Q3 2024 China Automotive Systems Inc Earnings Call
Greetings welcome to the China automotive systems third quarter 2024 conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation. If you would like to ask a question. Please press star one at any time during the conference.
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 host Kevin Six you may begin.
Kevin Six: Thank you everyone for joining us today welcome to China, automotive Systems' 'twenty 'twenty four third quarter conference call.
Kevin Six: 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.
Speaker Change: Before we begin I will remind all listeners that throughout this call. We may make statements that may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 forward looking statements represent the company's estimates and assumptions only.
Speaker Change: As of the date of this call.
Speaker Change: Result, the company's actual results could differ materially from those contained in the forward looking statements due to a number of factors, including those described under the heading risk factors and results of operations in the company's Form 10-K annual report for the board.
Speaker Change: The 31 2020.
Speaker Change: That's 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.
Speaker Change: Any of these factors and other factors beyond our control could have an adverse effect on the overall business.
Speaker Change: Cause uncertainties in the regions, where we conduct business caused that business to suffer in ways that we cannot predict and materially and adversely impact our business financial condition and results of operations, a prolonged disruption or any unforeseen delay in their operations of the manufacturing delivery and.
Speaker Change: Assembly processes within any of our production facilities could result in delays in the shipment of products to our customers increased costs and reduced revenue.
Speaker Change: We expressly.
Speaker Change: Saves any duty to provide updates to any forward looking statements made in this call.
Speaker Change: As a result of new information for you.
Speaker Change: Three events or otherwise.
Speaker Change: On this call I will provide a brief overview and summary of the third quarter, whereas the periods ended September 32024 management will then conduct a Q&A session. The 'twenty 'twenty four third quarter and nine months results are unaudited and financial results are reported using U S GAAP accounting for purposes of.
Speaker Change: Our call today I will review the financial results in U S dollars.
Speaker Change: We will begin with a review of some of the quarterly business highlights recent dynamics of the Chinese economy in the automobile industry and our market position.
Speaker Change: Our net sales of steering products increased by 19, 4% year over year in the third quarter of 2024, an increase over the 15, 4% year over year growth in the second quarter of 'twenty 'twenty four.
Speaker Change: Third quarter sales of our traditional steering products grew by 7.4% year over year with our electric power steering EPS products sales surged by 43.5% year over year.
Speaker Change: All of our business units reported sales increases as headlong domestic sales to passenger vehicles were up by 29, 6% sales to Chery auto were $12, 4% higher and our K Y b cells that E. P. S units rose by 54.7%.
Speaker Change: In the Chinese commercial vehicle markets, our sales rebounded to grow by 10.5% to $17 $2 million internationally, our sales into the North America did decline by $8 $9 million year over year, primarily from reduced demand based Atlantis, which reported a double.
Speaker Change: Digit decline in North American shipments in the third quarter of 2020 for our Brazilian operations experienced a six 9%.
Speaker Change: Increase in the 'twenty 'twenty four third quarter.
For the macro economy Chinese GDP increased by 4.6 year over year in the third quarter 2024, compared with 4.7% growth in the second quarter of 'twenty 'twenty four the Chinese economy in the third quarter continues to show weakness in aggregate demand with the ongoing real estate downturn.
Speaker Change: Economic growth has stabilized somewhat.
Speaker Change: Fixed asset investment increased by 3% to 44% year over year.
Speaker Change: Industrial activity rose by five 8% year over year and retail sales increased by three 3% year over year, although Chinese customers stay relatively risk averse and price sensitive low demand has remained weak for the first nine months of 'twenty 'twenty four dislike more favorable monetary policies.
Speaker Change: According to statistics from the China Association of automobile manufacturers C. A M.
Speaker Change: Combined sales of passenger and commercial vehicles increased by two 4% year over year to 21 6 million units. During the January to September period of 'twenty 'twenty four I'll just total passenger.
Speaker Change: Car sales grew by 3% year over year to $18 7 million units, while commercial vehicles sales declined by one 6% year over year at $2 9 million units.
