Q2 2023 China Automotive Systems Inc Earnings Call
Greetings and welcome to the China Automotive systems second quarter 2023 conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero.
<unk> on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your highest Mr. Kevin <unk> Investor Relations, Kevin you may begin.
Thank you everyone for joining us today welcome to China, Automotive Systems' 2023 second quarter conference call Joy.
Joining us today are Mr. Jay Li Chief Financial Officer of <unk>.
China automotive systems, he will be available to answer questions later in the conference call with the assistance of translation.
Before we begin I will remind all listeners that throughout this call. We may make statements that may contain forward looking statements.
Good luck to your 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 due to a number of factors, including those described under the heading risk factors.
And the company's Form 10-K annual report for the year ended December 31, 2022, that's filed with the Securities and Exchange Commission.
And then the other documents filed by the company from time to time with the security and Exchange Commission.
The outbreak of COVID-19 is not affectively entirely control our business operations and financial condition may be materially and adversely affected as a result of the deteriorating market outlook for automobile sales to slow down our regional national and international economic growth weakened.
Legal we get liquidity and financial condition of our customers or other factors, we cannot foresee any of these factors and other factors.
Beyond our control could have an adverse effect on the overall business environment.
Uncertainties in the region, where we conduct business because that business to start for ways that we cannot predict and materially adversely impact our business financial condition and results of operations, a prolonged disruption or any further I'm seen delay in our operations of the manufacturing delivery and assembly process.
Is it any of our productions instead, what it 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'll provide a brief overview and summary of the second quarter and first six months results for the period ended June 30, 'twenty 'twenty Free management will then conduct a question and answer session.
The 'twenty to 'twenty, three second quarter and first six months results are unaudited and they.
Our reported using U S GAAP accounting with.
For the purposes of our call today I'll review the financial results in U S dollars.
We'll begin with review of the recent dynamics of the Chinese economy, the automobile industry and our market position. The Chinese economy showed signs of recovery as GDP growth rate was 525% year over year in the first half of 2023 for the 623% year over year.
Increase in the second quarter, followed me at a four 5% Euro every year in the first quarter.
However, these growth rates were influenced by the low base effect of the pandemic and who is locked down.
Quarter over quarter.
<unk> G. D. P was two 8% from the second quarter of 2023 as the Chinese economy was still affected by both internal and external factors.
Experts.
Exports declined in the first half of the year as high inflation in many markets and political attentions reduce foreign demand for Chinese goods.
Chinese property section.
<unk> continued to be affected by regulatory and fiscal drop policies with concerns of weak coomer consumer confidence affecting demand.
Pretty sales declined by five 3% in terms of floor space in the first six months of towards your 23.
According to statistics from the China Association of automobile manufacturers C. A N automobile sales in China rebounded in the second quarter of 2023, following the sales decline in both passenger and commercial vehicles during the first quarter 'twenty to 'twenty three.
A L.
Six show the overall automobile sales in China increased by 17, 9% year over year in the second quarter of 2023 with passenger vehicle sales rise by 19, 3% year over year.
In commercial vehicle sales up 10, 1% year over year.
For the first six months ended June 30th 2023 overall car sales increased by nine 8% year over year, that's passenger vehicle sales.
Eight 8% year over year in commercial vehicle sales grew by 15, 8% year over year.
New energy vehicle sales rose by 44, 1% in the first six months period.
Gross numbers also reflect the weak industry sales in the year ago period due to the COVID-19 restrictions.
Some car dealers and local government has provided financial subsidies and coupons to help promote growth in car sales in China, because the auto industry is a major employer or across the country and contributes to economic growth.
Our second quarter.
Revenue growth increased by eight 1% you every year with most of the regions reporting higher revenues net sales of our advanced electric power steering EPS rose by 28, 4% year over year in South American sales increased by 43, 5%.
Sales into North America temporarily declined and were affected by foreign exchange rate volatility.
Our headlong passenger vehicle sales rose by 27, 4% due to a higher demand and sales to the commercial vehicle market were also up by seven 2%.
We continue to be a long standing supplier to a large number of vehicle Oems, including industry leaders, such as B y D. The largest producer in China.
People operations of stellar anthos, including Jeep Ram Fiat and Alfa Romeo in different markets around the World and Ford Motor Company in North America.
In addition to providing steering products, we also collaborate with the research and development programs.
OEM customers to improve current products and create new products to enhance their vehicles for.
For example, we developed a new series of E. P. S products with BYD, our partner for 20 years, which are being used in a number of their vehicle models, we developed new steering for Alfa Romeo luxury plug in hybrid SUV that Denali, which is being sold internationally further expanding our worldwide presence.
Our participation in product improvement and new product development provides a testament to their confidence in our excellent research and development capabilities.
H R and D endeavor increases our technology base for future use using our E. P. S design expertise, we have been developing our own proprietary E. P. S products do advanced.
Our our advanced driver assistance systems, a D. A S for level four autonomous driving and beyond.
We are leveraging our Cynthia a b subsidiaries automotive technology, including software development and hardware design for advanced steering functions combined with vehicle motion controls to heighten the capability of our all time was driving program.
