China Yuchai International Limited

and thank you for standing by. Welcome to China Yuchai International Limited First Half 2026 Financial Results. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 and 1 on your telephone. You can also submit your questions on webcast via the Ask a Question tab at the top of your webcast player. Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, Kevin Theiss. Please go ahead.

Thank you for joining us today and welcome to China Yuchai International Limited's conference call and webcast for the 2026 first half year ended on June 30, 2026. Joining us today are Mr. Weng Ming Hoh and Mr. Choon Sen Loo. the President and Chief Financial Officer of China Yuchai International, respectively. In addition, we also have in attendance Mr. Calvin Lai, General Manager of Operations of China Yuchai International. Before we begin, I would like to 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, targets, optimistic, confident that, continue to, predict, intend, aim, will, or similar expressions are intended to identify forward looking statements. All statements other than statements of historical fact are statements that may be deemed forward looking statements. These forward-looking statements 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 upon a variety of important factors such as government and stock exchange regulations, competition, political, economic, and social conditions around the world and in China, including those discussed in the company's Form 20F under this heading, 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 on today's call, or otherwise in the future. Mr. Ho will provide a brief overview and summary. Then Mr. Loo will provide the financial results for the first half year ended June 30, 2026. Thereafter, we will conduct a question and answer session. For the purposes of today's call, the first half year numbers for 2026 and 2025 are unaudited. Financial results are presented in RMB and US dollars. All the financial information presented is reported using IFRS accounting standards as issued by the International Accounting Standards Board. Mr. Ho, please begin your prepared remarks.

Thank you, Kevin.

We are pleased to report continuing growth in sales and profits in the first half of 2026. Revenue increased by 13.9% year-over-year, with a 10.9% year-over-year gain in digit unit sales. Our gross profit rose by 36.5% year-over-year to RMB $2.5 billion or USD $368.7 million, with gross profit margin increasing to 17.1%. Operating profit was 58.9% higher at RMB 988.2 million or USD 145.1 million. Profit attributable to our shareholders rose by 53.2% year-over-year to RMB 516.6 million or USD 82.3 million. with diluted earnings per share of RMB 14.81 or US dollars $2.17 in first half 2026. Higher sales of our larger engines enhanced both our average selling price and profitability compared with the same period last year. Total truck engine unit sales were up 20.4% year-over-year led by a heavy duty truck engine unit sales increase of for the 7.3% year-over-year. Engine unit sales to off-road markets increased by 7.7% year-over-year in first half 2026, primarily driven by strong demand in marine and power generation markets, where engine unit sales increased by 42% year-over-year. Our joint ventures and associates produced a 56.2% year-over-year growth in profit and Versa 2026, propelled by higher sales and profits, mainly from MTU Yuchai. Order demand for high-horsepower engines continues to be strong. The combined production capacity for high-horsepower engines across the MTU JV and Yuchai currently stands at approximately 5,000 units. Sales to AI data centers by MTU JV and Yuchai's own brand grew to approximately 1,800 units in first half 2026. With increased engine technology content, advancing performance, and environmental impacts, we increased total R&D expenditures, including capitalized costs by almost 30% to RMB 622.5 million, or US dollars, 91.4 million, in first half 2026. In addition to enhancing the quality and performance of our current products, we have introduced new innovative products in first half 2026. Commercial minibuses equipped with Yuchai's YCY24-65k kW flywheel range extender system of YCFRF were launched in the heavily congested Hong Kong vehicle market. This new technology reduces the need for fixed charging infrastructure. We also created a breakthrough in our alternative fuel program with our first high-pressure direct injection internal combustion engine capable of operating entirely on ammonia. We acquired a 27.97% equity interest of Nanyue Fuel Injection System or NYDK in short. It was previously known as Nanyue Tiankong Kenyang Industrial Technology Company Limited. This transaction strengthens our technology capabilities, access to new biotrain products and supply chain resilience. Since April 1, 2036, MYDK's financial results have been consolidated following Yuchai's acquisition of control over MYDK on March 31, 2036. Our subsidiary Kuang Si Each High Merchants Marine and Gen Set Power Company Limited continues the process for its IPO application with the Hong Kong Stock Exchange. Upon completion, the listing is expected to provide the subsidiary with more resources to accelerate its growth while we remain the controlling shareholder of this subsidiary. This will enable us to continue to benefit from the subsidiary's long-term development while focusing additional resources on our other operations. To further support our strategy of identifying and participating in emerging growth opportunities, we invested in and became a limited partner in Guangxi Yuchai Double Growth Fund, a private equity fund that invests in businesses focusing on innovative technologies. At the end of June 2026, our cash management and cash flow from operations provided higher cash and bank balances totaling approximately $1.2 billion with lower borrowings. Reflecting our commitment to delivering value to shareholders, a cash dividend of 87 US cents per ordinary share for 2025 was paid in July 2026, compared with 53 US cents per ordinary share for 2024 paid in 2025. Our strong financial position empowers Yuchai's ongoing investment in product upgrades and new product development which furthers the establishment of our growing presence in selected international markets to support future growth. Our strategy remains to be sell into multiple end markets with a growing and diverse product portfolio. With that, I would now like to turn the call over to Mr. Choon Sen Loo our Chief Financial Officer who will provide more details on the financial results. Choon Sen, you may begin your remarks.

