Kevin Theiss - Investor Relations, Grayling Hanlin Chen - Chairman Qizhou Wu - Chief Executive Officer Jie Li - Chief Financial Officer Daming Hu - Chief Accounting Officer.

Cormac Glynn - Wall Street Wonders Robert Polivich - Private Investor Rebecca Wen - JPMorgan.

Greetings and welcome to the China Automotive Systems Incorporated Second Quarter 2015 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Kevin Theiss. Please go ahead, Mr. Theiss..

Thank you for joining us today and welcome to China Automotive Systems 2015 second quarter conference call. My name is Kevin Theiss, and I’m with Grayling, China Automotives U.S. Investor Relations Advisor. Joining us today are Mr. Hanlin Chen, Chairman; Mr. Qizhou Wu, Chief Executive Officer, Mr. Jie Li, Chief Financial Officer; and Mr.

Daming Hu, Chief Accounting Officer of China Automotive Systems. They will be available to answer questions later in the conference call. And we will help with translation. Before we begin, I will remind all listeners that throughout this call, we may make statements that may contain forward looking statements.

Forward looking statements represent our estimates and assumptions only as of the date of this call.

As a result, the company’s actual results could differ materially from those contained in these forward looking statements due to a number of factors including those described under the heading Risk Factors in the company’s Form 10-K Annual Report for the year ended December 31, 2014 filed with the Securities and Exchange Commission on March 26, 2015, respectively; and in documents filed by the company from time to time with the Securities and Exchange Commission.

The company expressly disclaims any duty to provide updates to any forward looking statements made in this call whether as a result of new information, future events or otherwise. I will provide a brief overview and summary of the 2015 second quarter and six months financial results.

And then I will turn to management to conduct the question-and-answer session. The 2015 second quarter and six months results are unaudited numbers, results are reported under U.S. GAAP. For our call today, I’ll review the financial results in U.S. dollars. First, let’s review the industry status and our market position for the second quarter of 2015.

According to China’s National Bureau of Statistics, China’s GDP growth was 7% year-over-year in the second quarter of 2015. This growth was inline with the governments target and that’s the growth in the first quarter of 2015. While the GDP growth has stabilized, it continues at a slow growth rate.

The slow economic growth in the second quarter of 2015 reflected a continuing sluggish Chinese real estate development market and general economy. Our sales of $109.2 million was the second highest sales for any second quarter in the company's history only trailing last year's record $115.5 million.

In the second quarter of 2015, our sales declined by 5.5%, compared with a 1% decline in total vehicle sales and a 0.6% increase in passenger vehicle sales in the second quarter 2015.

However the industry sales of passenger vehicle using the hydraulic power steering gears declined noticeably, while vehicles using the more advanced electric power steering EPS products continue to grow. Our lower sales mainly reflected a sales decrease in our hydraulic steering products due to market conditions.

Our EPS sales grew 47% in the second quarter of 2015, representing 16% of total sales. Continue sales growth in the Chinese domestic SUV market help the company sales in the second quarter of 2015 versus last years second quarter.

We reported lower sales of steering products for the commercial vehicle market, as sales to commercial vehicles in China declined 8.6% in the second quarter of 2015 compared with the same quarter in 2014. We also continued to expand sales in North America, the second largest global automotive market in the world.

Sales to North America increased by 15.2% year-over-year as our key customer Fiat Chrysler reported its 63rd consecutive month of year-over-year sales gain. The Jeep brand reported at June 2015 was its best June sales month ever with a 25% growth over June 2014 sales. June is also Jeeps 21st consecutive month of year-over-year sales gain.

Wrangler reported its best June in sales ever and 17% increase was the second highest monthly sales in 2015. Wrangler also won the TheEdmunds.com 2015 best retained value awards in the mid sized traditional SUV category. RAM pickup trucks increased by 1% in June, to its highest June sales in the last in 11 years.