With hydraulic E. P. S E T. A S steering our enlarged portfolio of steering products has never been stronger.
And we are working on new models are staring for the future to improve our market presence.
Cost controls led to an approximate 11, 11% year over year decline in total operating.
Expenses, resulting in an eight point to gain in operating profit in the second quarter net income per share grew by 12, 9% to 35.
With the same quarter last year at June 30th our cash and equivalents.
Cash was $125 $5 million approximating 4.4 dollars 16 per share.
New incentives and policy changes by the central read your regional and local governments are designed to enhance economic growth in future quarters specific markets or targeted including your automobile real estate and services sector with a greater focus on consumer consumption.
Measures, including reducing automobile purchase taxes boosting demand for electric vehicles through improved EV infrastructure, adjusting real estate and banking policies or regulations and promoting tourism.
Private companies are encouraged to increase the investment in specific markets as well as increasing private investment in research and development.
Now, let me review the financial results in the second quarter of 2020 three.
Net sales increased by eight 1% year over year to $137.4 million for the second quarter of 2023 compared to $127.2 million in the second quarter of 2022.
Net sales of traditional steering products and parts increased by one 1% year over year to 95.8.
$8 million for the second quarter of 2023 as compared to $94 $8 million in the same quarter of 'twenty to 'twenty two.
Net sales of EPS products Rose 28, 4% year over year to $41 $6 million from $32 $4 million for the same period in 2022.
E P S product sales were 33%.
The total net sales for the second quarter 2023, compared to 25, 5% for the same quarter in 2022.
Export net sales in North American customers decreased by 24, 5% year over year to $28 9 million in the second quarter 2023, compared to $38 $3 million in the second quarter 2022.
It's an American sales declined due to less demand and the effects of foreign exchange fluctuations.
Sales in Brazil, Rose 43, 5% year over year of $12 $2 million in the second quarter 2023 from $8 $5 million in the second quarter 2022.
Gross profit was $22 $7 million.
Which is stable to $22 $7 million in the second quarter 2022.
Gross margin in the second quarter of 2023 was 16, 5% compared to 17, 9% in second quarter of 2022. The decrease in gross margin was mainly due to the changes in the product mix.
Gain on other sales was <unk> $7 million compared to $2 $1 million in the second quarter 'twenty to 'twenty two.
Selling expenses decreased by 6.7% year over year to $3 $8 million compared to $4 $1 million for second quarter 2022 primarily due to lower marketing and office expenses the.
The accretion appreciation of the U S dollar against the RMB also affected the expense levels.
I Wouldnt expenses represented two 8% of net sales in the second quarter 2023, compared to three 2% in the second quarter of 2022.
General and administrative expenses G&A decreased by six 9% year over year to $5 $3 million compared to $5 $7 million.
Quarter 2022, primarily due to the reversal of credit losses, and the impact of appreciation of the U S dollar against the RMB.
G&A expenses represented three 9% of net sales in the second quarter of 2000.
23, compared to four 5% of sales in the second quarter of 2022.
Search and development expenses R&D decreased by 16, 2% year over year to $6 $6 million compared to $7 $9 million in the second quarter of 2022 R&D.
R&D expenses represented four 8% of net sales in the second quarter of 2023 compared to six 2% in the second quarter of 2022.
Other income net was $2 million for the second quarter of 2023 compared to $2 $8 million for the three months ended June 32022.
Income from operations was $7 $8 million in the second quarter of 2023 compared to income from operations of <unk>.
$7.2 million in the second quarter, our 2022.
Increase was primarily due to lower operating costs.
Interest expense was $23 million in the second quarter of 2023 compared to <unk> $4 million was second quarter of 2022.
Net financial income was $4 million in second quarter 2023, compared to net financial income of $2 $5 billion in the second quarter of 2022 the change in net financial income was primarily due to the appreciation of the U S dollar against the RMB.
Income before income taxes and equity in earnings of affiliated companies was $13 $4 million. The second quarter 2023, compared to income before income taxes expenses and equity in earnings of affiliated companies of $12 $2 million in the second quarter 2022.
Net income attributable to parent company's common shareholders was $10 $5 million in the second quarter 2023.
Net income attributable to parent company's common shareholders of $9 $4 million in the second quarter of 2022 diluted earnings per share was 35%.
Second quarter 2023, compared to 31 cents per share in the second quarter of 2022.
Weighted average number of diluted common shares outstanding was $30 million 189 530.
<unk> 37 in the second quarter of 2023 compared to $30 million 849000 in line in the second quarter of 2022.
Now for the first six months of 2023, and net sales increased by six 1% year over year to $279 $7 million.
In the first six months of 2023 compared to $263 million in the first six months of 2022 six month gross profit was $44 3 million their dollars compared to $37 $4 million in the corresponding periods last year.
Six month gross margin was 15, 9% compared with 14, 2% in the first six months of 2022 gain on other sales was $1 $4 million in the first six months of 2023 compared to $3 million corresponding periods last year.