Speaker Change: New energy vehicle sales grew by 32, 5% year over year to $8 3 million units.
A new energy vehicles has gained a 38, 6% share of the motor vehicle market in China.
Speaker Change: For ease of automotive vehicles increased by 27, 3% year over year for the nine months ended September 32 24.
Speaker Change: Purchased subsidies by the government and some auto Oems more favorable vehicle trade in policies and better loan terms, all aided auto industry sales passenger.
Passenger vehicle sales benefited from a government subsidies of up to $2800 per car for trading in older cars for.
Speaker Change: Electric vehicles.
Speaker Change: Encouragingly September passenger vehicle sales increased by 1.5% and accelerated to an 11, 2% increase in the month of October.
Speaker Change: Our third quarter gross profit.
Speaker Change: Rose by six 5% year over year, and our gross margin was 16% compared to 18% third quarter 2023.
Speaker Change: The change in product mix contributed to the lower gross margin in the 'twenty 'twenty four third quarter.
Speaker Change: Cost controls reduced operating expenses by five 8%, resulting in operating income of $11 $1 million.
Speaker Change: It is almost 9% improvement compared with the $10 $2 million in the third quarter of 2023.
Diluted net income per share was <unk> 18 cents in the 'twenty 'twenty four third quarter compared to <unk> 31 in the third quarter of 2023.
Speaker Change: For the first nine months periods ended September 32024 hour sales increased by 10, 8% to $462 $2 million compared to $417 2 million in the same period in 2023, our nine months gross margin increased to 17, 2% from 16, 6%.
Speaker Change: For the same period last year.
Income from operations increased by 22, 9% year over year to $31 6 million, whereas the first nine months of 'twenty 'twenty four 'twenty.
Speaker Change: $25 $7 million in the same period of 2023.
Diluted earnings per share in the first nine months of 'twenty 'twenty four we're 69 cents compared to diluted earnings per share of <unk> 89 cents in the first nine months of 2023.
Speaker Change: Net cash provided by operating activities increased by 54, 2% to $16 $5 million for the first nine months of 2024 compared with <unk>.
Speaker Change: $10.7 million in the first nine months of 2023 cash and equivalents plus pledged cash were $138 8 million or approximately $4 60 per share as of September 32024.
Speaker Change: A special cash dividend of <unk> 80 per common share was paid in late August 2024 to reward our shareholders.
Speaker Change: Cash dividend was paid from internal funds and cash flow and reflects our confidence in our sustainable sales growth and cash flow generation.
Speaker Change: We also celebrated the 20th anniversary of our NASDAQ listing highlighting or the small Chinese OEM manufacturing company can accomplish.
Speaker Change: Domestic manufacturing serving the domestic Chinese market, we have established a global reach serving tier one companies, whose operations include North America, South America, Europe, India, and Asia, and with vehicle leaders such as BYD.
Speaker Change: Lantos Ford logo, <unk>, and Mahindra and Mahindra in India.
Speaker Change: Our traditional steering parts continue to grow even as our EPS products are expanding rapidly.
Speaker Change: Our advanced driver assist.
Speaker Change: Our systems are being enhanced with the technologies of our Cynthia <unk> operations in Europe.
Speaker Change: Now, let me review the financial results in the third quarter 2024, net sales increased by 19.4% year over year to $164 $2 million in the third quarter 2024, compared to $137.5 million third quarter of 2023 net sales of traditional steering products and parts increase.
Speaker Change: By seven 4% year over year to $98 $6 million for the third quarter of 2024 compared to $91.8 million for the same quarter in 2023.
Speaker Change: Net sales of EPS products Rose 43, 5% year over year to $65 $6 million from $45 $7 million.
Speaker Change: For the same periods in 2023 E.
Speaker Change: P. S products grew to 79, 9% of the total net sales for the third quarter of 2024 compared to 33, 2% for the same period in 2023.
Speaker Change: He'll have his lungs passenger vehicle steering systems increased by 29, 6% and sales to Sherri auto rose by 12, 4% due to higher demand.
