Q1 2022 China Automotive Systems Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to China automotive systems first quarter 2022 conference call.
This time, all participants have been placed on listen only mode and the floor will be opened for questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Kevin Chiefs, Kevin over to you.
Thank you everyone for joining us today welcome to China Automotive systems, 2022 first quarter conference call.
Joining us today are Mr. Jay Li Chief Financial Officer of China Automotive systems.
Available to answer questions later in the conference call with your assistance of translation.
Before we begin.
Throughout this call we may make statements that may contain forward looking statements forward looking statements represent the companys estimates and assumptions only.
As of the date of this call as a result, the company's actual results could differ.
Materially from those contained in these 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, 2021, that's filed with Securities and Exchange Commission and then.
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 control our business operations and financial condition may be materially adversely affected as a result of the deteriorating market outlook for automobile sales.
The slowdown of regional and national economic growth.
We can liquidity and financial condition of our customers or other factors that we cannot foresee.
Any of these factors and others.
It is beyond our control could have an adverse effect on the overall business environment caused uncertainty in the regions, where we can tuck business.
Caused our business to suffer in ways that we cannot predict a materially adversely impact our business financial condition and results of operations.
So long disruption or any further unforeseen delay in our operations of the manufacturing delivery and assembly process within any of our production facilities are critical.
As a 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.
For 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.
2022.
We'll then conduct a question and answer session.
2022 first quarter financial results are unaudited.
All results are reported using U S GAAP accounting.
For the purposes of our call today.
With our financial results in U S dollars.
We will begin with a review of the recent dynamics of the Chinese economy, the automobile industry and China Automotives market position.
China's GDP growth was four 8% in the first quarter of 2022.
Historically, low but above expectations at higher than the 4% in the fourth quarter of 2021.
The COVID-19 outbreak worsened during the first quarter with Lockdowns in several cities across China supply.
Supply chain interruptions increased retail spending was weak and unemployment rose five 8% March computer chip shortages also continued to affect automobile production.
In this environment Chinese automobile sales increased by only 2% year over year in the first quarter of 2022 with sales declining by 11, 7% in the month of March as the Lockdowns are supply chain issues took stronger effect.
Passenger vehicle sales rose, 9% year over year in commercial vehicle sales declined by 31, 7% and the.
The first quarter of 2022.
Truck sales were down by 32, 8% and bus sales decreased by 18, 7% on a year over year basis in the first quarter of 2022.
Reflecting the auto industry conditions.
Sales in the first quarter of 2022 increased by four 7% year over year to $136 4 million.
We're consistent with the $138 $8 million in the fourth quarter 2021.
Net sales of traditional steering products and parts decreased by nine 7% soon.
$95 $4 million for the first quarter of 2022.
Compared to $105 $6 million for the same period.
In 2021.
Sales of our electric power steering EPS products.
Rose by 66% in the first quarter of 2022.
Export sales, primarily to our North American customers and South American operations increased by seven 7%.
Yes.
Our gross margin declined to 10, 8% from 15, 1% in the first quarter last year.
Higher material costs.
Much higher international freight charges.
Were affected by supply supply chain disruptions and Lockdowns related COVID-19 infection spreading in China and abroad.
Additionally, our product sales mix compared with a year ago also affected our gross margin.
Research and development expenses, R&D increased 29% year over year to $8 $1 million.
Mainly due to the higher investment in our EPS product line.
We are enhancing the performance of our current EPS products as well as developing new EPS products to expand our market penetration.
Okay.
In 2021, we introduced our proprietary new EPS product.
For the first time with an entirely developed in house and China.
This product communicates with the vehicle's main Davis to case lane keeping assist.
Automatic parking assist lane centering in traffic jam assist functions as.
Finally, the company's advanced driver assistance system.
Yes.
Great Wall, Chery auto Beijing Auto and J J AC Motors, all began who's now EPS products in 2021.
So expand our advanced technology into the commercial vehicle space in January 2022.
Agreed with <unk> to develop an E.
RCB steering system.
For sketches trucks and buses.
This E RCB steering system is a fully electric intelligence, scoring system for light and medium duty trucks and heavy duty commercial vehicles.
Combining our proprietary technology with our advanced driver assist systems L. Four platform named APL for this driver assist systems enabled vehicles to execute level four autonomous driving.
This E RCB steering system is expected to become the worlds first mass produced full year electric intelligent power steering system for commercial vehicles.
Our access to the technology of Sweden, essentially an ABB will further improve our <unk> scanning products, especially for vehicle motion control for the fast growing autonomous driving market in both passenger and commercial vehicle markets.
Yes.
As of March 31, 2022.
We had cash cash equivalents and pledged cash of $109 $4 million with working capital of $145 6 million. We have initiated a share repurchase program began in April 2022 of up to $5 million.
