China Automotive Systems, Inc. Q3 FY2024 earnings call

• Quarterly business highlights: Net sales of steering products up 19.4% YOY in Q3 2024; traditional steering up 7.4%, EPS up 43.5%. Domestic sales to passenger vehicles up 29.6%, sales to Chery Auto up 12.4%, KYB sales to EPS units up 54.7%. Commercial vehicle sales rebounded 10.5%, North American sales down, Brazilian ops up 6.9%.
• First nine months: Net sales up 10.8% to $462.2 million, gross margin 17.2%, income from operations up 22.9%. Paid special cash dividend of $0.80 per common share. Celebrated 20th NASDAQ listing. EPS products expanding, ADAS enhanced via Sentient AB operations in Europe.

In the third quarter of 2024, net sales of steering products increased by 19.4% year-over-year. Traditional steering products grew by 7.4% YOY, while electric power steering (EPS) products surged by 43.5% YOY. Domestic sales to passenger vehicles were up by 29.6%, sales to Chery Auto rose 12.4%, and KYB sales to EPS units grew by 54.7%. Chinese commercial vehicle sales rebounded to grow by 10.5% to $17.2 million. North American sales declined by $8.9 million YOY primarily due to reduced demand from Stellantis. Brazilian operations experienced a 6.9% increase in Q3 2024. For the first nine months of 2024, net sales increased by 10.8% to $462.2 million, gross margin rose to 17.2% from 16.6% in the prior year, and income from operations increased by 22.9%.

• Management raised full-year 2024 revenue guidance to $630 million from $605 million, based on current operating and market conditions which are subject to change.

• Prolonged disruption or unforeseen delays in manufacturing, delivery, and assembly processes could result in delays in product shipment, increased costs, and reduced revenue.
• Foreign exchange volatility could impact quarterly profits, and the company is exploring solutions to mitigate this.

Q: Please describe the onetime income tax expense settlement for the subsidiaries in China?

A: Jie Li explained it's related to dividend distribution from CAAS's China subsidiary triggering a withholding tax of $1.4 million, a one-time tax due to distributing profit earned in China to shareholders outside China.

Q: Why did the GILTI taxes increase in the third quarter of 2024?

A: Jie Li stated GILTI tax is based on pretax income. In 2023, pretax income was $48 million vs $23 million in 2022, leading to a higher tax calculation of approximately $1.7 million per quarter in 2024.

Q: What is the company doing to reduce the impact of foreign exchange volatility on quarterly profits?

A: Jie Li said the company tried financial tools last year but they weren't satisfactory, and now is discussing with large financial institutions for better tools to manage foreign exchange risk.

Q: What business segments are expected to contribute to the increase in sales guidance to the $630 million for 2024?

A: Jie Li mentioned all business segments experienced healthy growth. Proactive pricing strategy helped gain market share in domestic China, traditional hydraulic products, EPS products, and export markets, leading to the guidance increase.