Speaker Change: The commercial vehicle markets increased by 10, 5% exports to North American customers decreased by $18 $7 million in the third quarter of 2024 compared to $27 $6 million in the third quarter 2023 north.
Speaker Change: North American sales declined primarily due to decreased demand from one customer.
Speaker Change: Sales in Brazil were $14 3 million.
Speaker Change: $14.3 million in the third quarter of 2024 compared to $13 3 million in.
Speaker Change: In the third quarter of 2023.
Speaker Change: Net product sales for other entities rose 23, 4% $35 $2 million compared to $28 $5 million in the third quarter of 2023.
Speaker Change: Gross profit grew by six 5% year over year to $26 $4 million from $24 $8 million in the third quarter 2023 gross margin was 16% in the third quarter of 2024 compared to 18% in the third quarter 2023. The change in gross margin was mainly due to changes in the product mix.
Towards the third quarter three months ended September 32024.
Speaker Change: Gain on other sales was point $6 million in the third quarter of 2024 compared to $2 $2 million in the third quarter of 2023.
Speaker Change: <unk> expenses increased by 14, 6% year over year to $4 $4 million compared to $3 8 million in the third quarter of 2023. This expense increase was primarily due to higher warehousing logistics logistic costs related to the increased revenue.
Speaker Change: So that wouldn't expenses represented two 7% of net sales in the third quarter of 2024 compared to two 8% in third quarter of 2023.
Speaker Change: General and administrative expenses G&A decreased by 17% year over year to $5 1 million compared to $6 $1 million.
Speaker Change: Third quarter 2023, primarily due to reversal of bad debt provisions for receivables G&A expenses represented three 1% of net sales in third quarter of 2024 compared to four 4% of net sales in the third quarter of 2023.
Speaker Change: Research and development expenses R&D decreased by seven 1% year over year to $6 4 million compared to $6 $9 million third quarter of 2023. The decrease was related to lower R&D miscellaneous expenses caused by a reduction in R&D activities for new projects.
Speaker Change: R&D expenses represented 3.9 net sales in the third quarter of 2024 compared to 5% in the third quarter 2023.
Speaker Change: Other income was $1.3 million with third quarter of 2024, which is stable compared to the $1 $2 million towards the three months ended September 32023 income from operations was $11 $1 million for the third quarter of 2020 for nearly 10% increase compared to $10 two.
Speaker Change: Yeah.
Speaker Change: For the three months ended September 30.
Speaker Change: 23.
Speaker Change: Interest expense was point $3 million in the third quarter 2024, compared to point $2 million in the third quarter of 2023.
Speaker Change: Net financial expense was $2 million in the third quarter of 24.
Speaker Change: Impair to net financial income of point $2 million in the same.
Speaker Change: Quarter of 2023, the change in net financial expense and income.
Primarily resulted from an increase in foreign exchange losses due to the foreign exchange volatility.
Speaker Change: Income before income tax expense and equity in earnings of affiliated companies was $11 $9 million in the third quarter 2024 compared to income before income tax expense of equity in earnings of affiliated companies.
Speaker Change: $11 $2 million in the third quarter of 2023 income tax expense was $4 million third quarter of 2024 compared to <unk> $7 million in the third quarter of 2023, primarily due to a onetime income tax expense settlement for the subsidiaries in.
Speaker Change: In the PRC and an increase in the global intangible low tax income G. I L T I tax expenses.
Speaker Change: Net income attributable to parent company's common shareholders was $5 $5 million in the third quarter of 2024 compared to a net income whichever repair company's common shareholders of $9 $5 million in the third quarter 2023 diluted earnings per share was <unk> 18 cents in the third quarter of 2024 compared to <unk>.
31 cents in the third quarter 2023.
Speaker Change: Yeah.
Speaker Change: The weighted average number of diluted shares outstanding was 30.185 million and 702 in the third quarter of 2024 compared to $30 million I'm wondering 89363 in the third quarter of 2023.
