China Yuchai International Limited

Good day and thank you for standing by. Welcome to China Yuchai International Limited second half and full year 2024 financial results conference call and webcast. 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. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link anytime during the conference. Please be advised that today's conference is being recorded. I'd like now to turn the conference over to Kevin Tiss. Please go ahead, sir.

Thank you for joining us today, and welcome to China Yuchai International Limited's conference call and webcast for the second half and fiscal year of 2024 ended on December 31, 2024. 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. Kelvin Lai, General Manager of Operations of CYI and Chairman of MTU Yuchai Power Company Limited, MTU Power Company. Before we begin, I will remind all listeners that throughout this call, we may make statements that may contain forward-looking statements within 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 condition 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 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. 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. Howell will provide a brief overview and summary. Then Mr. Liu will provide the financial results for the second half and full year ended December 31, 2024. Thereafter, we will conduct a question and answer session. For purposes of today's call, the 2024 results are unaudited and the 2023 financial numbers are audited. And they will be presented in RMB and U.S. dollars. All 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. We are pleased to report that our unit sales outperformed the Chinese stock and bus legal markets in the second half and for the full year 2024. According to data from China Association of Automobile Manufacturers , compared with a 9.9% year-over-year decline in truck and bus vehicle sales in the second half of 2024, our truck and bus engine sales were up by 1.6% year-over-year. For the full year 2024, our truck and bus engine sales rose by 17.2% year-over-year. compared with a 2.6% year-over-year decline in truck and bus vehicle sales. Our off-road engine sales rose by 12.6% year-over-year in second half 2024, and by 9.1% year-over-year for 2024 full year. Agricultural engine sales were flat in 2024, while industrial engine sales were up by 11% year-over-year. marine and genset engine sales increased by 25.5% year-over-year. Revenue in two-halves 2024 was flat compared with the same period last year. Revenue in 2024 rose by 6.6% year-over-year to RMB $19.1 billion or $2.7 billion. Gross profit increased faster than revenue rising by 14.3% year-over-year in second half 2024 and 10.8% year-over-year in full year 2024 to RMB 2.8 billion or USD 392.1 million compared with RMB 2.5 billion in FY2023. Gross margin increased to 14.7% compared with 14.1% in FY2023. The increase in gross margin was mainly attributable to higher revenue and continuing cost reduction initiatives. Although our operating profit decreased slightly in FY2024, our investment in associated companies and ventures delivered higher profit, growing by 80.2% year-over-year in second half 2024 and by 63.6% year-over-year for full year 2024. Our 50-50 joint venture MTU Each High Power, which sells large power generator engines, achieved higher profit than the previous year. Our YSC Engines and PMG Each High Businesses achieved profitability in FY2024 compared to losses last year. Generator engine sales remain robust, Additionally, ECHI's marine and genset power subsidiary and Rolls-Royce power system division have entered into a second phase cooperation and development for MTU ECHI power venture. As part of this development, production and sales of MTU Series 4000 oil and gas engines is expected to begin shipment in late 2025. Manufacturing capabilities will be enhanced accordingly to cater to the expanded engine product portfolio. In 2024, H-I Machinery Power Systems Thailand Company or H-I Thailand commenced production operations. H-I Thailand will mainly produce a range of diesel engines and other products for on- and off-road applications. We have additionally, we entered into a comprehensive strategic cooperation agreement with Kim Long Moto a subsidiary of Vietnam's FUTA Group. This strategic cooperation consists of the grant and provision of technology licenses, component supply and related support, and services for the construction of a factory in Tim Lung Motu's designated site in Vietnam. Tim Lung Motu obtained technology licensing rights from certain HHI engine models to be manufactured primarily for trucks buses and other commercial vehicles. Imlong will have exclusive right, sales rights for the license engines in the Vietnam market, along with priority sales rights in other ASEAN countries and South Korea. These licenses are valid for 15 years with total licensing fee of US$28 million. So operating in China was challenging in 2024. According to the National Bureau of Statistics, Chinese GDP increased by about 5% year-on-year in 2024. The total value of our stock rose to US$3.6 trillion, both of goods and services, creating a trade surplus of almost $1 trillion last year for 2024. However, property investment continued to decline in 2024. In the second half of 2024, Our R&D, total R&D expenditures, including capitalized costs, increased by 21.2% to RMB $726 million, or US dollars, $101 million, representing 8.2% of revenue in second half 2024, as compared to RMB $599.2 million, representing $6.8 million of revenue in second half 2023. For FY2024, total RMB expenditures including capitalized costs were RMB 1.2 billion or USD 165.4 million representing 6.2% of revenue compared with RMB 1.1 billion representing 5.9% of revenue in FY2023. We continue to improve the efficiency and performance of our National 6 and Tier 4 engines and initiated the development of the next-generation emission-standard engines for the on-road and off-road engine market. We continue the development of new energy products, including products using alternative fuels such as hydrogen technologies. Our innovative new energy powertrains include two hydrogen-powered combustion engines, an off-gas power generation system, and a production plant which utilizes of gas discharges to generate power and eliminate greenhouse gas emissions. The Model YCA07N hybrid engine, which was chosen to power 10-meter gas-electric hybrid buses in Nanjing. The first 50 Suzhou Jinglong buses using our hydrogen fuel cells have commenced commercial operations in Beijing. And most recently, a new foray into enhancing wind power with the launch of the high-strength QT700-10 turbine fan main shaft to improve wind turbine performance. In recognition of our innovative achievements with Weld, which utilizes hydrogen, Guangxi China Engineering Company Limited, our main operating subsidiary in China, was appointed as a committee member of the new Hydrogen Combustion Energy Innovation Consortium Division of China Internal Combustion Engine Society. To encourage improved performance, selected senior leaders and key employees of each high-end subsidiary have participated in equity incentive plans beginning in 2024. The plans are both a reward and an incentive to motivate these senior leaders with key talents for their continued contribution. and their dedication and loyalty to enhance long-term growth of the company. In early June, we adopted our first share buyback plan, whereby we repurchased a total of 3.3 million shares, amounting to a total cost of US$39.8 million. In addition, the company paid a cash dividend of 0.38 US cents for ordinary shares on August 28, 2024. These share repurchases and dividend distribution demonstrate the company's confidence in our future revenue, profit, and cash flow generation, and to show our commitment to building shareholder value. Despite the shares repurchase and cash dividends, our cash and bank balances were RMB $6.4 billion $895 million as at 31st December 2024. With that, I would now like to turn the call over to Mr Chun Seng Lu, our Chief Financial Officer, who will provide more details on the financial results. Chun Seng, you may begin your remarks.

