained and these forward looking statements due to a number of fat.

Including those described under the heading risk factors and.

And the company's form 10-K annual report for the year ended December 31, 2020 as filed with the Securities and Exchange Commission.

And and other documents filed by the company from time to time with the Securities and Exchange Commission.

If the outbreak of COVID-19 is that effectively and timely controlled our business operations and financial condition may be materially and adversely affected as a result of the deteriorating market outlook for automobile sales and the slowdown and the regional and national economic growth, we can liquidity and financial condition of our customers or other factors.

So we cannot foresee and.

And I know these factors and other factors are beyond our control could have an adverse effect on the overall business environment cause uncertainties and the regions, where we conduct business.

As our business to suffer and ways that we cannot predict and materially and adversely impact our business financial condition and results of operations.

A prolonged disruption of any.

Further unforeseen delay in our operating and go to the manufacturing and delivery and assembly process processes within any of our production facility could continue to result in delays and the shipment of products to our customers increased costs and reduced revenue.

The company expressly disclaims any duty to provide updates to any forward looking statements made on this call whether as a result of new information future events or otherwise.

On this call I will provide a brief overview and summary of the first quarter results for the period ended March 31, and Twenty-twenty management will then conduct a question and answer session. The following 2021st quarter financial results are unaudited and are reported using U S GAAP accounting.

For the purposes on our call today I'll review, the financial results and U S dollars.

We will begin with a review of recent dynamics of the Chinese economy, the automobile industry and China Automotives market position.

We are pleased to report that our net sales rose rose, 77% to $133 million from $73 $6 million in the first quarter of 2020.

Sales of our hydraulic products grew by 61, 2% on electric.

Electric power steering products Rose 204, 9% and.

And represented 19% on total sales compared with 11% and the first quarter on each one.

This growth is partially due to the Chinese economy, essentially reaching full recovery from the impact of the COVID-19 pandemic in the fourth quarter of Columbia Club.

And the first quarter of 2021 Chinese G. D tea grew by 18, 3% year over year.

Chinese industrial production grew by 24% year over year and the overall exports and imports each grew by over 30% year over year in the first quarter of 2021.

According to statistics, unless China Association of automobile manufacturers C. A a M automobiles in China.

And I believe your sales and China Rose by 75, 6% year over year in the first quarter of 2021 as passenger vehicle sales grew 75, 1% year over year.

Marshall vehicle sales increased by 77, 3% year over year.

Vehicle sales climbed 280% year over year.

And automobile export sales were up 74, 6% year over year.

The sales of all passenger vehicle segments were higher year over year, and Suvs continue to outsell sedans.

And prove commercial vehicle sales were generated by a combination of the move to the national six emission standards.

Stronger anti overloading enforcement and the initiation of infrastructure project on our projects.

Sales of Chinese national branded vehicles, and the first quarter of 2021 a key market for C. A S increased by 81, 5% year over year and represented 41, 5% of total automobile sales in China.

These growth numbers, partially reflects the comparison to the low sales and the first quarter 2020 generated by the COVID-19 COVID-19 restrictions and China. However, the 2021 and first quarter ended strongly with March automobile sales alone Raj and by 73, 6% quarter to quarter and by 74, 9%.

Year to year.

Our sales to our three main markets the Chinese OEM passenger vehicle market in China.

And these OEM commercial vehicle market and export market, all itchy and growth in the first quarter of 2021.

Each of our operating you, which generated sales growth and profit in the first quarter as well.

So the Chinese passenger vehicle market rebound strongly compared to the same quarter last year.

As previously announced at the end of 2020.

We have begun selling more EPS products into the electric vehicle market is a number of large Oems have begun using our product, including great wall Chery Auto Beijing auto and Yea AC Motors yeah.

The outlook is for approximately 200000 of our E. P. S units to be supplied to the EV market and 2021.

Sales of our commercial vehicle products sales increased in both the Chinese Oems and the North American aftermarket.

Sales to our tier one customers in North America grew by 26 three per cent year over year in the first quarter of 2021.

On a gross profit increased 75, 9% year over year with a stable gross margin.

Operating expenses increased 57, 4% year over year.

This combination resulted in income from operations climbing by 311, 1% year over year compared with the first quarter of 2021, I'm, sorry, with 2020.

For the first quarter of 2021 on net income attributable to parent company's common shareholders was $3 1 million or basic and diluted income per share of 10 cents compared to us a slight net loss and the first quarter of 2020.

