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 1-1 on your telephone. You will then hear an automated message, advising your hand is raised. To withdraw your question, please press star 1-1 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 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-Seng Liu, president and chief financial officer of CYI respectively. In addition, we also have in attendance, Mr. Calvin 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 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. Ho 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 US 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 Trump and Bush vehicle markets in the second half and for the full year, 2024. According to data from China Association of Automobile Manufacturers, CAM, compared with a .9% -over-year decline in trucks and bus vehicle sales in second half, 2024, our truck and bus engine sales are up by .6% -over-year. For the full year, 2024, our truck and bus engine sales rose by .2% -over-year compared with a .6% -over-year decline in truck and bus vehicle sales. Our off-road engine sales rose by .6% -over-year in second half, 2024, and by .1% -over-year for 2024 full year. Agricultural engine sales reflect in 2024, while industrial engine sales are up by 11% -over-year. Marine and Janssen engine sales increased by .5% -over-year. Revenue in two half, 2024, was flat compared with the same period last year. Revenue in 2024 rose by .6% -over-year to RMB 19.1 billion or US dollars 2.7 billion. Gross profit increased faster than revenue rising by .3% -over-year in second half, 2024, and .8% -over-year in full year, 2024, to RMB 2.8 billion or US dollars 392.1 billion compared with RMB 2.5 billion in FY2024, 23. Gross margin increased to .7% compared with .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 .2% -over-year in second half, 2024, and by

