Q3 2021 China Automotive Systems Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the China Automotive systems third quarter 2021 earnings Conference call.
At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation.
Now my pleasure to turn the floor over to your host Kevin piece sorry.
The floor is yours.
Thank you everyone for joining us today welcome to China, automotive Systems' 2021 third quarter conference call.
Joining us today are Mr. Jay Li Chief Financial Officer of China Automotive systems. He will be available to answer questions. Later in the conference call with the assistance of translation.
Before we begin I will remind all listeners that throughout this call. We may make statements that may contain forward looking statements forward looking statements represent the company's estimates and assumptions only as of the date of this call.
The company's actual results could differ materially from those contained in the forward looking statements due to a number of factors, including those described under the heading risk factors in the company's Form 10-K annual report for the year ended December 31 2020.
It was filed with the Securities and Exchange Commission.
And in 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 deteriorating market outlook for automobile sales.
The slowdown in our regional economic.
Rose.
Weekend liquidity and financial condition of our customers or other factors.
But we cannot see any.
These factors and other factors beyond our control could have an adverse effect on the overall business environment.
These uncertainties in the regions, where we conduct business caused that business to suffer in ways that we cannot predict and materially adversely impact our business financial condition and results of operations.
So lot of disruption or any further unforeseen delays or operations of the manufacturing delivery and assembly process within any of our production. So we could continue to result in delays in 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 in this call.
Whether as a result of new information future is.
Vince or otherwise.
On this call I will provide a brief overview and summary of the third quarter and first nine months results for the period ended December 32021.
Well, then conduct a question and answer session.
Following 2021 third quarter and first nine months financial results are unaudited.
Reported using U S GAAP accounting.
For the purposes of our call today I'll review the financial results in U S dollars.
Well begin with review the recent dynamics of the Chinese economy automobile industry, and China Automotives market position.
Chinese passenger car sales declined by 13% year over year in commercial vehicle sales declined by 24% year over year in the third quarter of 2021. According to statistics from the China Association of automobile automobile manufacturers C.
Yeah.
Auto sales in the U S also declined by approximately 13% year over year in the third quarter of 2021.
As a major player in the Chinese auto parts segment, our revenue was affected by the auto market headwinds for our business already decreased by five 4% year over year in the third quarter of 2021.
Our sales decrease reflected weaker demand in China, and the widespread shortage of automobile semiconductor chips.
Our sales to the large auto markets were uneven in the third quarter of 2021.
Sales by traditional hydraulic steering products declined by 19, 3% year over year to $78 $8 million well net sales of our newer UBS models declined by 76, 2%.
Year over year to $29 4 million and represented 27, 2% of total net sales versus 14, 6% of total net sales in the third quarter of last year.
Net sales of the Chinese commercial vehicle market declined by 34% year over year in the third quarter of 2021.
Our net sales to a customer Shang brilliance zubaie grew slightly while net sales to chery automobile another major auto auto manufacturing.
Manufacturer in China were $7 9 million compared to $3 $2 million.
144, 6% increase year over year.
Net sales into North America decreased by 16, 2% year over year, while sales in Brazil increased by 157% year over year.
In the third quarter of 2021.
Cost of products sold declined by nine 1% year over year as our gross margin grew to 15, 5% compared with 11, 9% in the third quarter of 2020.
For the first nine months of 2021 had to September 30th According to statistics from Ottawa.
Mobile sales rose eight 7% with.
With passenger vehicle sales up 11%.
Commercial vehicle sales rose a half Chris.
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Due to a 26% increase in bus sales, partially offsetting a one 6% decline in the larger truck market sales.
New energy vehicle sales Rose 185, 3% in the first nine months of 2021.
For the first nine months of 2020 on our net sales increased by 32, 4% year over year to $359 2 million.
Gross profit increased by 68% year over year to $52 four.
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And gross margin increased to 14, 6% compared to 12% for the corresponding period in 2020.
