Q1 2024 China Automotive Systems Inc Earnings Call
Good morning, everyone welcome to China Automotive systems first quarter 2024 conference call. At this time all participants are in a listen only mode and we will be opening for questions. Following the presentation. If you would like to ask a question you May press star one on.
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If anyone should require operator assistance. During this conference. Please press star zero on your phone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Kevin Theiss Kevin.
Kevin over to you.
Thank you.
Thank you everyone for joining us today welcome to China automotive systems, what you talked before our first quarter conference call.
Joining us today are Mr. Hanlin, Chen Chairman and Mr. James Lee Chief Financial Officer of China Automotive systems, They 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.
Private Securities Litigation Reform Act with 1995.
We're lucky which represent the company's estimates and assumptions only at the date of this fall.
Yes.
As a result different because you really don't you can see that each words.
Yeah.
Hi, Bob.
And those described under the heading risk factors in our result of operations.
Company's Form 10-K annual report for the year ended December 31, 2023 that's filed with the Securities and Exchange Commission and then other documents filed by the company from time to time with the Securities and Exchange Commission.
Any of these factors and other factors beyond our control could have an adverse effect on our overall business environment cause uncertainties in the region, where we conduct business because that business to suffer in ways, we cannot predict and materially affect or impact.
Impact.
I'm sorry.
Yeah in fact that business financial condition results of operations, so long disruption.
And he also seen delay in the operations of the manufacturing delivery and assembly processes within any of our production facilities could result in delay in the shipment of products to our customers increased costs and reduced revenue.
The company expressly disclaims any duty to like updates to any forward looking statements made in this call whether result of new information to you.
Two events or otherwise on this call I will provide a deeper overview.
The first quarter for the period ended March 31 2024.
Management will then conduct a question and answer session.
'twenty 'twenty four first quarter results are unaudited and financial results are reported using U S GAAP accounting.
For the purposes of our call today I will review the financial results in U S dollars.
We will begin with a review of some of the company's highlights recent dynamics of the Chinese Academy in automobile industry and our market position.
We had a solid performance in the first quarter of 'twenty 'twenty four.
Gross profit grew by 11, 6% year over year with a higher gross margin was 17, 3% in the first quarter was 2024.
Income from operations was 26% higher as cost controls limited operating expense growth of two 8%, especially the 11, 6% increase in gross profit.
Both selling and G&A expenses rose in the quarter.
We returned to positive cash flow from operations of $10 5 million and diluted income per share increased by 17, 4% to 27 cents in the 'twenty to 'twenty four first quarter.
Cash cash equivalents and short term investments were $135 $8 million or approximately $4.50 per share.
Our March 31 2024.
Net sales decreased by 2% to $139 $4 million and sales of traditional steering products declined by approximately $2 $4 million due to lower sales of vehicles use a new steering products.
We have different results from two of our large international markets.
In Brazil did you need to grow with a 17, 6% year over year sales rise due mostly to higher volume by Fiat.
North American sales declined mainly due to temporary lower product sales.
Lots of <unk> N V reported total unit shipments declined in North America during the first quarter of 'twenty 'twenty four.
However, sales partially reflected this transitioning towards more M E V models and the 'twenty 'twenty four first quarter.
Our electric power steering E. T. S sales were essentially even with last year as a percentage of total sales E. T. S remain consistent around 34% of total sales.
<unk> sales slight sales decline in 2024, we remain confident in our sales growth in 2020 four.
According to statistics from the China Association of automobile manufacturers C. I a N C. All of both passenger and commercial vehicles increased by approximately 10% in the first quarter of 'twenty 'twenty four.
All of the new energy vehicles totaled approximately 30% of total vehicle sales in China.
Pardon me this automobile growth is due to new purchase subsidies the scrapping of down payments.
And lowest prices for certainly sitting here models.
Automobile exports increased by 33, 2% from a year ago.
Research and development expenditures were reduced even as we decrease.
New projects for our traditional steering products.