Thank you, Weng Ming. Now, let me review our unaudited 2026 first six months results ended June 30th, 2026. Real New was RMB 14.7 billion or USD 2.2 billion compared with RMB 12.9 billion in first half 2025, a 13.9% year-over-year growth. Engine sales reached 277,684 units in first half 2026, an increase of 10.9% compared with 250,396 units in first half 2025. This growth was driven by stronger performance in the truck segment, as well as in off-road applications, particularly construction machinery and marine and power generation. Older truck engine unit sales were up 20.4% year-over-year in the first half of 2016, outperforming 25.8% year-over-year growth in overall commercial trucks. excluding gasoline and electric vehicles sales reported by the China Association of Automobile Manufacturers in the same period. Heavy-duty truck engine unit sales increased by 47.3% year-over-year compared with the 13.1% year-over-year growth in heavy-duty truck sales reported by CAAM. Light-duty truck engine unit sales rose by 23.6%, contrasted with a decline in light-duty truck sales according to CAAM. Medium-duty truck engine unit sales also grew 7.9% year-over-year. Engine unit sales to off-road markets increased by 7.7% year-over-year in the first half of 2026. The growth was primarily driven by strong demand in the marine and power generation markets, where engine unit sales increased by 42% year-over-year. Sales for industrial applications rose by 15.8% year-over-year, while engine sales for agricultural machinery declined by 18.9% in the same period. Gross profit increased by 36.5% to RMB $2.5 billion 368.7 million from RMB 1.8 billion in first half 2025. The increase was mainly due to higher sales volume, better sales mix and reduced warranty expenses. Overall gross margin was 17.1% in first half 2026 compared with 14.3% in first half 2025. increased sales of larger engines, enhanced the gross profit margin in first half 2026 year-over-year. Other operating income net decreased by 32.2% to RMB $150.2 million or USD $22.1 million compared with RMB $221.4 million in first half 2025. The decrease was mainly attributable to lower government grants and the absence of technology licensing fees income in first half 2026 as compared with that of first half 2035. Research and development R&D expenses increased by 24.5% to RMB $583.4 million or USD $87.1 million compared with RMB $476.7 million in first half 2025 due to higher experimental and personnel costs and the lower level of capitalized project costs. Total R&D expenditures including capitalized costs were RMB $622.5 million or USD $91.4 million representing 4.2% of revenue in first half 2025 compared to RMB 551.7 million and 4.3% of revenue in first half 2025. Selling general and administrative SG&A expenses increased by 12.2% to RMB 1.1 billion or USD 158.5 million from RMB 962.5 million in first half 2025. This increase was driven by higher personnel expenses and legal, professional and consultancy fees compared with first half 2025 SG&A expenses represented 7.4% of revenue for first half 2025 compared with 7.5% of revenue in first half 2025 Operating profit increased by 58.9% to RMB $988.2 million or USD 145.1 million compared to RMB 621.7 million in first half 2025. The operating margin increased to 6.7% in contrast with 4.8% in first half 2025. Higher operating profit and operating margin were achieved by increased sales and gross margin combined with controlled growth in operating expenses. Finance cost decreased by 16% to RMB27 million or USD4 million compared with RMB32.2 million in first half 2025, primarily due to reduced term loans during the period. The share of financial results of the associates and joint ventures grew by 56.2% to a profit of RMB 95.9 million or USD 14.1 million compared with RMB 61.4 million in first half 2025. The increase was mainly driven by higher profits at MTU Yuchai Power Company Limited. Income tax expense increased by 85.3% to RMB 215.3 million or USD 31.6 million compared with RMB 116.2 million in first half 2025 primarily due to higher profits and the utilization of different tax assets. The effective income tax rate increased to 20.4% compared with 17.8% in first half 2025. Net profit attributable to equity holders of the company increased by 53.2% to RMB 560.6 million or USD 82.3 million compared with RMB 365.8 million in first half 2025. Basic earnings per share were RMB 14.94, USD 2.19 compared with RMB 9.75 in first half 2025, both based on a weighted average of RMB 37.518 322 shares. Directed earnings per share were RMB 14.8 or USD 2.17 based on a weighted average of 37,845,508 shares compared with RMB 9.75 based on a weighted average of 37,518,080,322 shares in first half 2025. The company adopted the China-Yuchai International Limited 2025 Equity Incentive Plan with a duration of 10 years and granted share options in August 2025 and December 2025 respectively, with a total of 820,000 share options granted as of December 31, 2025. No comparable share options were granted in first half 2025 and First South 2026. Now we will go through some balance sheet highlights as of June 30th, 2026. Tax and bank balances were RMB 8.1 billion or USD 1.2 billion compared with RMB 7.9 billion at the end of 2025. Trade and bills receivables were RMB 14.1 billion or USD 2.1 billion compared with RMB 11 billion at the end of 2025. Eventories were RMB 5.8 billion or USD 844.5 billion compared with RMB 5.6 billion at the end of 2025. Trade and bills payables were RMB 13.2 billion or USD 1.9 billion compared with RMB 11.6 billion at the end of 2025. Short-term and long-term loans and borrowings were RMB 1.4 billion or USD 210.1 million compared with RMB 2 billion at the end of 2025. I will now turn the call over to Kevin for command for Q&A section.

