China Yuchai International Ltd. Q2 FY2020 earnings call

• Chinese economy rebounded in Q2 with GDP growth, and automotive industry showed signs of recovery.
• Operational results reflected rebound from COVID-19 disruptions in Q1, with unit sales, revenue, and operating profit all increasing.
• Continued investment in R&D for National VI and Tier-4 technologies, and progress on new energy products.
• Established strategic partnerships in 2019 and 2020, including with Sany Group, enhancing market position.
• Launched advanced high power marine engine in Q1 2020 and YCA05175-S500 engine with European Stage V emission standards.

In the second quarter of 2020, China Yuchai International's total revenue increased by 34.7% to RMB6.5 billion (US$935.2 million). The total number of engine units sold by GYMCL improved by 32% year-over-year. Gross engine sales grew by 51.7%, with heavy-duty truck sales rising by 14.3%, medium-duty trucks up by 33.3%, and bus sales up by 1.8%. R&D expenditure in the second quarter was RMB218.3 million (US$39.6 million), representing 4.3% of net revenue. The revenue contribution from different segments was driven by the rebound in commercial vehicle engine sales post-COVID-19 disruptions.

• Cautiously confident in China's economic recovery for the remainder of 2020, expecting second half to be better than previous year's second half.
• Uncertainty about 2021 due to comparison with strong 2020 results and National VI implementation nationwide, with visibility limited on order books for 2021.

• Impact of COVID-19 pandemic on automotive sales and economic slowdown globally and in China.
• Potential weakening of customers' financial conditions.
• Uncertainty regarding regulatory changes and compliance with emission standards.

Q: Please provide more color on GYMCL's EV powertrain, both current sales and future prospects and fuel cell development program?

A: The EV powertrain products are in development stage except for the rate extender, which has sold about 17 sets. Fuel cell is also in development stage with one prototype of 35 kilowatts fuel cell.

Q: GYMCL was number three in market share in National VI HD truck engine market in the first half of 2020. How long before you see this metric improvement to number two?

A: It's a highly competitive industry, can't give definite answer but will do best to improve market share.

Q: Does the current U.S. administration's accounting and audit proposal affect CYI assuming the Company does not move its main listing to China or Hong Kong?

A: Monitoring U.S. development closely and will update shareholders when appropriate.

Q: Why Yuchai and Cummins have so massively outperformed CYD over the last 1, 3, 5 and 10 years and how you plan on changing this?

A: Yuchai has own strengths, operates differently with broad product range mostly in domestic market. Will explore more export markets and leverage National VI products and service network.

Q: Are you guys seeing much demand on the export side in COVID or non-COVID environment and any issues with your supply chain?

A: Export sales declined due to COVID-19 impact, no issue with supply chain.

Q: Can you quantify about what percentage of your sales are exports?

A: Exports dropped to less than 10% currently, was about 12%-14% last year.

Q: On the margin side, it looks like gross margins were down quite a bit. How do you see that trending for the remainder of the year?

A: Gross margin decline due to product mix, expect improvement in second half of 2020 and further in 2021 as National VI sales increase and cost base improves.

Q: Can you please give us more color on the Sany strategic partnership? Any guidance on the number of incremental units this will bring?

A: Sany partnership is very new, no sales yet, expect improvement in near future.

Q: Can you give us a little bit of a timeline of the NS VI rollout and some sense of the price points of the NS VI product versus the existing product?

A: Gas engine for National VI implemented mid-last year, government vehicles to be National VI by mid-next year. National VI has higher unit selling price, around 10% higher so far, negotiations ongoing with customers.

Q: Given the strength you're seeing on highway and obviously even off highway. What are your thoughts about next year?

A: No much visibility on 2021 order book, 2020 strong due to pent-up demand and government stimulus, 2021 uncertain due to NS VI implementation and comparison to 2020 results.