China Automotive Systems, Inc.

Good morning everyone and welcome to the China Automotive Systems fourth quarter and fiscal year 2024 conference call. At this time all participants are in a listen only mode and if anyone should require operator assistance during the 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 Thies, Investor Relations. Kevin over to you.

Thank you everyone for joining us today. Welcome to China Automotive Systems 2024 fourth quarter and fiscal year 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. 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 Security Litigation Reform Act in 1995. 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 material contained in these forward-looking statements due to a number of factors including those under the headings risk factors and results of operations in the company's form 10k annual report for the year ended December 31, 2024 as filed with the security and exchange commission and another 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 the overall business environment cause uncertainties in the regions where we conduct business cause our 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 our operations or the manufacturing delivery and 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 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 provide a brief overview and summary of the fourth quarter and the 2024 annual results for the period ended December 31, 2024 management will then conduct a question and answer session the 2024 fourth quarter results are unaudited and the 2024 annual results are audited these financial results are reported using us gap accounting for the purposes of our debt call today i will review review the financial results in us dollars we will begin with a review of some of the quarterly business highlights recent dynamics of the chinese economy and automobile industry and our market position our net sales of steering products increased by 18.6 percent -over-year in the fourth quarter of 2024 comparable to the 19.6 percent increase in the 2024 third quarter for the 2024 year net sales rose by 12.9 percent -over-year to a record $650.9 million dollars our traditional steering products grew by 4.3 percent -over-year with our electric power steering eps product sales rising by 29.9 percent -over-year in 2024 our subsidiary henlong reported domestic sales to passenger vehicles were up 20 percent 2024 with sales to cherry auto 18.2 percent higher and our kyb sales of eps products was up by 27.2 percent and the chinese commercial vehicle market our sales grew modestly to 71.6 million dollars our north american operations were the only segment in 40 and lower sales in 2024 primarily due to reduced demand by stylists whose overall sales declined in 2024 our brazilian sales experienced a 5.7 increase in 2024 for the macro economy chinese gdp increased by 5.4 percent in the fourth quarter of 2024 up from four points -over-year in the third quarter of 2024 for the 2024 i'm sorry for 2024 chinese gdp rose by 5 percent in line with expectations while the chinese economy has stabilized somewhat it still has facing challenges such as declining population sluggish consumer demand and confidence deflationary pressures low fixed asset investment over capacity in some industries and strained relations with major trading partners according to the statistics from the china automotive systems i'm sorry china association automobile manufacturers caam the combined unit sales of passenger and commercial vehicles increased by 4.5 percent -over-year to 31.4 million units during 2024 of this total passenger car unit sales grew 5.8 percent -over-year to 27.6 million units while commercial vehicles vehicles declined 3.9 percent -over-year to 3.9 million units new energy vehicle unit sales grew 35.5 percent -over-year to 12.9 million units as any of these gained a 40.9 percent share of the total motor vehicle market in china export to automotive vehicle units increased by 19.3 percent in 2024 purchase subsidies subsidies by the central and local government private oem incentives and better auto loan terms created more favorable vehicle policies to help aid the purchases of new vehicles the chinese automotive industry is large and an important industry driver in the chinese economy as expected chinese government will continue to policies helpful to promote the success of the automotive industry gross profit in 2024 increased by 5.2 percent -over-year to 109.2 million dollars compared to 103.8 million dollars in 2023 the gross margin was 16.8 percent compared with 18 percent in 2023 r&d expenses were 27.6 million dollars in 2024 this slightly lower amount reflects less investment traditional product upgrade as more was invested into eps and autonomous driving our customer byd is the largest ee producer in china and we have been developing specific new products to improve their vehicle steering performance operating expenses rose by 4.2 percent compared with a net sales increase of 12.9 percent this lower growth of operating expenses is clear evidence of management's focus on operations and profitability net income attributed with the parent company's common shareholders was 30 million dollars or per share income of 99 cents for 2024 compared to 37.7 million dollars or one dollar and 25 cents per share for 2023 net cash provided by operating activities was 9.8 million dollars for 2024 cash paid to acquire property plant equipment and land use was 43.7 million dollars partly offset by 20.5 million dollars