Thank you, Wei Ling. Now, let me review our announced six-month results entered December 31st, 2024. Revenue was RMB $8.8 billion or US dollar 1.2 billion compared with RMB 8.9 billion in second half 2023. The total number of engines sold in second half 2024 increased by 10.9% to 163,843 units compared with 147,700 units in second half 2023. The increase was mainly due to higher sales in truck, industrial and marine and power generation markets. The better performance in truck and bus engine sales was achieved despite a decline by 9.9% in sales of commercial vehicles, excluding gasoline and electric powered vehicles, compared to second half 2023 as reported by the China Association of Automobile Manufacturers . Gross profit increased by 14.3% to RMB 1.4 billion or USD 195.7 million from RMB 1.2 billion in second half 2023. The increase was mainly due to higher unit sales volume combined with lower material costs. Overall gross margin was 15.9% in second half 2024 compared with 13.9% in second half 2023. Other operating income increased by 31.2% to RMB 401.5 million or USD 35.9 million compared with RMB 306.2 million in second half 2023. The increase was mainly due to higher government grants, higher rebate on value added taxes and recognition of technology licensing fees. Research and development R&D expenses increased by 25.6% to RMB 591.1 million or USD 82.2 million compared with RMB 470.5 million in second half 2023 due to higher mold cost and impairment of a discontinued R&D project. Total R&D expenditures including capitalized costs were RMB 736 million or USD 101 million representing 8.2% of revenue in second half 2024 as compared to RMB 599.2 million representing 6.8% of revenue in second half 2023. and administrative SG&A expenses increased by 25.1% to RMB $1.1 billion or USD $147 million from RMB $844.6 million in second half 2023. This increase was mainly due to higher trade receivables provision and higher travelling personnel and selling expenses compared with the same period last year. SG&A expenses represented 12% of revenue for second half 2024 compared with 9.5% for second half 2023. Operating profit declined to RMB $160.1 million or USD $22.3 million from RMB $221.8 million in second half 2023. The opening margin was 1.8% compared with 2.5% in second half 2023. Finance costs decreased by 20.4% to RMB 37.1 million or USD 5.2 million from RMB 46.5 million in second half 2023, primarily due to lower bills discounting. The share of financial results of the associates and joint ventures grew by 80.2% to a profit of RMB58.5 million or USD8.1 million compared with RMB32.5 million in second half 2023. The improvement was mainly driven by higher profits at MTU Yichai Power Company Limited, MTU Yichai. Additionally, Y&C Engine Company Limited, Y&C Engine and Guangxi program Yichai Automotive Energy Company Limited to Ren Yichai achieved profitability in second half 2024 compared to a loss in the same period last year. Income tax was RMB 26.4 million or USD 3.7 million compared with RMB 37.9 million in second half 2023. Net profit attributable to equity holders of the company was RMB 82.7 million or USD 11.5 million compared with RMB RM107.1 million in second half 2023. Basic and Diluted Earnings Per Share were RMB RM2.19 or USD30 compared with RMB RM2.62 in second half 2023. Basic and Diluted Earnings Per Share for second half 2024 and second half 2023 were based on the weighted average of RM37,809,000 824 shares and 40,858,290 shares respectively. Now we will review the unaudited financial results for the fiscal year entered December 31, 2024. Revenue was RMB RM19.1 billion or USD 2.7 billion compared with RMB RM18 billion in FY2023. The total number of engines sold in financial year increased by 13.7% to 356,586 units compared with 313,493 units in FY2024. The increase was mainly due to higher sales in the truck, bus, industrial and marine power generation markets. The