Q1 2023 China Automotive Systems Inc Earnings Call
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Greetings and welcome to the China Automotive systems first quarter 2023 conference call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please.
Please note. This conference is being recorded I will now turn the conference over to your host Kevin sees you may begin.
Thank you everyone for joining us today welcome to China Automotive systems, 2023 first quarter conference call.
Joining us today are Mr. Jay Lee 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'll 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.
As a result, the company's actual results could differ materially from those contained in these forward looking statements into a number of factors, including those described.
But any risk.
Risk factors in the company's Form 10-K annual report for the year ended December 31, 2022.
That's filed with Securities and Exchange Commission and in other documents filed by the company from time to time with the Securities and Exchange Commission.
The outbreak of COVID-19 is not effective lean time to control it or a business operation and financial condition may be materially less.
First the affected as a result of that.
A deteriorating market outlook for automobile sales to slow down our regional national and international economic growth, we get 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 impact on the overall business environment clause.
Claus uncertainties in the regions, where we conduct business.
So as our business to suffer in ways that we cannot predict.
Materially and adversely impact our business financial condition and results of operations.
Long disruption or any further unforeseen delay in our operations of the manufacturing delivery and assembly processes within any of our production facilities 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 events or otherwise.
On this call I will flag, a brief overview and summary of the first quarter results for the period ended March 31, 2023 management will then conduct a question and answer session. That's why you're twenty-three your first quarter 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.
We will begin with a review of the recent dynamics of the Chinese economy, the automobile industry and our market position.
China's GDP growth rebounded to four 5% year over year in the first quarter of 'twenty to 'twenty three from two 9% growth in the fourth quarter of 2022.
Greg with four 8% in the first quarter of last year.
Retail sales grew by five 8% year over year in the first quarter of 2023 with a surge in the month of March to 10, 6% year over year as Lockdowns and other COVID-19 restrictions have been eliminated.
Industrial production grew by three 9% year over year in the month of March increasing from two 4% in the January February time period.
Investment in infrastructure construction grew by 8.8% year over year in the first quarter 2023, and manufacturing investment rose by 7%. According to statistics from Chinese Bureau of statistics.
However investment until the important property development segment declined by five 8% year over year.
Automobile sales in China continued to be weak in the first quarter 'twenty to 'twenty three passenger vehicle unit sales declined by seven 3% year over year commercial vehicle unit sales decreased by two 9%.
According to statistics from the China Association of automobile manufacturers.
Excuse me.
The large sedan market declined by 11 four.
Per cent.
And you know its year over year and the important actually read the market was down by three 4% year over year.
Mitigating these lower gross numbers.
What is it like 22% year over year increase in the unit sales of buses and 70 trucks or semi trailer truck unit sales grew by 21, 3%.
New energy vehicle unit sales also rose by 26, 2% year over year in the first quarter as new energy passenger vehicle sales rose by 25, 2% in the much smaller new energy commercial vehicle sales were 53% higher.
In late 2022 we announced an expansion of our relationship with D y D.
China's largest E V producer and the partner for 20 years.
But byd's research and development team, we have designed a new series of EPS steering products, including C. E. P. S V. P E. Yes in our EPS for all B Y D series of products.
Due to our D. P E B S. A superior performance in noise vibration and harshness R. D. D E P S product cadbury, replacing higher cost.
E P S.
<unk> B y D a.
Especially for B why these high end vehicle models that tank in the hunt.
We continue to work closely with BYD or niche steering product development.
Another step expanding our international presence.
The alpha male luxury plug in hybrid SUV model that 10, DALI is now being marketed in the U S. Beginning in 'twenty two 'twenty three.
Alfa Romeo is a subsidiary of the Lantus.
We have been a long time supplier of steering to other brands under their umbrella, including Jeep Ram and Fiat.
Beyond strengthening our presence in the European markets than they always sell sales in the U S market further expands our presence there.
Two our production exports to Fiat Chrysler automobiles, FCA and Ford Motor Company in North America.
Yes in North America increased by seven 6% year over year, mostly due to a higher demand from F. C. A while sales in our Brazilian operation grew by two 9% year over year.
We continue to make progress with improving our proprietary E. P S products.
Our own advanced driver assist.
Assistant systems, a D. A S using R. A T Z.
He worked for a platform for level four autonomous driving we continue to integrate technologies.
Our second a b subsidiary into our products. We are also working with St. James provide enhanced theory did their customers.
Our profitability improved in the 2023 first quarter led by greater sales of products with higher technology content, especially our logging sales of EPS products.
These sales combined with ongoing cost control measures generated gross margin improvement of four 6% year over year in the 'twenty to 'twenty three first quarter to 15, 2%.
10, 8% in the year ago same quarter.
Total operating expenses declined by approximately 15, 6% year over year in the first quarter led by a 21, 25% reduction in both selling and R&D expenses.
Net income per share of 22 cents in the first in the 20th 22 in the first quarter compared with zero in the year ago same quarter.
