China Yuchai International Ltd. Q2 FY2021 earnings call

• The Chinese economy flourished in the first half of 2021, benefiting non-EV truck and bus markets with unit sales increases. Heavy-duty truck sales grew 30% YOY, medium-duty truck 51% YOY, large coach non-EV bus up almost 10%, medium-duty bus 24% and light-duty bus 43%.
• Revenue grew due to 33.8% engine unit sales growth. National VI emission standard implementation affected inventory clearance of National V-compliant engines, but sales expected to pick up in H2. National VI engines are more environmentally stringent and the company has a portfolio to meet them.
• NEV initiatives progressing: hybrid power system available, range extenders present, and new strategic partnership with Guangxi Sunlong bus for new energy vehicles. Eberspaecher Yuchai supplies advanced exhaust treatment units.
• Cash and bank balances were RMB5.7 billion (or $376.6 million) at June 30, 2021, with 12% more R&D investment in H1. A one-off cash dividend of $1.70 per common share was paid in early July 2021.

Revenue increased by 26.8% to RMB12.6 billion (or $2 billion) compared with RMB10 billion in the same period last year, with an overall 33.8% increase in engine unit sales year-over-year. Heavy-duty truck engine sales excluding gasoline-powered and electric-powered vehicles grew by 33%. Bus engine unit sales achieved over 51% growth. Off-road unit sales grew by 60.7%, with marine and power generator engine unit sales up 76.6%, agricultural engines up 81%, and industrial engines up 71.1%. Light-duty engine sales accounted for about 53% of the total sales.

• Expect sales of National VI engines to pick up in the second half of the year as National V deadline passed. National VI engines can meet stricter National VIb standards with modifications.
• NEV products under development, and new strategic partnership for new energy vehicles. Eberspaecher Yuchai continues to supply advanced exhaust treatment units to help meet emission standards.

• COVID-19 not effectively controlled could materially adversely affect business operations and financial conditions due to deteriorating market, economic slowdown, potential weakening of customers' financial condition, etc.
• Government and stock exchange regulations, competition, and political, economic, and social conditions around the world and in China pose risks.
• Inventory clearance of National V-compliant engines briefly hindered current sales of National VI engines.

Q: Could you share about what percent of the engine sales in the first half were light-duty?

A: The light-duty sales were about 53% of the sales.

Q: As far as the gross margin, what initiatives are you guys putting in place or - to get those back to somewhere close to more historical levels?

A: Negotiate with suppliers on pricing, use R&D to cost down for National VI engines, and negotiate with customers to increase pricing.

Q: How's the sales trend looking right now, how's the presales looking regarding the shift into N VI in China since July?

A: There's quite a lot of National V inventory in the distribution, which takes a couple - 2 to 3 months to digest, so we expect a slowdown in National VI engines sales in H2 compared to H1.

Q: Can you give us a rough indication of how large the one-off items or expenses in the first half was and its impact on the bottom line?

A: It was for the rectification cost of one engine model, mostly done but some remaining for H2 and maybe next year, and it affected the SG&A expenses.