Half Year 2021 China Yuchai International Ltd Earnings Call
Good day and thank you for standing by welcome to the China, You try International limited first half of 2021 financial results at this time all participants are in listen only mode. NASA Disney. This presentation. There will be a question and answer session to ask a question during the session you will need the best.
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Now I'd like to turn the conference over to Kevin sees please go ahead Sir.
Thank you for joining us today and welcome John.
International Limited's 2021st birthday.
First half year conference call and webcast joining us today are Mr weighted Ming Hoh and Mr. Johnson, Lee President and Chief Financial Officer.
Respectively.
Additionally, we also have Mr.
Mr. Kelvin Lai Vice President of operations.
Before we begin I remember.
Like all listeners that throughout this call. We may make statements that may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Believe expect anticipate project target optimistic confident that continue to predict intend aim will or similar expressions are intended to identify forward looking statements.
All statements other than statements of historical facts are statements that may be deemed forward looking statements.
Forward looking statements include but are not limited to statements concerning the company's operations and financial performance and condition are based on current expectations beliefs, and assumptions, which are subject to change at any time.
The company cautions that these statements by their nature involve risks and uncertainties and actual results may differ materially depending on a variety of important factors such as government and stock exchange regulations competition, political economic and social conditions around the world and in China.
And those discussed in the company's form 20-F under the headings risk factors.
Also of operations and business overview.
There's other reports filed with the Securities and Exchange Commission from time to time.
If the COVID-19 pandemic has effectively controlled our business operations and financial condition may be materially adversely affected due to a deteriorating market for automotive sales.
Economic slowdown in China and abroad.
Because of weakness on the financial condition of our customers.
Central adverse impact to our suppliers that supply chains are other factors that we cannot foresee.
All forward looking statements are applicable only as of.
The day, they are made and the company specifically disclaims any obligation to maintain or update the flow would see inflammation.
Whether of the nature contained in the press release made during today's call or otherwise in the future.
Victor Ho will provide a brief overview and summary, then Mr. Lu who will review the financial results.
The 2021 first half year ended June 30th thereafter, we will conduct a question and answer session.
For the purposes of today's call the financial results for the first half of 'twenty or 'twenty. One period ended June 32021 are unaudited and they will be presented in RMB and U S dollars. All the financial information presented is reported using the international financial reporting standards as issued by the International accounting standards Board.
Mr. Hoh. Please begin your prepared remarks.
Covid.
The Chinese economy continues to flourish.
In the first half of the deeply one GDP grew by Triple myself Hussein.
That's it investment grew by truck by 6% right.
Would it be grouped by chocolate sales.
And it takes that testing less on group I choked by 6%.
China continues to be the global economy growth leader in the first half of 2021.
So it didn't come to make growth benefited the non EV truck and bus market.
Net sales increased by almost 36%. According to statistics by the China Association of automobile manufacturers and short C. A M.
The first half of 2021.
The number of target engine market achieved strong growth in the first half of 'twenty if anymore.
Babies duty truck sales.
1 million units with a strong 38% year over year growth well medium duty truck with 108000 units, so well start another robust increase of 51% year on year.
On the bus site sales on philosophy coach on EV bus was up almost 10% from a year ago.
Medium duty bus.
Sales and light duty bus sales grew by 34% and 43% respectively.
Our heavy duty truck engine sales, excluding gasoline powered and electric powered vehicles grew by 33% while our bus.
It feels that you work with your 1% growth.
Our off road unit sales grew by 65, 7% leased.
76, 6% growth in marine and power generator.
It is too big.
Could you help us on unit growth in the market for agricultural industrial and U S.
Peter is a 70.141 percentage.
Our revenue increased by 26% to RMB $12.6 billion often.
2 billion compared with RMB 10 billion in the same theater last year on an overall 33, 8% increase in sales.
Sales year over year.
With the more stringent national six emission standard coming mandated across China.
Truck and bus market sales grew from a strong pre buy especially on a five compliant vehicles.
Natural gas engines.
It has to be specialists.
V compliant at the beginning of the need for anyone.
Diesel engines are required to be less on the sixth E. Applying beginning on July 31.
However, the last number of national five comp.
<unk> vehicles.
In the distribution channel.
