Q4 2021 China Yuchai International Ltd Earnings Call
Okay.
I would like now to two underperforms over to Kevin Test. Please go ahead Sir.
Thank you for joining us today and welcome to China U K International Limited 2021 second half year and fiscal year ended December 31, 2021 conference call and webcast joining us today are Mr Ho.
Jonathan Lo President and Chief Financial Officer.
<unk> respectively.
In addition, we also have in attendance Mr. Kelvin Lai VP.
VP of operations of Cys before.
Before we begin I will remind 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.
Words believe expect anticipate project target optimistic confident that confident to continue.
Continue to predict intend aim will or similar expressions are intended to identify forward looking statements. All statements other than statements of historical fact are statements that may be deemed forward looking statements.
These forward looking statements include but are not limited to statements concerning the company's operations and financial performance and condition and are based on current expectations beliefs, and assumptions, which are subject to change at any time.
Company cautions that these statements by their nature involve risks and uncertainty 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, including those discussed in the company's form 20-F.
Under the headings risk factors.
Also of operation and business overview.
And in other reports filed with Securities and Exchange Commission from time to time.
COVID-19 pandemic is that effectively control our business operations and financial condition may be materially and adversely affected due to a deteriorating market for automotive sales.
An economic slowdown in China and abroad.
Potential weakening of the financial condition of our customers.
Adverse impact to our suppliers and supply chains.
Or other factors that we cannot foresee.
All forward looking statements are applicable only as of the date. They are made and the company specifically disclaims any obligation to maintain or update the forward looking information whether of the nature contained in the press release made during today's call.
Otherwise in the future.
Mr. Hoh will provide a brief overview and summary, then Mr. Lu will provide the financial results for the second half and fiscal year ended December 31, 2021, and thereafter, we will conduct a question and answer session.
For the purposes of today's call. It's 121 financial results for both periods are unaudited.
They will be presented in RMB and U S dollars.
All financial information presented.
Before using the international financial reporting standards <unk>.
By the international accounting standards Board.
Mr. Hoh. Please begin your prepared remarks.
Kevin.
The Chinese economy in 2021.
And that we described as experiencing two very different growth.
First half of the independent one Chinese GDP expanded by 12, 7%.
China continued its refrigerant economy growth.
However, a number of factors negatively impacted the Chinese economy in the second half of 'twenty one.
Substantially reduce economy growth.
Trucking activity decline in the second half of the evening one Ed.
Ed manufacturing a key business driver.
Earlier in 2021 slot at power shortages the road ongoing COVID-19 restrictions effective supply chain.
Throughout the supply of critical computer chips, all diminished production activity.
According to data from China Association of automobile manufacturers.
Sales of commercial vehicle, excluding gasoline powered and electric powered vehicles decreased by 46, 5% year over year in the second half of 2021.
Further cross sales declined by 39, 5%.
In addition to slowing economy truck sales were also impacted by lost pre buy of national.
Five compliant.
Commercial vehicles before the stricter national six emission standards nationally.
Data in July .
Higher truck sales in accumulated distributor inventory.
For July results.
Do you think the margin in the second half of the year.
Apply chain disruptions operating fleet at the flow of critical quarter in the second half are pretty busy one.
Such a difficult market environment, our truck engine sales decreased by 41, 9%.
While the top up is resolving this issue.
Subsidiary.
The China should make some limited <unk> mcl.
Our success in other markets.
We started with this market diversification strategy.
It's a relatively smaller market.
<unk> achieved a 55, 6% right.
Phil.
The order of Basmati every quarter of FIFO, 5% sales decline in the second half of citizen one.
<unk> mcl.
Bob.
Phil.
Increase is.
Ticket size category.
If new national fixed compliant engine.
<unk> engine sales to the off road market.
The experience gained in the second half of 2021.
In power generation unit.
Increased by 31, 8%.
After power shortages and sales of agricultural and just continue to benefit.
From farmers transition for all.
Is that just labor to advanced machine.
Our new energy product sales also increased.
Revealing the fiscal year 2021, you haven't achieved positive sales growth in nearly every market, except the truck market.