stronger performance in truck and bus engine sales was achieved despite a 2.6% year-on-year decrease in sales of commercial vehicles, excluding gasoline and electric power vehicles in FY2024 as reported by CAAM. Gross profit increased by 10.8% to RMB2.8 billion or USD392.1 billion compared with RMB2.5 billion in FY2023. Gross margin increased to 14.4% compared with 14.1% in FY2023. The increase in gross margin was mainly attributable to higher revenue from increased unit volume and continuing cost reduction initiative partially offset by greater labor and overhead expenses. Other operating income increased by 30.1% to RMB 535.1 RMB 575.7 million or USD 80.1 million compared with RMB 442.4 million in FY2023. The increase was mainly due to higher diamond grants, higher rebate on value-added taxes and recognition of technology licensing fees. RMB expenses increased by 12.3% to RMB 984.7 million or USD 137 million compared with RMB 836.6 million in FY2023, mainly attributable to higher mold cost and impairment of a discontinued R&D project. Yishai has continued with its initiatives to enhance the engine efficiency and performance of its National 6 and Tier 4 emission standard compliant engines, marine power generation applications while at one thing new energy solutions. Total R&D expenditures including capitalized costs were R&D $1.2 billion or US dollar $5.4 million representing 6.2% of revenue for financial year 2024 compared with R&D $1.1 billion representing 5.9% of revenue for financial year 2023. S&A expenses were RMB 1.8 billion or USD 252.1 million representing 9.5% of revenue in FY2024 compared with RMB 1.5 billion representing 8.3% of revenue in FY2023. This increase was mainly due to higher trade receivables provision and higher travelling personnel and selling expenses compared with FY2023. Opening profit was RMB597 million or USD83 million compared with RMB609.4 million in FY2023. The opening margin was 3.1% compared with 3.4% in FY2023. Finance cost decreased by 22.2% to RMB 78 million or USD 10.8 million from RMB 100.2 million in FY2023, primarily due to lower bills discounting. The share of financial results of the associates and joint ventures increased by 63.6% to income of RMB 101.5 million or USD 14.1 million compared with income of RMB RM32.1 million in FY2023. The improvement was mainly driven by higher profits and MTO each time. Additionally, YNC Engines and program each time achieved profitability in FY2024 compared to a loss last year. Interim tax expense declined by 13.3% to RMB RM128.8 million per USD $17.9 million as compared with RMB RM148.5 million in FY2023. Net profit attributable to China HCI shareholders was RMB RM323.1 million per USD $44.9 million compared with RMB RM285.5 million in FY2023. Basic and Monetary Earnings Per Share were RMB 8.21 on USD $1.14 compared with RMB 6.99 in FY2023. Basic and directed earnings per share for FY2024 and FY2023 were based on the weighted average of 39,305,763 shares and 40,858,290 shares As of December 31, 2024, the company's outstanding shares were following a share buyback plan reduced to $37,518,332 from 40,838,290 shares as of December 31, 2023. Now, we will go through our balance sheet highlights as of December 31, 2024. Cash and bank balances were RMB 6.4 billion or USD 895 million compared with RMB 6 billion at the end of FY2023. Trade and bids receivables were RMB 8.8 billion or USD 1.2 billion compared with RMB 7.8 billion at the end of FY2023. Inventories were RMB 4.7 billion or USD 647.5 billion compared with RMB 4.6 billion at the end of FY2023. Trick and builds receivable were RMB 8.5 billion or USD 1.2 billion compared with RMB 7.6 billion at the end of FY2023. Short-term and long-term loans and followings were RMB 2.5 billion or U.S. dollar 249.1 billion compared with RMB 2.5 billion at the end of financial year 2023. I will now turn the call over to Kevin for a comment for Q&A section.

