Q2 2022 China Automotive Systems Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the China Automotive systems second quarter 2022 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. It is now my pleasure to turn the floor over to your house Mr. Kevin.
Kevin a T.
Thank you everyone for joining us today welcome to China automotive systems.
In 2018 second quarter conference call.
Joining us today are chairman Chang.
Yeah.
CEO and Mr. Jay Li Chief Financial Officer.
China automotive systems.
That would be available to answer questions later in the conference call with the assistance of translation.
Before we begin I would like.
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.
As a result.
The company's actual results.
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.
The year ended December 31, 2021.
While 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 not effectively and timely control our business operation and financial condition may be materially and adversely affected as a result of the deteriorating market outlook for automobile sales.
The slowdown in 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 other factors beyond our control could have an adverse effect on the overall business advisement.
Cause uncertainties in the regions, where we conduct business.
Because our business to suffer in ways that we cannot predict and materially adversely impact our business financial condition and results of operations.
A prolonged disruption or any further unforeseen delay in our operations of the manufacturing.
And assembly processes within our production. So we could continue to result in delays in the shipment of products to our customers increased costs and reduced revenues.
The company expressly disclaims any duty to provide updates to any forward looking statements made in this call.
Result of new information future events or otherwise.
On this call I will provide a brief overview and summary of the second quarter and first six months results for the period ended June 32022.
Management will then conduct a question and answer session. So it's my 22 second quarter and first six months financial results are unaudited as always.
So our reporting using U S GAAP accounting.
For the purposes of our call today I'll review the financial results in U S dollars.
We'll begin with a review of the recent dynamics of the Chinese.
Our economy in the automobile industry.
And China Automotives market position.
China's GDP growth was a slight 0.4% increase in the second quarter of 2022, and two 5% for the first six months of the year.
Paired with 12, 7% growth in the first six months of 2021.
Lockdowns and travel restrictions from COVID-19 interrupted supply chains with delays in raw material and finished goods.
Including for my automobile Microchips and other components investments in real estate in the first half of the year fell by 5.4% from last year's same period and industrial production in June Mr expectations.
In this challenging environment data from the China Association of automobile manufacturers C M Rip.
Reported that the Chinese automobile sales decreased by 13, 3% year over year in the second quarter of 2022 with passenger vehicle sales declining by 2.2% year every year in commercial vehicle sales declined by 51% year over year in the second quarter of 2022.
For the first six months ended June 32022.
A M reported automobile sales declined by six 6% year over year.
Passenger vehicle sales rose by three 4% year over year with sedans, six 1% year over year hiring Suvs, 3.3% higher year over year.
However, on a year over year basis, MPV sales declined by 15, 7% and cross vehicles were down by 13, 3% a.
13, 7% respectively.
For commercial vehicle sales C. A M data showed an overall sales decline of 41, 2% year over year for the first six months of 'twenty to 'twenty two the truck market declined by 42, 2% year over year and bus sales were down 35% year over year.
Despite the weak results in both the Chinese passenger and commercial vehicle markets in the second quarter. Our net sales grew by five 5% year over year in the 2022 second quarter.
Most of our business segments achieved sales growth, except our commercial vehicle products division, which reflected the overall commercial vehicle sector sale decline.
For the second quarter of 2022, while net sales of our advanced hydraulic steering products and parts were two 6% lower year over year.
Net sales of our electric power steering EPS products Rose 39, 7% year over year and represented 25, 5% of the total net sales and.
And export net sales to our tier one north American customers.
Rose year over year in the second quarter of 2022.
We grew our gross margin by four 8% year over year in the second quarter of 2022.
The 17, 9% from 13, 1%, mainly due to the changes in the product mix as our EPS products experienced strong sales growth.
Research and development expenses R&D increased by 33, 9% to seven $9 million in 2022 second quarter as we continue to build our technologies.
Higher gross profit.
Stricter cost controls and higher other income helped generate income from operations of $7 $2 million in the second quarter of 2022 compared to $1 million in the second quarter of 2021.
Our 2022 seconds.
Income per share second quarter income per share was 31 cents versus 10 cents in the second quarter last year.
Okay.
In early 2022, we signed an agreement with global truck powerhouse Scania a b.
To develop an E RCB steering systems for a scan your trucks and buses to expand our technology in the commercial vehicle markets.
Combining our proprietary E RCB steering system with our advanced driver assist systems.
L four platform.
None is a P O four allows vehicles to execute level four autonomous driving.
E R CEB as a fully electric intelligence steering system for lightened beauty and due to the trucks and heavy duty commercial vehicles.