And this year they have continue to.
To clear the inventory briefly hindering current sales of national six engines.
So it's a day line of less than a five but on June 30th except in some cities the extension.
Uh huh.
That's just.
They do it.
We expect sales of nationalistic India. This will pick up in the second half of the year.
That's another six engine technology is significantly more environmentally stringent than they should have five engine.
Technology.
And it's essential to China plan to reduce all will reduce air pollution in China is the world's largest automotive market.
We have built a large portfolio of engines compliant with national six emission standard.
The FERC.
Current customers and attract new ones as well.
Our current national six engines also capable of meeting the even more stringent.
60 emission standards with a few modifications.
So let's take the sentence I expect it to be mandated in to a deeper decrease.
We already have the technology in place to produce this engine.
We are pleased to reported all in niche J D C market are progressing.
Power system is currently available in the marketplace.
65, kilowatts, 100 kilowatts ratio standard.
Are there any of your products to remain under development for future introductions.
We also entered into a new strategic partnership agreement with quality student loan bucket.
Develop new energy vehicles based upon China, China, four new energy powertrain system.
In addition, however show your child friction is now supplying part of our bonds.
Treatment units to help Orange is reached the national six emission standard.
At June 30, after literally day, one we maintain our financial strength with cash and bank balance of RMB five 7 billion.
$836.6 million after investing almost 12% more in R&D.
First half of the 20th anyone.
They've gotten off the cash dividend on U S. Dollar one seven people come and <expletive> in early July but he said he want.
We have a portfolio of our bonds National's clicks on tier three inches.
Our large customer base in China and abroad, the effect of Covid I didn't happen because it might be China, and we look forward to greater export sales have overseas market improve.
Challenges are hit as the Chinese market for commercial vehicles engines.
He is expected to slow after the strong free buying into the first half of 'twenty one.
However, we have a bus.
Automotive technology and enormous service distribution system within China, a large customer base and excellent reputation as a leader in automotive technology.
On the production of Q1 for commercial vehicles in China.
With that I will.
Welcome to the thing Lou on his first conference call as our new CFO, but the thing you may begin your remarks.
Thank you remain.
Now, let me review, our first half results for 2021.
Our revenue was RMB 12, 6 billion all U S dollar to be comparably.
RMB 10 billion in the same period last year.
The total number of engines sold by <unk>.
Our main operating subsidiary in first half 2021 rose by 33.8% to 285342 units compared with 213182 unique.
Same period last year.
The increase was mainly due to higher engine sales in the.
The heavy duty truck and off road segments.
Particularly powered generator set okay.
And industrial engines.
Gross profit was RMB.
One 6 billion or U S dollar 251.4 million.
Compared with RMB, one 5 billion in the same period last year.
Gross margin decreased to 12, 9% as compared with 14, 8% a year ago.
The decline in gross margin was mainly attributable to a change in the revenue mix and higher material costs.
Other operating income increased to RMB.
11.7 million or U S dollar 17.3 million.
Compared with RMB.
And $5.7 million in the same period last year.
Research and development R&D expenses increased by 48, 2% to RMB $215.7 million on U S dollar $48.9 million compared with <unk>.
$213 million in there.
Same period last year.
Higher R&D expenses in first half 2021, who are mainly due to an increase in R&D activities.
Rudy the ret efficient cost largely for one engine model.
Higher testing and experiments cost guidance.
These fees for national VI and tier four engines.
In addition.
On the development for strategic partners as well as new energy products.
Contributed to higher R&D expenses.
Half 'twenty, one compared with first half 2020.
The total R&D expenditure, including capitalized cost was let me be.
$450.2 million or U S. Dollar 59, 7 million in first half 2021 as compared to RMB four 2.7 million <unk>.
Representing three 6% of revenue compared with 4% in the same period last year.
Selling general and administrative SG&A expenses increased by 21, 5%.
To RMB 920.1 million or <unk>.
S dollar 40.
<unk> $42.4 million from RMB $757.4 million in the same period last year.
The increase was mainly due to higher one day spaces.
An increase in activity level compared with the same period last year.
SG&A expenses represent the seven 3% of revenue.
For first half 2021 compared with some 0.6% in the same period last year.
