Q3 2023 China Automotive Systems Inc Earnings Call

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Good morning, everyone and welcome to the China Automotive systems third quarter 2023 conference call.

At this time all participants are in a listen only mode and the floor will be opened for questions. After the presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your house Mr. Kevin.

Six Investor relations, Kevin over to you.

Thank you everyone for joining us today welcome to China Automotive systems, 2023 third quarter conference call.

Joining us today are Mr. Jay Li Chief Financial Officer of China Automotive systems. He will be available to answer questions. Later in the conference call with the assistance of translation.

Yeah.

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 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.

So a number of factors.

And those described.

Under the heading risk factors in the company's Form 10-K annual report for the.

The year ended December 31, 2022 as filed with the Securities and Exchange Commission and then the other documents filed by the company from time to time with the Securities and Exchange Commission.

Many of these factors and other factors beyond our control could have an adverse effect on the overall business environment.

Cause uncertainties in the region, where we conduct business.

Our business the software in ways that we cannot predict and materially.

In fact.

Business.

Rachel a condition and result of operations.

Prolonged disruption or any others.

We're seeing delay in our operations at the manufacturing and delivery of assembly process within our production facilities.

We continue to result in a.

The delay in the shipment of products to our customers increased costs and reduced revenue.

It's good.

<unk> disclaims any duty to provide updates to any forward looking statements made in this call whether as a result of new information you have to events or otherwise.

On this call I'll brag, a brief overview and summary of the third quarter and first nine months results.

For the period ended December 30.

2023.

Management will then conduct a question and answer session. The 'twenty 'twenty third quarter and first nine months results are unaudited and reported using U S GAAP accounting.

For the purposes of our call today I'll review the financial results in the U N U S dollars.

Well first begin with review of the recent dynamics of the Chinese economy, the automobile industry and our market position.

The Chinese economy continued to grow but at a more subdued pace as the GDP growth rate was four 9% year over year in the third quarter.

2023 according to China's National Bureau of statistics.

Industrial production increased in retail sales stabilized in 'twenty to 'twenty, two 'twenty three third quarter.

However to your housing slump has continued that.

I think consumer spending more cautiously affecting consumer price levels.

Reduced demand for real estate has effective prices and eroded our financial condition, our real estate developers and decreased building construction.

Real estate development and lessen it declined by nine 1% in the first nine months of 2023 year over year.

According to the Chinese Association of automobile manufacturers C. A M passenger.

Passenger automobile statistics in China for the third quarter was 2023 included a decline of 3.4%.

In July an increase of eight 2% in August and it goes to a six 6% in September on a year over year basis.

Passenger vehicle sales increased each month over the prior year during the 2023 third quarter.

Commercial vehicle sales year over year during the third quarter of 2023, reflecting an increase of 16, 8% in July.

Followed by a 20% rise in August and that's varied quite a 2% increase in September.

Electric vehicle sales and vehicle export sales also rose each month on a year over year basis in the 'twenty to 'twenty three the third quarter.

Okay.

Vehicle sales growth in the third quarter of 2020, partially reflecting weak industry sales in the year ago periods as China was coming out of COVID-19 restrictions the central government local government and auto dealers I have provided financial subsidiaries.

Subsidies.

And incentives to help foster vehicle sales in China.

If I can probe approaches include reducing automobile purchase taxes boosting demand for electric vehicles by improving and expanding EV infrastructure.

More consumer friendly banking policies and regulations and promoting tourism.

Yeah.

Our 2023 third quarter revenue growth increased slightly year over year to $137.5 million net.

Net sales of traditional steering products and parts.

$91.8 million were consistent with net sales in last year's third quarter net.

Net sales of E. P. S systems grew by 2% to $45 $7 million and increased as a percentage of sales to 33, 2%.

For the three months ended September 32023.

Domestic passenger car sales were slightly our higher.

Domestic commercial vehicle market declined by eight 2%.

Net product sales of other entities rose by 23, 9%, primarily due to higher sales by one G. All our producer of steering columns.

Internationally.

Sales in Brazil continued its growth trend rising by 15, 7% to $13.3 million in the 2023 third quarter.

Mainly due to higher sales to Fiat.

Sales into North America declined by six 4% to $27.6 million. The lowest sales was primarily due to less volume shipped to Ford motor in the third quarter.