63.6

%

year

-over-year for full year, 2024. Our 50-50 joint venture MTU ECHI Power, which sells large power generator engines, achieved higher profit than the previous year. Our YSC engines and PRM ECHI businesses achieved profitability in FY2024 compared to losses last year. Generated engine sales remain robust. Additionally, ECHI's Marine and Genset Power subsidiary and Rolls Royce Power Systems Division have entered into a second phase of operations 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, ECHI Machinery Power Systems Thailand Company or ECHI Thailand, a mass production operation. ECHI 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 Motu Q or Kim Long Motu, a subsidiary of Vietnam's Phu Tham 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 Kim Long Motu's designated site in Vietnam. Kim Long Motu's 10 technology licensing rights from certain ECHI engine models to be manufactured primarily for trucks, buses, and other commercial vehicles. Kim Long will have exclusive rights, sales rights for the licensed 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. The operating in China was challenging in 2024. According to the National Bureau of Statistics, Chinese GDP increased by 5% per year in 2024. The total value of our support rose to $3.6 trillion, both of which are 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 total R&D expenditures, including capitalized cost, increased by .2% to RMB 726 million, or US$101 million, representing .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 R&D expenditures, including capitalized cost, were RMB 1.2 billion, or $165.4 million, representing .2% of revenue, compared with RMB 1.1 billion, representing .9% of revenue in FY2023. We continue to improve the efficiency and performance of our National 6th 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 power trends include two hydrogen-powered combustion engines, an off-gas power generation system, and a production plant which utilizes off-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 Qinglong buses using our hydrogen fuel cells has commenced commercial operations in Beijing. And most recently, a new forage 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 which utilizes hydrogen, Guangxi Yichang Engineering Company Limited, our main operating subsidiary in China, was appointed as a committee member of the new Hydrogen Combustion Engine Innovation Consortium Division of China Internal Combustion Engine Society. To encourage improved performance, selected senior leaders and key employees of Yichang and any subsidiary have participated in equity incentive plans beginning in 2024. The plans uphold a reward and incentive to motivate these senior leaders with key talents for their continued contributions 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 $39.8 million. In addition, the company paid a cash dividend of 0.38 US cents for ordinary shares on August 28, 2024. This 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 shared rich purchase and cash dividend, our cash and bank balances were RMB 6.4 million on US dollars, 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 un-audited six-month results ended December 31, 2024. Well-known was RMB 8.8 billion on 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 .9% to 163,843 units compared with 147,700 units in second half, 2023. The increase was mainly due to higher sales in trucks, bus, industrial and marine and power generation markets. The better performance in truck and bus engine sales was achieved despite a decline by .9% in sales of commercial vehicles, excluding gasoline and electric power vehicles. Compared to second half, 2023, as reported by the China Association of Automobile Manufacturers, CAAM. Gross profit increased by .3% to RMB 1.4 billion on US dollar, 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 .9% in second half, 2024 compared with .9% in second half, 2023. Under operating income increased by .2% to RMB 401.5 million on US dollar, 55.9 million compared with RMB 306.2 million in second half, 2023. The increase was mainly due to higher government grants, higher rebates on value added taxes and recognition of technology licensing fees. Research and development R&D expenses increased by .6% to RMB 591.1 million on US dollar, 82.2 million compared with RMB 470.5 million in second half, 2023, due to higher mode costs and impairment of a discontinued R&D project. Total R&D expenditures including capitalized costs were RMB 726 million on US dollar, 101 million representing .2% of revenue in second half, 2024 as compared to RMB 599.2 million representing .8% of revenue in second half, 2023. Selling and generating MSRP SGA expenses increased by .1% to RMB 1.1 billion on US dollar, 147 million from RMB 844.6 million in second half, 2023. This increase was mainly due to higher trade receivables provision and higher traveling personnel and selling expenses compared with the same period last year. SG&A expenses represented 12% of revenue for second half, 2024 compared with .5% for second half, 2023. Operating profit declined to RMB 160.1 million on US dollar, 22.3 million from RMB 221.8 million in second half, 2023. The opening margin was .8% compared with .5% in second half, 2023. Finance cost decreased by .4% to RMB 37.1 million on US dollar, 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 .2% to a profit of RMB 58.5 million on US dollar, 8.1 million compared with RMB 32.5 million in second half, 2023. The improvement was mainly driven by higher profits at MTU Yi Chai Power Company Limited, MTU Yi Chai. Additionally, YC Engine Company Limited, YC Engine and Guangxi Program Yi Chai Automotive LRG Company Limited Program Yi Chai achieved profitability in second half, 2024 compared to a loss in the same period last year. In context was RMB 26.4 million on US dollar, 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 on US dollar, 11.5 million compared with RMB 107.1 million in second half, 2023. Basic and diluted earnings per share were RMB 2.19 on US dollar, 30 cents compared with RMB 2.62 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 ,809,824 shares and ,858,290 shares respectively. Now we'll review the unordered financial results for the first year entered December 31st, 2024. Real new was RMB 19.1 billion on US dollar, 2.7 billion compared with RMB 18 billion in financial year, 2023. The total number of NG sold in financial year increased by .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 software performance in truck and bus engine sales was achieved despite a .6% -on-year decrease in sales of commercial vehicles, excluding gasoline and electric power vehicles in financial year 2024 as reported by CAM. Gross profit increased by .8% to RMB 2.8 billion on US dollar, 392.1 billion compared with RMB 2.5 billion in FY2023. Gross margin increased to .4% compared with .1% in financial year 2023. 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. After operating income increased by .1% to RMB 575.1, sorry, RMB 575.7 billion on US dollar, 80.1 billion compared with RMB 442.4 billion in financial year 2023. The increase was mainly due to higher diamond grants, higher rebate of value added taxes and recognition of technology licensing fees. RMB expenses increased by .3% to RMB 984.7 million on US dollar, 137 million compared with RMB 876.6 million in financial year 2023, mainly attributable to higher mode cost and impairment of this polynomial R&D project. ECHI have continued with its initiative to enhance the energy efficiency and performance of its national sixth and tier four emission standard combined engines, marine power, transition applications, while advancing new energy solutions. Total R&D expenditures including the last course were RMB 1.2 billion on US dollar, 5.4 million representing .2% of revenue for financial year 2024 compared with RMB 1.1 billion representing 5.9 billion, sorry, representing .9% of revenue for financial year 2023. S&A expenses were RMB 1.8 billion on US dollar, 223 billion and RMB .52.1 billion representing .5% of revenue in FY 2024 compared with RMB 1.5 billion representing .3% of revenue in FY 2023. This increase was mainly due to higher trade receivables provision and higher traveling personnel and selling expenses compared with financial year 2023. Opening profit was RMB 5.97 million on US dollar, 83 million compared with RMB 609.4 million in financial year 2023. The opening margin was .1% compared with .4% in financial year 2023. Finance cost decreased by .2% to RMB 78 million on US dollar, 10.8 million from RMB 102 million in financial year 2023, primarily due to lower bills is coming. The share of financial results of the SO sheets and joint ventures increased by .6% to income of RMB 101.5 million on US dollar, 14.1 million compared with income of RMB 62.1 million in financial year 2023. The improvement was mainly driven by higher profits and NTU each time. Additionally, YNC engine and program each time achieved profitability in financial year 2024 compared to a loss last year. Income tax expense declined by .3% to RMB 128.4 million on US dollar, 13.9 million as compared with RMB 148.5 million in financial year 2023. Next profit attributable to China each time shareholders was RMB 323.1 million on US dollar, 44.9 million compared with RMB 285.5 million in financial year 2023. Basic and directed earnings per share were RMB 8.21 on US dollar, $1.14 compared with RMB 6.99 in financial year 2023. Basic and directed earnings per share for FY 2024 and FY 2023 were based on the weighted average of ,305,763 shares and RMB 285.5 million and RMB ,858,290 shares respectively. As of December 21st, 2024, the company's outstanding shares were following a share buyback plan