Operating profit decreased by 18, 5% to RMB, 499, 8 million or U S dollar stony $7.4 million.
From RMB $613.2 million in the same period last year.
The operating margin was 4% compared with six 2% in the same period last year.
Finance cost increased to RMB $58.4 million.
Our U S dollar $10.6 million from RMB $63.2 million in the same period last year.
Net profit attributable to equity holders of the company was RMB $253.7 million or U S. Dollar.
$9.3 million compared with RMB $305.7 million in the same period last year.
Basic and diluted earnings per share were RMB 621 on U S. Dollar 96 days compared with RMB 748 in the same period last year.
Basic and diluted earnings per share for first half 2021 and first half 2020 was based on a weighted average of $40 million.
58290 shares.
Let me walk you through our balance sheet highlights.
Looks like your 2021.
Cash and bank balances were RMB, five 7 billion or U S dollar $36.6 million compared with RMB six 4 billion at the end of 2020.
And bills receivables, well RMB 10.6 billion.
Our U S dollar one 6 billion compared with <unk>.
One 1 billion.
At the end to income.
Inventory was RMB, three 8 billion or U S. Dollar 595 million compared with RMB four 5 billion at the end of 2020.
Trade and bills payable well RMB eight 5 billion.
Dollar $1.3 billion compared with RMB seven 5 billion.
The end of 2020.
Short term and long term bank borrowings were RMB, two 4 billion.
While U S dollar 367.3 million compared with RMB, two 2 billion at the end of 2020.
I'll now turn the call over to cave for a comment before we begin our Q&A.
Thank you Mr. Lu.
Please note that due to the COVID-19, the officers of China U.
Remotely calling into the conference call.
The results on late delay and provided answers to some questions.
Apologize for any inconvenience and thank you for your patience with that operator, we are ready to begin the Q&A session.
Yes. Thank you.
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Our first question is from the line of William that goes S. T O Greenwich Global Your line is open. Please go ahead.
Hi, guys.
Do you share about what percent of the engine sales in the first half for light duty.
Yeah.
Okay.
The light duty or sales will be just hold on a minute.
Okay.
You're talking about quarterly doesn't even get us here right. So it would be.
Yes.
Oh.
It should be about 50, 53% off the sales too.
Okay.
Right.
The gross margin.
Initiatives are you guys putting in place or.
To get those back to somewhere close to more historical levels.
They've obviously been falling quite a bit lately, yes. So I think this is one of the main reasons for the decline in India.
Did that give growth strategy.
Gross margin.
Are we selling more often.
Uh huh.
We did this year compared to last year.
Hum.
As a impact on the mix then.
And there actually have an impact on the cross commodity.
And we're also selling more.
That's the six engine this year compared to the same period last year.
So you talked about that.
We have not reached the it looks like on a go scale, yet, but that's about six inches.
That is because the national six emission.
Emission standard.
Really going to be fully implemented from plus two like this year. She has just been got hepatocyte.
What they're going to do going forward to help improve the marching them on this too.
Ill go back to <unk>.
Our players to negotiate on the pricing going forward. That's all in that's about six inches units going to go up on for the next six months, while you're on until.
Into next year.
Particularly musical they sales lexicon.
And for those day, we'd need the negotiation for this guidance still ongoing so we expect to finalize all of that in the third and fourth quarter.
So for those that will be finalized in the third or fourth quarter, we will be able to.
Well I thought if there's any reduction there because you should be able to get it.
The whole on the sales for the whole year. So there should be some that relate back to the first half.
Secondly.
We will use.
Music Art and day to help us do a cost out but at a flow of new interest, but there's a lot of fixing it.
That's also true.
Your information, but unless you, let's six inches a new platform that we have developed.
Lastly, the last few years. So the good news the R&D to help us to continue to help us to reduce T. A C.
The.
Drowsy and thought that those initiatives have been doing it will be too.
Negotiate with our customers now to try to increase our pricing.
Especially for some of.
Our lower margin product.
So these are initiatives that we believe we can improve our gross margin going forward.
Especially into the next year.
Okay and on the economies of scale, because you've talked about that a few times in the past what's the what's the you know the.
Unit amount or the target, where you'll hit that point.
We'll see the margins improve from that.