We continue supply our second global OEM in North America Ford with steering gears for certain models in North America. We are encouraged by the ongoing orders in Ford. Our South America assembly facility is doing trial production on our steering products and we expect the facility to be fully operational by the end of 2015.

In the short [ph] capacity will be for approximate 1000 units annually with the potential expansion up to 400,000 units in the future.

We'll be able to directly serve our Tier 1 OEM, Chery Auto operations Brazil and penetrate with the local manufacturers with the service operations – operations and penetrate with the local manufacturers and service network.

This facility will make us more efficient to provide quicker supply and inventory control for the local and the regional markets. We anticipate the sales into foreign markets will continue and become a larger portion of our total sales over the next few years.

The recent RMB devaluation it will help to build our overseas sales, as our EPS products continue to grow in the second quarter of 2015, we increased our research and development investment by 23.1% to $6.4 million.

We developed the first domestic EPS products in China and we are expanding our portfolio of EPS products so they are applicable to a widening number of vehicles. We continue to improve our research and development capabilities and intend to further improve our current products and introduce new products.

Cash flow from operations increased $9.6 million in the second quarter of 2015. Total cash, cash equivalent and short-term investments were $108.6 million. Working capital increased to $205.8 million at June 30, 2015, compared to $198.1 million as of December 31, 2014.

Total company's stockholders' equity was $313.6 million as of June 30, 2015, compared to $289.3 million as of December 31, 2014. The central governments recent fiscal mandatory [ph] policies have encouraged growth, interest rates have been reduced four times since November and the required reserve ratio for banks has been lowered by more than 1.5%.

Additionally the China central government has allocated funds to develop more affordable housing to upgrade the Internet infrastructure and authorize building six new realigns [ph] Investment in fixed assets rose a 11.4% in May and June and we just depreciate R&D will help Chinese exports which in long run will help the company win more international business.

We have controlled our operating expenses and enhanced our financial strength. Our increase in research and development is adding a growing number of EPS products excuse me, to our broad product with advanced steering products. We developed the first domestic EPS products and we remain leaders in this domestic technology.

Additionally, EPS and other advanced products are relying on us to gain market share in foreign markets as well. Let me now go through the year results for the second quarter of 2015. The second quarter of 2015, our net sales were $109.2 million, compared to $115.5 million in the same quarter of 2014.

Net sales declined due to lower sales of domestic vehicles using the company's legacy hydraulic power steering, partially offset by higher sales to North America and sales of our EPS units in China.

Also, steering sales to the commercial vehicle market declined due to the economic slowdown in China and the effects of the implementation of the stricter National IV emission standards in 2015. Gross profit increased to $21.8 million in the second quarter of 2015, compared to $21.6 million in the second quarter of 2014.

The gross margin was 20% in the second quarter of 2015, versus 18.7% in the second quarter of 2014 and 17.6% in the first quarter of 2015. The gross margin increased mainly due to greater efficiencies driving unit cost lower. Selling expenses decreased to $4 million in the second quarter of 2015, compared to $4.3 million in the second quarter of 2014.

Selling expenses represented 3.7% of net sales in the second quarter of both 2015 and 2014. The decrease was mainly due to lower transportation expenses and reduced advertising costs. General and administrative expenses were $3.8 million in the second quarter of both 2015 and '14.

G&A expenses represented 3.5% of net sales in the second quarter of 2015 compared to 3.3% in the second quarter of 2014. Research and development expenses, R&D increased by 23.1% to $6.4 million in the second quarter of 2015, compared to $5.2 million in the second quarter of 2014.

The increase in R&D expenses was mainly due to higher expenditures for the development of the company's EPS products, and included higher personnel-related expenses and mold improvement costs. R&D expenses represented 5.9% of net sales in the second quarter of 2015, compared to 4.5% in the second quarter of 2014.

Income from operations was $8.3 million in the second quarter of 2015, compared to $16.5 million in the same quarter of 2014. The decrease was primarily due to the lower gain on other sales related to a $7.5 million gain on the sale of land use rights recognized in the second quarter of 2014.