We're expanding our E P S portfolio.
Alex.
We closely coordinate or R&D with our OEM customers to ensure our new products to meet their requirements and those are the end users.
As we expand our EPS product line, we can supply our steering products to more vehicles of our current customers as well as attract new customers.
R&D activities continue to evolve our EPS products performance and quality.
We are making progress to include.
I would use our Cynthia subsidiary to advance our a D. A S products and build out the prototypes for some current customers.
Changes in our recent product sales mix start with our new products and have resulted in improved gross margins as greater economies of scale our games.
We believe the growing demand for hydrogen and elite passenger vehicles in North America is creating another growth opportunity for E. T S products.
Two our current traditional product sales sold there.
Our customer BYD is one of the largest E producers in China, and we have new products under development to enhance their vehicles steering performance.
We remain confident in the outlook for the Chinese automobile industry and economic outlook.
China gross domestic product in the 'twenty 'twenty four first quarter grew by five 3% year over year.
China's retail consumer goods sales grew by four 7% year over year and investments in fixed assets were up by four 5% year over year in the first quarter I'll talk to you 24.
Automobile growth continues to look promising in China with the new promotional sales policies more affordable cars being introduced and automobile exports.
Sensitive international issue with sugar instead of a continuing for the foreseeable future, even if some markets implement protective measures.
A number of vehicle Oems in North America have announced the retirement of internal combustion engines.
So I'll give him a passenger vehicles with more retired explained.
European vehicle Oems are also schedule is the retirement of their internal combustion engine vehicles.
I love being the World leader in any of your production and exports with the largest portfolio and your products will be a major beneficiary of this trend.
Now, let me review the financial results in the first quarter of 'twenty 'twenty four.
Net sales decreased by 2% to $179 $4 million in the first quarter of 'twenty 'twenty four compared to $142 $2 million in the first quarter 'twenty to 'twenty three.
Net sales of traditional steering products and parts were $92 million compared to $94 $4 million for the first quarter 2023.
Sales of electric power steering E T S products and parts were $47 $4 million for the three months ended March 31, 2024, compared with $47 $8 million for the same period in 'twenty to 'twenty three.
E P S product sales for the first quarter 'twenty 'twenty four were approximately 34% of total net sales.
North American net exports with $34 million compared to $34 $7 million in the first quarter of 2023 primarily due to lower demand with passenger vehicles by stellar Atlas NV.
Brazil headlong net products increased by 17, 6% to $12 $7 million in the first quarter 2023, compared to $10 $8 million for the same period in 2023.
Due to a higher sales to Fiat.
Sales volumes to Chery Auto limited also increased sales for other entities increased by 31, 2% to $29 million, mainly due to higher sales by Wuhan Jaylo and Wuhan ICL.
Hearing probably sales to the commercial vehicle markets of $16 $8 million were consistent with the sale in the 'twenty to 'twenty three the first quarter.
Gross profit increased by 11, 6% to $24 $1 million from $21 $6 million in the first quarter with 2023.
Gross margin in the first quarter 2024 was $17 30 per cent compared with 15.2% gross margin in the first quarter 'twenty to 'twenty three primarily due to changes in the product sales mix and a decrease in sales unit costs for the three months.
March 31, 'twenty 'twenty four.
Gain on other sales was <unk> 5 million.
Dollars compared to $7 million in the first quarter of 2023.
<unk> expenses increased by 26% to $41 million plus $3.4 million in the first quarter of 2023. This increase in salary expenses was primarily due to higher office expenses selling expenses represented two 9% of net sales in the first quarter of 'twenty 'twenty four compared to 2.4 person.
In the first quarter 2023.
General and administrative expenses G&A increased to $5 $5 million compared with $4 $8 million of the first quarter of 2023, mainly due to higher payroll related expenses and maintenance expenses.
G&A expenses represented three 9% of net sales in the first quarter of 2024, compared with 3.4% of net sales in the first quarter of 2023.