The volatility of the U S dollar to the RMB.

Also had affected our reported revenue in the third quarter of 2023.

With China the largest.

The world's largest vehicle ex border our customers are benefiting and exports are becoming a more important growth opportunity.

While overall net sales increased slightly our gross margin.

By 18, 7% year over year.

I'm sorry, our gross profit grew by 18, 7% year over year and our gross margin increased to 18% from the third quarter of 2023 from 15, 2% in the same quarter in 2022.

Our efficient cost controls led to an approximate 8.2% year over year decline in total operating expenses, which helped propel an increase of 108, plus 2% year over year and income from operations in the third quarter with 2023.

Diluted income per share rose to 31 cents.

Paired with 24 cents in the year ago third quarter.

For the first nine months ended September 32023, net sales increased by four 1% year over year with gross margin increasing to 16, 6% from 14, 6% a year ago.

Diluted income per share increased to 89 cents up from 55 cents in the first nine months of 'twenty to 'twenty two.

We continue to supply a large number of vehicle Oems in China, including BYD the largest.

Vehicle producer in China.

Dongfeng Auto Group Ltd.

Okay, so down motors and internationally, including Jeep Ram.

The Alpha male indifferent worldwide markets and Ford Motor Company in North America.

In addition to being a supplier of advanced steering products, our research and development programs are lie with specific projects of our OEM customers.

Collaboration with our OEM customers broadens, our technology base for future use.

To enhance our own proprietary advanced driver assistance systems a D. A yes, we are incorporating our Cynthia a b subsidiaries automotive technology, including software development and hardware design for advanced steering functions combined with their vehicle motion controls to increase our autonomous.

Driving program.

With a growing technology capability, new models of steering, our underdeveloped to expand our market presence.

Yes.

At September 30, our cash and cash equivalents and pledged cash were $135 $1 million approximately 4.47 per share.

In addition, our September 32023 inventory inventory levels were $9 million lower.

In short term loans declined by seven 1% compared to the end of 2022.

Total current assets were $509 million compared with.

Total liabilities of $358 $8 million at September 32023, further highlighting our financial strengths.

Now, let me review the financial results for the third quarter of 2023.

In the third quarter of 2023, our net sales increased slightly to $137 5 million compared to 137 by $2 million in the same quarter of 2022.

The increase in net product sales was due to an increase in E. P. S net product sales and steering columns compared to the third quarter of 2022.

E. P. S. Net sales were $45 7 million or 33, 2% of net sales compared to 44.

$8 million or 32, 6% of net sales in the third quarter of 2022.

Excuse me.

Net product sales in North America was $27.6 million compared to $29 $5 million in the third quarter of 2022, primarily due to lower product sales net product sales in Brazil rose by 15, 7% to 13 point something million dollars due to higher demand.

Gross profit increased by 18, 7% to $24 $8 billion in the third quarter of 2023 compared to $29 million in the third quarter of 2022 gross.

Gross margin was 18% compared to 15, 2%.

For the same period of 2022.

Mainly due to a change in product mix and a decrease in unit cost.

Selling expenses declined by 5%.

$238 million from $4 million in the third quarter of 2022.

Selling expenses represented two 8% of net sales in the third quarter of 2023.

Third to two 9% in the third quarter of 2022.

General and administrative expenses D&A increased by 24, 5% to $6 $1 million in the third quarter 2023.

Compared to $4 $9 million in a single quarter of 2022, the increase was primarily due to higher marketing and office expenses.

A one time expense for the company's 30th.

And the rescue celebrations and the impact of the appreciation of the U S dollar against the RMB.

Okay.

Hum.

Okay.

Mr. Cantwell ops G&A expenses represented four 4% of net sales in the third quarter 2023, compared to three 6% of net sales in the third quarter 2022.

Research and development expenses R&D decreased by 27, 4% to $6 $9 million in the third quarter 2023.

Compared to a $9 $5 million in the third quarter 2022, R&D expenses represented 5% of net sales in the third quarter of 2023 compared to six 9% net sales in the third quarter of 2022.

G H.

Primarily due to higher R&D expenses in the third quarter of 2022.

The development of.

I R. C. B E R C B and R E T S new products.