Passenger unit sales, excluding gasoline powered electric powered vehicle.
$12, 8% higher and outperformed the overall market softness in every size category.
Sales of our truck engines declined by 62% is there anything one.
Off Road engine sales were 32, 7% higher.
One compared with a year ago.
Every major category achieved over 35% growth in marine and power generation unit sales rose by 53, 3%.
What.
Our overall sales revenue in the second half of credits declined by 18, 7% year over year due to a 31% reduction in unit sales, primarily reflecting weak truck sales. After the economy slow initial effect that the truck market.
Despite this gross margin in the second half of 2021.
54% slightly lower than a year ago, but higher than the first half of 2021.
Gross margin was impacted by lower.
Volume.
<unk> six engines I forget realized.
Economy of scale in production.
Cost reduction programs have also has also been initiated to improve the gross margin.
In response to the lower sales selling and administrative expenses.
Youre, 566% and five.
<unk> costs were 46% lower.
Second half of 2021.
For the fiscal year 2021 hour.
Our revenues grew by three 3% to RMB, one 3 billion or U S solid $3 3 billion.
On a six 2% increase in unit sales.
Gross profit declined by seven 4% to RMB 3 billion all yourself for this quarter is $53 million.
With that I didn't quite a 9% growth market.
Net earnings per share were RMB $667 one five.
One 2 billion RMB or you just saw a $482 $3 million on research and development investment.
In the third at any one year to further improve the performance and quality of our large portfolio of nationals.
And just.
Emerging.
Tier four compliant.
And to further develop our new entity Veeco and UV MLG.
Oh, that's an uptick again.
<unk> will.
For being compliant with the more stringent national V emission standards, which are expected to be mandated at 30.
Dmitry.
Our initiative to the equity markets continue to make headway sp.
501, new energy units and predict any one competitor 85 units in 2020.
Our hybrid power system, and really stand out in the marketplace.
Are there any need for that.
For future production.
Our <unk> subsidiary has made strategy initiative.
Anthony do you want to improve our any unique capability and other technologies, including <unk>.
Our new strategic partnership with <unk>.
While seasonal automobile.
Tax rates to develop new energy vehicles based upon China. He tried for Nu.
I think your powertrain.
Youre MTL agreed with us that one of many municipalities to jointly invest in each high teen lot.
Research development and construction of new production capacity for new energy technologies.
Do you Mcl <unk> subsidiary entered into a cooperation agreement with Beijing since with Biopharma companies to further develop hydrogen.
Applications, the fuel cell powertrain systems.
Changing in a big market.
Two new smart politics is someone mouthful heavy duty agricultural equipment I E.
Powertrain YC six cases.
Ah 60 diesel engines for heavy duty agricultural and mining equipment applications.
Announced its cliff.
Operating hydrogen engine for China commercial vehicle market.
Oh I see okay.
Hydrogen powered engine.
You said, what's the diversity if anyone we maintain our financial strength with cash and bank balances of RMB five 3 billion all your policy of $136 2 million.
Well positioned with our broad portfolio of vessels six engines to serve our large customer base.
Attract new customers as well.
Titled about the potential for growing and UV technology capabilities.
And as the impact of COVID-19 diminishes.
Anticipated <unk>.
The improvement in the macro conditions in China and abroad.
Additionally, the Chinese government has recently introduced policy to promote faster growth.
<unk>.
Now I would like to turn the call over to <unk>.
Chief Financial Officer, who will provide more details on our financial results.
Thank you you may begin your remarks.
Thank you women now, let me review, our Spokane and six months results.
December 31st 2021.
Revenue was RMB eight 6 billion.
U S dollar $1 4 billion compared with RMB 10, 6 billion in the same period of 2020.
The total number of engines sold by <unk> in second half of 2021.
<unk> by 21% to 171449 unique compared with 217100 <unk> unit in the same period last year.
The decrease was mainly due to lower engine used in the truck market.
Really offset by higher sales of engines in bus passenger Brito and marine and power generation applications.
According to data reported by the China Association of automobile manufacturers <unk>.
And.
The second half of 2021 commercial retail unit sales, excluding skus of gasoline.
