China Yuchai International Limited

Good day, and thank you for standing by. Welcome to the China-UChai International First Half 2023 Financial Results. At this time, all participants are in a 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 star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. 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-U.S.A. International Limited's first half year and the June 30, 2023 conference call and webcast. Joining us today are Mr. Wei-Ming Hou. and Mr. Chun-Sen Liu, President and Chief Financial Officer of CYI, respectively. In addition, we have in attendance Mr. Calvin 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 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 uncertainty, 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 under the headings risk factors, results of operations, and business overview, and then other reports filed with Securities and Exchange Commission from time to time. If COVID-19 pandemic is not effectively controlled, our business operations and financial conditions may be materially and 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 of our suppliers and supply chain, 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 provide the financial results for the first half, end of June 30, 2023. Thereafter, we will conduct a question and answer session. For the purposes of today's call, the 2023 and the 2022 first half financial results are unaudited, and they will be presented in RMB and US dollars. 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, Kevin. I think the economy showed signs of recovery in the first half of 2023, but still faced challenges from external internal factors. According to official data, the GDP growth rate for the first half of 2023 was 5.5% year-over-year, with a 6.3% increase in the second quarter compared to 4.5% in the first quarter. However, these figures were influenced by the low-based effect of the pandemic-induced lockdown initiated in 2020. The export sector suffered a decline in the first half of the year as high inflation in major markets and geopolitical tensions reduced foreign demand for Chinese food. The property sector also continued to experience a slowdown as property investments fell by 7.9% year-over-year and property sales dropped by 5.3% in terms of floor space in the first six months of 2023. The real estate market was affected by tight financial conditions and uncertainties over demand. The economic outlook for the second half of 2023 remains uncertain. as the economic momentum of 2023 has slowed down, as overall demand has not met expectations. According to data reported by China Association of Automobile Manufacturers, total industrial unit sales of commercial vehicles, excluding gasoline-powered and electric-powered vehicles, For the first half of 2023, increased by 8.3%. Year-over-year, with truck unit sales up by 6% and smaller bus unit sales were up 28.1%. In this Chinese commercial vehicle environment, our main subsidiary, Guangxi E-Chai Machinery Company Limited, or GYCL, reported a combined truck and bus engine unit sales decline of 1.5% year-over-year, the first half of 2023. Truck unit sales were 10.4% lower year-over-year, with bus unit sales 55.5% higher year-over-year. Increased bus engine sales were led by 149.8% rise in heavy duty engine sales, far exceeding the market segment growth. Export market also contributed to the strong bus sales. UIMCL's engine sales in the off-road market experienced a unit sales reduction of 13.3% year-over-year in the first half of 2033. Industrial and marine power generation unit sales increased year-over-year, partially offsetting reduced agricultural unit sales. New energy product unit sales grew by 38.2%. from a low base to 1,319 units in the first half of 2023. Revenue for the first half of 2023 grew by 7% to RMB $9.2 billion or US$1.3 billion, compared with RMB $8.6 billion in first half 2022 and RMB $7.5 billion in second half 2022. Our gross profit increased by 14.1%, outpacing revenue growth to RMB $1.6 billion or US$214.8 billion, compared with RMB $1.4 billion in 1.52022. Our gross margin improved to 16.9% in 1.52023, thanks to more sales of larger engines across many of our diverse end-user markets. Operating profit rose by 34.6%, to RMB $387.7 million, or US$53.7 million, and the operating margin increased to 4.2%. For the first half of 2023, basic and diluted earnings per share increased 90.8% to RMB $4.37, or US$0.60, compared with RMB $2.29 in 1.52022. We invest substantially in research and development to deliver engines that power train products that meet the needs of our customers. Our R&D spending, including capitalized costs, amounted to R&D $465.2 million, or US$64.4 million, or 5.1% of our revenue in the first half of 2023. Our R&D aims to improve the performance and efficiency of our diesel and gas engines. We are also increasing our R&D focus on new products for the emerging new energy market. We continue to develop engines and products for the new energy market that use alternative fuels, improve fuel efficiency, and enhance emission reduction. The development of engines using alternative fuels is another avenue for development. For instance, We have developed hydrogen fire engines that can run a clean and renewable energy. We are also committed to developing our innovative products for the new energy market. Our hybrid systems have been well received among leading Chinese customers, especially in the bus coach segment. One of our new products, the Li-Chai Model YTA07N hybrid engine is powering a 10-meter gas-electric hybrid buses in Nanjing, a major city in China. These buses were manufactured by Yitong Group Company, the largest bus producer in China and one of our key customers. They've ordered more than 1,200 buses equipped with Yichai engines. A bus operator in Wuhan, another important city in China, has also chosen this Yichai hybrid engine for their buses. Also, the Yichai Singlan S06 100 kilowatt T1 parallel hybrid power. Diversed from BioEach Hexingland is Sunny Group's 12 kV mixer truck. Sunny Group is a leading global engineering machinery manufacturer. This system features a proprietary control software that optimizes the performance of the engine, electric motor, and automated mechanical transmission gearbox, resulting in significant fuel savings. To make our operations more focused, we continue to restructure our operations in Pertab 2023. GYMCL has restructured its marine and power generation businesses to enhance its competitiveness in this market. GYMCL has established a new subsidiary, Guangxi Yichai Marine and Genset Power Company Limited, which has taken over GYMCL marine and power generation businesses. This new operation has incorporated an MTU series 4,000 engine and other related products and services. This move will enable GYMCL to offer a more integrated and comprehensive power generation solution to its customers. GYMCL subsidiary Yichai Qinglan New Energy Power Technology Company Limited has secured new investments also in RMB $20 million from two new unrelated outside investors in 2023. This new investment accelerates the research and development of new energy technologies and enhances product development. Also, JYMCL incorporated a new subsidiary, Guangxi Xingyin Cloud Technology, to focus on developing proprietary cloud-based control systems for on- and off-road vehicles and machineries. SingIn Cloud will also oversee IT operations and create intelligent networks and processes for UICL Group companies. As of June 30th, 2023, cash and bank balances were RMB 5.6 billion, or US dollars, 777.2 million, and we maintain a strong balance sheet. With our financial strength, the Board of Directors declared a cash dividend of 0.28 cents for the year ended December 31st, 2022, which was stated on August 7th, 2023. Looking to the second half of 2023, our diverse product portfolio remains a key driver of our growth and profitability. And we continue to upgrade our engine products, which contribute to lower emissions in our customers' vehicles. Customers leverage our technologies to enhance their operational performance with lower costs and participate in building a cleaner environment via low-emission power train systems. We are also developing innovative solutions in our new energy products that align with our society's environmental agenda. With that, I would now like to turn the call over to Chun Seng Lu, our Chief Financial Officer, who will provide more details on the financial results. Chun Seng, you may begin your report.