reduced

to RMB ,518,382 from RMB ,838,290 shares as of December 31st, 2023. Now we'll go through our balance sheet highlights as of December 31st, 2024. Cash and bank balances were RMB 6.4 billion on US dollar, 895 million compared with RMB 6 billion at the end of financial year 2023. Trade and abuse receivables were RMB 8.8 billion on US dollar, 1.2 billion compared with RMB 7.8 billion at the end of financial year 2023. Inventories were RMB 4.7 billion on US dollar, 647.5 million compared with RMB 4.6 billion at the end of financial year 2023. Trade and abuse receivables were RMB 8.5 billion on US dollar, 1.2 billion compared with RMB 7.6 billion at the end of financial year 2023. Short term and long term loans and borrowings were RMB 2.5 billion on US dollar, 349.1 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 the Q&A section.

Thank you, Chunsin. 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 one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one 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 Hightown Securities. Please ask your question, Yiming.

No, this is Yiming from Hightown 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 MTU got a very good result in 24, but I'm just wondering how many units did you sell from both sides? I mean from both G and YCL, your controlling engines, and from the MTU JV. Yeah, this is my question number one, thanks.

Calvin, you

can take the question, please. Hi,

regarding on the Genset engine sales and then from 2024, our MTU joint venture sales is about more than 700 units, but this is including not only, not all for data centers, it's including the other applications. And for the GYM still, the high horsepower result last year is about 1,000, no, no, no, it's about 800, yeah, all together, yeah. But that is again, it will be including application, yeah.

Okay, all right, thank you. So just a continuation of this question. It looks like MTU JV was very profitable. And so I wonder what is the profitability of this type of generators in the GM YCL, either in terms of like growth margin or net margin or something like that, thanks.

I'm sorry that we cannot call the margin of the two different type of engine because in terms of the output or in terms of the performance of both engine and they can meet with the requirement of the data center requirement and they are had very similar power range and the suitable for the 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 and then the end user would like to buy them. But for the price wise and then I cannot make any comment.

Okay, okay, understood, thank you. So my question number two is what is the expected growth rate on the data center generator business in 25? If you 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 25, thanks.

I would take this way, no matter the GM YCL or MTU joint venture and our order book for 2025 is already full and then we are actually refusing further order because we cannot take any due to the capacity is constrained or due to the component supply. But I would say in the 2025, it's a very different growth rate 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 looks 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 but for MTU because I still alluded to earlier where there's a big growth and demand for the data centers which is right into our product offering. And at the same time, our other associate companies, joint managers, there are a couple of most significant ones that have turned from losses to profitability. So that's why this year we're seeing a largest what you call number for our associate

companies. In terms of the answer to the question.

Okay, 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. So 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 I repeat the question?

Sorry, can you repeat your question? Sorry, can you repeat the 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 Yubai from Pinpoint Assets Management. Please ask your question, Peng Yubai.

Hi, actually I have a question is,

are we going to raise our price since the demand for two megawatts generators in China AIBC 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 in the big way. But we believe there'll be some improvement in pricing.

Okay, 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 for 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 strong? Sorry, yeah,

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 customer specifically want us to produce a jet set, we can work on that, but that would not be our main business.