Thank you, Chunxing. Please note, some officers of China Yuchai are remotely calling into the conference call. This may result in a slight delay in providing answers to some questions. We apologize for any inconvenience and thank you for your patience. With that, operator, we are ready to begin the Q&A.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. If you wish to ask a question via the webcast, please type it into the box and click submit. Please stand by while we compile the Q&A roster. One moment, please, for our first question. We will now take our first question from the line of Yiming Liu from Haitong Securities. Please ask your question, Yiming.

Hello, this is Yiming from Haitong Securities. Thank you very much for having me. So I have two questions. Number one is about your data center generator business. So it looks like your JV with the MTU got a very good result in 24. So I'm just wondering, how many units did you sell from both sides? I mean, from both G and YCL, your controlling inches, and from the MTU JV? Yeah, this is my question number one. Thanks.

Can we take the question, please? Hi.

Regarding on the Gen-Z cells and Gen-Z engine cells and then from 2024, the MTU joint venture cells is about more than 700 units. But this is including not only for data centers, it's including the other applications as well. And for the GIMC, the high horsepower we saw last year is about 1,000. No, no, no. It's about 800. Yeah. All together. Yeah. But that is, again, it will be putting on application. Yeah.

Okay. All right. Thank you. So just a continuation of this question. So it looks like MTU-JBE was very profitable. And so I wonder what is the probability of this type of generators in the GMYCL, either in terms of like gross margin or net margin or something like that? Thanks.

I'm sorry that we cannot call the margin of the two different type of engines. Because in terms of the output or in terms of the performance, both engines can meet with the requirement of the data center requirement. And they have a very similar power range. and suitable for a major streamline of the data center construction. And so I would take this way. And then the MTU is because of international branding. And then there will be some premium that the end user would like to buy them. But for the price-wise, I cannot make any comment.

OK. OK. I understand. Thank you. So my question number two is, what is the expected growth rate on the data center generator business in 2025? If possible, could you describe separately for GM, YCL, and the JV business? I wonder if there's any difference and what is the expected growth rate in 2025?

Thanks. I would take it this way. No matter the GYM show or the MTU, joint venture and the our order book for 2025 is already full and then we are actually and then We are refusing further order because we cannot take any because due to the capacity is constrained or due to the component supply But I would say and then the in the 2025 It's a very significant growth in compared to last year It's at least 30%

Okay, great. Thank you. So just one more additional question. So it looks like the profit attributed to the minorities in the second half of 24 was pretty high. I just calculated. It looks like it was like 47% of the total profit. So would that be a constant value in the future? Because in the past, it looked like it was like 30% or so. Thanks.