We are encouraged by our growth of our EPS products, even as we continue to upgrade our traditional hydraulic products.
Our EPS products are contributing a higher percentage.
Our total sales and we believe that trend will continue.
We are especially pleased with our sales into the Chinese electric vehicle market, where we expect to sell over 200000 EPS units in 2021, including two easy produces great wall Chery Auto Beijing Auto NJ AC motors.
And we had the more technology to a new proprietary EPS products earlier in 2021, these technologies integrate and communicate with the vehicles main data to create lane keeping assist.
Okay, a automatic parking assist lane.
Lane centering lck and traffic Jam assistance T J a functions as part of the company's advanced.
Driver assistant assistance systems, Eas or more commonly referred to as autonomous driving system.
In Europe, we also entered into the top.
Top off to off processes, where new steering system for Alfa Romeos first luxury compact plug in hybrid as you remodel for 2021 to know.
This is the company's first plug in hybrid powertrain and the expectation is for orders approximately approximately 100000 of annual units.
Jeff Omega project, because the company's second in Europe.
To further our technology base, especially for vehicle control or autonomous driving we are.
Purchasing 40% of Sweden certain sets in ABB.
Besides technology company specializes in software and hardware design for advanced steering functions.
This products for motion control had been in production since 2013 and has been tested on EPS.
Angle overlay systems steered.
Steer by wire and fully autonomous vehicles, that's the NHTSA level three to five.
We believe the settlement acquisition is a key to advancing our autonomous driving products into the marketplace.
Also our wholly owned subsidiary.
Tuesday, Hemlo automotive systems received the highest rating of safety designation.
ISO chill.
<unk> two <unk> call them 2018, ACL Dash D S.
S. G S T E V of Germany.
Classifying both software systems and hardware components with different safety risk, we received a D certification, the highest which distinguishes us from many peers.
We have developed a large base of customers growing advanced technologies and we are strong financially. We're a leader in steering products in a large and commercial vehicle markets in China. However, our goal is to become a larger global supplier as we have a growing presence with global Oems.
And South America.
You're developing greater penetration in the European and Indian and African auto markets.
Now let me go over the financial results in the third quarter of 2021.
In the third quarter of 2021 net sales decreased by five 4% to $108 2 million compared to $114 $4 million in the same quarter of 2020.
The decrease in net product sales of mainly due to the decline in market demand as a result of the ships shortage and other.
Other overall market.
Auto market trends sale.
Sales of the Companys hydraulic products decreased 19, 8%.
Net product sales for the company's EPS products increased by 76% to $29 4 million.
Dollars or.
Or 27, 2% of net sales compared with $16 7 million or 14.6% of net sales in the third quarter of 2020.
Net product sales in North America decreased by 16, 2% to $31 million due to lower sales volume compared with $37 million for the same quarter in 2020.
Gross profit was $16 8 million in the third quarter of 2021 compared to $13 $6 million in the third quarter of 2020 gross margin was 15, 5% compared to 11, 9% for the same period in 2020, mainly.
Mainly due to changes in product mix.
Selling expenses were $4 $8 million in the third quarter of 2021 compared to $3 $8 million in the third quarter of 2020.
The higher selling expenses were mainly related to higher personnel and logistics expenses.
Selling expenses represented four 4% of net sales in the third quarter of 2021 compared to three 3% in the third quarter of 2020.
General and administrative expenses G&A was $6 $2 million in the third quarter of 2021 compared to $5 1 million in the same quarter of 2020.
The increase was primarily due to the increased bad debt provision for accounts receivable.
G&A expenses represented five 7% of net sales in the third quarter of 2021, compared with four 5% of net sales in the third quarter of 2020.
Research and development expenses R&D.
$5 $7 million in the third quarter of 2021 compared to $6 $1 million in the third quarter 2020.
R&D expenses represented five 3% of net sales in the third quarter.
Each of 2021 and 2020.
Lower R&D was mainly due to reduced personnel expenses.