With the rate of technology change and the automobile industry rising we increased our research and development investment by 28, 6% year over year in the first quarter of 2021.

We announced a new proprietary E. P. S system during the first quarter, which integrates and communicates with the vehicles and main data to create lane keeping assist.

<unk> parking assist lane centering and traffic jam assist functions as part of the company's advanced driver assistance program, a D. A S or more commonly referred to as our autonomous driving systems.

This system is a company and Chinese automobile industry milestone.

For the first time, a Chinese domestic steering producer drove the entire product development cycle in house from design to testing.

We also developed the key proprietary algorithms for the steering control software.

A number of purchase orders have been received for this advanced steering systems from domestic and foreign Oems such as great wall J, a C chery auto and Fiat Chrysler automobiles.

We will continue to improve our current products as well as introduce other new product and the future to provide advanced products to our customers.

Building financial strength remains a top priority to provide the resources to support future growth and enhance shareholder value, our total cash and cash equivalents and pledged clash cash.

It was $122 million as of March 31, 2021.

Total parent company stockholders equity rose to $304.4 million and March 31, 2021 from $203 $2 million at the end of 2020.

We expect the Chinese economy will continue to grow in 2020 one.

On a slower rate than the $18, 3% experienced and the first quarter of 2021 we.

We have been experiencing greater demand for advanced EPS, and autonomous driving and products and the sale of our advanced hydraulic products continues to expand and both domestic and international markets.

Now, let's review the financial results and the first quarter of 2021.

Net sales increased by 77 per cent to $103 $3 million and the first quarter of 2021 compared to $73 $6 million and the first quarter of 'twenty 'twenty.

The net sales increase was mainly due to the recovery of the Chinese economy, and Chinese automobile demand post COVID-19.

Net sales of traditional steering products and parts increased by 61, 2% $205 $6 million for the first quarter of 2021 compared to $65 $5 million for the same periods in 2020.

Net sales on electric power steering.

Products rose to four.

And four 9% to $24 $7 million from $8 $1 million for the same period and 2020.

EPS product sales were 19% of the total net sales for the first quarter of 2021 compared with 11 per cent for the same period in 2020 export sales rose, 34% to $40 $7 million and the first quarter 2020 one.

Paired with $31 million and the first quarter of 2020.

Gross profit rose by 75, 9% to $19 $7 million compared to $11 $2 million and the first quarter of 2020.

Gross margin and the first quarter of 2021 was $15 one per cent.

And generally consistent with the 15 point too.

2% and the first quarter of 2020.

Gain on other sales was $1.3 million compared to $6 million and the first quarter of 2020.

Selling expenses were $5 $6 million compared to $2 $1 million and the first quarter 2020. This.

This increase in selling and selling expenses was primarily due to higher sales volumes and increased air freight charges.

On expenses represented four three per cent of net sales and the first quarter of 2021 compared to two 9% and the first quarter of 2020.

General and administrative expenses, G&A were $4 $6 million compared to $3 $4 million and the first quarter of 2020. The increase in G&A expense was primarily due to higher personnel costs to support the increase and net sales and G&A expenses represented three 5% on.

Net sales and the first quarter of 'twenty, 'twenty, one compared to $4 $6 million.

I'm, sorry, $4 six per cent for net sales and the first quarter of 2020.

Research and development expenses, R&D or $6 $7 million.

Compared to $5 $2 million in the first quarter of 2020 R&D expenses represented five 1% on net sales and the first quarter of 2021 compared to seven 1% and the first quarter of 2020.

Other income net was $1 $7 million for the first quarter of 2021 compared to point $1 million for the three months ended March 31 2020.

The increase of $1 $6 million was mainly due to government subsidies are $1.4 million received and the first three months of 2021.

Income from operations was $4 $2 million and the first quarter 2021, compared to $1 million and the first quarter of 2020.

This growth was primarily due to a higher year over year increase and sales and gross profit compared with the increase and operating expenses.

Interest expense was point 3 million hours and the first quarter of 2021 compared to $2.4 million and the first quarter of 2020, primarily due to less loans.

Net financial expense was $2 million and the first quarter of 2021 compared to your point $5 million and the first quarter of 2020. The reduction in net financial expense was primarily due to less foreign exchange loss.

Yeah.

Income before income tax expenses and equity and earnings of affiliated companies was $5 $3 million.

Excuse me.

And the first quarter 'twenty, one 2020, one compared to point $2 million and the first quarter of 2020.