Speaker Change: I'll review the results for the first nine months of 2024 net sales increased by 10, 8% year over year to $4 $62 2 million.
Speaker Change: In the nine months.
Speaker Change: First nine months of 2024 compared to $417 $2 million in the first nine months of 2023, primarily due to an increase in sales of both traditional styrene and EPS products.
Speaker Change: Nine months gross product profit increased by 15, 4% year over year to $79 $7 million.
Speaker Change: $69 $1 million and a corresponding theory last year.
Speaker Change: Nine month gross margin increased to 17, 2% from 16, 6% in the first nine months of 2023 gain on other sales was $2 $2 million I'm, sorry, it's $2 8 million in the first nine months of 2024 compared to $3 6 million hours and of course for you.
Speaker Change: Right.
Speaker Change: Income from operations increased by 22.
Speaker Change: Year over year to $31 6 million for the first nine months of 'twenty 'twenty four.
Speaker Change: $25 $7 million in the first nine months of 2023.
Speaker Change: Net income attributable to parent company's common shareholders was $20 $9 million in the first nine months of 2024 compared with net income attributable to parent company shareholders of $26 8 million hours in the corresponding period in 2023.
Speaker Change: Diluted earnings per share in the first nine months of 2024.
Speaker Change: 69 cents compared to diluted earnings per share was <unk> 89 cents in the first nine months of 2023.
Speaker Change: That will go over some balance sheet and other financial highlights as of September 32020 for total cash cash equivalents and pledged cash was $138 8 million total accounts receivable and senior notes receivable were $314 $2 million.
Speaker Change: Accounts payable, including notes payable of 271 $8 billion in short term loans were $59 $7 million.
Speaker Change: It'll parent company.
Speaker Change: Stockholders' equity was $388 6 million hours.
Speaker Change: On September 32024, compared to $367 $8 million as of December 31, 2023.
Speaker Change: Sure.
Speaker Change: Our current ratio was approximately one four.
Speaker Change: On the working capital that's total current.
That's less total current liabilities was $156 $6 million as of September 32024.
Net cash provided by operating activities was $16 $5 million in the 2020 for first nine months compared with $10 $7 million in the first nine months period of 2023.
Payments to acquire property plant equipment were $18 3 million compared to $12 $2 million in the first nine months of 2023.
Speaker Change: The business outlook management has raised the revenue guidance for the full year 2000 $24 million to $630 million from $605 million.
Speaker Change: Target is based on the company's current views on operating the market conditions, which are subject to change with that operator, we are now ready to begin the Q&A session.
Speaker Change: Certainly.
Speaker Change: This time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue you.
Speaker Change: You May press Star two if you would like to remove your question from the queue for.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again that is star one to ask a question. Please.
Speaker Change: Please hold while we poll for questions.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Your first question for today is from Gary Nash, a private investor.
Speaker Change: Okay.
Alright.
Speaker Change: Good day or good evening to everyone.
Speaker Change: Everyone hear me clearly because I was having some some issues and hearing on the sorry can everyone hear me clearly.
Speaker Change: Yes.
Speaker Change: Okay, great. Thanks.
Speaker Change: Okay.
Speaker Change: I have two questions. My first question is please.
Speaker Change: If you would please describe the onetime income tax expense settlement for the subsidiaries in China.
Speaker Change: Hey, Mike.
Speaker Change: Yes hold on.
Speaker Change: Yes.
Speaker Change:
Speaker Change: Colton the BB&T permanent Casey's has typically seen does it.
Speaker Change: Uh huh.
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Speaker Change: Yeah Magic are suddenly don't some quick highlights of the week.
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Speaker Change: I think the whole week.
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Speaker Change: So we've been holding tax I'm, a woman and good seats to the appointment of Gary maybe go straight into <unk>.
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Speaker Change: <unk>, what do you think.
Speaker Change: Yeah.
Yeah, So Gary.
Speaker Change: Your question Al.
Speaker Change: The one time tax in China, that's related to both third quarter of 2024, we declared a dividend of <unk>.
Speaker Change: Since our U S dollar sense.