Of the <unk>.
Of the outstanding common shares over the next 12 months.
Repurchases.
Will be made in open market transactions at prevailing market prices up to $4 per share through March 32023.
We have maintained our market share in the Chinese and North American Sneering markets, our Brazilian operation continues to grow and we are building a larger footprint in Europe .
Our <unk> technology are expanding and our EPS product lines are growing and capabilities performance and in sales as more customers have been added compared with a year ago.
We look forward.
To add more EPS products, using <unk> technology to further enhance our steering products and the global market.
Now let me review the first financial results for the first quarter of 2022.
Net sales increased by $4 7 million, 447% to $136 $4 million in the first quarter 2022.
Excuse me compared to $133 million in the first quarter of 2021.
The net sales increase was mainly due to the recovery of the Chinese economy post COVID-19, and higher demand for passenger vehicles in the first quarter of 2022.
Net sales of traditional steering products and parts decreased by nine 7% to $95 $4 million for the first quarter 2022, compared to $105 $6 million for the same period in 2021.
Net sales of electric power steering products, EPS rose, 6% to 6% to $41 million from $24 7 million for the same periods in 2021.
<unk> product sales were 31% of total net sales for the first quarter of 2022 compared with 19% for the same period in 2021.
Export net sales grew seven 7% to $43 $4 million in the first quarter of 2022, compared with $40 $3 million in the first quarter of 2021.
Gross profit declined to $14 $7 million.
Compared to $19 $7 million in the first quarter of 2021.
Gross margin the first quarter of 2022 was 10, 8% compared with 15, 1% in the first quarter of 2021.
The main causes in and the decline in gross profit and the margin decline.
Increased raw material and international transportation expenses and the change in product mix.
Gain on other sales was <unk> $9 million compared to $1 $3 million in the first quarter of 2021.
Selling expenses were $4 3 million compared to $5 $6 million in the first quarter of 2021.
This decline in selling expenses was primarily due to lower transportation expenses.
Selling expenses represented three 2% of net sales in the first quarter of 2022 compared to four 3% in the first quarter of 2021.
General and administrative expenses G&A.
Were $4 $8 million compared to $4 6 million in the first quarter of 2021.
G&A expenses represented three 5% of net sales in the first quarter of 2022.
And then the first quarter of 2021 also.
Research and development expenses, R&D increased 29% to $8 1 million compared to $6 $7 million in the first quarter of 2021 R&D expenses represented five 9% of net sales in the first quarter of 2022 compared to five 1% in the first quarter of 2021.
Yes.
Net other income was $3 $5 million for the first quarter of 2022 compared to $1 $7 million with the three months ended March 31 2021.
The increase of $1 $8 million was mainly due to increased government subsidiary subsidies, which totaled $3 million received in the first three months of 2022.
Loss from operations was $1 $5 million in the first quarter of 2022 compared to income from operations of $4 $2 million in the first quarter of 2021.
The 2022 first quarter loss was primarily due to lower gross gross profits and higher operating expenses in 2022 compared with the same quarter last year.
Interest expense was <unk> $4 million in the first quarter 2022 compared to point Dream.
In the first quarter of 2021.
Net financial income was $2 million in the first quarter of 2022, compared with a net financial loss of <unk> million dollars and the.
First quarter of 2021.
The net financial income in the first quarter 2022.
Due to foreign exchange gains.
Income before income tax expense and equity in earnings of affiliated companies was $3 $6 million in the first quarter of 2022.
Compared to $5 $3 million in the first quarter 2021, the reduction in income before income tax expenses and equity in earnings of affiliated companies in the first quarter of 2022 was mainly due to a loss from operations offset by higher other income net.
Financial income.
Equity and loss of affiliated companies.
Plus $2 $5 million in the first quarter of 2022, compared with equity and loss with affiliated companies of $1 $4 million.
In the first quarter 2021.
Net loss attributable to parent company's common shareholders was.
<unk> 6 million in the first quarter of 2022 compared to net income attributable to parent company's common shareholders of $3 $2 million in the first quarter of 2021.
Diluted loss per share was nil in the first quarter of 2022 compared to net income per share <unk> in the first quarter of 2021.
Weighted average number of diluted common shares outstanding was $30 million 851776 in the first quarter of 2022 compared to $30 million 857736 in the first quarter of 2021.
Next we'll review a few balance sheet items.
As of March 31, 2022, total cash and cash equivalents and pledged cash were $109 $4 million.
Total accounts receivable, including notes receivable for $222 $4 million.
Payable including notes payable.
But $227 $7 million in short term bank loans were $48 $2 million.
Excuse me.