The increase in income before income tax expenses and equity and earnings of affiliated companies and the first quarter of 2021 was mainly due to higher income from operations and higher other income.

Net income attributable to parent company's common shareholders was $3 $2 million and the first quarter 2020, one compared to a net loss attributable to parent company's common shareholders of 0.0 3 million and the first quarter of 'twenty 'twenty.

Diluted income per share was 10 cents and the first.

Quarter of 2021 compared to nil per share in the first quarter of 2020.

The weighted average number of diluted common shares outstanding and was 30 million and 857736 and the first quarter of 2021.

Compared to $31 million 174.

And 45 shares and the first quarter of 2020.

Now we will review a few balance sheet items as of March 31, 2021 total cash and equivalents and pledged cash.

$122 million total accounts receivable and truly notes receivable with $236 $6 million.

Accounts payable, including notes payable were $223 $9 million and short term bank and government loans were $46 $2 million.

Total parent company stockholders' equity was $304 4 million hours a day.

March 31, 2021, compared to $303 $2 million as of December 31, and 2020.

For the business outlook management has raised revenue guidance for the full year 2021 from $470 million to $485 million.

Target is based on the company's current views on operating and market conditions, which are subject to change.

With that operator, we're ready to begin the Q&A.

Thank you at this time, we'll be conducting a question answer session if you'd like to ask a question. Please press star one on your telephone keypad.

And tone will indicate your line is and the question Kim You May press star two if you'd like to remove your question from the camp.

All participants using speaker equipment and may be necessary to pick up your handset before pressing on starkey.

One moment, please while we poll for questions.

Okay.

Okay, Hi, operator.

Hi, Melissa. So we are we have some questions from our analyst Bill Quirk Suski Greenwich capital Greenwich Global.

He due to the travel.

Schedule and he is unable to attend the call. So he has email and his questions.

So he has the following five questions first.

First question.

Can you break out the revenue from Brazil, and first quarter 2021, compared to first quarter 2020.

And where did that large.

The Atlantis order start.

And yet.

One of the things you said that the Eagle one peso sounds simple reach out to <unk> She took.

Biopsy by them quite a yield on our Union beach to acquire new iron and with easy to the Beach L. A.

Sure.

To the top and done since homes commercial location.

[noise] children and their box either didn't quite on that day.

And I'm going to one day.

So little balance Union and are on that.

She didn't want and saying this isn't something that turns on many of the friends and family.

Thanks Al.

Oh, that's a good year with the price I'm not sure and.

And keep your customer.

Okay.

The answer for the first question the revenue from Brazil market.

And 'twenty 'twenty first quarter was about 2 million U S.

And but it quickly and cruise 262 7 million.

And the first quarter, 2020, one that's representing more than 200% increase.

And in terms of when the orders started.

Was.

The Atlantis and that older startup and the <unk>.

And 2020 and so.

And in the fourth quarter of 2020 on.

In December more specifically.

And then we have the second question.

On the sales of the EPS products.

And B accelerating.

Is this related more to the growth and the market or demand for your EPS products.

Going.

EPS hunting, how kind of relative to $10, so little free comfort on Joshua.

And so without it because we all share.

So of course the town.

The EPS and the Street holds I don't quite some green Dot has sued.

Well at that time King.

That's helpful loads and job well done.

Cohorts, there's some just two on the timing of sheetrock.

Is it a trade sorry, I saw him in Sydney and a couple of debt since you have and Jeff and this.

And sometimes it quite a Honda and digital chat and doing the.

And sometimes and sometimes you get back on that.

That's on a woman seeking to build upon that and you can actually that jumped on top of line for them.

Bottom line.

And Tom and Julia.

And how much will launch on sugar and that this digital your pets.

And in terms of adoption and not so much.

And you end up on that day, because I'm sure she manages and controls and systems.

So quite a on that so that makes them and quickly Usher syndrome.

Uh huh.

And the growth of our EPS product sales.

Is nailing that.

Driven by the demand.

Market demand for our EPS products.

If you look at the overall.

The passenger.

Auto sales and China, and the first quarter. It's a it's a phenomenon we saw a phenomenon growth.

And.

And overall year over year growth for auto sales is over 70%, but if you look at our EPS part.

Net sales, we grew more than 200 per cent.

That clearly outpaced the overall market and.

And and mainly.

Attributable these kind of growth mainly attributable to.

Our large customers like great wall, Julie top line and they'll order of EPS product.

And and these orders and I'll start to piling it in the fourth quarter of 2020 already and we see.

