China Yuchai International Ltd. Q4 FY2025 earnings call

Mr. Weng Ming Hoh mentioned strong sales and profit growth in second half and full year 2025. Revenue, gross profit, operating profit, and earnings per share all saw significant year-over-year increases. Higher unit sales in nearly every category contributed to growth, especially for heavy-duty and high-cost power engines. Off-road engine unit sales grew, with marine, genset, and industrial engines showing strong growth. R&D expenses increased by 37.3% in fiscal year 2025, focusing on enhancing engine efficiency, performance, and developing new energy products. Strategic alliances and joint ventures saw profit growth. The company acquired equity in a high-tech company and became a limited partner in a private equity fund. Indirect subsidiary applied for listing in Hong Kong. Paid cash dividend in July 2025. Choon Sen Loo reviewed detailed financial results for second half and fiscal year 2025, including revenue, engine sales, gross profit, margins, R&D, SG&A, operating profit, finance costs, tax expense, and net profit. Also mentioned balance sheet highlights like cash, receivables, inventories, payables, and loans

For second half 2025, revenue increased by 33.5% year-over-year to RMB 1.8 billion or USD 1.7 billion. Gross profit increased by 58.4% year-over-year to RMB 2.2 billion or USD 317 million, with gross margin at 18.9%. Operating profit increased by 193.1% year-over-year to RMB 469.2 million or USD 66.7 million. For fiscal year 2025, revenue was RMB 24.7 billion or USD 3.5 billion, up 28.9% y-o-y. Gross profit was RMB 4.1 billion or USD 578.7 million, up 44.3% y-o-y with gross margin at 16.5%. Operating profit was RMB 1.1 billion or USD 155.2 million, up 82.7% y-o-y. Off-road engine unit sales in 2025 increased by 13% y-o-y, with marine and genset engines and industrial engines each seeing over 24% unit sales growth. Combined sales of MTU Yuchai Power and Yuchai branded high horsepower engines to data centers exceeded 2,000 units in 2025

Management expects data center demand to improve by double digit in 2026. Uncertainty regarding government policies affecting vehicle sales. Mentioned attending various conferences in March to May, but no specific numeric guidance on growth rates beyond general expectations on data center and some market trends

Risks include government and stock exchange regulations, competition, political, economic and social conditions around the world and in China. Also, potential impact of supply chain issues on production, such as component cost increases and supply constraints from joint venture partners. Fluctuations in government incentives affecting other operating income

Q: Thanks for information and congrats on the strong results by year-over-year. Can you potentially share more on much higher expenses in second half where effective tax rate is about 44%?

A: On full year basis, tax expense is 7% - 8% higher due to deferred tax, noncash item, and writing off deferred tax assets. Excluding that, effective tax rate is about 20% - 21%.

Q: My question is about the other operating income. I found that in 2024, it decreased a lot. And I'm wondering what's the reasons and what's the outlook in 2026?

A: Reduction mainly due to lower government grants, about half of 2024's amount. Outlook: Trend likely to remain as 2025 as hard to project government incentives.

Q: My next question is about the share of the joint venture had a profit in 2025 because we only have the combined results, we don't have the details. Can -- do you have the numbers for the MTU joint venture? What's the profit growth for the joint venture?

A: Joint venture net profit last year was about RMB 211 million, increasing by 22% from 2024. Sales volume and revenue increased over 30%, but profit not as good due to product mix change.

Q: This is Fuyin from Bank of America. So I also have two questions for the management team. The first one is that in the second half in 2025, we see that the company's gross profit margin improved quite a lot year-over-year. So could you please elaborate more about the reasons behind? And is it because we have more delivery to the power generation clients so that we have a better product mix and hence, the higher gross margin?

A: Profit improved due to about 30% increase in unit sales and more high horsepower engine sales (from 750 units to 2,000 units in 2025). Higher volume and better product mix contributed to higher gross margin.

Q: So my second question is about our R&D expenses. So in 2025, we see that R&D expenses increased over 30%. So looking at 2026, what do you expect R&D expenses growth rate? And what's our key R&D focuses looking at 2026 and 2027?

A: R&D expenses grew around 5% of revenue. Key focuses include new energy (EVs, ammonia, methanol, hydrogen power combustion engines), preparation for National VII emission standards, and continuous improvement of product efficiency and fuel efficiency.

Q: Congratulations. So I have two questions to ask. The first one is about the future business of the HPP engines. We noticed that Caterpillar has announced its reciprocating generators can be used as prime power for data centers. So how does [indiscernible] view this industry trend? And do we have some existing natural gas engine products and technologies to support these industry trend?

A: High horsepower engine business growth depends on data center development. Yuchai has natural gas engines for power generation, including 16 VC engine generating about 2 megawatt using natural gas, but natural gas application for high horsepower mainly in industrial use currently.

Q: So my second question is about our significant market share gain in truck and bus engines, especially in 2025. So how do you view the 2026 outlook for domestic truck and bus industry sales and whether market share growth can be sustainable?

A: Market share gain in truck and bus engines due to working with vehicle OEMs to get engines certified and designed. Expect continued growth in 2026 barring unforeseen issues.

Q: So I've got two questions. So first one is about your backlog, especially for those associated with the data center business. So if we compare your backlog right now and like half a year ago, so I'm just wondering, is that getting larger? Or if you look at the demand and supply, so is the supply getting more and more constrained, it's getting more and more tighter. Is that what is happening for those data center engines?

A: For Yuchai brand high horsepower engine, component supply from China generally not a problem, but cost increase due to raw material. Joint venture has supply chain constraints from partners causing limited component supply. Delivery still about 3 - 4 months.

Q: And my second question is about exports. So do you see any like increase on your European business? And what is the like the detailed segment about that? Is that about like diesel engines or gas engines? Or I mean, what is the outlook of your European business?

A: UTai brand export accounts for small percentage (about 10%) mainly in Asia. MTU joint venture has over 20% - 25% export opportunity, growing