Speaker Change: There isn't.
Speaker Change: Special dividend and that came from our C. A F.
Speaker Change: China subsidiary.
Speaker Change: And distribute the dividend.
Speaker Change: Dividends to the parent company and then we distributed to the.
Speaker Change: Shareholders.
Speaker Change: This process.
Speaker Change: We'll have.
Speaker Change: Trigger a onetime.
Speaker Change: Tax a chord withholding tax.
Speaker Change: You have to pay to the Chinese government.
Speaker Change: Total debt of $1 $4 million at one time.
Speaker Change: It's a dividend related.
Speaker Change: To a technician.
The profit they are in China over the years and to the shareholder and also out of China.
Speaker Change: Okay. Thank you.
Speaker Change: And my my second question is if if if you indulge me.
Speaker Change: Why did the G I L T I taxes increase it was the third quarter of 2024.
Speaker Change: Okay.
Speaker Change: So if they all go into pieces Joe Jonathan.
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Speaker Change: Okay great.
Speaker Change: Gary you a second question on the guilty tax.
Speaker Change: The.
Speaker Change: Taxes.
Speaker Change: This particular tax Gi LTI tax is enacted by Trump administration study.
Speaker Change: 2017.
Speaker Change: And that's a product that's a product from their tax reform.
Speaker Change: Back in 2017.
Speaker Change: Since it is a tax design for a.
Speaker Change: Falling subsidiary of a U S company.
There are their profit.
Speaker Change: Ed.
Speaker Change: Outside of the U S.
Speaker Change: Subject to such tax.
Speaker Change:
Speaker Change: As a result of that compliance we have.
Speaker Change: Accrued and paid.
Speaker Change: Such tax since 2020 every year.
Speaker Change: And then how do we calculate this particular tax calculation is based on previous years pre tax profit our pre tax income okay.
Speaker Change: So give you some.
Speaker Change: A detailed map of numbers in 2022 pre tax income.
Speaker Change: That was $23 million.
Speaker Change: So for 2023, and we use that $23 million as a base to calculate and then.
<unk> cooler and pay every quarter and that amounted to approximately $1 $2 million.
Speaker Change: And however, as you already know as a shareholder of 2023, our business has grown significantly. So it's all saw was our profit our profit went to $48 million.
Speaker Change: And as a result of that and where you're going to use that as a base to calculate that.
Speaker Change: I L T I tax for 2024 and and.
Speaker Change: The result of that is $1 7 million.
Speaker Change: Paul.
Speaker Change: Per.
Speaker Change: Quarter, four 'twenty 'twenty four.
Speaker Change: So this is the reason why you see such a significant increase.
Speaker Change: G I L T I tap.
Speaker Change: Alright.
Speaker Change: Q3 2024.
Speaker Change: Okay alright, okay.
Speaker Change: Thank you very much that was very helpful. I appreciate it thank you.
Speaker Change: Thank you.
Speaker Change: Your next question is from Jonathan Davis, a private investor.
Speaker Change: So.
Jonathan Davis: Hello, everybody doing.
Speaker Change: Good thank you.
Speaker Change: Yes.
Speaker Change: My question is a foreign exchange volatility, sometimes creates income or losses or is the company doing to reduce the impact of foreign exchange volatility.
Speaker Change: Quarterly profits.
Speaker Change: Okay, great. Thank you.
Speaker Change: I don't want you to think.
Speaker Change: Would it be the <unk>.
Speaker Change: Uh huh.
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Speaker Change: Yeah.
Speaker Change: Jim I think I can really quantify them in.
Speaker Change: D. G M doesn't say incremental is all that sounds like a switch.
Speaker Change: And then Conversely, when he bought in Quincy.
Okay.
Speaker Change: Regarding your question on the Forex.
Speaker Change: Because your impact to the.
To the earnings.
Speaker Change: To be honest, so we do have.
Speaker Change: Pretty.
Speaker Change: Due to our footprint and our global footprint.
Speaker Change: Do you have a year.