Okay, okay, got you, got you. So my next question is, as I just heard that we already produce anyways, 700 or 800 generators in the last year. So what is our capacity plan 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. Can we take that question? Can we,

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

Can we, please? Actually, and then we have the planning and then to increasing our, to expand our capacity since last year. And the, but you know, the two, I mean, there's two different major category and then we have to consider, first is regarding how to, how can we increasing our supply of the casting for the big engine on the engine block and engine heads. And then the machining capacity. So we have a majority of the machining center and then we'll be, we'll be arrival, you try and then by mid this year. So likely and then by end of this year and then we can increase in our capacity. And the, we will be gradually running up. And so the next year and then we will be about 35 to 40% increase. And then we'll be another further up on the 2027. So this is our current planning on how to try to meet up with the market demand.

Oh, okay, okay. Gotcha. So 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 1000 to two megawatts generators

capacity in this year. It's more than 1000. 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 have stopped building capacity now. The capacity will come on stream by 2026.

Can you hear us, Andy? Andy Lee?

You lost it.

Daiwa, can you hear us?

No, I can't hear anything.

Yeah. We have lost it there.

We have lost the line of Andy. 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 our webcast. The first one we'll read out now is the surge in demand for diesel engines driven by AI data centers. Will that have impact on the revenue growth to give us some color on both revenue and net profit back from AI? And now, yes, there's a big demand now for data centers, what's called segment of business. We expect to see growth in it, significant growth as we discussed earlier. So yeah, that will have an impact on our, definitely have an impact on our revenue growth, particularly for that particular segment. Now, how is that going to impact our overall like our business revenue or our whole group revenue? That I don't think we are ready to release that. That part of the data information. And we can't, unfortunately, I can't tell you exactly how much revenue it is for this segment nor the profit, net profit impact for this segment. So the next question is from Jack Xiao. Congratulations of your great performance currently. An explosive growth in the context of major Chinese internet companies leads to significant shortage of power generators. Have you entered 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 carry the business of IDC sector this year? Kevin, you don't think that, can we like? Sorry. Yes, you have to 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, Kevin 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 China domestic market and we have orders from some of the big data centers as operators in China. We also, not only that, we have also expanded to the sub-estation 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, are achieved through tenders. So in the case of a tender, the price is actually quite transparent, right? So we do expect improvement, but I don't think it's gonna be huge improvement unless everybody also increase the price accordingly. So it's still a very, very competitive industry out there for that sense. 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 our self-GICL as well as the MTU. And can you share your overall outlook for diesel engine, diesel generated diesel of IDC sector this year? We believe this year is gonna 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 extractors and the jet-set manufacturers over here will have also increased accordingly. So we believe that a lot of the demand will be satisfied next year

or 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 sort of R&D expenses growth should we expect in 2025, were it moderate? Okay, so we will answer this question.

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

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

will take

this question.

Lastly, thank you for your question. Yeah, in fact, our second half, 2024, our SG&A expenses, mainly, they increase many cost by the big receivables provision, right? So that we have accounted for that in 2024. Although the market is still challenging, we expect that we better in 2025 in terms of our trade receivable provisions. So other than that, the spending, the SG&A spending will pretty much remain the same as the 2024 level. Of course, when we continue to expand our market entry and the overseas market, that we expect will have 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. Hope my phone work properly this time. Yeah, thanks for the clarification before. So my question is on the associates and JV Profit. This accounted for over 30% of your second half profit. So I was just wondering, could you please break down how much is from MTU you try? 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?

Okay, Kevin, you want to take a question?

So I mean, regarding on the product wise, the MTU product at the moment, and then we had different cylinder configuration. So we had the 12V, 12 cylinder, and 16V, 16 cylinder, 16 cylinder, and also the 20V, that's the 20 cylinder. So I think 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. But it will always, and that depends on the customer requirements. So at our joint venture, we were manufacturing then, according to the customer's 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 let's see for example, any number or percentage that MTU try contributed to our profit?

Sorry, I cannot give the figure.

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

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

yeah. Thanks for Carla. Maybe lastly on your capacity expansion, what keeps you up at night? Any bottleneck you spend most of your time addressing on like maybe super alloy, Inconel has to lower. Yeah, appreciate if you can share any comment on this.