Income from operations was $6 million in the third quarter of 2021 compared to net income I'm, sorry to income from operations of <unk> one.
$1 million in the same quarter of 2020.
The higher income from operations was mainly due to higher gross profit and higher gross margin in the third quarter of 2021.
Other income was $2 $4 million in the third quarter of 2021, compared with <unk> $4 million in the third quarter of 2020, primarily due to higher government subsidies received in the third quarter.
2021.
Financial expense net was $28 million in the third quarter of 2021, compared with $2 $3 million in the third quarter of 2020, mainly due to lower foreign exchange losses.
Income before.
Income before income tax expenses and equity in earnings of affiliated companies was one $9 million in the third quarter of 2021.
Compared to a loss before income tax expenses and equity in earnings of affiliated companies of $2 $3 million in the third quarter of 2020.
The increase of income before income tax expense and equity in earnings of affiliated companies was mainly due to higher other income and lower financial expense compared with the third quarter of 2020.
Income tax expense was 2.4 $2 $4 million in the third quarter of 2021 compared to an income tax benefit of $2 million was the third quarter of 2020.
Which was mainly due to an increase in the valuation allowance recognized in the third quarter of 2021.
Net loss attributable to parent company's common shareholders was $23 million.
Third quarter 2021, compared to net income attributable to parent company's common shareholders of $2 4 million in the third quarter of 2020.
Diluted loss per share was <unk> <unk>.
Third quarter 2021, compared with diluted earnings per share of <unk> in the third quarter of 2020.
Weighted average number of diluted common shares outstanding was $30 million 850.
<unk> 1776 shares.
In the third quarter of 2021 compared to <unk> 31 or 113.
374 shares in the third quarter of 2020.
Now the worry nine months financial highlights net sales for the first nine months of 2021 increased by 32, 4% to $359 2 million.
Compared to 271 $2 million in the first nine months of 2020.
Gross profit for the first nine months of 2021 increased by 68% to $52 4 million.
Compared to $32 $6 million in the corresponding period last year.
Gross margin for the first nine months of 2021 was 14, 6%.
Compared to 12% for the corresponding period in 2020.
For the nine months ended September 32021 gain on other sales amounted to $2 $5 million compared to $2 $9 million for the corresponding period in 2020.
Income from operations was $4 9 million.
Impaired to loss from operations of $4 $1 million in the first nine months of 2020.
Net income attributable to parent company's common shareholders was $6 $1 million compared with net loss attributable to parent company's common shareholders of $1 $8 billion in the corresponding period last year.
Diluted income per share.
'twenty and the first nine months of 2021 compared to diluted loss per share of <unk> <unk> for the corresponding period in 2012.
Now I'll go over a few balance sheet items.
As of September 32021.
Cash cash equivalents and.
Pledged cash deposits were $115 million.
Total accounts receivable, including notes receivable were $227 3 million.
Accounts payable, including notes payable were $215 1 billion short term loans were $42 $2 million.
Total parent company stockholders equity was $326 $3 million as of September 32021.
<unk> $319 4 million as of December 31, 2020.
Excuse me.
The business outlook.
<unk> reiterated.
Its revenue guidance of $495 million for the full year 2021.
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.
Ladies and gentlemen, the floor is now opened for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question you. Please pickup your handset listening on speaker phone to provide optimum sound quality.
Hold while we poll for questions.
Your first question for today is coming from William quick housekeeper. Please announce your affiliation and pose your question.
Hi, guys can you.
Explain on the on the chip shortage, which segments were most impacted by that.
Okay.
Sure Bill Kudlow and tissue J.
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Conduct tissue tend to grow shipments just hunk on trilogy and crawl to.
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Some hint on China children's home.
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The chip shortage is his.
There's definitely a widespread.
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Throughout the year.
Auto industry.
In China.
The impact we see are two folds one is to the OEM side.
We do.
See the OEM automakers are experiencing production.
Yeah.
The decline, especially in the third quarter because of the chip shortage.