Total parent company stockholders' equity was $322 $3 million as of March 31, 2022, compared to $321 million as of March 31.
2021.
Net cash used in operating activities was $4 $3 million in the first quarter of 2022.
The company purchased $44 $7 million of short term investments in the first quarter of 2022.
The business outlook management has reduced revenue guidance for the full year 2000 $22 million to $490 million for $510 million.
Due to the economic impact of Covid, 19, and foreign exchange volatility.
This target is based on the Companys current view 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 open for questions. If you have any questions or comments. Please press star one on your phone at this time. We also are posing your question you. Please pickup your handset to sustain when you speak of fine to provide optimum sand quantity. Please hold while we poll for questions.
Thank you. Your first question is coming from William Greg does that ski Greenwich playful William Please ask your question.
Hi, a couple questions first with regards to the Lockdowns in China, how much of an impact is that having you saw some of that in the first quarter, how much was that having right now.
In the current quarter.
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So it's great to hear.
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Okay. So.
Condemning.
Covid related lockdown.
<unk> release.
The impact to our business.
It's really.
Second.
Half of March.
So.
It doesn't fully reflected in our.
It doesn't have much.
Significant impact to our first quarter number.
The the lockdown.
Impact did come in in the month of April in a very significant way.
If you look at the entire auto industry in China.
On the sales.
Passenger vehicle in the month of April .
<unk> was down 40% compared to the.
April .
Last year.
So.
For that reason.
We have.
Adjusted downward our annual guidance.
Just to reflect the impact.
Yeah.
Okay.
From.
Colgate Lockdown.
Particularly in the month of April .
Okay, great with.
With regards to the gross margins it looks like the international sales all had gross margins under 10%.
Is that all shipping related or what's the reason for that and how do you guys get that back up to more normal levels.
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So those are the two questions.
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Okay.
So.
The gross margin overall.
It was impacted in the first quarter, our overall gross margin.
Including domestic and international businesses.
Affected by three factors.
The first is our.
Business in the domestic <unk>.
Commercial vehicle.
Our sector.
We are one of the major player in the commercial vehicle steering market.
The overall.
Weak.
Property market real estate market.
Does have a impact to the truck sales.
In particular, the heavy duty trucks.
We do sell a lot of product to the heavy duty.
Truck producers.
<unk>.
Weaker sales affected our.
Overall margin.
For the commercial vehicle.
Set of business on the passenger vehicle business.
Just as you mentioned the international business.
Accounts for.
Sizable of our overall revenue.
The higher shipping costs.
<unk>.
Inflated oil price.
Does that affect it.
Our.
Cost.
And last factor or the Forex foreign exchange in the first quarter RMB actually against U S dollars being lower.
Stronger which affected our.
Because we are reporting in U S dollar so thats impacting all of them.
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Yes, as you also noticed.
The RMB has been since then has depreciated against U S dollars, so, especially the months of April and May.
So we are hopeful.
The next few quarters, our margin will improve especially was to help us.
Stronger us dollar.
A weaker RMB.
Okay Alright.
Can you talk about what the R&D spending is going towards now and how much you expect to spend on that.
<unk> 2022 in 2023.
Okay.
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Okay. So.
In terms of R&D Q1.
We booked about $8 1 million U S dollars.
We expect about $30 million in R&D.
Fiscal year 2020.
And most of our R&D expenses are going to.
The development of electric power steering in what we call EPS product.
We now have a slew of EPS.
All of the other.
Intelligent.
Steering systems.
Including our EPS GPS.
The CB RCB.
Some of the level three.
Functions.
We embed it in two hours.
Our software.
Systems as well as the steering systems.
Really.
Featured the functions for autonomous driving.
And for the future of <unk>.
The.
Artificial intelligence.
Vehicles so.
And these are the area, we will continue to invest and that being said, we expect the R&D expenses.
To be slightly higher.
From 2022 next year, so going above.
Got it.
Higher little bit higher than this year's R&D spending.
Okay, Great and then last question is when do you guys expect to do any share repurchases.
Okay.
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So as we just finished our reporting.
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Brokers it would take probably 10 days to get ready then when we start.
Bye.
Okay, great. Thank you guys.
Thank you. Thank you.
Okay, ladies and gentlemen, as a reminder, if you wish to place any questions or comments. Please press star one on your phone at this time.
Okay. There appears to be no more questions in the queue I'm going to hand back over to Kevin.
Kevin.
Kevin are you there.
Yes, we thank.
Thank you for your participation in today's conference call.
We wish you to be safe and we look forward to speaking with you again.
Thank you. Thank you ladies and gentlemen, this does conclude today's conference call. You may now disconnect your phone lines and have a wonderful day. Thank you for your participation.
Because of you there.
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Okay.