Speaker Change: Our task of this particular area as we have business.
Speaker Change: At this stage, we have business in Brazil, our business in China, and we have all the areas of the business.
Speaker Change: Business in different regions of the world.
Speaker Change: We have.
Speaker Change: Because of this we have to deal with different currencies.
Speaker Change: We have.
Speaker Change: Started last year too.
Speaker Change: Some is to experiment.
Speaker Change: To try some of the financial tools to mitigate the.
Forex impact.
Speaker Change: However.
Speaker Change: There is a.
Speaker Change: Tools, we tried.
Speaker Change: The resolve it hasn't been very satisfactory and so we are the next step.
Speaker Change: We're going to do is we have we have stopped using those tools because we haven't seen the result, we wanted so.
Speaker Change: Going forward, we are in a discussion or a number of.
Speaker Change: Large financial institutions global.
Speaker Change: Two.
Speaker Change: So you can have some better tools and solutions for us to help us to manage the forex risk.
Speaker Change: Alright, Thank you very much.
Speaker Change: Thank you.
Speaker Change: Once again, if you would like to ask a question. Please press star one.
Speaker Change: Yeah.
Speaker Change: Your next question for today is from Jessica Lane, a private investor.
Jessica Lane: Hello. Good morning, I was just wondering what business segment are expected to contribute to the increase in sales guidance to the 630 million for 2024.
Speaker Change: Great. Thank you.
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Speaker Change: Guidance change on the guidance.
Speaker Change: So quite a year, we'll share that.
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Speaker Change: To get to close them in the year.
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Speaker Change: Yeah, it's a good guidance.
Speaker Change: Okay.
Speaker Change: So to your question, it's actually there is no particular areas.
All segment has dropped.
Speaker Change:
Speaker Change: <unk>.
Speaker Change: Contributing to the overall increase of our guidance.
But we can give you a little color all wide Scott because everything else every area of our business has experienced healthy growth.
Speaker Change: Are you.
Speaker Change: To share with our shareholders.
Speaker Change: And.
Speaker Change: As early as April and May period of time after further assessment of the market opportunities and also the challenges.
Speaker Change: We decided we're going to take a proactive pricing strategy.
Speaker Change: We made some adjustments on the pricing.
Speaker Change: And.
Speaker Change:
Speaker Change: That's being very targeted and our goal is to increase market share.
Speaker Change: As a result of that as you can see in our third quarter results, our domestic China market.
Sales has booked about $146 million and that represent.
About 19% year over year growth in domestic China.
Speaker Change: And if you follow the B and the.
History stats you will know.
Speaker Change: The third quarter, the Chinese auto market hasn't been doing so well as well as the whole industry, but we are able to.
Speaker Change: Richardson such growth is because our <unk>.
Speaker Change: Our strategy has been working so we are.
Speaker Change: In fact, gaining market share.
Speaker Change: And in that witnessed by our growth in our <unk>.
Speaker Change: Traditional hydraulic.
Speaker Change: Product.
Speaker Change: That's also reflected in our growth and our.
Speaker Change: New flagship product, which is electric power steering product EPS product.
Speaker Change: We also growing our market share inside of our largest customer BYD.
Speaker Change: And.
Speaker Change: And also we are growing in the export market as well so overall.
Speaker Change: We are working with the best customers.
And we are producing the right type of product to meet their demand.
And so as a result of that.
Speaker Change: We are more.
Speaker Change: More confident see the fourth quarter.
Speaker Change: And that's why we decided to increase the full year guidance from eight.
Speaker Change: The low $600 million to $630 million.
Speaker Change: Thank you so much.
Speaker Change: Thank you.
Speaker Change: Once again, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: As a reminder, if you would like to ask a question. Please press star one.
Kevin Six: We have reached the end of our question and answer session and I will now turn the call over to Kevin for closing remarks.
Kevin Six: Thank you everybody for attending today's call and.
We look forward to speaking with you on the next quarterly call.
Speaker Change: Thank you. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: Okay.
Speaker Change: Yeah.