Without the $7.5 million gain on sale of land use rights, income from operations for the second quarter of 2014 would have approximated $9 million. As a percentage of net sales, the operating margin was 7.6% in the second quarter of 2015, compared to 14.3% in the second quarter of 2014.

Without the $7.5 million gain on sale of land use rights, operating margin for the second quarter of 2014 would have approximated 7.8%. Net financial income in the second quarter of 2015 was $0.7 million compared with $0.5 million in the second quarter of 2014. The increase was mainly due to higher interest income from time deposits.

Income before income tax expenses and equity in earnings of affiliated companies was $9.2 million in the second quarter of 2015, compared to $16.6 million in the second quarter of 2014.

The decrease of $7.4 million in the second quarter of 2015 was mainly due to the reduction in the gain on other sales related to the sale of land use rights in the second quarter of 2014.

Net income attributable to parent company's common shareholders was $7.7 million in the second quarter of 2015, compared to net income attributable to parent company's common shareholders of $11 million in the corresponding quarter of 2014.

Diluted earnings per share were $0.24 in the second quarter of 2015, compared to diluted earnings per share of $0.39 in the second quarter of 2014. Excluding the one-time gain on the sale of land use rights, net income and diluted earnings per share would have been $5.9 million and $0.21 respectively in the second quarter of 2014.

The weighted average number of diluted common shares outstanding increased by 14.5% to 32,138,438 in the second quarter of 2015, compared to 28,064,376 in the second quarter of 2014. Now let's go over the first six months results for 2015.

Net sales increased to $232.6 million in the first six months of 2015, compared to $229.8 million in the first six months of 2014. Six-month gross profit was $43.5 million, compared to $42.9 million in the corresponding period last year. Six-month gross margin was 18.7% in both 2015 and 2014.

The gain on other sales of $2.4 million in the first six months of 2015 compared with $9.1 million in the 2014 period due to a gain of $7.5 million from the sale of land use rights in the second quarter of 2014. Income from operations was $17.6 million, compared to $26.3 million in the first six months of 2014.

Without the gain from the sale of land use rights, income from operations would have approximated $18.8 million in the second quarter of 2014. Operating margin was 7.6%, compared to 11.4% for the corresponding period of 2014.

Without the $7.5 million gain on sale of land use rights, operating margin for the first six months of 2014 would have approximated 8.2%. Net income attributable to parent company's common shareholders was $16.2 million in the first six months of 2015, compared to $17.8 million in the corresponding period in 2014.

Diluted earnings per share were $0.50 in the first six months of 2015, compared to $0.63 for the corresponding period in 2014. Excluding the one-time gain on the sale of land use rights, the diluted earnings per share would have been $0.45 in the first six months of 2014.

Management has revised its revenue growth target for the full year 2015 to be even with 2014 due to the China Automotive markdown - market slowdown. This target is based on the company's current views on operating and market conditions, which are subject to change. The outlook is uncertain over the next few quarter.

However, the central government is adopting new policies in actions to increase economic growth in China.

We continue to monitor our operations to increase efficiency, and maintain toward increase our margins, with low cost manufacturing and advanced steering products, we are well positioned to defend our domestic market share and become a larger supplier in a global market. With that, operator we are ready to begin the Q&A..

Thank you, sir. [Operator Instructions] At this time sir, I am seeing no further questions. I am sorry. We do have a question from Cormac Glynn of Wall Street Wonders. Please go ahead..

Good morning. Thank you for an interesting discussion. I got two or three questions to ask.

What is you goal for sales in South America?.

[Foreign Language].

Excuse me, do you have an interpreter?.

[Foreign Language].

Okay. So Mr. Cormac, the answer is 2015 the facility in Brazil is still under construction. Our sales is light for that region, mostly to the retail market where the aftermarket sales is our main focus. In 2016 according to our CEO, Mr. Wu, our sales will reach between 70,000 to 100,000 units..