Furthermore, our subsidiary in Sweden, and a b will further enable us to improve our any new steering technology, especially for fast growing autonomous driving products and passenger and commercial vehicles.
As of June 32022, we had cash and equivalents plus pledged cash of $143.8 million and working capital of $150 1 million.
Our share repurchase program can.
Can use up to $5 billion of these resources to buy outstanding common shares through March 30, <unk> 2023.
Before I move on to discuss the financial results, we would like to comment on our recent dynamics of the Chinese auto market. We are particularly encouraged by the June sales of passenger vehicles.
Sedans, Suvs and MPV, but with $2 2 million passenger vehicle units were sold up 41, 2% year over year in June alone. According to C. A M.
The robust rebound of passenger vehicle sales was mainly driven by a recovered supply chain pent up demand and favorable government policies, including a 50% reduction in the Nashville purchase tax for some vehicles.
Local governments have also issued more license plates.
Available and offered purchase vouchers as well.
While the Chinese automobile market is recovering our north American and Brazilian operations continue to expand our EPS products are gaining greater market share and are any of the technologies are acquiring more capabilities.
Yeah.
Let me now review the financial results in the second quarter of 2022.
Our net sales increased by five 5% to $127 $2 million.
Quarter of 2022 compared to $126 million in the second quarter of 2021.
Sales of traditional steering products and parts decreased by two 6% to $94 $8 million for the second quarter of 2022 compared to $97 $4 million for the same period in 2021.
Net sales of electric power steering products rose 39, 7% or $32.4 million from $23 $2 million for the same period in 2021 EPS product sales were 25, 5%.
Of the total net sales for the second quarter of 2022, compared with 19, 2% for the same periods in 2021.
Export net sales in North American customers rose by 21%.
$238 $3 million in the second quarter of 'twenty, 'twenty, two compared with $31 $9 million in the second quarter of 2021.
Gross profit rose by 43, 7% to $22 7 million compared to $15 4 million in the second quarter of 2021.
Gross margin in the second quarter of 2022 was $17 nine per cent compared with 13, 1% in the second quarter of 2021. The increase in gross margin was mainly due to changes in the product mix and an increase in selling price.
Gain on other sales was $2 $1 million compared to $2.7 million in the second quarter of 2021.
Selling expenses decreased by eight 5% to $4 $1 million compared to $4.4 million in the second quarter of 2021.
This was primarily due to lower transportation expenses.
<unk> expenses represented 3.2 of net sales.
In the second quarter of 2022 compared to three 6% in the second quarter of 2021.
General and administrative expenses G&A decreased by six 6% to $5 $7 million compared to $6 $1 million in the second quarter of 2021.
Which was primarily due to lower office expenses and professional service fees.
G&A expenses represented four 5% of net sales in the second quarter of 2022 compared to five 1% of net sales in the second quarter 2021.
Research and development expenses R&D increased by 33, 9% to $7 $9 million compared to $5 $9 million in the second quarter of 2021.
R&D expenses represented six 2% of net sales in the second quarter 2022, compared to four 9% in the second quarter 2021.
Other income net.
Was $2 $8 million for the second quarter of 2022 compared to $1 $5 million for the three months ended June 32021.
Income from operations was $7 $2 million in the second quarter 2022, compared to net income from operations.
Point $1 million in the second quarter of 2021, the increase was primarily due to higher sales and gross profits and cost controls.
Interest expense was <unk> $4 million in the second quarter 2020 to substantially consistent with point $3 million in the second quarter of 2021.
Net financial income was $2 $5 million in the second quarter of 2020 team compared to net financial income up point $2 million in the second quarter of 2021.
Change in net financial income was primarily due to a higher foreign exchange benefit in the second quarter of 2022.
Income before income tax expenses and equity in earnings of affiliated companies was $12 $2 million in the second quarter of 2022 compared to income before income tax expenses and equity in earnings of affiliated companies the $1.5 million in the second quarter 2021.
Net income attributable to parent company's common shareholders was $9 $4 million in the second quarter of 2022 compared to net income attributable to parent company's common shareholders of $3 2 million the second quarter of 2021.
Diluted earnings per share was 31 cents in the second quarter of 2022 compared to 10 cents in the second quarter of 2021.
The weighted average number of diluted common shares outstanding was $30 million 849009.
Shares in the second quarter of 2022 compared to $30 million 855406 in the second quarter of 2021.
I will briefly go over the six month financial highlights.
Net sales increased five 1% to $263.
$6 million in the first six months of 'twenty two.
Compared to $259 million in the first six months of the 2021.
