Half Year 2022 China Yuchai International Ltd Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to China-UJ International Limited first of 2022 Financial Results.

At this time all participants are in listen only mode. After the speaker presentation there will be a question and answer session. To ask a question you will need to press star 1 and 1 on your telephone.

I would now like to turn the conference over to Kevin Deese. Please go ahead sir.

Thank you for joining us today and welcome to China-Utah International Limited. First half year ended June 30, 2022 conference call and webcast.

Joining us today are Mr. Wei-Meng Ho and Mr. Chen-Sen Lu, President and Chief Financial Officer of CYI respectively.

In addition, we also have in attendance, Mr. Calvin Lye, VP of operations of CYI.

Before we begin, I will remind all listeners that throughout this call, we may make statements that make.

of the statements within the meaning of the private security litigation reform act of 1995 the words believe expect anticipate project target optimistic confidence that continue to predict contend aim will or similar expressions are intended to identify forward-looking statements

All statements other than statements.

A 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.

The company cautions that these statements by their nature involve risk and uncertainty, and actual results may differ materially depending upon 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-Fs under the heading Risk Factors, Results of Operations, and Business Overview.

And in other reports, SIAA with the Securities and Exchange Commission from time to time.

If the COVID-19 pandemic is not effectively controlled, our business operations and financial conditions may be materially adversely affected due to a deteriorating market for automotive sales and economic slowdown in China and abroad.

a potential weakening of the financial condition of our customers, potential adverse impact to our suppliers and supply chain, 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 or made during today's call or otherwise in the future.

Mr. Ho will provide a brief overview and summary, then Mr. Liu will review the financial results for the first half year ended June 30, 2022. That way after we will conduct a question and answer session.

For the purposes of today's call, the 2022 and 2021 financial results are unaudited and it will be presented in RMB and US dollars.

All the financial information presented is reported using the International Financial Reporting Standards as issued by the International Accounting Standards Board.

Mr. Ho, please begin your prepared remarks.

Thank you, COVID.

Slow growth in the Chinese economy in the first half of 2022.

From the last part of 2021, China's GDP growth was 22.5% year-over-year in the first half of 2022 and 0.4% in the same quarter of 2022, respectively.

contrasted with the 12.7% growth experience in the first half of 2021.

According to data reported by China Association of Automobile Manufacturers, total industry unit sales to commercial vehicles, excluding gasoline-powered and electric-powered vehicles, declined by 49.7% year-over-year, with truck and bus unit sales down by 50.9% and 35.1% respectively.

in the first half of 2022.

The industry sales decline was primarily due to lower demand from last year's high base in the first half of 2021.

pandemic-related lockdowns and travel restrictions in various parts of China.

These sectors cause lower commercial vehicle demand due to less logistical activities and fewer infrastructure and construction projects.

In this unsettled Chinese commercial vehicle environment, our main subsidiary Guangxi China Machinery Company Ltd. GOMCL reported a combined truck and bus unit sales decline of 56.8% year-over-year in the first half of 2022.

Truck sales were 58.7% lower and bus sales declined by 34.6%.

QIMCLs engine sales in the off-road market.

experienced a more modest unit sales reduction of 12.7% year over year in the first half of 2022.

Our overall sales revenue in the first half of 2022 declined by 32.2% EURO year to 8.6% RMB or USD 1.3B compared with RMB 12.6B in the same period of last year.

Our gross profit declined by 16.2%, much less than our sales decline, to RMB 1.4 billion on US dollars, 202.7 million. Our gross margin improved by 3% to 15.9% from 12.9% in the first half of 2021.

In addition to lowering production costs, our cost-cutting initiatives reduce other operating expenses, generating operating profits in the first half of 2022 despite higher investment in our research and development.

We increased our investment in research and development R&D by 5.9%, including capitalized costs. RMB 476.9 million or USD 71.1 million in the first half of 2022.

These expenditures represented 5.6% of total revenues, compared with 3.6% in last year's same period.

We continue to improve the performance and quality of our National 6 engines already in the marketplace, even as we prepare for the deployment.

of our tier 4 off-road engine portfolio later in 2022, when the emission standard is implemented across China.

Some RNG has been newly directed in 2022 to tier 4 engines.

We have also increased our R&D resources to advance our new energy vehicle technologies to accelerate product development.

In the first half of 2022, we generated net profit with basic and diluted earnings per share of RMB, 2.29 with RMB or US$0.34.

Our GYMCL subsidiary has made strategic initiatives.

in 2022 to continue to improve our NEV capabilities and other technologies.