We maintained our financial strength with cash and cash equivalents pledged cash and short term investments.
$164 $3 million as of March 31, 2023, and parent company Stockholders' equity was 320 to your point $8 million.
She always worth of additional products to our legacy customers in China remained steady in the first quarter.
As our product before portfolio of E. P S.
<unk> grown so has our customer base, where these products in China, we anticipate that the Chinese economy will continue to recover from the <unk>.
Covid lockdowns and restrictions with the resurgence of past consumer buying patterns aided by government vehicle incentives, which will benefit the automobile industry over the next several quarters.
Now let me review the financial results in the first quarter of 2023 net sales increased by four 3% to $142.2 million in the first quarter 'twenty to 'twenty, three compared to $136 $4 million in the first quarter of 'twenty to 'twenty two the net sales increase was mainly.
Due to the gradual recovery of the Chinese economy post COVID-19.
Excuse me.
Sales of traditional steering products and parts were $94 $4 million for the first quarter of 'twenty to 'twenty, three which is consistent with $95 $4 million for the same period in 2022.
Net sales of electric power steering EPS products Rose 16, 6% to $47 $8 million from $41 million for the same periods in 2022.
And long K Y B sales of passenger vehicle E. P. S products surged by 24, 8% year over year to $37 $2 million.
E. P. S product sales were 33, 6% of the total net sales for the first quarter 2023 compared with 31% for the same period in 2022.
Yes.
North American net exports sales rose by five 5% to $34 $7 million in the first quarter of 2023, compared with $32 $9 million in the first quarter of 2022.
Steering product sales to the commercial vehicle markets declined slightly year over year in the 20th twenty-three first quarter.
Gross profit.
Flying by 46, 9% to $21 $6 million from $14 $7 million in the first quarter of 2022.
Gross margin in the first quarter of.
<unk>, 20th twenty-three was 15, 2% compared to $10 eight per se.
For the first quarter of 'twenty to 'twenty, two mainly due to a change in the company's product mix and an increase in average selling prices for the three months ended March 31 2023.
Gain on other sales was <unk> $7 million compared to point $9 million in the first quarter of 'twenty 'twenty. Two so that wouldn't expenses declined by 29% to $3 $4 million from $4 $3 million in the first quarter of 2022.
This decline in selling expenses was primarily due to lower transportation marketing and office expenses and the impact from appreciation of the U S dollar against the RMB.
Selling expenses represented two 4% of net sales in the first quarter of 'twenty to 'twenty three compared with three 2% in the first quarter 'twenty to 'twenty two.
General and administrative expenses were $4 $8 million, which is consistent with the $4.8 million of the first quarter of 2022, G&A expenses, representing a three 4% of net sales in the first quarter of 2023, compared with 3.5% of net sales in the first quarter of 2022.
Research and development expenses, R&D decreased by 21% to $6 $4 million compared to $8 $1 million in the first quarter of 2022 mainly due to a decrease of tolling charges and the depreciation of the RMB against the U S dollar.
R&D expenses represented four 5% of net sales in the first quarter of 2023 compared to 6% in the first part of 'twenty to 'twenty two.
Net other income was $1.5 million for the first quarter of 2023 compared to $3 $5 million for the first quarter of 2022.
This decrease was mainly due to less government subsidies received in the first quarter of 2023.
Income from operations was $7 $7 million in the first quarter 'twenty to 'twenty three compared to a loss from operations of $1 $5 million in the first quarter 'twenty to 'twenty two.
Just wondering twenty-three first quarter income was primarily due to a higher gross profits and lower operating expenses compared with the first quarter of 2022.
Interest expense was <unk> $2 million in the first quarter of 2023 compared to point $4 million in the first quarter of 2022.
Net financial loss was $4 million in the first quarter 2023, compared with a net financial income of $2 million in the first quarter of 2022 and that financial loss in the first quarter of 2023 was primarily due to foreign exchange losses.
Income before income tax expenses and equity in earnings of affiliated companies was $8 $6 million in the first quarter of 2023 compared to $3 $6 million in the first quarter 2022.
The increase in income before income tax expenses and equity in earnings of affiliated companies in the first quarter 2020.
It was mainly due to higher income from operations.
Partially offset by a loss in net financial income.
And what do you think I'm a little show you of the company's was point $1 million in the first quarter of 2023 compared with equity in loss of affiliated companies of $2 $5 million in the first quarter of 2022.
Net income attributable to parent company's common shareholders was $6 $8 million in the first quarter 2023.
<unk> to a net loss attributable to parent company's common shareholders of $21 million in the first quarter of 2022.
Diluted income.
For sure. It was 23 cents in the first quarter of 2023.
Prior to a net loss per share of mill in the first quarter 2022.
The weighted average number of diluted common shares outstanding was $30 million 193082 shares in the first quarter of 2023 compared to 30 million 851776 shares in the first quarter of 2022.