Okay, let me answer this question. Compared to the past, I think the performance of our associate companies has been significantly better. In particular, MTU, because I still alluded to earlier, where there's a big growth in demand for the data centers, which fits right into our product offering. And at the same time, our other associate companies, joint ventures, there are a couple of them, the most significant ones, have turned from losses to profitability. So that's why this year we're seeing the largest number for our associate trumpets.

Does that answer the question?

OK. All right, thanks. I'm sorry, just one more question. So looks like there's an item called other operational profit or something, which is pretty big. It was like 500 million RMB in 24. I wonder how to expect that in the future. So is that going to be like proportional to your revenue or something like that? Thanks.

Sorry, can you repeat the question?

Sorry, can you repeat your question? Pretty big item in income statement called... I can't hear you. All right.

We have lost the line of Yiming. So we'll take our next question from Peng Yu Bai from Pinpoint Asset Management. Please ask your question, Peng Yu.

Hi. Actually, I have a question.

Are we going to raise our price since the demand for I think two megawatts generators in China AIDC is very strong. And as we know, the supply is fixed. So in the future, both regarding 2025 and also 2026, are we going to raise our price for the generator? That's my first question.

Well, I mean, in terms of raising price, I think we will. Of course, there'll be some improvement in the pricing. But at this stage now, we haven't had any significant plans to increase it in any big way. But we believe there will be some improvement in pricing.

Okay, got you.

So as I understand, we are going to increase our price, but it's not right now. Maybe in the future. Okay. My next question is, Are we going to produce the generator set or the module by ourselves since we only produce generator right now? So are we going to do the set in the future if the demand is based on?

There's no plan for that. We are actually an engine manufacturer. So we only produce the engines mostly for our OEM customers. If there is any...

uh customers basically want us to produce a jet set we can work on that but that would not be our main business okay okay gotcha gotcha so my last question is as i just heard that uh we already produce uh anyways 700 or 800 generators uh in the last year so uh what is our capacity plane for 2025 and also for 26 Are we going to increase it by a very strong number, for example, above 100%? Can you actually give us some color in this question?

Yeah. Kelly, you want to take that question?

So are we going to expand our capacity for a very large number in the future, in this year and also for next year?

Kelly, please. Actually, we have been planning to expand our capacity since last year. But there are two different major categories that we have to consider. First is regarding how we can increase our supply of the casting for the big engines like the engine block and engine heads. of the machining center and then we'll be we'll be arrival you try and then by mid this year so And then by the end of this year, we can increase our capacity. And we will be gradually running up. And so the next year and then will be about 35 to 40 percent increase. And then we'll be another third up on the 2027. So this is our current planning on how to try to meet up with the market demand.

Oh, okay. Okay. Got you. You just mentioned that the growth rate is about 30 to 40%. So at least for this year, we are going to have more than 1,000 two megawatts generators capacity in this year, right?

It's more than 1,000. Yeah, yeah. All right, gotcha, gotcha. And I believe that's all my questions. Thank you, thank you.

Thank you. For the benefit of all participants, please limit yourself to three questions at a time. If you have follow-up questions, please request to rejoin. We will now take our third question from the line of Andy Lee from Daiwa. Please ask your question, Andy.

Hi. Thank you for taking my question. This is Andy Lee from Daiwa. Yeah, I just want to quickly clarify. I think I heard another 30% capacity up in 2027, right?

Yeah, by 2026, yeah. Hello?

I mean, we are starting building capacity now. The capacity will come on stream by 3026.

Can you hear us, Andy Lee?

We lost it.

Can you hear us?

No, I can't hear anything.

Yeah. We have lost it there.

We have lost the line of Andy. If you have further questions, please request to rejoin the queue. I'll be turning back to the presenters in the room for webcast questions.