Following the introduction of its hydrogen engine for China's commercial vehicle market in late 2021, GYMCL introduced in July 2022 the new heavy duty hydrogen engine YCK 16H engine. 2

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Beijing Echai Xinxun Da New Energy Technology Company Limited with Beijing Xinxun Da Bus Company Limited, Woz Incorporated to combine the partners' resources to market and sell fuel cell powertrain.

The city of Macau is operating 222 new energy buses equipped with each high range extender.

More than 600 units of ECHI's core range extender were ordered for the Macao bus market.

each high-surrange test center provides a field saving of up to 50%.

Other developments in the first half of 2022 include

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A subsidiary of Road Drive Power System has produced its 1000 unit of MTU Series 4000 Hi-Hawk Power Diesel Engine primarily for the Chinese off-road market.

GYMCL's upgraded E-Chai SO4220-61 series of engines has been certified by the UNR49.07 Euro 6E stage emission standard of TUV Rhineland Greater China, providing us greater access to European and American markets.

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Guangxi H.I. Machinery Monopoly Development Company Ltd. Form a new joint venture with Suzhou Yixing Automobile Technology Company Ltd. to enhance the nationwide engine services and emergency support for all vehicles powered by H.I. engines in China.

GYMCL YC6GN 7.8L AV Duty Natural Gas Engine became the exclusive engine to power 800 Ankhai buses shipped to Monterrey, Mexico.

That country is the largest city.

YC6GN is providing a more environmentally friendly bus solution.

As at June 30th, 2022, we maintain our cash and bank balances of RMB 5.3 billion or USD 783.5 million.

After reviewing two 2021 earnings and cash flows, current operations, as well as the operating and capital budget for 2022, the Board of Directors declared a detached dividend of 14 US cents for ordinary share for the year ended December 31st, 2021, which was spent on July 15th, 2022.

Our large portfolio of advanced national 6 engines is generating sales and safeguarding our market position in the Chinese on-road market in this uncertain market.

Meanwhile, our portfolio of Tier 4 engines is ready to go when those emission standards are implemented nationwide in China this year. We are pleased with customers' acceptance of our NEV technology and we expect to introduce more NEV products in the future to enhance the capabilities of customers' vehicles.

With that, I would now like to turn the call over to Choon Seng Lu, our Chief Financial Officer, who will provide more details on the financial results. Choon Seng, you may begin your remarks.

Thank you, Wing Ming. Now let me review our first 6 months results under June 30th, 2022.

Our revenue was RMB 8.6 billion or USD 1.6 billion compared with RMB 12.26 billion in the same period last year.

Reflecting the above industry conditions, the total number of engines sold by GRMCL in first half 2002 was 180,911 units.

36.6% decrease compared with 285,342 units in same period last year.

GMCR reported a 56.8% decline in truck and bus engine sales and a 12.7% decline in off-road engine sales in the first half 2022.

Gross profit was RMB 1.4 billion or USD 202.7 million compared with RMB 1.6 billion in the same period last year.

Gross margin increased to 15.9% compared with 12.9% in the same period last year. The increase in gross margin was mainly attributable to improved margin in national 6 engine sales and also to the increase in sales mix in the off-road engine.

segment in the first half 2022.

Are the other operating income was RMB 85.5 million or USD 12.7 million compared with RMB 111.7 million in first half 2021.

The decline was primarily due to lower interest income and higher foreign exchange losses compared with the same period last year.

Research and development R&D expenses increased by 29.4% to RMB $408.5 million or USD $16.9 million compared with RMB $315.7 million in the same period last year.

Higher R&D expenses in first half 2022 were mainly

due to an increase in experimental cost primarily for the engines used for marine empowered generation applications.

GMCL continues to improve the performance and quality of its engines in compliance with China's national 6 and tier 4 emissions standards.

and develop products for new energy vehicles.

The total R&D expenditure including tabularized cost was RMB 476.9 million or USD 31.1 million in first half 2022 as compared to RMB 476.9 million in 2020.

RMB 450.2 million in the same period last year.

representing 5.6% of revenue compared with 3.6% in the same period last year.

Selling general and administrative SG&A expenses represented 8.7% of revenue for first half 2022 compared with 7.3% in the same period last year.

SG&A expenses decreased by 18.5% to RMB 749.6 million or USD 111.7 million from RMB 920.1 million in the same period last year.

The decrease was mainly due to lower warranty and freight expenses and reduced personnel costs compared with the same period last year.

Other operating profit decreased by 42.4% to RMB $288 million or USD $42.9 million from RMB $499.8 million in the same period last year.

The operating margin was 3.4% for first half 2022 compared with 4% in the same period last year.

Finance costs decreased by 19.3% to RMB 55.2m or USD 8.2m.

from INB68.4 million due to lower bank loans and lower bills discounting rates compared with the same period last year.