cash received from property plant and equipment sales total cash in equivalence pledge cash in short terms investments were 129.4 million dollars or approximately four dollars and 29 cents per share at year end 2024 a special cash dividend of 80 cents per common share or approximately 22.4 million dollars was paid in late august 2024 to reward our shareholders this cash dividend was paid from internal funds and cash flow this reflects our unwavering confidence for sustainable sales growth and our ability to buy back program of up to five million dollars of our outstanding common shares in the open market at market prices not to exceed five dollars or 50 cents per share through november 15 2025 we celebrated our 20th anniversary of our nice back list in 2024 from small domestic manufacturer we have established a global presence especially with tier one companies in north america south america europe india and asia since 2024 less sales have grown from 58.2 million to 650.9 million in 2024 we look forward to the further growth of our company sales and operations as our traditional steering products continue to contribute to our sales and profits even as we further expand our eps portfolio and we build our advanced driver assist systems technologies with our sentient ab operations we have positioned our company to benefit from two ongoing technology transitions from internal combustion engines to electric power trains and from human driving to autonomous driving now let me review the financial results in the fourth quarter of 2024 in the fourth quarter of net sales increased by 18.6 percent to 188.7 million dollars compared to 159.2 million dollars in the same quarter of 2023 the net sales increase is mainly due to a change in the product mix and a higher demand for passenger automobiles and commercial vehicles in the fourth quarter 2024 compared to the fourth quarter 2023 gross profit was 29.5 million dollars in the fourth quarter 2024 compared to 34.7 million dollars in the fourth quarter 2023 gross margin in fourth quarter 2024 was 15.6 percent compared to 21.8 percent in the fourth quarter 2023 primarily due to a change in product mix selling expenses were 4.8 million dollars in the fourth quarter 2024 compared with $4.6 million dollars in the fourth quarter of 2023 selling expenses represented 2.5 percent of net sales in the fourth quarter 2024 compared to 2.9 percent in the fourth quarter 2023 general administrative expenses gna were 9.7 million dollars in the fourth quarter 2024 compared to 9.4 million dollars in the same period in 2023 the gna expenses represented 5.1 net sales in the fourth quarter of 2024 compared to 5.9 percent of net sales in the fourth quarter of 2023 research and development expenses rnd were 7.8 million dollars compared with 9.3 million dollars in the fourth quarter of 2023 rnd expenses represented 4.1 percent of net sales in the fourth quarter 2024 compared to 5.9 percent in the fourth quarter 2023 mainly due to a decrease in the net sales in the fourth quarter of 2023 and the net sales in the fourth quarter of 2023 were 3.7 million dollars in the fourth quarter of 2024 compared to 3.6 million dollars in the fourth quarter of 2023 lower gross profit in 2024 fourth quarter compared with the same period last year was the main cause of this decline interest expense was 1.1 million dollars in the fourth quarter of 2024 compared with 0.3 million dollars in the fourth quarter of 2023 financial income was 0.8 million in the fourth quarter 2024 compared with 1 million dollars in the fourth quarter of 2023 income before income tax expenses and equity and earnings of affiliated companies was 8.8 million dollars in the fourth quarter 2024 compared to 15 million dollars in the fourth quarter of 2023 net income benefit was 2 million dollars in the fourth quarter 2024 compared to income tax expense of 2.1 million dollars in the fourth quarter of 2023 net income attributable to parent companies common shareholders was 9.1 million dollars in the fourth quarter 2024 compared to net income attributable to parent companies common shareholders of 10.9 million dollars in the fourth quarter of 2023 diluted income per share was 30 cents in the fourth quarter of 24 compared to diluted income per share of 36 cents in the fourth quarter of 2023 the average weighted number of diluted common shares outstanding was 30 million 180 thousand 947 compared to 30 million 185 thousand 7 in the fourth quarter of 2023 now we'll review the results for the physical year 2024 net sales increased by 12.9 percent to 650.9 million dollars in 2024 compared to 576.4 million dollars in 2023 this increase was mainly due to higher sales of passenger vehicles in china as total sales of the company's eps systems increased by 29.9 percent year over year and sales of the henlong subsidiary security systems to the chinese passenger vehicle market increased by 20 percent year over year brazil henlong's debt sales grew by 5.7 percent year over year to 51 million dollars this growth partially offset a sales reduction by north american customers in 2024 eps sales represented 38.9 of total revenue in 2024 compared to 33.8 in 2023 gross profit in 2024 increased by 5.2 percent year over year to 109.2 million dollars compared to 103.8 million dollars in 2023 the gross margin was 16.8 percent compared with 18 percent 2023 mainly due to a change in our product mix and lower average selling prices for the year December 31 2024 net gain on other sales in 2024 was 4.3 million dollars compared to 5.8 million dollars in 2023 