And our supplier side like us our main.
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Our old product Skus semiconductor chips are electric power steering EPS products.
These product.
And we are less impacted for.
Particular reason that we have a very unique sourcing capability.
We have a few different channels and how we work with suppliers very closely so.
We're able to mitigate the impact.
That's why you see our EPS sales.
During this difficult time, especially the semiconductor sector.
Going towards such a change.
Our EPS sales have increased.
To increase significantly.
Okay, which which operating segment, though was there I mean does the shipments to the U S or what was most impacted or was it just spread pretty evenly.
For you guys.
Okay.
My question is a center that has just been a woman.
A particular time point.
Just in that messaging can do will mean chunky shoes.
Well, it's been a cocoa types or was it didn't really change.
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We also had somewhat given the cohort in Wyoming.
What would be kind of partner Shandong rational no doubt.
She candidate now for some time.
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In the China.
Our U S customers are.
Relatively.
Smaller volume.
In terms of these type of product.
Okay, all right on the <unk> B J b it looks like the gross margins went above 10%.
In the quarter can we expect to see that continuing to increase.
Susan in April could you talk here I'll be quick.
So that's a kind of a little below model aging cohort.
So related to shifts in somebody else and some of which particular political sensitivities once you should recall.
Well, thank you Keith.
And the convenience, we absolutely know how many leave them in less than a generic shutdowns at abundant enzymes. So you still got some teaching coding drilling khanjar behind my obligation domestically Michelle injections format.
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The woman and figure it out.
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On the good times and the one that you get some jackup pardon me in the <unk>.
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This joint venture, yes, we are seeing.
The.
The improvement in the.
Gross margin category.
Anticipate they will continue to improve.
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Mainly these kind of expectations, mainly driven by two factors one is.
As you see we are increasing productions the.
The utilization rate is climbing and.
As we know the scalability to economy of scale will help too.
Two.
Lower per unit.
Cost.
And then in turn will increase our gross margin.
On the other hand.
The technology compound also has been.
<unk> increased.
Four.
In that particular joint venture and so.
In terms of product offerings. So we.
When we first started we only.
Providing.
A C EPS product.
Now we have expanded too.
Pete EPS product DP, EPS product and our EPS product. So we have a wide.
Our range of product now.
To meet our customer demand.
It's a lot of those new product new product or.
More and more technologies and also <unk>.
Give us a better margin contribution as well.
Okay.
Alright are you guys.
It's able to provide any kind of expected mix for.
Where are you where do you expect to end the year between traditional and EPS This year and where you expect to ended next year.
Say it again, what was the question EPS mix.
Yes, the mix between traditional and EPS, what you expect that mix to be at the end of 2021 and the end of 2022.
Okay.
No one changsha.
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The EPS sales.
Hum.
And the third quarter. The first nine months sales account for 27, 2% of total.
Sales.
We are anticipating this will increase to 30%.
2022.
Hydraulic who will take us.
Still picks up.
70%.
Steering product sales.
Okay, All right and last question is do you have any significant capex plans coming up.
Alright.
Sure Todd.
Duke.
For the Chihuahua.
So we like that.
So you can see two quarters.
Yeah.
What's your name resources.
So you can so you can instrument excellence.
You can answer that China, plus home Council were gone home.
Maintain this is quite a bit.
Production. So you could kind of maybe give us any kind of question.
System behind that guidance.
Jay.
Our E channel two channel demand.
Yes.
Okay.
We don't see.
A huge increase on capex.
We will increase some of the production capacity for EPS product.
We will continue to put some money into the maintenance capex.
So together, we're seeing about $15 million.
Capex for 2022.
Okay, Alright, thanks, guys.
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Once again, if there are any questions or comments. Please press star one.
There are no questions in queue.
We'd like to thank everyone for.
We'd like to thank everybody for participating today.
And we look forward to speaking with you again.
Thank you ladies and gentlemen, this does conclude today's conference call.
You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.