[Foreign Language].

And longer term….

[Foreign Language].

In the next two years we plan to sell 350,000 units in Brazil alone..

[Foreign Language].

What will your current expenditures be for the rest of 2015?.

[Foreign Language].

To your second question, our CapEx for 2015 is around US$30 million, half of that – around half of that $13.7 million has been spent in the first six months, and mainly used for the production line for Ford and as well as our EPS product. After reflecting on your first question [Technical Difficulty] in the Fiat in Brazil..

Okay. Thank you very much..

[Foreign Language].

Thank you..

[Foreign Language].

[Operator Instructions] Our next question, yes, sir?.

Go ahead..

Our next question comes from Robert Polivich. He is a Private Investor. Please go ahead..

Good morning. This is Robert Polivich. And I was wondering, I didn’t join the call in the beginning, I missed the few minutes.

I was just wondering, developments with Ford in the United States and globally and also any developments with Japanese car companies?.

Go ahead.

Do you have more questions?.

No. I guess, the other question would be, growth in 2015, what do you anticipate and is this trend slowdown in your view temporary? Thank you. I am sure that’s enough, okay..

[Foreign Language].

On Ford, we have two projects it was Ford right now, we have procured the production equipment. It’s gradually coming into our facility and the Von Shau [ph] as under final construction. Its - we expect the facility will be up and running about in sometime in late September.

And beyond the project and that we are also in discussion on potential work on vehicles. So we'll make an announcement, make the announcement when we reach a conclusion..

[Foreign Language].

Okay. In terms of Japanese vehicles, OEMs, we have been in discussion with one of the major commercial vehicle producer’s Japanese brands and believe its going to come online soon. And in terms of passenger vehicles, Japanese passenger vehicle, we are also exploring with one of the OEMs. So we think it’s promising..

[Foreign Language].

Okay. So the product will be selling into Japanese, with targeting Japanese passenger vehicle is EPS. And so we're taking our time to finalize the discussion..

[Foreign Language].

In terms of 2015, honestly we don’t expect a big year for the auto sector in China..

[Foreign Language].

There is talks of potential stimulus about the Chinese government, if that happens would be coming in the – in third, late third or maybe fourth quarter, and that’s – how those economy help us in the first quarter..

[Foreign Language].

And moving on to 2016..

[Foreign Language].

Okay. So, there are some policies or potential new policies coming in, government policy will help the auto industry. And however for the step to take – for the policy to take it fast, it will take some time. We believe the second half of 2016 there will be a pick up for the sector..

[Foreign Language].

Okay. And also the Chairman likes to remind everyone, steering systems is one of the key safety components. So for us to win a customers, to expand our order, especially of the new customer, OEM customers it takes time to go through vigorous certification process and all the quality control and testing.

That’s why we have to spend quite a bit of engineering resources and production, higher production resources working with all potential customers starting from the samples or prototypes and all the way down to low tax. So it would take some time, at least a year to complete a certification process and start to going to orders..

Okay. Thank you for your several answers. I appreciate it..

Thank you..

[Operator Instructions] Seeing no more questions at this time, I apologize, we do have another question. Our next question comes from Rebecca Wen of JPMorgan. Please go ahead..

[Foreign Language]?.

So this is from JPMorgan's Research, Rebecca Wen. The first question she has is that [Technical Difficulty] performance and some policies or potential policy to help stimulus - stimulates the autos and she wants to know exactly what type of policy we anticipate.

Secondly, she wants to know who are the large OEM customers in China Automotive Systems in China and US respectively.

And the third question she has is, she wants to know the breakdown of the EPS product and HPS product in China Automotive Systems product and portfolio sales?.

[Foreign Language].

So in terms of – let's answer your second question first. Our OEM customers in US is Fiat's Chrysler, now Chrysler account for 13.2% of our total revenue, and they are the largest, single largest customer for China Automotive Systems.