It's a little bit different between the GYMCO 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, we are imported from Germany and there's a shortage of some of the key component from our partners and this is handicapped the overall assembly of the engine. So I mean, our partner MTU and then they are also doing some more investment and then they also work with their supplier and then try to easy 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.

I see any chance you can use the Chinese domestic supplier in the place of those imports?

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

Got it, got it. That's all from me. I also congratulate you on the results. Thank you.

Thank you. 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 caught 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 of 24. 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 25 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's based on the revenue that we, the income that you recognize according to the project that we earn 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 2025 if we are successfully applied. So that another part, the third part is the licensing fee. For that right now, Kim Long, right? So we have recognized half of that, 28 million US dollars, right, in 2024. Yeah, so that the big increase

in our income. So can we

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

Okay, the gross income is subjective that how much we can recognize based on the one we earn for the project. So that is probably may remain pretty much flagged, right? But VAT rebate, they're subject to the applications and also subject to the VAT input output offset, right? That is still yet to be determined. Of course that licensing fee income, as I mentioned, we recognize that half of it from what we have awarded, right, 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 full of webcast questions.

No,

not yet.

Okay,

we'll answer some of the questions from the webcast. The next question down is from, okay, Rodin Xiao. For data center generator, is there any particular part source from the third party could base more any bottleneck? I think Kevin Lai answered that for MTU. So there'll be some parts that we buy from Germany, which will cause a bottleneck. So I think he has expressed that question. The next one, go down to what is your capacity? Can't explain this year and next year given the strong demand. Will there be new share repurchase? Our CapEx plan this year and next year will be probably still remains about the same. There'll be more resources that will be channeled towards the data center since there's a big demand for it. But that has already started, right? So we have to see what the demand is going forward and how much capacity there are in the whole industry before we decide on more capacity expansion or more CapEx on that area. Will there be a new share repurchase plan? I can't see you that, we haven't discussed this last plan that was implemented. So yeah, for now, this has not been discussed. Can you share your revenue breakdown by domestic sales and export sales? Can you help us understand how product needs to shift between 2025 and the impact on ASD profit growth margin? I will answer the top half, but not probably not the second half, it's probably too sensitive for us, right? So in terms of domestic sales and export sales, about close to more than 20%, 10, 20, 25% of our engines, in terms of unit sales are exported. So it's grown quite very bit in the last few years. In the case of how the product needs to shift, for the entire group, it will shift slightly more towards the Marina Valley generation, which is the jet set, because of the big demand that they're facing now from the data centers. So that will have an impact on the ASD for sure, and also the growth profit margin. Do you consider more share buyback programs and what's the dividend policy? Okay, we have addressed the share buyback program. The dividend policy, we do not have a formal dividend policy, but if you look at the dividend payout in the past, you 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 Green Bridge Global. Please ask your question, William.

Hi, I'm Kim Long. 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?

So, I think it's going to be a long time Sorry, I didn't quite catch that.

Yeah, I'm 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?

Tell you that, do you want to address the question?

So, we need to help them and then to build up the whole plan and also we need to assist them and then to purchasing all the equipment for the factory. So, I would expect and then after all and then all this, I mean, installation commissioning and then it's done and then also the manufacturing, carry on further testing of the whole line. And then it will be take at least about nine to 10 months. So, by the end of this year, if everything's moving and then we may start shipping the parts. 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?

Hmm, in fact, the market is quite a good design market. I mean, because from GIMC, our export to Vietnam is about 20, 25,000 plant. And then, so, I mean, if they take all most of those and then they order from, 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 competitiveness 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? Okay, can you repeat that again? Build it in, it's not quite clear.

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

It means the total engine sales for the year? Yes.

Oh, EV, are you 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 five to five percent, maybe even 10%, so it's pretty for the domestic market. So, as for the marine power generation, we expect it to perhaps increase by about 10% this year. For the, as far as the industrial and agricultural machinery, the agricultural machinery, I'm expecting to have a slight growth, and the industrial machinery, I think for the market it'd be quite flat, but we expect to see some growth in there as well. But, sorry, I can't give you a 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.

Okay, thank you very much all for participating in our 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.