Management has reiterated its revenue guidance for the full fiscal year 2023 of $560 million. This target is based on the company's current views on operating and market conditions, which are subject to change with that operator, we're now ready to begin the Q&A session.
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One moment, while we poll for questions.
Your first question for today is coming from William Grant goes that ski at Greenwich Global.
Oh, Hi, I have a couple of questions.
The Hubei him long revenue was up quite a bit in the fourth quarter is that related to that alpha male.
Vehicle or just additional shipments from kind of a tough fourth quarter, and where do you see that segment.
For the year trending.
Just hoping citizens who.
I'm also proud to keep those shelves.
Pounds at Alturas.
Yeah, a couple of months, we're only able to do quite well.
Yeah.
Yeah.
Oh, what's the inquiry.
I'm talking about.
Art Zhang researching it.
When I say, she's amazing Brahma together and that hasn't happened.
Romeo Hydro partners.
She had Chicago.
Pardon me.
So.
Hello, lungs first quarter revenue increased by a little.
Hi present.
And the dollar amount increased by $1 7 million.
Main driver.
That increase is still at the North America business.
Our own mills.
Hum.
It's being looked.
It looked into a different duration.
Hugo unknowns.
<unk>.
So.
So to answer your question, it's still North America business.
Okay and is the.
Do you guys think the revenue for who they hang long is going to stay up above 30 million per quarter for the remainder of the year.
Okay Angela.
A little bit whole North Dakota.
Had some cyclical Hudson wakes it's.
So that made it to make it seem to central London.
Okay.
I think that was 100.
And James Bond maintenance has been volatile.
Okay, it's going to.
B above.
It's going to be in the range of 30 to 35 million.
Hum.
Every quarter.
Luxury was in there.
Okay.
This year.
Okay, Great and then on the gross margin side.
Are you guys still expecting that to be higher for 2023 than all of 2022.
Uh huh.
Okay, Yeah, no pardon me soon this Ohio since you guys are good.
Yes.
And so they're more nimble.
That's b I D.
Recall.
Digger is it take a senior in the Egypt, Ghana on them, obviously valentines.
There are the children that gives you a little bottom on that piece of nickel from.
Zero you anything I just said.
Okay.
Hang on to.
He.
Uh huh.
Or send them to I didn't say class a apartments in gasoline.
Possibly.
Simeon I got off on that so you have two units agree really quite a few of them that you either.
Hubei someone queue I believe apartments, you won't be easy.
The pizza.
It's a great season, they had seen disagree Michelle you ease off on their own data.
Conjecture.
Uh huh.
So any thoughts.
And Oh Gee minimum guaranteed shouldn't have.
First quarter 'twenty to 'twenty three.
Our gross margin.
Was 15, 2%.
Which is a very significant increase from <unk>.
Tier one and 2022.
10, 8% for smart.
Hum.
Factor.
Attributable to a.
The segment alcohol business.
In theory.
Colgate Carlo.
The second is to Brazil.
Our Brazil business Hello business and then the last piece is the.
Hello.
K y.
Now the first two.
Neither business.
Helped drove the gross margin.
Appreciation is is also because its the growth.
Forex change the stronger.
The dollar.
Hum.
Definitely helped towards our gross margin expansion and N D in terms of K y B.
Okay, why bees business is mainly due to the volume increase.
<unk> also.
Our high end product has has increased.
So what you saw.
Helping.
The margin expansion.
Lastly.
The overall volume.
Volume increase help us achieve better economy of scale that.
That also.
Uh huh.
Beneficial to our gross.
Gross margin.
Okay and then.
So all in all yes, 'twenty three the gross margin will be better than 2022 with this pace. We believe is going to be continued to.
The strong overall 2023, it's gonna be a better year on the gross margins at 22.
Okay.
Alright, and then last question was you previously mentioned about six to six 5% of revenue for R&D on a quarterly basis and it was quite a bit lower than that in the first quarter is that still a good range or is that more of an annual range. How should we look at that.
Hum Championship Golf course, as Harald over there.
The dancers Korean subsidy.
Sometimes people are selling.
Uh huh.
Synergy, though right.
It is assumed that postponed is again unfortunately on that yourself to acquire a home maybe.
She's a farm that's a good trend for you all.
Kind of could be easy to try to get them done to get it. She also absorbed the people.
Here you can say would be an example.
Okay.
First quarter is.
Youre right.
Your observation is correct.
Sure.
R&D expenses.
Counted for the poker revenues nowhere.
There are some one time events.
Also some of the.
Yeah, the activity related to 30.
Lower.
Module fees.
But overall all of them for what we believe.
Hum.
R&D expenses is gonna be account to five 5% of the total revenue.
Okay, great. Thank you.
Okay.
Thank you. Thank you.
Once again, if there are any questions or comments. Please press star one on your telephone keypad.
We have reached the end of the question and answer session and I will now turn the call over to Kevin for closing remarks.
We thank you for your participation in today's conference call. Please be safe and we look forward to speaking with you again in the future.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.