Okay, there are a few questions from webcast. The first one we'll read out now is the surge in demand for digital engines driven by AI data centers. Will that have impact on the revenue growth? Could it give us some color on both revenue and net profit back from AI? and now yes there's a big demand now uh for data centers uh uh what's called segment of business uh we expect to see growth in it and it will grow as we discussed earlier so yeah that will have an impact on our definitely have an impact on our revenue growth uh particularly for that particular segment now how is that going to impact our overall life our business revenue or our whole I don't think we are ready to release that part of the information. Unfortunately, I can't tell you exactly how much revenue it is for this segment, nor the net profit impact for this segment. The next question is from Jack Seow. Congratulations of your great performance currently. An explosive growth in the capacity of major Chinese internet companies leads to a significant shortage of power generators. Have you entered the domestic data center market with major clients? Is there room for price increase? What's your future expansion plan? Can you share your overall outlook for data and character pieces of IDC sector this year? Kevin, do you want to take that? Can you answer this question?

Can you repeat the question?

Oh, you can't see it. Okay, let me answer it then, okay?

I can't see it, yeah.

Okay, okay, all right. So sorry, Kelvin is calling from China, so he probably can't see the question. Okay, let me answer some of it, right? So have you entered domestic data center market with major clients? Yes, we have. We have entered the China domestic market, and we have orders from some of the big data centers operators in China. We also, not only that, we also expect it to the sanitation market as well. So yes, is there room for price increase? We think there'll be improvement, but again, a lot of these data centers, I call sales, achieved through tender. So in the case of a tender, the price is actually quite transparent, right? So we do expect improvement, but we don't think it's going to be a huge improvement. unless everybody also increases the price accordingly. So it's still a very, very competitive industry out there for gensets. What is your future expansion plan? We are building capacity to cater to the huge demand that we saw this year. So we expect the capacity to come on stream next year in 2026 for both ourselves, GFCL, as well as the MTU. And can you share your overall outlook for diesel engine, diesel generator business of IDC sector this year? We believe this year is going to be significant growth. There's a lot of demand out there still. So, and this demand has not been satisfied as of this year. As Kevin mentioned earlier, our order book is full for the year. So, we will expect to see more demand next year, I would think. But by then, the capacity for most of the diesel engine manufacturers and the jet-set manufacturers, OEM, would have also increased accordingly. So we believe that a lot of the demand will be satisfied in the next two years. R&D. The next question is from Jay Chan. Your R&D expenses grew meaningfully in 2024 in excess of revenue. What's up for R&D expenses? expense growth should we expect in 2025 or is it moderate? Okay, Mr. Lu will answer this question.

Hi, Jay Chan. Thank you for your questions. Yeah, we expect the 2025, you know, will remain pretty much the same or slight increase. One thing is that we are balancing the market demand, right? So we have commercial vehicle and then we have off-road, you know, marine power generation and so forth. So we are balancing the spend, but overall, our spend will continue to maintain that, you know, to improve our engine efficiency and performance. That we will not slow down, we'll continue to do that. But overall, our spend perspective, we will still maintain and we'll have moderate increase in that sense.

Okay, so the next question again from the same person, does management expect a growth acceleration in 2025 on the back of a national trust trading policy? Yes, we do hope to see some acceleration, but it's very hard to determine how much there will be for now. Yeah, the chance is yes. The last question on the website page is, Your SG&A expense increased a lot in second half 2004. Could you please give us some guidance for the trend going forward?

Okay, I will take this question. Leslie, thank you for the question. Yeah, in fact, our second half of 2004, our SG&A expenses mainly, they increased mainly caused by the quick receivables provision, right? So we have accounted for that in 2024. Although the market is still challenging, we expect that it will be better in 2025 in terms of trade receivable provisions. So other than that, the spending, the HHS spending will pretty much remain the same as the 2024 level. But of course, when we continue to expand our bipartisan trade and overseas market, that we expect a slight increase from that perspective.

Right, thank you. We will now take our next phone question from the line of Andy Lee from Daiwa. Please ask your question, Andy.

Hi, I'm back. This is Andy. My line was cut off. I hope my phone works properly this time. Yes, thanks for the clarification before. So my question is on the associates and JV profit. This accounted for around over 30% of your second half profit. So I'm just wondering, could you please break down how much is from MTU Yuchai? And I also know you have different production lines for MTU. So can you walk us through which lines are for the large power generators applicable for data centers, please? OK.

Kelvin, do you want to take a question?