Six months gross profit was $37 $4 million compared to $35.6 million and a corresponding periods last year.
Six month gross margin was 14, 2%, which is consistent with a 14.2 in the first six months of last year.
The gain on other sales was $3 million in the first six months of 2022 compared to $2 million in a corresponding period last year income from operations was $5 $7 million in the first six months of 2022.
Compared with the income from operations of $4 $3 million in the first six months of 2021.
Net income attributable to parent company's common shareholders was $9 $4 million in the first six months of 2022 compared to net income attributable to parent company's common shareholders of $6 $4 million in the corresponding periods in 2021.
Diluted earnings per share was <unk> 30 in the first six months of 'twenty, two 'twenty 'twenty compared to diluted earnings per share of 21 sets in the first six months of plus 21.
Now I will review a few balance sheet items as of June 32022, total cash cash equivalents and pledged cash were $143 8 million.
Total accounts receivable, including notes receivable were $203 5 million.
Accounts payable, including notes payable were $210.7 million in short term loans were $47 $6 million.
Total parent company stockholders' equity was $313 $6 million as of June 32022.
Net cash provided by operating activities was $14 $5 million in the first six months of 2022.
The business outlook management has increased its revenue guidance for the full year 2012, due to $500 million due to the economic impact of COVID-19, and foreign exchange volatility. This target is based on the company's current views on operating in the market conditions, which are subject to change.
With that operator, we are ready to begin the Q&A.
Thank you, Kevin 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 while paying a question you piece pick up your handset. If this thing on a speaker phone to provide optimal sound quality.
Please hold while we poll for questions.
Okay.
Your first question is coming from William Grant is that ski from Greenwich Claypool William Please ask your question.
Oh, hi, excellent quarter.
Gross margin was the highest you guys had reported in like five years, what is the margin level youre expecting going forward.
Okay.
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Right.
Okay.
Yes.
Our gross margin.
Most.
The second quarter reached 17, 9%.
It is our.
One of them.
It is the highest record in the last five years.
There are main two.
Two main factors.
Attributable to these.
Increase of gross margin.
Of course is the our electric power steering products.
We finally getting to a stage.
Rich.
Fairly good.
And we have scale.
Our volume increased significantly.
And our costs have been coming down so that reduction on costs.
Along with the volume increase.
So very good efficiency and in addition to that we also increase our average selling price.
On the EPS product so.
And.
As a result, our.
Gross margin for EPS product.
Exceeded 15%.
This is the highest.
In recent history.
Because our.
Past, our EPS product gross margins.
Always thinking around the single digits.
And now we're at a pretty good place.
Gross margin.
And the second reason.
Two.
Hope to sell them.
Gross margin is the Forex.
The.
Slight increase of <unk>.
Solar I guess R&D also help house hour.
Gross margin.
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Okay.
Okay.
Looking forward <unk>.
We believe EPS gross margin can further improve.
We have problem.
Cooney.
Abundant order coming in.
Our order books were looking really good.
We are.
We believe the increased <unk>.
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Help us.
Bring down the costs, reaching.
Reaching well even better economy of scale.
And also the E P S.
Percentage to the total.
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Volume.
It will further increase.
As a result of the boats I think our.
Forward looking gross modules, it's going to be.
There is some room.
For further improvement in EPS.
The EPS gross margin alone we are foreseeing.
Further.
Increased to 16% to 17%.
<unk>.
In the coming quarters.
Yeah.
Uh huh.
Yes, that's how I answer.
Okay, great great. Thank you and then last question have you guys continued.
Repurchasing shares in the current quarter.
But we're in now.
The second question Thiago <unk>.
You had to go and then the average into some strategic technical workshop.
Greg.
Or would.
And that's I mean zinc resumed lingual attempt here are strong.
Hold.
Tissue is excellent.
Jonathan.
And so the answer is the answer is yes, we are we have already.
We purchased over 200000 shares.
Since we are seeing some the last month and will continue to repurchase shares.
In the open market.
Okay, great. Thank you guys.
Thank you. Thank you.
Ladies and gentlemen, as a reminder, if you do have a question. Please press star one on your keypad at this time.
Okay appears we have no further questions in the key I will now hand back to Kevin for any.
Closing remarks.
We want to thank everyone for joining us today.
Look forward to speaking with you again.
So please keep safe.
And we'll talk to you on the next quarterly conference call.
Thank you.
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.
Dave can I just go on.
Hello.
Anybody.
I can still happen.
Fixing and NGA are off the line.
Yes that that lines have gone idle.
Alright, Thank you Jim.
Kevin.
You too bye.