Research and development expenses R&D decreased by 17, 2% to $5 $3 million.
<unk> to $6 $4 million in the first quarter with 23.
Mainly due to decreased R&D activities for new projects all of these traditional products R&D expenses, representing a three 8% of net sales in the first quarter of 2024 compared to four 5% from the first quarter I'm talking 'twenty three.
Other income was $2 $4 million for the first quarter 'twenty to 'twenty, three compared to $1 $5 million for the first quarter of 2023.
Mainly due to higher government subsidies in the first quarter of 'twenty 'twenty four.
It comes from operations was $9 $7 million in the first quarter of 'twenty 'twenty four.
Compared to net income I'm, sorry, our income from operations was $7 $7 million in the first quarter in 2023, 26% increase in 2024 first quarter income from operations was primarily due to a higher gross profit partially offset by a smaller increase in operating expenses.
<unk> expense was three.
3 million in the first quarter of 2024 compared to your point 2 million in the first quarter 'twenty to 'twenty three.
Natural expense net.
Was.
101 million in the first quarter of 2024 compared to point $4 million in the first quarter 2023.
This change was primarily due to a decrease in foreign exchange loss due to foreign exchange volatility.
Income before income tax expenses and equity in earnings of affiliated companies increased by 37, 2% to 11 $8 billion in the first quarter 'twenty 'twenty four compared to $8 $6 million in the first quarter of 2023.
The increase in income before income tax expense and equity in earnings of affiliated companies in.
First quarter of 'twenty 'twenty four was mainly due to higher income from operations and increased net other income.
Equity in losses of affiliated company was point $8 million in the first quarter of 'twenty 'twenty four comparing with equity and income of affiliated companies the point $1 million in the first quarter of 2023.
Income tax expense was $1 $7 million for the first quarter 'twenty 'twenty four as compared to $8 million for the first quarter of 2023.
This higher tax was primarily due to an increase in the global intangible low taxed income tax expense that's G. I L T I.
Net income attributable to the parent company's common shareholders was $8 $3 million in the first quarter was 2024 compared to $6 $8 million in the first quarter of 2020 sleep dilutive income per share was 27 cents in the first quarter 'twenty 'twenty four compared to <unk> income per share of 23 cents in the.
First quarter of 2023.
E.
What do you do that resembles a dilutive common shares outstanding was 30 million 185702 in the first quarter 2024 compared to $30 million 193082 shares in the first quarter was Lucky 23.
Now it looks like some balance sheet and other financial highlights as of March 31 2024.
Cash cash equivalents and short term short term investments was $135 $8 million.
Total accounts receivable and cleaning notes receivable was $256 $7 million.
Couch payable in senior notes payable of $243 million in short term bank flows were $45 million.
Working capital Rose to $26 $7 million as of March 31, 2024, compared to $183 million as of December 31, 2023.
Total parent company stockholders' equity was $358 $4 million as of March 31, 2024, compared to $344 $5 million as of December 31, 2023.
Our current ratio was approximately 1.6 to one.
Net cash provided by operating activities was point I'm, sorry, $10 5 million and the 'twenty 'twenty four first quarter compared to net cash used in operating activities of $1 $4 million in the first quarter 'twenty to 'twenty three paint.
Payments to acquire property plant and equipment were $4 $5 million compared to $3 $2 million in the first quarter of 2023.
The business outlook management has reiterated our revenue guidance for the full year 'twenty 'twenty four six out of the $5 million. This target is based on the company's current view 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 we are now opening the floor for questions. If you have any questions. Please press star one on your phone and keep half now we ask them why you're posing your question you. Please pickup your handset if you're listening on to speak fine to provide optimal sound quality.
He paused moment, whilst we poll for any questions.
Thank you. Your first question is coming from Jimmy Fallon of Souza Holdings, Jim Your line is life.
Okay.
Hi can you hear me.
Yeah Yeah.
Yes.
Could you please give us an update on the activities in Europe, especially with sentient.
It was a great acquisition.
