China Yuchai International Ltd. Q2 FY2022 earnings call

• Chinese economy slowdown in the first half of 2022 continued from late 2021, affecting commercial vehicle sales.
• GYMCL's combined truck and bus unit sales declined 56.8% y-o-y in H1 2022.
• Gross margin improved to 15.9% due to lower production costs and cost-cutting initiatives.
• R&D investment increased by 5.9% to RMB476.9 million (US$71.1 million), representing 5.6% of total revenues.
• Introduced new heavy-duty hydrogen engine YCK16H in July 2022.
• Joint venture formed for fuel cell powertrain marketing.
• Macau has 222 new energy buses equipped with Yuchai's range extenders, with over 600 units ordered.
• MTU joint venture produced 1,000 units of MTU Series 4000 engines.
• GYMCL's Eicher SO4 220-51 series engines certified for European VI emission standard.
• New joint venture formed for engine services in China.
• YC6 GN 7.8-liter heavy duty natural gas engines supplied to buses in Mexico.

In the first half of 2022, China Yuchai International's overall sales revenue declined by 32.2% year-on-year to RMB8.6 billion (US$4.3 billion) compared to RMB12.6 billion in the same period of 2021. Gross profit declined by 16.2% to RMB1.4 billion (US$202.7 million), with gross margin improving to 15.9% from 12.9% in the first half of 2021. GYMCL, the main subsidiary, reported combined truck and bus unit sales decline of 56.8% year-over-year in the first half of 2022, with truck sales down 58.7% and bus sales down 34.6%. Off-road engine sales experienced a modest 12.7% year-over-year reduction. Revenue contribution: Overall revenue for H1 2022 was RMB8.6 billion, with GYMCL's performance being a key component.

• Weng Ming Hoh mentioned expecting green shoots in the fourth quarter of 2022, with hope that this will carry over to the next financial year.
• Uncertainty remains due to ongoing factors like COVID-19 and market conditions.

• Impact of COVID-19 pandemic on business operations and financial conditions.
• Deteriorating market for automotive sales and economic slowdown in China and abroad.
• Potential weakening of customers' financial condition.
• Adverse impact on suppliers and supply chains.
• Regulatory and policy changes affecting the industry.

Q: What percent of the unit sales and the revenue was outside of China for the first half of 2022, and then also the first half of last year?

A: In H1 2022, unit sales outside China were about 10%-12%, with actual direct sales to end users outside China less than 5%. Last year was affected by COVID-19, making export sales ratio low due to pre-buy in China's emission upgrade.

Q: What is your outlook for the engine market in China for the remainder of this year and then next year?

A: It's difficult to judge, but expect green shoots in the fourth quarter of 2022, with hope to carry over to next year, though uncertainty remains due to ongoing factors.

Q: Outside of Macau range extender announcement, can you give updates on the progress of the other new energy products you guys are developing?

A: Working with on-road and off-road OEMs on range extenders, developing bigger ranges. Electric vehicle integration work is ongoing. Fuel cell market is in early stage, hydrogen-powered vehicle market also in early development.