The share of financial results of the joint ventures was a loss of INB30.9 million or US$4.6 million for 1st half 2022 compared with a profit of INB12.5 million in the same period last year.

The loss was largely due to the loss in our junk venture with the heavy duty truck producer CNC trucks.

Net profit attributable to E2D holders or the company was RMB.

US$93.7 million or US$14 million compared with IMB's $253.7 million in the same period last year.

Basic and diluted earnings per share were RMB2.29 or US$0.34 compared with RMB6.21 in the same period last year.

Basic and direct earnings per share for first half 2022 and first half 2021 were based on the weighted average of 40,858,290 shares.

Now, let me walk you through our balance sheet highlights as of June 30th, 2022.

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IMB 5.3 billion or USD 783.5 million compared with IMB 5.3 billion at the end of 2021.

3M builds receivables were RMB 6.6B or USD 982.6M compared with RMB 7B at the end of 2021.

Eventories were RMB 4.0 billion USD, 601.8 million compared with RMB 5.2 billion at the end of 2021.

3 imbued spables were RMB 6.1B or USD 904.9M compared with RMB 7.4B at the end of 2021.

Short term and long term bank borrowings were RMB $2 billion or USD $296 million compared with RMB $2.2 billion at the end of 2021.

I will now turn the call over to Kevin for a comment before we begin our Q&A.

Please note that due to COVID-19, some officers of China Yuxi are remotely calling into the conference call.

This may result in a slight delay in providing answers to some questions.

We apologize for any inconvenience and thank you for your patience.

With that operator, we are ready to begin the Q&A session.

Ladies and gentlemen, we now begin the question and answer session.

If you wish to ask a question, please press star and one on your telephone. Star one and one on your telephone if you wish to ask a question.

We have one question.

Bye

We got a question from Willem Gewereski. Please go ahead.

of questions. What percent of the unit sales and the revenue was outside of China for the first half of 2022 and then also the first half of last year?

Okay.

In the first half of 2022, in terms of unit sales, we probably have about 10 to 12% of our unit sales are from outside China.

from our export. Even when it says export, this includes export that we export through the OEMs in China. So the actual direct sales to China out directly to those end users is actually very low. It's probably less than 5%.

Last year was not that good because last year the rest of the world was kind of affected by the COVID-19 pandemic. So the amount of export sales as a ratio for the first half was actually quite low. There are two reasons. One is the export sales number unit is lower. And two, because last year in China there was this emission upgrade from the 1st of July 2021 and that was quite significant pre-buy. No doubt it would help.

Depress, compress the ratio of habit

Okay.

All right, what is your outlook for the engine market in China for the remainder of this year and then next year?

This is a difficult question to answer. We had a rather weak commercial basket this year simply because of a few factors one is the first half of last year there was a lot of free buys so actually it was quite a buoyant market. So this year the

decline due to quite a few factors. One is the significant lockdown of various parts of the country. That affected the logistics and as well as the construction and infrastructure. But so that affected not only the commercial vehicles but also the construction machinery as well. So and in May last year, if you have read, the government came up with quite a lot of measures to try to get the economy going again.

So we have to wait and see...

how this is going to trickle down to the entire economy. That's for now, it's still early days, so it's going to be quite difficult for me to judge actually how it's going to look like for the rest of the year and into next year. But I personally think that you'll probably see some green shoots in the fourth quarter, and hopefully that will flow on over to the next financial year.

Okay. And last question. Outside of the Macau range extender announcement, can you give updates on the progress of the other new energy products you guys are developing?

Okay, the main one that we have right now in terms of energy is actually the range extender. The range extender that we have is quite well accepted. So we are now working with not just the on-road OEMs but also some off-road OEMs who are also interested in this product for us. So we are still developing the bigger range for this product.

So you take a little while for it to fully develop, but we do see quite a fair bit of potential there. And the other one that's doing quite a fair bit of sales for us is actually pure electric vehicles that we are doing some integration work for. So that one we do sell some as well. The market for fuel cells actually works quite slow right now, it hasn't quite taken off yet, but we're still in the early stage.

We have not had many that we sold. In fact, we only got one or two, we got a couple of prototype out there in the marketplace. But that will take some time. So again, that one for hydrogen powered vehicles, the market is still in the early stage of development. So we are still working on it.

Okay. All right. Thanks, Heming.

Yeah

Thank you for your question. There are no further questions at the moment.

We have now reached the end of the Q&A session. I will turn the call back to Mr. Ho.

Please go ahead.

Thank you all for participating in our conference call. We wish each of you good health and please be safe.

We look forward to speaking with you again. Goodbye.

That's conclude the conference for today. Thank you for participating. You may hold this connect.

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