And it's continuing.

Accelerating and the first quarter of 2021.

And now well.

Switch to the G&A side and the question three is the G&A expenses was lower than each of the last three quarters.

What's the good range, we should expect for this going forward.

Palo does tangled and tissue and play.

Sales.

Finally field B E Chen the junior D G to be China, 10 sandwiches do go on.

Thoughtful the shower gel and they'll.

B genius and <unk>.

And I'll, let you always have 10 times the channel Two-shot zone.

Hang on to Dol soon Teng and <unk>.

And you got some thoughts why do you feel good.

And finally.

And are you sort of thing.

And sat down that somebody else and then.

And something like that.

Uh huh.

And James Kisner balance and stuff and sometimes on them.

And we'll send you that you read about that day.

And Jonathan.

And so your thoughts on demand close up on that on some debt.

And I'm thinking that some.

And we'll wait.

And finally, how big and Mexico and Chile.

Yeah.

But the truth and Susan suite and talk to you.

Yeah.

Okay.

Yes, and the first quarter of 2021, we are are we.

We underwent a restructuring.

Our restructuring.

So we have a streamline our operation, especially on that.

And in managerial and administrative.

Category and the non especially as the non manufacturing staff.

We have consolidated and we have done some consolidation and so our.

Our G&A expenses is about down 20%.

And the G&A area, how we have.

And <unk>.

Managed to reduce by 20% and.

And going forward you should see a similar.

And continue in the following quarters.

Okay.

The question for the fourth question is can you talk more about 1.4 million dollar loss from affiliated companies.

At the last discussion.

And on the course of that and the 10-Q.

Turning to civil and teachers and.

Nonetheless, and GSE shop.

Ebay Sichuan and.

And.

Quality and one called the accretion.

Pat day to go.

One the Qi bought.

And you see the.

Thank you, Kim and Kenya, and male condom to book to China.

Yes.

Okay.

And it's also among total debt.

So that's a good jobs and the whole mill right.

And we'll go to Josh.

And some set up and so it sounds like most of the Java hormone puzzle and makes it differently.

Simple I'm going to take a chamber and then.

Got you and told you that you bet.

And so when changes in debt and you got to do that.

And you bought homes and it sounds like the jobs Act and if you do it on I sat down with itself.

So.

And then it should all and she had signet and signet.

So usually bounces and do it.

And so a bunch and its online.

So what that says on it.

Okay.

On the.

<unk>.

The loss from affiliated company is mainly from our investment and the.

And the investment fund.

And we disclosed in the past we invested in the <unk>.

A few venture capital funds, mainly targeting and the automotive.

Technology space.

And some of our investment when public.

And the last 12 months.

The market has been.

And quite fluctuating.

And the last few quarters.

Especially in the first quarter of 2021.

So this.

This booking.

And.

It was mainly due to one of the investment.

One of our portfolio company went public and their stock.

Has suffer a.

The decline and the first quarter and so are we.

We have.

And make the booking and the first quarter.

Now the last question.

What are you budgeting for Capex in 2020, one and 2022.

And what will be spent on.

And kind of stay at home increments, you seem quite and you on the sort of bookings and Orange Armenia.

And yet our arguments about interest.

And you're trying to cross sell and collection was on the ceiling.

And Jimmy on there it sounds like it's and barbell on my uncle on.

And so on.

And so on this issue.

And I believe in Massachusetts.

You bet.

And that's what we're doing on top of attack and.

And since you bought that line.

So we shouldn't and they've hit a little on that.

Moving to the right.

Yesterday and today.

Yeah.

And do they are getting jesely quota share.

Oh.

Okay.

And <unk>.

The Capex budgeting for 2020 was about 18 million U S.

2022 is about 20 million U S. A.

The.

And most of those.

The budget will go into the maintenance Capex and Capex, but also a portion of debt will go into the new projects, mostly in the EPS category as.

We will continue to invest and electric motor.

Technologies, so that would be the.

Most of the year.

Use of the Capex.

Okay.

With that operator, we can take questions from the queue and fast fix there isn't any.

Thank you and there are no questions at this time. However, if you would like to join the question queue. Please press star one on your telephone keypad will pause a moment to allow for any other questions.

Sure.

Yeah.

Thank you this concludes.

Today's question and answer session and I will turn the floor back to Mr. <unk> for any final comments.

I want to thank you for your participation in today's conference call. Please be safe and we look forward to speaking with you again.

Thank you.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.