Kevin, please. Okay. Kevin, please. Okay, yes.

All right, so please note some officers of China Yuchai are remotely calling into the conference. This may result in a slight delay in providing answers to some questions. We apologize for any inconvenience and thank you for your patience. If you would like to ask a question in Chinese, please kindly translate your own question to English before turning to the management for answers. Now, operator, we are ready for questions.

Thank you. As a reminder, if you'd like to ask questions via the phone, please press star 1 and 1 on your telephone and wait for a name to be announced. You can also submit your questions on the webcast via the Ask a Question tab at the top of your webcast player. Please hold while we compile the Q&A roster.

For the first question.

Our first question comes from the line of Wei Shen from UBS. Your line is open. Please go ahead.

Thank you for taking my question. First, congratulations on strong results. My question is about the AIDC kind of volume guidance. So we have achieved like 1,800. And I think at the beginning of the year, we are targeting like 2,600. So any color into the second half of this year? This is the first question. My second question is about the dividend. I noticed that the company announced 2025 dividend, but the payout ratio seems to be lower than 2024. So I'm wondering any color on this? Thank you.

Okay, I'll take the questions on dividend and I'll let Kevin do the question on the TINTC. No, there's no particular reasons. I think the payout ratio, if you look at our payout ratios in the past 10 years, it ranges from about 30% to 40%, sometimes a little bit higher, sometimes a little bit lower. So it's still within that range, so that has to change. So yeah, there's no anything towards there.

Morning, Mr. Shen. Let me be brief regarding on the volume of the AIDC. So in the first half and then the total volume of the AIDC from both the Yuchai and past the MQ joint venture is 1,800 units. So that is for the AIDC only. And for the second half and then we will expect the whole year and then we will be around about 3,500 and more. So this is, we had just the production and also the sales volume of the whole year of the 2026. And it means that there will be quite significant growth and then compared to the year of 2035. Thank you.

