China Yuchai International Limited Q2 FY2026 earnings call

Overall Financial Performance

• Total revenue grew 13.9% YoY to RMB 14.7 billion (USD 2.2 billion), with total engine unit sales up 10.9% YoY to 277,684 units
• Gross profit rose 36.5% YoY to RMB 2.5 billion (USD 368.7 million), with gross margin expanding 280 bps to 17.1%; operating profit grew 58.9% YoY to RMB 988.2 million (USD 145.1 million), with operating margin expanding 190 bps to 6.7%
• Profit attributable to shareholders increased 53.2% YoY to RMB 516.6 million (USD 82.3 million), with diluted EPS of RMB 14.81 (USD 2.17)
• Cash and bank balances totaled USD 1.2 billion as of June 30, 2026, with borrowings reduced to RMB 1.4 billion (USD 210.1 million) from RMB 2 billion at end-2025

Product Development and R&D

• Total R&D expenditures including capitalized costs increased ~30% YoY to RMB 622.5 million (USD 91.4 million), equal to 4.2% of total revenue
• New product launches included the YCY24-65kW flywheel range extender system for commercial minibuses launched in the Hong Kong market, which reduces reliance on fixed charging infrastructure
• Achieved a technological breakthrough with the first ammonia-powered high-pressure direct injection internal combustion engine, advancing the company's alternative fuel product portfolio

Strategic Corporate Actions

• Acquired a 27.97% controlling equity interest in Nanyue Fuel Injection System (NYDK), strengthening in-house fuel system technology capabilities, expanding access to new products and improving supply chain resilience; NYDK results have been consolidated since April 1, 2026
• Subsidiary Guangxi Yuchai High Power Marine and Gen Set Power is progressing with its IPO application on the Hong Kong Stock Exchange; after listing, the company will remain the controlling shareholder, and the listing will provide additional growth capital for the subsidiary while freeing up resources for the parent company's core operations
• Became a limited partner in the Guangxi Yuchai Double Growth Fund, a private equity fund focused on innovative technology businesses, to access new emerging growth opportunities

Shareholder Return

• A 2025 full-year cash dividend of 87 US cents per ordinary share was paid in July 2026, up from 53 US cents per share for 2024 paid in 2025

1. Truck Engine Segment: Total truck engine unit sales grew 20.4% YoY. Heavy-duty truck engine sales rose 47.3% YoY, light-duty truck engine sales rose 23.6% YoY, and medium-duty truck engine sales grew 7.9% YoY. The segment outperformed overall commercial truck market growth (excluding gasoline and electric vehicles) reported by CAAM, and is a core driver of overall sales growth. Larger heavy-duty engines have higher average selling prices and gross margins, driving overall margin expansion.
2. Off-Road Engine Segment: Total off-road engine unit sales increased 7.7% YoY. Marine and power generation engine sales grew 42% YoY, industrial application engine sales rose 15.8% YoY, while agricultural machinery engine sales declined 18.9% YoY. High demand for high-horsepower engines from artificial intelligence data centers (AIDC) within the power generation sub-segment was a key growth driver, with 1,800 AIDC units sold in H1 2026 across the company's own brand and MTU Yuchai JV.
3. Joint Ventures and Associates: Profit from this segment grew 56.2% YoY to RMB 95.9 million (USD 14.1 million), driven almost entirely by higher sales and profit at MTU Yuchai Power. MTU Yuchai reported over 40% YoY sales growth in H1 2026, with gross margin remaining above 30% overall.

• Full year 2026 AIDC high-horsepower engine sales are guided to ~3,500 units, up from the prior initial full-year target of 2,600 units, representing significant YoY growth over 2025
• Combined total high-horsepower engine capacity (including AIDC and non-AIDC power generation applications) across Yuchai's own brand and the MTU JV was raised to 5,000 units per year in 2026, up from 3,000 units in 2025, achieved via capacity expansion and process optimization
• Management is planning for further high-horsepower capacity increases in 2027, but a final capacity target has not been announced yet; capacity expansion will combine increased outsourcing of non-core machining processes and in-house capital investment for fine machining operations
• Dividend payout ratios are expected to remain within the historical 10-year range of 30% to 40%, with no planned change to the long-term payout policy

• Increasing competition in the high-horsepower AIDC engine market, as all major industry players have launched capacity expansion programs to capture growing AIDC demand; this has kept pricing stable despite cost increases, with no room for near-term price increases as competitors compete aggressively to win orders and earn returns on their new capacity investments
• Metal raw material price increases created upward cost pressure in H1 2026, offsetting some of the company's cost rationalization and efficiency gains
• Gas engine products targeted for the North American AIDC market are still undergoing regulatory certification, so commercial launch in the region is delayed until certification is completed
• Fuel cell products for data center power generation are not expected to be available in the short term, with development still in early stages

Q: The company sold 1,800 AIDC engines in H1 2026, against an initial full-year target of 2,600. What is the updated full-year 2026 AIDC sales guidance, and why was the 2025 dividend payout ratio lower than 2024's?

A: Full-year 2026 AIDC engine sales are now guided to around 3,500 units, representing significant year-over-year growth over 2025. For the dividend, the payout ratio remains within the company's historical 10-year range of 30% to 40%, and there is no change to the long-term dividend policy.

Q: What drove the large H1 2026 gross margin expansion, and what is the current gross margin profile for MTU Yuchai?

A: Gross margin expansion was primarily driven by favorable product mix toward higher-margin large high-horsepower engines, followed by ongoing operational efficiency and cost rationalization efforts; raw material price increases were offset by these gains. MTU Yuchai's gross margin remains above 30% overall, even with moderate pricing pressure to win orders, and its sales grew over 40% YoY in H1 2026, leading to strong profit growth despite slightly compressed margins.

Q: What is the current total high-horsepower engine capacity, how did it increase from prior guidance, and what is the outlook for capacity expansion in 2027?

A: Combined total high-horsepower capacity is now 5,000 units per year, up from 3,000 units in 2025. The increase came from completed expansion projects plus outsourcing of certain routine machining processes, which freed up in-house capacity for additional engine assembly. For 2027, management plans further capacity increases, combining additional outsourcing and in-house capital expenditure for core fine machining equipment, but a final target has not been confirmed.

Q: What progress has been made on gas engine and fuel cell products for data center power generation, including expansion to the North American market?

A: Gas engines are a mature product line for Yuchai and are ready for data center prime power use, but North American market regulatory certification is still ongoing, so commercial launch is pending completion of testing. Fuel cell development for data center power generation is still in early progress, and no commercial product for this application will be available in the short term, though it remains a long-term possibility.