Okay.
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Sanjay will mean, she has really seen a huge taking their seats.
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And the team there.
Get involved.
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The junior usually you haven't bought out your own HIFU HIFU judges agenda.
Tom.
Well you can go to the young woman does it take.
Yeah.
Yeah, that's just a P E N G E.
Yeah, Yeah, because he told them out.
Karla.
No, we like the pipeline come against which wouldn't be enough.
So you can they don't change the guidance you will not say that this is how is that possible.
So he's a cadre of hype with all our banks.
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And we sit inside the cobalt as long as well.
Doesn't go whiteboard.
Alright, well only does feel something that feels really good to have high ha.
So in a way it to the audience local muscle.
The only high potent heightened level.
Does the donkey Honeywell.
Okay. So thank you for your question on Santana I was released.
Subsidiary.
Sentiment is.
And specialize in.
And driverless technology softwares.
And that's the.
The main reason, we decided to make.
Make them a part of the whole company co investment in.
And continue to increase our involvement in many fronts.
Sentience at.
Is at.
The frontier technology.
And in there it's there.
R&D.
Initiatives, mostly of focusing all.
And solve the driverless.
To provide the javelin solution.
We all working with small vaults.
Yes.
The sentience.
Our prototype product has been installed and are more won't be of course.
Trucks.
And mainly based on the electric motor.
A type of.
Solutions and we are we believe it will take some time.
For this product to two.
To continue.
Two.
Going to mainstream.
And given the.
The uncertainty of the global market.
And.
We are cautiously optimistic.
And overall we.
We are still very upbeat.
On the long term prospects of 10 P M and their technologies and we're very proud of this team is making very good progress.
Okay.
Okay. Thank you very much just to remind you that if you have any question she need to press star one on your phone coupon to join the key that star one.
Our next question is coming from Jonathan He does he's a private investor Jonathan Your line is life.
Hello can everybody hear me.
Yeah, we can hear you fine.
Okay. A question is R&D spending went down in the first quarter of 2024.
What is the outlook for R&D spending in the rest of 'twenty 'twenty four and what are the key R&D projects in 2024.
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Speaker Change: Cause them to soda lime just stood up and.
Speaker Change: Sang restriction.
Speaker Change: And that's why you got.
Speaker Change: Okay.
The R&D expenses.
Speaker Change: The reason for first quarter of 2024, our R&D expenses going lower than last year same quarter is mainly due to the reclassification of the hour.
Speaker Change: R&D expenses because of some of the expenses are very long term projects. So we reclassify them into the cost of goods sold so.
But if you.
Speaker Change: If you use.
Speaker Change: Use a apple to Apple comparison with last year, the the R&D expense as well.
Speaker Change: It's still maintain at.
Speaker Change: R&D.
Total R&D costs and expenses still maintained a 45% so.
Speaker Change: And that does R&D.
Speaker Change: Spending has not all expanding our reach.
Research and development has not decreased.
Our opinions, we already are kind of under the R&D showing up on our bulk or Oh don't colder he RCB Campbell and I hope he made cohort C. G a call either.
Unknown Executive: Yeah cool the IR C D.
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Okay for this year's.
Our the rest of the year.
R&D expenses will go on to a few different categories.
First we'll go to the E RCB project will walk into European clients.
We also have the.
I RCB product was it.
Speaker Change: <unk> and <unk>.
Then.
And we're working with BYD on our EPS product and also we have a project going on with <unk>. So we have a number of projects going on with.
BYD: Large client and they all are looking to launch.
BYD: Our new models with us.
Speaker Change: Okay. Thank you very much. Our next question is coming from Margaret Wilson F E Y I independent.
Your line is life.
Unknown Attendee: Thank you it's its Wilson.
I'm just curious about what is the.
Outlook for the gross margin for.
'twenty 'twenty four K.
<unk>.
Okay. Thank you.
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Speaker Change: Okay, great. So and thank you for your question on the outlook.
Speaker Change: Gross margin for 'twenty.