Thank you, very clear.

So for our next question,

The next question comes from the line of Fiona Liang of Bank of America. Your line is open. Please go ahead.

Hello, management. This is Fiona from Bank of America. I have a question about our gross margin profile. So in the first half, we see that the blended gross margin improved quite a lot. Could you explain more about the factors behind? whether it's due to the product mix change or our improving cost efficiency. And lastly, I also want to ask the gross margin or the net margin on Yuchai MTU. So for the first half, our share of profit from Associate and JV improved a lot. So what's the margin profile for Yuchai MTU currently?

Okay, thank you, Fiona. Yeah, so I will take the first question, right, regarding the gross margin expansion or improvement, right, you know, from 14.0% to 17.1%. So, yeah, I think you mentioned earlier on that, you know, the first thing first that the product mix, right, the product mix actually drove the margin up in particularly, you know, in the large NGIN, How is power engine? So that gives us a nice update for the margin. That's number one. And then we also mentioned that our heavy duty engine unit sales has increased as well. So that also gives us some favorable margin increase in that aspect. Of course, the third point is that I think you also mentioned that we have continued to to enhance our operational efficiency. That actually will help our cost rationalization in the first half. Of course, our first half, we also been affected by some unfavorable pressure metal price increase. So it's kind of being offset against what we have been doing for the cost improvement. I hope that I addressed your first question, Fiona. Okay, there's a second question.

Okay, I took the M2 question and said, so actually this year, then 2026, the GP of the M2 joint venture is a little bit reduced and then mainly because of the cost of the engine and also there's some pricing pressure and we had to offer a further discount and then to OEM and also partners. And the overhaul, The sales of the first half and then increasing by over 40%. And so the revenue and also the net profit is also increased. But net profit percentage is not as good as the revenue growth. But we are still maintaining about over 30% GDP of the OSS overall. So this is still quite promising on the net profit.

Thank you.

Thank you.

Our next question comes from the line of Yiming Liu of Guo Tai Heitong Securities. Please go ahead.

Hi, thank you very much for taking me. So congratulations for your strong H1. So I've got two questions. So number one, could you describe any progress on your gas engine product? Is there any chance that they could be used in the data center business for prime power, especially in North America? And another question on fuel cell. So could you describe any progress on your fuel cell business? Is there any chance that they could be used in the data center in the future?

Thanks.

Let me take the first part, Yu-Ring, regarding on the gas engine. So the gas engine actually is a traditional engine product, and then it's available in Yuchai for many years. So when we developed the diesel, and then the gas engine is also available. So it's a readily available product, and then ready for the market. but you're mentioning about on the North American market and then the at the moment our engine is still under the certification process so now it's waiting and then for all the testing and it can be fully done and then before we can release the engine and then for any other region and at this stage we still and then using our existing port of the VC engine and then that is up to 2.5 megawatt diesel and about three megawatt for the GreenWale application. So except timing regarding how, when we can, I mean, get into the U.S. market, we are actually doing everything we can. Yeah, thank you.

And can you repeat your second question again on the fuel cell?

Yeah, so could you give us some introduction of your fuel cell business? And is there any chance that they could be used in the data center power generation in the future? Thanks.

Well, I mean, our field cell unit is still in progress. We have been developing products in the past. We have some products that have been installed in the past, especially in Beijing. We have not started working on the power generation side of it. So I guess at some point in the future, IoT is a possibility, but definitely not in the short term. We do not have a product in the short term for power generation for fuel cell system as yet.

Okay, I see. Thank you very much.

Thank you for the questions. As a reminder, to ask questions, you can press star 1 and 1 on your telephone and wait for your name to be announced. At this time, there are no further... I beg your pardon. One moment for our next questions.

We have a new question from the line of Natalie Ong from CGSI.

Your line is open. Please go ahead.

Hi. Good afternoon. Can you hear me?

Yes.

Hi. Okay. Hi, Weng Ming and team. Congratulations on this good set of results. I have some questions regarding your AIDC capacity. I'm not sure if I heard this wrongly earlier at the start of the call. You mentioned that your current capacity for high house power engines slash DC engines is currently 5,000 for 2026. Is that correct?

