China Yuchai International Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Market Performance: EBIT sales outperformed the Chinese truck and bus vehicle markets in the second half 2024 and for the full year 2024. Truck and bus engine sales in full year 2024 rose by 17.2% year - on - year while truck and bus vehicle sales declined by 2.6% year - on - year. Operating sales rose by 12.6% year - over - year in second half and by 9.1% year - over - year for 2024 full year.
• Profit and Joint Ventures: Investment in associated companies and ventures delivered higher profit, growing by 18.2% year - over - year in second half 2024 and by 53.6% year - over - year for full year 2024. 50 - 50 joint venture MTU Yuchai Power achieved higher profit than the previous year. Y&C Engine and Purem Yuchai business achieved profitability in FY 2024 compared to losses last year.
• Cooperation and Expansion: MTU Yuchai Power venture entered into a second phase cooperation and development. Production and sales of MTU Series 4000 oil and gas engine is expected to begin shipments in late 2025. Yuchai Thailand commenced production operation. Entered into a comprehensive strategic operation agreement with a subsidiary of [indiscernible] Group.
• R&D and New Energy: Total R&D expenditure, including capitalized costs, increased by 21.2% in second half 2024 to RMB726 million or $101 million and by 12.3% in FY 2024 to RMB1.2 billion or $165.4 million. Continued to improve the efficiency and performance of National VI and Tier 4 engines and initiated development of next - generation emission standard engines. Developed new energy products including hydrogen - powered combustion engine and off - gas power generation system. Motor YCA07a hybrid engine and hydrogen fuel cell - powered buses had commercial operations.
• Share Repurchase and Dividend: Started first share buyback plan in early June 2024, repurchased 3.3 million shares at a total cost of $39.8 million. Paid a cash dividend of $0.03 per ordinary shares on August 28, 2024.

Segment Performance

• Truck and bus engines: In 2024 full year, sales rose by 17.2% year - on - year compared with a 2.6% year - on - year decline in truck and bus vehicle sales. Revenue in 2024 rose by 6.6% year - over - year to RMB19.1 billion or USD 2.7 billion.
• Agricultural engines: Flat in 2024.
• Industrial engines: Up by 11% year - over - year.
• Marine and gen set engines: Increased by 25.5% year - over - year.
• In second half 2024, revenue was flat compared with the same period last year. Gross profit in second half 2024 rose by 14.3% year - on - year to RMB1.4 billion or $195.7 million, and in full year 2024 rose by 10.8% year - on - year to RMB2.8 billion or $392.1 million. Gross margin increased to 40.7% in 2024 compared with 40.1% in FY 2023.

Guidance

• Data Center Generator Business: Order book for 2025 is full and refusing further orders due to capacity or component supply constraints. Expected at least 30% growth in 2025 compared to last year.
• R&D Expenditure: Expect R&D spend in 2025 to remain pretty much the same or a slight increase, continuing to maintain and improve engine efficiency and performance.
• SG&A Expense: Expect SG&A spending to be pretty much the same as 2024 level in 2025, with a slight increase from overseas market expansion perspective, and trade receivable provisions expected to be better than in 2024.

Risks

• Supply Chain: MTU Yuchai Power venture has some components imported from Germany, and there is a shortage of some key components from partners, which handicaps the overall assembly of the engine. There are also bottlenecks in localizing some very key components.

Question and Answer Q: About your data center generator business, how many units did you sell from both sides, and what is the profitability of this type of generators?

A: Regarding on the genset sells, MTU joint venture sales in 2024 is about more than 700 units. For the [indiscernible], it's about 800 altogether. Can't call the margin of the two different type of engines as it meets data center requirements and MTU has international branding with some premium.

Q: What is expected growth rate on the data center generator business in 2025?

A: Our order book for 2025 is already full and we are refusing further order due to capacity or component supply constraints. It's expected at least 30% growth compared to last year.

Q: Are we going to raise our price since the demand for 2 megawatts generators in China is very strong?

A: In terms of raising price, there will be some improvement in the pricing, but there haven't had any significant plan to increase price at present, but believe there will be some improvement in prices.

Q: Are we going to produce the generator set or the module by ourselves since we only produce generator right now?

A: There's no plan for that. We are engine manufacturer and produce engines mostly for our OEM customers. If there is any customer specifically want us to produce a genset, we can work on that, but that would not be our main business.

Q: What is your capacity plan for 2025 and also 2026?

A: We have the planning to increase our capacity. Casting for big engine, block and machining center will arrive Yuchai by mid - year, likely can increase capacity this year, and next year will be about 35% to 40% increase and then another fill - up on 2027.

Q: Could you please breakdown how much is from MTU Yuchai in associates and JV profit, and walk us through which lines are for the large power generators applicable for data centers?

A: Can't give the figure for MTU Yuchai's contribution to profit. MTU product has different center configuration like 12V, 16V, 20V cylinder engines, and bigger engines have better return depending on customer requirement.

Q: About other operating income which is pretty big, how to expect that in the future?

A: Other operating income includes government grants, VAT rebate, and technology licensing fees. VAT rebate is subject to applications each time, licensing fee recognized half of $38 million in 2024, and likely some in 2025.