And electric powered vehicles decreased by 36, 5% compared to second half 2020.
Unit sales of trucks and buses declined by 39, 5% and 5% respectively.
Gross profit was RMB, one 3 billion or U S dollar to an $8 3 million compared with RMB, One 7 billion in the same period last year.
Gross margin decreased to 15, 4%.
Compared with 16, 1% a year ago, but increased compared to 12, 9%.
Half of October 2021.
The Detroit in gross margin was mainly attributable to the lower unit volume. So a change in our revenue mix transition to national six compliant engines and higher material costs.
These factors were partially offset by cost reductions during the year.
Other operating income decreased by 25, 2% to RMB, two and $4 5 million or U S dollar $32 1 million.
Compared with RMB.
$233 3 million.
I can have 2020.
The decrease resulted from lower bank interest income and reduced government grants.
Research and development R&D expenses increased by 28, 9% to RMB $533 1 million or <unk>.
$3 6 million compared with <unk>.
And B $413 5 million.
Same period last year due to lower capitalization.
In addition to further development of nationalistic and tier four engines.
Products under development for new energy products contribute to additional R&D expenses in second half of 2021 compared with second half 2020.
Total R&D expenditure, including capitalized cost.
B cell and <unk> 7 million or U S. Dollar $111 7 million, representing eight 3% of revenue is sort of half of 2021 .
Compared to RMB, $754 6 million, representing seven 1% of revenue in the same period last year.
Selling general and administrative.
G&A expenses decreased by 16, 6%.
To RMB.
$135 9 million or U S dollar and $31 1 million.
From RMB 1 billion in the same period last year.
The decrease was mainly due to lower warranty expenses and reduced personnel costs compared with the same period last year.
<unk> expenses represented nine 7% of revenue for second half 2021 compared with nine 4% in the same period last year.
Operating profit was RMB.
$153 8 million or U S dollar.
$5 7 million DAU from RMB $568 8 million in the same period last year.
The operating margin was one 9% as compared with five 4% in the same period last year.
Finance costs declined by 46% to RMB $47 5 million.
U S dollar to $1 5 million.
RMB $88 million in the same period last year due to lower term loans reduced interest rates and reduced bills discounting during the period.
The shell financial results of the joint ventures was a loss of RMB $108 4 million or USD 17 million compared with a loss of RMB $65 4 million in the same period last year.
The increased loss was lost.
Largely due to higher engine development expenses and <unk> cost in a joint venture company.
Income tax credit was <unk>.
B $22 4 million or U S dollar $6 7 million compared with an income tax expense of RMB six $9 9 million.
Second half 2020, primarily due to lower income and higher tax credits on R&D related costs.
Net profit attributable to equity holders of the company was RMB 19 million or <unk>.
<unk> dollars 3 million compared with RMB $243 2 million in the same period last year.
Basic and diluted earnings per share.
RMB 46 cents.
Our U S dollar so insane.
Compared with RMB five five RMB 95 days in the same period last year.
Basic and diluted earnings per share for second half 2021, and second half 2020 were based on a weighted Alicia.
$40 million.
<unk> 8290 shares.
Now we will review the.
Financial results for the 2021 fiscal year ended December 31st 2021.
Revenue was RMB 21 3 billion.
<unk> dollars $3 3 billion compared with.
RMB 26 billion in.
Finish in full year 2020.
The total number of engines, so by Jim CL in FY <unk> FY 2021 increased by six 2% to 456791 units compared with 430320 units in FY 2020.
The increase was mainly due to higher and just using that bus engine market.
Passenger when he goes and June sales and across the board in the company.
Good money.
Sure.
But literally agriculture engines, and marine and power generation and genes, which more than offset the unit sales decline in the engine segment.
According to C N S.
<unk> 2021, commercial retail unit sales, excluding sales of gasoline powered and electric powered vehicles decreased by six 9% comp.
Compared to FY 2020, as you need to use of trucks declined by eight 7% while unit sales of buses rose by 13, 7%.
Gross profit decreased by seven 4% to RMB 3 billion.
<unk> dollars 463 million compared with <unk>.
And the $3 2 billion in FY 2020.