I mean, regarding on the product-wise, The M2 port at the moment, and then we had different cylinder configuration. So we had the 12V, 12 cylinder, and 16V, 16 cylinder, and also the 20V, that's the 20 cylinder. So I think the end, I would say this way, the bigger the engine, and then the better the return. Because of the limited I mean the competition because of the high horsepower engine. And the, I mean, but it will always, and that depends on the customer requirements. So at our joint venture, we were manufacturing then according to the customer spec. But of course, and then we can have the product mix and then can have a more high power engine and they will be more benefit to the operation.

Yes. And say, for example, any number or percentage that MTU in China contributed to our profit?

Sorry, I cannot. I cannot. I think I give you the figure.

OK. Okay, so do you start to negotiate with data center clients and what does the competition look like? Did you encounter any Chinese peers in the bidding or in the kind of competition?

I mean, the genset market is very, very competitive because, you know, in China and then the It's always an open tender and then from the telecommunication operator or from the AI and then, for example, from the beta dance. It's transparent. I mean, everyone will understand the winner, what the prize they are at the end of the day. I would like to say very fierce competition and that's why and then the I mean the there's a very difficult and to raise the bar of the pricing at this stage even though the very high demand because and then we had to make sure and then we can win the bit of the of the major projects and then from those key payers because you know in one single tender it could be up to 200 300 or 500 engines so That's just very careful regarding on the underpricing. So competition is too feasible, yeah.

Got it. Thanks for the comment. Maybe lastly, on your capacity expansion, what keeps you up at night? Any bottleneck you spend most of your time addressing on, like maybe superalloy in Cornell, it has to lie. Yeah, I appreciate if you can share any comment on this.

Thanks. It's a little bit different between the GYM and the MTU joint venture. MTU joint venture, actually, we had a problem of the supply chain because there's still some component we had. I mean, we are imported from Germany, and there's a shortage of some of the key components from our partners. And this is a handicapped, the overhaul assembly of the engine. So, I mean, our partner M2 and then they are also doing some more investment and then they also work with their supplier and then try to ease up the supply chain issue. Hopefully by next year and then we can have more available resource and then we can take more engine orders.

Any charts you can use the Chinese domestic supplier in replace of those imports?

We actually we have what we call the localization program and so we will localize and then the majority of the key of majority of the engine component in China and but there's some some of the very key component and then the our partner and then we served the right and then to not to localize and then we had to buy from them anyway. So this is some of the bottom-up sometime here.

Got it. That's all from us and also congratulations on the result. Thank you.

Thank you. Our next question comes from the line of Yiming Liu from Hightown Securities. Please go ahead, Yiming.

Hello, this is Yiming again. Thank you very much for having me again. So I was cut off, so I'm trying to continue with my question. So from your income statement, there's a big item called other operating income, which is $576 million in the fiscal year 2024. So I wonder if this value is proportional to your revenue or if there's other factor that is impacting that. So how do we expect that in 2025 or in the future? Thanks.

Hi, Yiming. Thank you for your questions. Yeah, in that line, we have this government grant income, as I mentioned earlier on. So that is based on the revenue that the income that you recognize according to the project that we heard during the period. So that's due by the timing. So the second part is the VAT rebate. So there's a tax policy that for us, we are in this advanced technology zone that we are qualified or we are eligible for that incentive. So basically, we get a rebate for the VAT tax. So that's another big part, contributed income for 2024. So that, from our understanding, that will be subject to the applications each time. So once we are successful, that will continue in 2005 if we are successfully applied. So another part is the licensing fee for that. So we have recognized half of that US$28 million in 2004.

because of the big increase in our other income.

So can we treat the majority of this value as recurring? Or I mean, what is the percentage of this value which is not recurring in the future?

OK. The growth in time is subjective that how much you can recognize based on what we earn for the project. So that is probably may remain pretty much flagged. But VAT rebate is subject to petitions and also subject to the VAT input-output offset. That is still yet to be determined. Of course, the likely free income, as I mentioned, we recognize that half of it from what we have awarded, $28 million.

So that we shall see some in 2025. Okay, I guess I see. Thank you very much. Thank you.

Thank you. I'll now turn to the room for webcast questions.