Domestically we have GM-Wuling, we have Chery Auto, Geely, BYD, Great Wall, those are large customers of us on the passenger vehicle sector. On the commercial vehicle sector, we have just about all the major players, including Beijing Auto, Beijing [indiscernible] to name a few. [Foreign Language].

[Foreign Language].

Okay. In terms of product breakdown, EPS now account for 16% of out total earning, EPS product and this part last year so we had experienced a dramatic increase. We came starting from tens of thousands units, now this first half of year 2015 we already reached 320,000 units.

On year-over-year basis we booked 75% volume increase and 90% revenue increase year-over-year..

[Foreign Language].

In terms of macro policies, stimulus policy, we see some of the new policy will be coming to help the infrastructure sector and as you know the commercial vehicle sector has suffered quite a lot in 2015 alone.

And we believe if there is new policy coming into help was – continue to build out the infrastructure in China it will definitely help the commercial vehicle sector and they will also help with all the skewing business accelerating to the commercial vehicle OEM customers.

And also as you already seen, Chinese government lately decided to devalue RMD currency. That tremendously helps with export oriented business like us. And we believe we will continue to increase our shipment globally and our goal is in the next five years to have our international sales to reach around 30% of our total sales..

[Foreign Language].

Yes. So basically auto industries are one of the largest industry for the GDP sense, as well as employment sense. So we believe Chinese government will have some policies of – have policies asset..

[Foreign Language].

Thank you..

Our next question comes from Frank Hu of [indiscernible] Please go ahead..

Hi.

I have several [Technical Difficulty] type of pricing, the margin, given for the future, is that [Foreign Language]?.

[Foreign Language].

Okay. So let me repeat Mr. Hu's question. First question is RMB currency devaluation, was that going to affect our pricing as well as margins. And that include both gross margin and operating margin.

The second question regarding to land, that we have any other land for sale in the coming period?.

[Foreign Language].

Okay, answers to your question. First one is the RMB devaluation, our product all types in US dollars, that’s all denominating currency for our product. So – and if the RMB devaluates like 3% as we've seen already is going to all flow into our gross margin. So it’s clear aimed for us.

And also for the new customer because our product now it will become more competitive, in terms of pricing, so we believe it help us with other product support opportunity, we'll look forward to capture them. In terms of land sales, we booked one land sales in the last 18 months and that’s just one off.

We don’t expect to do more and we're not in that business and just happen to be one of the higher land we have, if some wants to buy. So we don’t expect to use them in the near term, so we decided to sell. So that’s a one off activity..

[Foreign Language].

Third question is guidance, we currently are only guiding – we are providing guidance for revenue line, and he wants to know what's our expectation on margins, gross margin and operating margin?.

[Foreign Language].

Its all common factors, we normally only provide the revenue guidance, yes, that’s all purchased in the last couple of years..

Okay. Thank you..

Thank you..

[Operator Instructions] Our next question is a follow up from Robert Polivich, a Private Investor..

Thank you. Thank you for taking my question. I was just wondering is there any discussion regarding share price and possible stock buyback. We've seen the sales of China Automotive trended to move higher over the last 5 years, but the share price really hasn’t moved much.

And I am just wondering how do you feel about this and is there any interest to do a share buyback? Thank you..

[Foreign Language].

Okay. As you know this entire auto sector is experiencing headwind at the moment. This macro environment, we hope the macro environment to improve. But so far it’s been challenging. So in this kind of an environment we do not have any aggressive plan in terms of how to use our capital.

And we are tied to reserve our cash and compare and continue to optimize our operation in this challenging environment..

Okay. Thank you..

Thank you..

Mr. Theiss, I see that there are no further questions at this time.

Would you like to make any closing remarks?.

Yes. Thank you. Thank you to all for participating in our second quarter 2015 financial results conference call. We look forward to speaking with you again and we wish you all a good day..

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time..