Gross margin decreased to 13, 9% compared with 15, 5% in FY 2020.
The decline in gross margin was mainly attributable to a change in revenue mix.
Transition to national six compliant engines and higher material costs, but was mitigated by cost reductions.
Other operating income decreased by 15, 6% to RMB $316 2 million or U S dollar $49 6 million compared with RMB $308 9 million.
In FY 2020.
The decrease was mainly due to lower diamond brands and reduce bank interest income compared with FY 2020.
R&D expenses increased by 35, 5% to RMB, $148 8 million or U S dollar 133 points.
1 million compared with RMB $626 5 million.
In FY 2020, largely due to lower capitalization of the R&D expenses.
The company continue with initiatives to improve.
Engine performance and quality of these engines compliant with China National sticks, and tier four emission standards and to develop products for new energy vehicles.
In FY 2021 .
R&D expenditures, including capitalized costs.
RMB, one 2 billion.
U S dollar $182 3 million.
We should maintain the same level as FY 2020, and represented five 5% of revenue compared with five 6% in FY 2020.
SG&A expenses were RMB, one 8 billion U S dollar $275 4 million, representing eight 3% of revenue compared with RMB, One 8 billion, representing eight 6% after revenue in FY 2020.
Operating profit was RMB $633 5 million.
U S dollar and $4 1 million down from RMB, one 2 billion in FY.
2020.
The operating margin was three 1% compared with five 7% in FY 2020.
Finance costs decreased by three 3% to RMB $115 9 million.
U S dollar $18 2 million from RMB $151 2 million in FY 'twenty.
Finance costs, mainly resulted from reduced term loan interest.
And less bills discounting compared to FY 2020.
We share our financial results of the joint ventures was a loss of RMB 95, 9 million U S. Dollar 50 million compared with a loss of 59 million RMB $59 million in FY 2020.
The decrease the increased loss was primarily attributable to higher <unk> expenses.
While the cost in the joint venture company.
Income tax expense declined by 37, 2% to RMB $43 8 million U S dollar $6 9 million from RMB.
$102.5 million in FY 2020, due to lower income and higher tax credits on R&D related costs.
Net profit attributable to China, you're trying to shareholders was RMB 200, Anthony $2 7 million.
Our U S dollar $42 8 million compared with RMB $548 9 million in FY 2020.
Basic and diluted earnings per share.
RMB 66667.
Our U S dollar 1.05, compared with RMB 13, four tree.
Why 2020.
Basic and diluted earnings per share for FY, 2021 and FY 'twenty 20 years were based on the data shops.
<unk> of $40 million.
At 58002 hundred 90 shares.
Now let me walk you through our base you highlight as of December 31st 2021.
Cash and bank balances.
$5 3 billion or U S dollar and $136 2 million compared with <unk>.
RMB six 4 billion at the end of FY 2020.
And bills receivables.
<unk> 7 billion or USD, one 1 billion compared with RMB eight 1 billion at the end of FY 2020.
Inventories were RMB.
$5 2 billion.
Our U S. Dollar 8.6 hundred 17 million compared with RMB four 5 billion at the end of FY 2020.
And bills payable.
Our RMB seven 4 billion.
U S dollar $1 2 billion compared with RMB seven 5 billion at the end of FY 2020.
Term and long term bank borrowings were RMB, two 2 billion.
$245 5 million compared with RMB, two 2 billion at the end of FY 2020.
I will now turn the call over to caving cabin for a comment before we begin our Q&A.
Please note that due to the COVID-19.
Some officers, China, Utah are remotely calling into the conference call. This may result in a slight delay in providing the answers to some questions.
Apologize for any inconvenience and thank you for your patience with that operator, we're now ready to begin the Q&A session.
Thank you we will now begin the Q&A session would your questions with fishing two pills. Please press <unk> one on it today from keypad and you will be placed into Q2 concerns Q distress.
Once again.
Zero one on its citizens.
One moment please for the first question.
We have our first question from William Grant.
The ski from ruling Laval San Please go ahead.
Hi, you mentioned that you saw gross margin improvement from the first half due in part to economies of scale from the National six engine is that something we can expect to see in 2022 continued margin improvement.