Yes, that's correct.

So does that mean that actually there has been an increase in capacity? So I think previously you were guiding about 4,000 capacity for 2026.

Let me take the question. Last year, our capacity for the high-force power engine, I mean the combined the Yuchai local brand plus the MTUJV brand, all add together is about 3,000 last year. and we had the capacity extension program at the end of the 2024 so that it was complete last year. So we had about increasing about 700 unique capacity for the high-wash power. But at the beginning of PCNN we also modified our internal process so that we had to contract out some of the machining process and then to the external subcontractor. for this practice, and then we can increase it to 1,000 unit capacity for machining. So now we have all add together, and then total is about 5,000. So this is our current capacity for the high horsepower engine. So they're including, and then for those AIDC or on AIDC application. We are still in the panning, to further increase the capacity for next year but I mean that we can we are now not uh had a final decision regarding what what's the um uh the warm will be but yeah and then we'll be increasing the person and then for for the next year and then the year on this thank you

Okay, thank you. So my understanding is that the capacity has increased due to outsourcing of certain machining requirements. Is that correct?

Yeah, we squandered out some of the machining process in the past and then we do all the machining in-house. But now we are using the external contractor and then to do some of the machining for us so that we can spare out and then further capacity and then to build more engines.

Okay, so does this mean that you're still guiding for 3,500 AI, only AI DC, that means excluding those sold to non-AI?

That is AI only, yeah, 3,500, yeah.

So that means we expect to sell all the capacity that we have, which is going to be 5,000 for the year?

Yeah, yeah, this is, yeah, exactly, that's 5,000 for the year.

And to be clear, the ASPs for high loss power engines, be it sold to AIDC customers or non-AIDC, the ASPs are actually similar.

Yeah, correct. And because the high loss power engine is not only for application of AIDC, this is only for using the engine for the power generation. The power generation can be using in the factory, you may be using in a commercial building. And then so there's quite a lot of the long AIDC application and then using the high-voltage power engine as well.

That's perfect. Can I also check, I know some of your competitors have also been ramping up their manufacturing capacity. How has that affected your ability to command or maintain, increase your average selling prices for these high horsepower slash AIDC engines?

In fact, I mean that because of the the certain demand of the AIBC engine in the high horsepower engine market. So not only Yuchai went here, but I mean all other engine manufacturers, they also do the same thing and then have the capacity extension program. And this is the beginning of the 2004, 2005, and this year. And so, I mean, the market is still very competitive. and the Epic Engine Supply, and then they had to do whatever they can to win the order. Otherwise, the extension program will have to be difficult to get the return. So pricing-wise, we haven't had any real pricing increase compared to last year, We had the cost increase and then from our supply and then we had to come by to the end user for all those additional costs. Engine itself and still, I mean to make quite a stable pricing anyway. Thank you.

Thank you so much. One last question. I know you mentioned that you have not summed up your available capacity for next year. So you need to say that you could try to outsource more of this machining and maybe increase capacity? Or do you think that this will require expansion of lines and therefore more CAPEX spending?

Actually, we will do in the way. One is that we will further outsource some of the process. But we cannot outsource every process to the external supplier because we can do what we call the first machining. But the fine machining, we need to do it in-house anyway. So we still have to increase some of the machinery for the fine machining process inside the factory. So we will have to do it both ways. First, also, and then try to increasing the subcontract processing. And secondly, and then we still have to increasing, I mean, to buy some more equipment and then for the internal process as well. So we will do the same. And the, we already had some guidance or the usual planning regarding on the capacity of next year, but we need to finalize and then before we actually put it into action, yeah.

Thank you for the questions. As a reminder, if you'd like to ask questions, please press star 1 and 1 and wait for our name to be announced. Once again, if you'd like to ask questions, you can press star 1 and 1 and wait for a name to be announced. At this time, we do not have any further questions from the phone or webcast. Allow me to hand the call back to Mr Ho for closing.

Thank you all for participating in our conference call. We wish all of you good health and look forward to speaking with you again. Thank you. Goodbye.