Income from operations increased by eight 2% year over year to $10 2 million compared to $4 $9 million in the third quarter 2022.

Higher income from operations was mainly due to increased gross profit and an eight 2% year over year reduction in operating expenses in.

In the third quarter of 2023.

[laughter] excuse me other income was $1.2 million in the third quarter of 2023 compared to point $7 million in the third quarter of 2022.

Primarily due to more government subsidies received in the third quarter of 2023.

Net financial income was point $2 million instead of quarter of 2023 compared to net financial income of $4 $8 million in the third quarter of 2022.

Mainly due to a decrease in the foreign exchange gain due to foreign exchange volatility.

Income before income taxes and equity in earnings of affiliated companies increased by 12% to $11 $2 million in the second quarter of 2023 compared to income before income tax expenses and equity in earnings of affiliated companies.

$10 million in the third quarter of 2022.

The higher income before income tax expenses and equity in earnings of affiliated company was mainly due to increased income from operations compared to the third quarter of 2022.

Okay.

Income tax expense was $27 million in the third quarter 2023, compared to an income tax expense of $9 million for the third quarter 2022, which was mainly due to a valuation allowance recognized in the third quarter of 2022.

Net income.

Attributed the parent company's common shareholders was $9 $5 million in the third quarter of 2023.

Income the shippers a parent company's common shareholders of $7 $5 million in the third quarter.

Of 2022.

Diluted income per share increased by 29, 2% for 31 cents in the third quarter of 2023 compared to diluted.

Net income per share of 24 cents in the third quarter of 2022.

The weighted average number of diluted common shares outstanding was $30 million 189, 363 shares in the third quarter of 2023 compared to $30 million 640260 in the third quarter of 2022.

First nine months.

Oh 2023.

Net sales for the first nine months of 2023 increased by $4 1 million I'm, sorry by four 1% to $417 $2 million compared to $408 million in the first nine months of 2022 gross profit for the first nine months of 2023 increased by 18, 3%.

69, $1 million compared to $58 $4 million in the corresponding period last year.

Gross margin for the first nine months of 2023 was 16, 6% compared to 14, 6% for the corresponding period in 2022.

For the nine months ended September 32000, Twenty's, where you gain on other sales amounted $3 $6 million.

Compared to $5 $3 million for the corresponding period in 2022.

Income from operations increased 144, 8% to $25 $7 million compared to income from operations of $10 $5 million in the first nine months of 2022.

Net income attributable to parent company's common shareholders was $26 $8 million compared to net income attributable to parent company's common shareholders of $16 $8 million in the corresponding period last year.

Diluted income per share was 89 cents in the first nine months of 2023 compared to diluted income per share of 55 cents for the corresponding period in 2022.

Balance sheet items as of September 32023, total cash cash equivalents and pledged cash deposits.

$135 $1 million total accounts receivable for the notes receivable were $241 $5 million accounts payable, including notes payable were $222 $1 million.

Total parents company stockholders' equity was $328 $6 million as of September 30, 23, compared to $311 $7 million as of December 31, 2022.

Net cash provided by operating activities was $10 $7 million in the first nine months of 2023 compared to net cash provided by operating activities of.

$31 $7 million in the first nine months of 2022.

Payments to acquire property plant equipment were $12 $2 million compared to $11 $8 million in the first nine months of 2000 to what to do.

Management has reiterated its revenue guidance for the full year 'twenty 'twenty $2 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 are ready to begin the Q&A session.

Thank you very much Kevin at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your phone keypad now a confirmation kind will indicate that your line is in the question key He May press star two if you would like to remove your question from Nicky.

One using speaker equipment, it may be necessary to pick up your handset before you press the keys to 190 <unk>, whilst the poll for any questions.

Just as a reminder, if you have any questions.

Please press star one on your phone.

Okay.

Yeah.

Once again, if you have any questions from the audience. Please press star one on your fine keep back now.

Okay.

Okay, I'm not seeing any questions come in to the key but I can certainly let you know if I see somebody.

Yeah.

And in that case, I can hand back over to Kevin for any closing remarks.

Yeah.

We thank you for your participation in today's conference call is safe and we look forward to speaking with you in the future.

Yeah.

Thank you very much. This does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you feel participation.

Okay.

Okay.

Yeah.

Okay.