Okay, Yeah until either one definitely we sold more national six inches.
And that's just I think is margin has been increasing and improving.
Multi month every month or up to December .
So.
For 2022.
It will still be continuing with our.
Our cost reduction initiative or program.
To reduce further cost as much as possible and as we go.
So 22, we should be selling even more nationalistic engines in fact most of them.
So in China, we just actually have a fixed so yes, we think we will be able to be appropriate.
And from where it is today.
Okay great.
The press release mentioned higher warranty costs with that.
Any kind of significant issue and what did that relate to.
Okay deal the highest royalty cost, it's actually relating to one of our gas engine. So you had some quality issues.
Europe is addressing it at the last few years are they can be.
Because the control now, but there will still be some going into next year, but it should be much less than this year.
Okay.
On the R&D side.
It was quite a bit higher than it's been in the past.
Whether you're talking just the expense or the capitalized.
Can you break out what is towards the traditional engines and how much is for your new energy platform.
Okay.
But generally the thing is we have been spending about close to 1 billion 2 billion in the last two or three years from now.
Now with the addition of Essex platform coming to a close now.
But we still be needing R&D to continue to.
I call affects this.
To work with our Oems to put our engine.
OEM vehicles and get it tested and certified and so forth.
There will still be a great, but the amount involved for the six will be lower.
But we also have to spend now some cost on getting our engine.
Really for the tier four emission standard for off road engines.
New emission standards will be effective from the end of this year.
Should we still be.
Looking at saving some money on that to bring you up to that level and you believe you'll be able to get there on time without any issue.
And on power that will also be looking at spending some on the new energy vehicles.
So while the reduction there'll be some reduction in the.
Thanks.
R&D costs this will be channeled through other areas. I think these are same question you asked.
Earlier sells a wonderful conference calls before.
Yes, so I mean, what.
Should we expect similar R&D levels for this year and beyond.
What you did for all of 'twenty one.
Yes, I think the data into that.
I think we should be looking at about.
Same level R&D costs here.
Of the.
I mean shouldn't you have upgrade to Stifel.
And also the new energy vehicles, so I think we'd be spending more money there.
Obviously this will be kept a lifeline.
Sure.
Right Okay.
Hey.
At the end of December you announced the hydrogen engine is there any update on when that's going to be commercially ready for sale.
I think the early yet for that.
The market is not quite ready yet so we are there.
Helping solve.
The way the Green right now he's got one this one that you probably start to develop a few more.
I think there will be the focus for this year next year rather than.
Commercialization of <unk>.
At the same time, we will be looking with our Oems to try to speculate with you.
<unk>.
To really get to commercialize commercialization.
A bit more time.
Okay.
Last question is what kind of impacted the chip shortage have on you guys in the second half and what do you expect for this year.
Okay, the chip shortages.
The impact on our whole lots of events.
In the middle of last year and up until the third or fourth.
Quarter, and beginning of fourth quarter.
Lastly, because of the Covid.
Alicia where most of it comes from.
So overall in fact last year was about.
18, 18000 units of engine.
For the full year.
This year, there are still some issues, but depending on the demand you have declined.
The market comes out as we expect it to fall, especially for market then.
And then the impact shouldn't be Cvs last year, I think we should be able to manage this year, although they will still be some impact.
Okay, Alright, great. Thank you.
Okay.
Thank you for the moment, we have no more questions, ladies and gentlemen, just a reminder, if you wish to ask a question. Please press <unk>.
One on your telephone keypad.
Number one on your two different keypad. Thank you.
Okay.
No question for the moment just a reminder, if you wish to ask a question. Please press <unk> one.
One on your telephone keypad.
And as a reminder, ladies and gentlemen, if you wish to ask a question. Please press <unk>.
Got it.
Lastly, a reminder, ladies and gentlemen.
We shall I ask a question. Please press you everyone understood that thank you.
Sure.
No question, we have now reached the end of our Q&A session and I will turn the call back over to Mr. Hu.
Thank you all for participating in our conference call. We issue each of you good health and please be safe. During this pandemic, we look forward to speaking with you again <unk>.
Bye for now.
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