I mean, this is a well when they're ready they goldfish supplier that we don't have to have a sudden.
Volume commitments right. So it's all volume.
Increases.
Especially now after the implementation of the AR.
Now, let's say is grateful it most of the sales will be will it be a nationalistic except for those we are close to a subtle thing country, Toby said Ah and the volume that we're achieving so far this year, we have achieved a volume loss.
Sales total sales growth.
5000 units.
So is that are we should be able to go back to suppliers and negotiate.
Okay. So I mean between.
Everything going to national six now.
Yeah.
Negotiate supplier and possibly getting retroactive pricing on that.
Gross margins in the second half should be quite quite strong correct.
It should be better, but it actually let's just say yes.
Okay.
And last question is about the engine that needed to be fixed on the warranty related to that can you just kind of briefly talk about the issues with that and are all the costs on fixing it and warranty.
On the staying in the first half or is any of that kind of bleed into the second half.
Well thank God for the next thing is.
You have been selling them last year beginning.
Beginning of last year.
Quite a bit this year. So those problems that came out we will have fixed most of them are already by now a little luck going into next quarter or the six months, we believe there'll still be some volume will not be as much as in the first half a day or even last year.
Okay alright, thank you.
Thank you.
Once again.
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Our next question is from the line of Casey on.
C. G S C. I N D. Please go ahead.
Thanks, All day.
Hi management. Thanks, a lot of taking my question I have a question.
Regarding the current sales trend on seeing that if I heard it shifts into the six.
And then China since July so I'm, just wondering how expense sales trend looking right now.
Uh huh pre sales.
Yeah, and he called me.
Yeah.
This is a really think that the vehicle sales right now.
First January as opposed to July this year that's the.
Let's call it a sales of vehicle and they showed up I think this is a pretty strong very strong.
Towards the end of last year and in Florida on into the first half of this year.
Therefore, we believe that that's quite a lot, especially on a FIFO inventory into the in the in the distribution.
Let's take a little while for.
But it could be digest that day.
Yes.
I think you can take a couple or three months to digest the silver.
That's in the in the in the distribution. So we expect the then they still six engine for this second half this year.
It'll be somewhat effective they'll be.
Do you expect to flow down there.
To the first half.
Okay, I see and I guess on your product mix you.
You mentioned in the first half free we saw on very strong.
The topping off route.
Do we expect this.
Mix to remain generally the same in second half.
How should we think about it.
Yeah, I think it is.
Me too far away in fact, we still continue to expect.
The power generation market the growth strongly in China, that's been a bit on power.
Shortage, especially the southern China this year.
A copy of the disruption.
So a lot of our company.
So they want to see we think it will continue the growth and to be strong.
The for the others like the agriculture engines and industrial engines industrial we did anything it would probably be flat for us, but the agriculture I think it should slow down after a strong growth in that book.
Yeah.
Yes.
Okay got it.
And I guess, you mentioned that there was some one off.
Items on expenses in the first can you give us a rough indication on how much was it.
How big was the impact on the bottom line.
Hi, teaching side right.
<unk>.
Believe you are referring to the to the recognition on cost.
The warranty Spanish right.
Yes.
Yeah. So that was what are the one LNG model right on that.
We have been incurring the cost.
Cost to rectify.
Hum.
Most of that has to be done.
Right.
But do you have some meaning to be fixed right. So that was one factor.
Model right.
For us to have piece of the quite a bit.
Build cost inflation.
But those are.
Firstly a cup.
So Mr. Lu will be so we'll see that.
Some are for the second half on maybe a little bit more into next year. So.
A lot of it's already been.
Okay any indication on how large is this one off expenses.
Are probably because it's.
Maybe.
Some forward looking trend.
How does that <unk> expense as a percentage of revenue trends into the second half.
Be very much more again its hard to give you a good answer because I think.
It depends a lot on whether or not that.
The user experience.
I'll come back to us for adaptation.
Our daughter came back if they ever do rectify them.
Okay.
Okay got it thanks.
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Call back over to Michelle.
Thank you all for participating in our conference call.
Good health and please be safe during this crisis, we look forward to speaking with you again bye.
Okay.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
So you said a percentage do standby.
Thank you.
Okay.
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