China Yuchai International Limited

Good day and thank you for standing by. Welcome to the China Yuchai International Limited first half of 2021 financial results. At this time, all participants are in listen-only mode. And after the speaker's presentation, there will be a question and answer session. And to ask a question during the session, you need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. And I'd like to turn the conference over to Kevin, please. Please go ahead, sir.

Thank you for joining us today, and welcome to China-Yuchai International Limited's 2021st first half-year conference call and webcast. Joining us today are Mr. Wei-Ming Ho and Mr. Chun-Sin Liu, President and Chief Financial Officer of CYI, respectively. In addition, we also have in attendance Mr. Calvin Lai, Vice President 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 Litigation Reform Act of 1995. The words believe, expect, anticipate, project, target, 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 include but are not limited to statements concerning the company's operations and financial performance and conditions and 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 20Fs 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 adversely affected due to a 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. Mr. Ho will provide a brief overview and summary, then Mr. Liu will review the financial results for the 2021 first half year ended June 30th. Thereafter, we will conduct a question and answer session. For the purposes of today's call, the financial results for the first half of 2021 period into June 30, 2021 are unaudited and they will be presented in RMB and US dollars. All the financial information presented is reported using the International Financial Reporting Standards as issued by the International Accounting Standards Board. Mr. Ho, please begin your prepared remarks.

Thank you, Kelvin. The Chinese economy continues to flourish. in the first half of 2021 as GDP grew by 12.7% and fixed assets investment grew by 12.6%. China continued to be the global economic growth leader in the first half of 2021. This resurgent economic growth benefited the non-EV truck and bus markets as unit sales increased by almost 26% according to statistics by the China Association of Automobile Manufacturers in the first half of 2021. A number of target engine markets achieved strong growth in the first half of 2021. Heavy-duty truck sales toppled 1 million units with a strong 28% year-over-year growth, while medium-duty trucks with 108,000 units sold posted another robust increase of 51% year-over-year. On the bus side, sales of large coached non-EV bus was up almost 10% from a year ago, while medium-duty bus sales and light-duty bus sales grew by 24% and 43%, respectively. Our heavy-duty truck engine sales, excluding gasoline-powered and electric-powered vehicles, grew by 33%, while our bus engine unit sales achieved over 51% growth. Our off-road unit sales grew by 60.7% with 76.6% growth in marine and power generator engine unit sales. 51% unit growth in the market for agricultural engines and industrial engines experienced a 71.1% gain. Our revenue increased by 26.8% to RMB $12.6 billion compared with RMB $10 billion in the same period last year, on an overall 33.8% increase in engine unit sales year-over-year. With the more stringent National 6 emission standards becoming mandated across China, truck and bus market sales grew from a strong pre-buy of National 5 compliant vehicles. Natural gas engines were mandated to be National 6B compliant at the beginning of 2021, with diesel engines required to be National 6A compliant beginning in July 2021. However, a large number of National 5 compliant engine vehicles remain in the distribution channel, and these units have continued to clear the inventory briefly hindering current sales of National 6 engines. With the deadline of National 5 expired on June 30, except in some cities where extension has been given, we expect sales of National 6 engines will pick up in the second half of the year. National 6 engine technology is significantly more environmentally stringent the National 5 engine technology and is essential to China's plan to reduce air pollution as China is the world's largest automotive market. We have built a large portfolio of engines compliant with National 6 emission standards to serve current customers and attract new ones as well. Our current National 6 engines are also capable of meeting the even more stringent National 6B emission standards with a few modifications. National 6B standards are expected to be mandated in 2023, but we already have the technology in place to produce these engines. We are pleased to report that our initiatives in the NEB market are progressing. Our hybrid power system is currently available in the marketplace, as are the 65kW and 100kW range extenders. Other NEV products remain under development for future introduction. We also entered into a new strategic partnership agreement with Guangxi Sunlong Bus to develop new energy vehicles based upon China U-Chai's four new energy powertrain systems. In addition, our Abbots Spicer U-Chai operation is now supplying part of our advanced exhaust treatment unit to help our engines reach the national six emissions standard. At June 30th, 2021, we maintained our financial strength with cash and bank balances of RMB 5.7 billion or USD $876.6 million after investing almost 12% more in R&D in the first half of 2021. We paid a one-off cash dividend of USD $170 per common share in early July 2021. We have a portfolio of advanced national to serve our large customer base in China and abroad. The effects of COVID-19 have been minimized in China and we look forward to greater export sales as overseas markets improve. There are challenges ahead as the Chinese market for commercial vehicles is expected to slow after the strong pre-buying in the first half of 2021. However, we have advanced automotive technology, an enormous service distribution system within China, a large customer base, an excellent reputation as a leader in automotive technology, and the production acumen for commercial vehicles in China. With that, I will welcome Chun-Seng Liu on his first conference call as our new CFO. Chun-Seng, you may begin your remarks.