Okay, we'll answer some of the questions from the webcast. The next question down is from Rogin Xiao. For data center generators, is there any particular source from third party? I think Kevin Lai has answered that for MTU. So there will be some parts that we which will cost a bottleneck. So I think he has addressed that question. The next one goes down to what is your capacity, CapEx plan this year and next year given the strong demand? Will there be new share repurchase? Our CapEx plan this year and next year will probably still remain about the same. uh there'll be more more of course resources that will be channeled towards the data centers this is a big demand for it but that has already started all right so we have to see what the demand is going forward and how much capacity there are in the whole industry before we we decide on more capacity expansion or more capacity will there be a new share repurchase plan uh i can't see you that we haven't uh discussed this uh since the last plan that was implemented so uh yeah because for now uh this has not been discussed um can you share your revenue breakdown by domestic sales and export sales and help us understand how product needs to shift in 2025 and the impact on asd profit gross margin i will answer the top So in terms of domestic sales and export sales, about close to more than 20%, between 20% and 25% of our engines in terms of unit sales are exported. So it's grown quite a bit in the last few years. In the case of how the product mix will shift, for the entire group, it will shift slightly more towards uh the marine about the generation which is the jet set because of the uh the big demand that they're facing now uh from the data centers so that will have an impact on the asp for sure also cross profit the drop profit margin um do you consider more share buyback programs and what's your dividend policy okay we have to address the share buyback program um the dividend policy we do not have a formal dividend policy But if you look at the dividends that pay out in the past, you'll get an idea as to how we decide on the dividend payout. But we do not have a formal dividend policy.

Thank you. We will now take our next phone question from the line of William Grzegorzewski from Brainreach Global. Please ask your question, William.

Hi, I'm Kim Wong. When is the expected start date that you'll ship the engine kits? And do you have a number of units you expect to sell and a rough margin profile for those?

Sorry, Bill, I didn't quite catch that. Can you repeat that again?

Yeah, on the Kim Long, when do you expect to start shipping the engine kits? And then do you have an estimate on the number of kits and margin profile for those?

um tell you that the other question so we need to um help them and then to build up the whole plan and also we need to um assist them and then to purchasing the all the equipment for the for the factory so i would expect and then um after all and then all this um I mean the installation commissioning and then it's done and then also they carry on further testing of the whole line and then it will take at least about nine to ten months. So by the end of this year, if everything's moving and we may start shipping the parks, this is my estimation.

Okay, do you have an idea of how big this plant is going to be or how many units they expect to do a year?

In fact, the market is quite a good design market. I mean, because from GYM sale, our export to Vietnam is about 20,000, 25,000 per annum. So, I mean, if they... If they take out most of those and then they order from, we previously and then we ship from China and then there will be around this number. But I will, of course, and then it will be depends how is the competitive last of the Kim Long motor in the Vietnam market. So, I mean, we didn't have any concrete sales number because our agreement with them is only a licensing agreement. And so that we will help them and then to build up the whole plan. Then we will provide the component according to the actual demand.

Okay. All right. And then my last question is, do you have expectations for this year for the in-vehicle engines, just in general?

Can you repeat that again? Build it in. It's not quite realistic.

Yeah, I was looking for if you can provide any expectations for in-vehicle engines for this year.

You mean the total engine sales for the year? Yes.

You're talking about EV, are you? Are you talking about electric vehicles?

I mean, if you can break out the new energy versus the traditional, that would be even better.

Oh, I see. No, I think this year we sold about 356,000 engines, right? So, again, segment by segment, we expect the vehicle engines to move within minus 5% to 5%, maybe even 10%. So, it's pretty for the domestic market. So, as for the marina power generation, we expect it to perhaps increase by about 10% this year. uh for the as far as the industrial and agricultural machinery uh the agriculture machine i'm expecting to have a slight growth and the industrial machinery uh i think for the market it'd be quite flat but we actually see some growth in there so but uh sorry i can't give you a number of the number but generally that's how the market is

Thank you. We have now reached the end of our question and answer session and I'll turn the call back to Kevin Tis.

Thank you very much all for participating in the conference call. We wish each of you good health and we look forward to speaking with you again next time. Thank you.

Well, thank you for your participation in today's conference. This does conclude the program. You may now disconnect.