China Yuchai International's CEO Discusses Q2 2012 Results - Earnings Call Transcript

China Yuchai International Ltd. (CYD)

Q2 2012 Earnings Call

August 10, 2012 08:00 am ET

Executives

Benny Goh – President

Kok Ho Leong – Chief Financial Officer

Kevin Theiss – Dixon Chen Grayling

Analysts

Alex Potter – Piper Jaffray

David Russell – I.S.I. Group

Ravi Gill – Goldman Sachs

Sandy Mehta – Value Investment

Jonathan Brodsky – Advisory Research

Bing Wang – Bank of America Merrill Lynch

[Wang Ho] – Citi

[Himan Sho Sha – Shagato]

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the China Yuchai International Ltd. Q2 2012 Earnings Webcast. (Operator instructions.) I must advise you that this conference is being recorded today, August 10, 2012. I would now like to hand the conference over to your first speaker for today, Mr. Kevin Theiss. Please go ahead, sir.

Kevin Theiss

Thank you for joining us today and welcome to China Yuchai International Ltd.’s Q2 2012 conference call and webcast. My name is Kevin Theiss and I am with Grayling, China Yuthai’s US investor relations advisor. Joining us today are Mr. Benny Goh, President; and Mr. Kok Ho Leong, Chief Financial Officer.

Before we begin I will remind all listeners that throughout this call we may make statements that may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will,” or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that may be deemed forward-looking statements.

These forward-looking statements are based on current expectations or beliefs including but not limited to statements concerning the company’s operations, financial performance, and condition. The company cautions that these statements by their nature involve risks and uncertainties and actual results may differ materially depending on a variety of important factors including those discussed in the company’s reports filed with the Securities and Exchange Commission from time to time. The company specifically disclaims any obligation to maintain or update the forward-looking information whether of the nature contained in this conference call or otherwise in the future.

Mr. Goh will provide a brief overview and summary, then Mr. Leong will review the financial results for Q2 and the half year ended June 30, 2012. Thereafter we will conduct a question-and-answer session. For the purposes of today’s call, the financial results are unaudited and they will be presented in RMB and US dollars. Mr. Goh, please start your presentation.

Benny Goh

Thank you, Kevin. Good evening, everyone. According to the China Association of Automotive Manufacturers, CAAM, overall diesel-powered commercial vehicle sales were 15.3% lower and the unit sales of heavy-duty diesel-powered trucks and trailers declined by 33.6% in Q2 2012 as compared with the same quarter last year. Unit sales in the first half of 2012, diesel-powered commercial vehicles declined by 13.7% and diesel-powered truck and trailers declined by 31.7% as compared with the same period last year.

Even in such a weak commercial vehicle market environment there were areas of growth, as unit sales of completed passenger busses rose 3.2% with large, medium, and light busses recording higher sales in Q2 2012 versus the same quarter of 2011. For unit sales in the first half of 2012, completed busses rose by just 1% as compared to the same period last year. As the leading player to the medium and large bus sectors in China, we continue to benefit from higher bus sales. Our diversified product mix, especially with our natural gas engine products benefiting each engine class, enable us to defend our gross margin and maintain our competitive edge despite the evolving commercial vehicle market.

We continued to increase sales in our natural gas engine sector and maintain our leadership in the on-road diesel engine market through our ongoing introduction of new products and closer collaboration with our OEM customers. In recent years, the policies of the Chinese government have encouraged energy conservation and emissions reduction. China’s ’12 five-year plan targets a 16% and 17% reduction in energy use and carbon dioxide emissions respectively per unit of economic output by 2015.

Out of seven strategic investment areas identified under the ’12 five-year plan, three are related to energy – namely clean energy, energy conservation, and clean energy vehicles. Under the ’12 five-year plan, natural gas is to comprise 3.3% of the primary energy mix by 2015 which represents approximately 5.2 trillion cubic meters of gas or more than 3x the consumption in 2008. Two natural gas pipelines are operating between western and eastern China, with a third under construction to provide approximately 32 billion cubic meters of natural gas into the more heavily populated parts of China.

Major Chinese oil companies are actively building pipelines and currently operate five gas product facilities with more plants under construction. There are over 100 liquefied natural gas, LNG, filling stations in the gas-rich areas of China, with plans to expand to 380 stations by the end of 2012. The intended distribution areas for the new gas engines will be the eastern coast region of China where natural gas is abundant and actively promoted.

Last year, we sold approximately 13,000 natural gas engines, making us one of the industry leaders and we are off to a good start in 2012, with increased sales in the first half of the year as compared to the same period a year ago. We anticipate natural gas engines to be a growth driver for us as we construct a new facility at our main manufacturing plant in Yulin City, Guangxi Province, to develop and produce a full portfolio of natural gas-powered engines to complement our existing fleets of diesel engines.

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