Income from operations was $15 $5 million in the first six months 2023, compared with income from operations of $5 $7 million in the first six months of 2022 net income attributable to parent company shareholders was $17 $3 million in the first six months of towards your 23 compared to net income.
The parent company's common shareholders of $9.4 million in the corresponding period in 2022.
<unk> earnings per share increased by 90% year over year to 57 cents in the first six months of 2023 compared to diluted earnings per share of <unk> 30.
And the first six months of 2022.
Some balance sheet items as of June 32023, total cash cash equivalents and pledged cash were $125 $5 million.
Total accounts receivable until the notes receivable were $234 million.
Accounts payable, including notes payable with $216 $7 million in short term loans were $38.5 million total parent company stockholders' equity was $317.8 million as of June 32023, compared to $311 $7 million.
As of December 31, 2022.
Well the business outlook management has.
Reiterated its revenue growth for the full year 2000 $23 million to $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 ready to begin the Q&A.
Thank you very much at this time, we are opening the floor for questions. If you would like to ask a question. Please press star one on your find key patent now.
Time will indicate your line is and Nicky.
May press Star two if you would like to run. These your question from the key.
So any participants using speaker equipment, it may be necessary to pick up your handset before pressing keys.
Please pose on island, all C pulse for any questions.
Just as a reminder, that if you have a question you can press star one on Youll find key patents now.
Yes.
Okay, if anyone would like to get into the question Keith Press Star one on your keypad.
Yes.
Okay. We don't appear to have Oh, we do have a question from Robert Jensen, He's a private investor.
Your line is live.
Yes could you shed a little bit of color.
I think you said that your.
Our sales to the U S.
We're down song could you shed some color on that and your expectations going forward.
At least one of the reasons for that.
Okay.
So as well.
Clearance with Goldman <unk>.
Hum.
She also.
But I mean, the shelf Sanderson tenancies notion N shop blocks.
Doesn't mean that all the time we lie.
And shifting to kind of take.
Because it makes it quite there yet.
Sure.
Okay. Okay. So it sounds like a cheap.
Yeah, I think you're Gonna Canada.
It sounds about right.
So as a muffin symbols something is it going to take it.
What is is that a year, where it sounds all.
Besides I'm not telling you go back to the old saying that so that doesn't mean that some of your younger cohort or is it a demand down there.
Well misses it sounds like would you be allergic.
Sanger sequences from affirmative hasn't meal.
Uh Huh hasn't maybe I'll answer it anyway, because it says and I think that's what else is out. So it was all game that in buying things on it.
Yeah.
Okay. So youre right the sales to the most of America Oh styles during this quarter.
To be more specific it was down 24, 5%.
The decline of the sales to the north.
America.
It's mainly due to the volume.
Decrease.
However, our market share.
We know our customers remain the same.
That being said is.
It's actually all customer during the quarter has.
Uh huh.
A pure product finished product in an order.
Less.
Hearing from us.
We do.
Secondly here, but.
We are and closely.
Closely following the situation.
Whenever a customer or you know.
Uh huh.
Return to their normal volume.
Our.
Well I will go back up.
Gerald slots were a little chat lets say, sometimes allow maybe sort of on a cool your way.
She must have been Oh, no more media weight chairman of ours again assume that sometime in June .
As a couple of things and you know why the one that's that they may yeah, yeah, Yeah, yeah, yeah, yeah, it's in that kind of I guess noise isn't that cool.
But you have a gentlemen quick question on Houston that shows a soda.
Hey.
Okay. So.
In addition to what we just.
Commentary.
Okay.
We are also working with our.
Customers in North America.
There are new product.
So we are expecting.
Two.
To increase the shipments are.
Along with our new products.
Walt.
So we are continued.
Continue to work closely with all customer.
Two.
Penetrate the U S market.
On the other hand, we're also.
Developing well.
Okay.
Assigning a new client in North America.
And.
And please be tuned we'll make announcements.
It's at that stage. So we are.
The laser focus on that and.
Looking forward to to continue to expand our market share in North America.
Okay. Thank you.
What percent of your sales are coming.
Come from North America currently.
But Todd one well.
Michelle.
I mean thought option payment.
Watching it.
Right around the 10%.
Yes, 20%.
Aren't earning only in North America.
Yeah, what percentage of total revenues come from North America.
It's about 20% yeah.
Okay. Thank you.
Yep.
Thank you. Thank you very much.
There will be any remaining questions. Please press star one on your fine keep happening.
Okay, I'm going to hand back over to Kevin for any closing comments as we've reached the end of our Q&A session.
Well. Thank you for your participation in today's conference call.
Please be safe, we look forward to speaking with you in the future.
Thank you.
Thank you everybody. This does conclude today's conference and you may disconnect your phone lines at this time.
Do you feel participation and have a wonderful weekend.
Yeah.
J J and N.
It can hang up.
Let's just check yes.
Just just yeah.
Okay I found out I think Kevin still on the line.
Kevin sorry.
Yeah.
Yeah, No I got that.
Great.
Have a great weekend.
You also thank you I'll speak to you next quarter.
Okay Bye bye.