China Yuchai International Limited

Ladies and gentlemen, thank you for standing by and welcome to China Yuchai International Limited's first quarter 2020 conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press Tar 1 on your telephone. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Kevin Thies. Please go ahead, sir.

Thank you for joining us today and welcome to China Yuchai International Limited first quarter 2020 conference call and webcast. Joining us today are Mr. Wei Ming Ho and Dr. Thomas Fung, president and chief financial officer of CYI, respectively. In addition, we also have in attendance, Mr. Kelvin Lai, VP of operations of CYI. 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 Delegation Reform Act of 1995. The words believe, expect, anticipate, project, targets, optimistic, confident, that, continue to, predict, intend, aim, will, or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that may be deemed forward-looking statements. These forward-looking statements, including but not limited to statements concerning the company's operations and financial performance and conditions, are based on current expectations, beliefs, and assumptions, which are subject to change at any time. The company cautions that these statements, by their nature, involve risk and uncertainties and actual results may differ materially depending on a variety of important factors such as government and stock exchange regulations, competition, political, economic, and social conditions around the world and in China, including those discussed in the company's form 20F under the headings risk factors, results of operations, and business overview. And in other reports filed with the Securities and Exchange Commission from time to time. If the COVID-19 pandemic is not effectively controlled, our business operations and financial condition may be materially and adversely affected due to the deteriorating market for automotive sales, an economic slowdown in China and abroad, a potential weakening of the financial condition of our customers, potential adverse impact to our suppliers and supply chains, or other factors that we cannot foresee. All forward-looking statements are applicable only as of the date they are made, and the company specifically disclaims any obligation to maintain or update the forward-looking information, whether of the nature contained in the press release, made during today's call, or otherwise in the future. In this presentation, while we are going to provide comparisons between the first quarter of 2020 and 2019 respectively, we must caution that any comparison of operational and financial data between the two quarters will likely be of very limited value. Mr. Ho will provide a brief overview and summary and then Dr. Fung will review the financial results for the first quarter ended March 31, 2020. Thereafter, we will conduct a question and answer session. For the purposes of today's call, the financial results for the first quarter ended March 31, 2020 are unaudited and they will be presented in RMB and U.S. dollars. All financial information presented is reported using International Financial Reporting Standards as issued by the International Standards Board. Mr. Ho, please begin your prepared remarks.

Thank you, Kevin. In the first quarter, the COVID-19 pandemic has created major disruptions in the economy and automobile industries in China, as it has affected customers, suppliers, workers, the service networks, and other auto-related occupations. We believe the economic conditions will improve over the remainder of the 2020 year barring any unforeseen circumstances. The COVID-19 pandemic has exacerbated what was already a slowing economy and auto market in China. Slower economic growth affected business confidence and industrial investment as fixed asset investment declined by a reported 16.1% in the first quarter of 2020. In addition, The implementation of the first phase of National Six Emissions Standard and the ongoing trade tensions between US and China have been weighing on the Chinese economy and auto industry. For the first quarter of 2020, China's GDP declined by 6.8%, the worst year-over-year quarterly decline since 1992. The government's national travel restrictions and lockdown created unavoidable interruptions in employment consumer industrial services, and transportation, which affected nearly all industrial production and supply chain distribution in the first quarter of 2020. The unemployment rate rose to 6.2% in February 2020, the highest level ever reported. According to data reported by China Association of Automobile Manufacturers, CAAM, in the first quarter of 2020, sales of commercial vehicles excluding gasoline-powered and electric-powered vehicles decreased by 25.7%, truck sales decreased by 25.5%, with heavy truck sales down by 15.6%, and bus sales decreased by 28%. Our operational and financial results during the first quarter reflected the impact as the Chinese government mandated a nationwide lockdown to limit the spread of COVID-19 outbreaks. leading to massive disruption to the movement of products and people. Our total unit sales suffered a 33% year-over-year decline. Our overall truck engine and bus engine sales declined in the first quarter of 2020, but heavy-duty truck sales decreased by a single-digit compared with the market performance. Off-road engine sales decreased in the first quarter of 2020, with the sale of engines to the agricultural machinery market down by 6.5%. Our National 6 emission standard technologies have created new opportunities in 2019, including strategic partnership with Sunsea Automobile Holding Group, a producer of heavy-duty trucks in China, and Photon Motor Group for product support for National 6 compliant engines and technologies. The growing sales of our National 6 natural gas engines in the Chinese heavy-duty truck engine market is directly related to the early launch of our national six-gas engine product. And we continue to expand our product offerings in other markets as well. During the 2020 first quarter, our subsidiary GYMCL introduced an advanced high-powered marine engine to address the growing domestic demand for vessels in the yacht class. This is a segment that has been historically dominated by imported engine models This new high-powered boat engine optimizes the existing design of H-I model YC6MJ engine with innovative technology tailored for yacht class engine requirements. Innovative technologies have increased the engine power and reduced the engine dry weight of YC6MJ marine engine. Subsequent to the first quarter of 2020, GYMCL announced that is YCA05175-S500 engine has passed the Off-Road European Stage 5 emission standard in Europe. And this H-I engine can now be marketed in the European Union for off-road applications, such as construction machinery generators and others. This engine utilizes common-rail fuel injection technology, featuring advanced dissolved oxidation catalyst after treatment, a diesel particulate filter, and a highly efficient active selective catalytic reduction emissions control technology system, which are believed to be superior to the comparable products currently in the marketplace. Even in this troubled environment, we maintain profitability with basic and diluted earnings with share of RMB $1.49, US$0.21, compared with RMB 4.85 in the first quarter of 2019. We maintain our financial strength with cash and bank balances of RMB 4.8 billion or USD 681.7 million as of March 31, 2020 and we declare a cash dividend of USD 0.85 per ordinary share to be paid on July 31, 2020. Entering in the second quarter of 2020, lockdown restrictions have been lifted in nearly all provinces and cities in China. In April, the sale of commercial vehicles, excluding gasoline-powered and electric-powered vehicles, has increased by 34.4% year-over-year, monthly, led by 62.2% growth in heavy-duty vehicles, according to data from CAAM. This growth clearly represented pent-up demand from the restrictions related to the effect of the COVID-19 pandemic. While the outlook for the remainder of 2020 may not be so clear, it remains hopeful that the economies of China and its major trading partners can quickly resume growth. The Chinese central government has initiated a tax cut, improved regulations and loosened monetary policies to stimulate the domestic economy. The first phase of US-China trade agreement has been agreed upon will help improve trade for both countries. With that, I will turn to Thomas to go over the financials.