Speaker Change: 2024.
Speaker Change: Yeah.
Speaker Change: And there are a few reasons are some are.
Speaker Change: Our.
Speaker Change: Our business.
Speaker Change: Efficiency improvement some are our market.
Speaker Change: And that mix so on the business front.
Our religion: Helping our religion are resilient.
Speaker Change: Cost management and a very very.
Our religion:
Speaker Change: Stringent cost management program is continuing to take effect and in all the product mix side will also increase.
Speaker Change: More a higher margin product in the in the in the revenue mix. So that helps so is the margin on the.
Speaker Change: The market dynamics and.
Speaker Change: And indeed.
Speaker Change: The raw materials, especially the steel price has gone down.
Speaker Change: And what's your favorite solar margin and also the depreciation of RMB against.
Speaker Change: U S dollar U S dollars.
Speaker Change: Oh predominantly is also helping us with the export.
Speaker Change: So all things all factors include it we believe we can continue to maintain a oh sorry go ahead.
Speaker Change: 17% to 18% for the balance stuff.
Speaker Change: 2024.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Thank you so much I appreciate that.
Speaker Change: Thank you.
Speaker Change: Keith very much just to remind you that any remaining questions. You can press star one on your keypad to join Nikki.
Speaker Change: Yeah.
Nikki: Okay. Our next question is coming from a J U N F E N capital J Your line is life.
Nikki: Okay. Thank you.
Speaker Change: I just have a question for management and I understand that this is obviously a very growth time for Chinese ETE tend to international markets with that you know with the pricing being added advantage and there's so many models that I think our new bank in Europe, and South America.
Speaker Change: How old are U S C. A S a.
Speaker Change: Got it thank you.
Management: And if that got less growth strategy.
Management: Just a woman they'll do I get towards the top.
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Matt: Takeaway life.
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Matt: To what she to Javier to closer to the top.
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Ken: Good good.
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Rodrigo Tinder: Oh Droga may or.
Rodrigo: So you don't get them all to you.
Speaker Change: Shifting to the law.
Speaker Change: And the way we encounter.
Rodrigo: Neil.
Rodrigo: And before that.
Neil: Okay. So thank you for your question on <unk>.
Rodrigo:
Neil: You are right Chinese duties are Hum are doing.
Neil: Doing very well and they have a very competitive pricing and they have.
Speaker Change: They are a major advancement in the technology as well.
Speaker Change: This is the reason that are driving the demand for more and more Chinese vehicles abroad.
Speaker Change: In particular in Europe.
Speaker Change: South America and also we're hearing more and more.
Speaker Change: This.
Speaker Change: Potential thing.
Speaker Change: America in particular in the U S.
America: However, given the.
Speaker Change: The U S, China tension and the ongoing investigation and possible.
Speaker Change: Policies come from.
Speaker Change: And the.
Speaker Change: The White house.
Speaker Change: We are uncertain, we feel uncertain.
Speaker Change: Whether.
Speaker Change: Uh huh.
Speaker Change: These vehicle can can make a.
Speaker Change: Strong presence.
Speaker Change: In.
Speaker Change: North America.
Speaker Change: But if the current.
Speaker Change: The current business environment.
Speaker Change: Continues.
Speaker Change: I think.
Speaker Change: Some of the other markets, we're still sell well.
Speaker Change: Just not in a in U S and so we are still.
Speaker Change: Waiting for the Newson and.
Speaker Change: Closely following.
Speaker Change: With the Goodbye element.
Speaker Change: Okay. Thank you very much just another reminder, that if you have any remaining questions in the audience you can press star one on your saying keep happening out of China.
Speaker Change: <unk>.
Management: Okay, we didn't pick up any further questions in the key I will now hand back over to the management for closing remarks.
Management: We want to thank everyone for participating today.
Management: We look forward to speaking with you in the future.
Speaker Change: Thank you.
Speaker Change: Yeah.
Management: Thank you very much that 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.