mainly due to lower material sales in 2024 selling expenses rose by 14.4 percent year every year to 17.9 million dollars in 2024 from 15.6 million dollars in 2023 mainly due to an increase in marketing and office expenses selling expenses represented 2.7 percent net sales in 2024 and 2023 gna expenses increased by 8.7 million dollars year over year to 27.7 million dollars in 2024 compared to 25.5 million in 2023 gna expenses represented 4.3 percent on net sales in 2024 compared to 4.4 percent net sales in 2023 this expense increase was mainly due to higher office property and other taxes and maintenance and repair expenses rnd expenses were 27.6 million dollars in 2024 compared to 29.2 million dollars in 2023 lower rnd expenses reflect less investment in traditional product upgrades and miscellaneous research expenses rnd expenses were 4.2 percent of net sales in 2024 compared to 5.1 percent of net sales in 2023 operating income increased by 2.6 percent to 40.3 million dollars in 2024 compared to 39.2 million dollars in 2023 the increase in operating income was mainly due to a 5.2 percent increase in gross profit combined with the change in rnd expenses interest expense was 1.8 million dollars in 2024 compared to 1 million dollars in 2023 primarily due to an increase in bank loans in 2024 compared with 2023 net financial expense was 0.09 million in 2024 compared to financial income of 4.7 million dollars for 2023 the decrease in net financial income of 4.8 million dollars was primarily due to higher foreign exchange gains in 2023 income before income tax expenses and equity and earnings of affiliated companies was 44.1 million dollars in 2024 compared with 48.2 million dollars in 2023 the change was primarily due to lower operating income in 2024 income tax expense was 5.9 million dollars in 2024 compared to 5.1 million dollars in 2023 this increase is mainly due to a valuation allowance reversal and a one-time income tax expense settlement for subsidiaries in the prc and the u.s this year net income attributable pair of common shareholders was 30 million in 2024 compared to 37.7 million in 2023 diluted net income per share was 99 cents in 2024 compared to one dollar and 25 cents in 2023 the weighted average number of diluted common shares after it was 30 million 184,513 in 2024 compared with 30 million 189,421 in 2023 now we'll provide some balance sheet and other financial highlights as of december 31 2024 total cash cash equivalents pledge cash and short-term accounts receivable accounts receivable accounts receivable accounts receivable accounts receivable were 143.5 million dollars accounts payable including notes payable were 292.8 million dollars in short-term bank loans were 72.6 million dollars total parent company stockholders equity was 29.6 million dollars as of december 31 2024 compared to 34.5 million dollars as of december 31 20.3 that cash flow from operating activities was 9.8 million dollars in 2024 cash paid to acquire property plant and equipment and lane use rights was 43.7 million dollars in 2024 and cash received from the sale of property plant equipment was 20.5 million dollars the business outlook management's providing revenue guidance for the full year 2025 of 700 million dollars this target is based on the company's current views on operating 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 will be opening the floor for questions if you would like to ask a question you can do so by pressing star one on your phone keypad now to join the queue a confirmation tone will indicate that your line is in the queue you may press star two if you would like to remove your question from the queue for any using speaker equipment it may be necessary to pick up your you press the keys please wait a moment possibly poll for questions thank you your first question is coming from jonathan neves who's a private investor jonathan your line is live jonathan can you hear us

yes i can hear you i can hear you sorry can you guys hear yes

okay

okay my question is for the 2025 year the projection is for sales to grow by 50 million what areas will generate this growth

uh 2025 right

yes

okay uh

okay to increase the value of the electric power ceiling. So we expect that the total amount of the electric power ceiling will reach 60 million US dollars. Thank you. Okay.

So the majority of our sales increase in our production will be contributed from the EPS sales, our electric power ceiling product. That breaks down to a number of new products, CEPS, TPEPS, and REPS products. And on the volume, we're expecting 30% -over-year increase in 2025. In terms of total volume, we're looking at, in terms of unit volume increase, we're looking at another 400,000 units increase in 2025. That will contribute to significant opening growth. So we are reporting right now.

Okay. Jonathan, do you have any more questions?

No, no, thank you.

Okay. Thank you very much. Just a reminder there, if there are any remaining questions, you can jump into the queue by pressing star one on your phone keypad. Just wait a moment to see if anyone jumps into the queue. Yeah. Okay. I'm not seeing any further questions. Nope, there's nobody come into the queue. Just a reminder to the audience, you can press star one on your phone keypad if you would like to ask a question. Okay. We don't appear to have anyone else in the queue. I can hand back to the management team if they would like any closing comments.

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

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