Kevin Theiss - Investor Relations, Grayling Weng Ming Hoh - President and Director Kok Ho Leong - Chief Financial Officer Qiwei Wu - General Manager and Alternate Director of Yuchai Kelvin Lai - Vice President, Operations Dixon Chen - Investor Relations, Grayling.

Alex Potter - Piper Jaffray Mohit Khanna - Value Investment Principals.

Ladies and gentlemen, I would now like to turn the conference over to Mr. Kevin Theiss. Please go ahead..

Thank you for joining us today, and welcome to China Yuchai International Limited 2015 first quarter conference call and webcast. My name is Kevin Theiss, and I am with Grayling, China Yuchai's U.S. Investor Relations Advisor. Joining us today are Mr. Weng Ming Hoh; and Mr. Kok Ho Leong, President and Chief Financial Officer of CYI, respectively.

In addition, we also have an attendance Mr. Qiwei Wu, General Manager of Guangxi Yuchai Machinery Company Limited; and Kelvin Lai, VP of Operations of CYI.

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 conditions.

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 the script or otherwise in the future. Mr. Ho will provide a brief overview and summary, and then Mr. Leong will review the financial results for the first quarter ended March 31, 2015.

Thereafter, we will conduct a question-and-answer session. For the purposes of today's call, the financial results for the first quarter of 2015 are unaudited, and they will be presented in RMB and U.S. dollars.

All the financial information presented is reported using International Financial Reporting Standards as issued by the International Accounting Standards Board. Mr. Ho, please start your presentation..

[start abruptly] reflected China's continuing slow economy growth as well as the effects of the nationwide implementation of the National IV emission standards beginning from January 1, 2015.

According to China's National Bureau of Statistics, China's GDP growth was 7% year-over-year in the first quarter of 2015, the lowest growth for our single quarter since the first three months of 2009. The outlook is for modern economic growth, which will impact on fixed asset investment and a demand for new commercial vehicles in 2015.

China's Central Bank has responded to the slow economic growth by reducing bank reserve requirements and interest rates to stimulate economic growth. Our unit sales decrease by 30.8%, while revenues decline 19.1% in the first quarter of 2015 on a year-over-year basis.

The total number of engines sold by our main operating subsidiary, Guangxi Yuchai Machinery Company Limited, GYMCL, during the first quarter of 2015 was 105,046 units compared with 151,909 units in the same quarter in 2014.

The revenue for the first quarter 2015 was RMB3.7 billion or US$599.1 million compared with RMB4.6 billion in the first quarter of 2014.

Our unit sales decline 31.8% in the weak commercial vehicle market, which saw a 29.2% decrease in truck sales mainly due to our 33.7% reduction in heavy duty truck sales in the first quarter of 2015, as reported by China Association of Automobile manufactures and commercial vehicle sales data, excluding petrol-powered vehicle.

The relatively lower revenue decline compared to the unit sales was mainly due to the shift of a sales mix, towards increase sales of National IV compliant engine as well as higher horsepower engine for off-road application. Sales growth in the first quarter of 2015 of approximately 20% benefited from stronger economy and higher unit sales.

As a result of the pre-buy effect, our engine sales of the lower priced National III compliant engines were brought forward 2014, prior to the strict enforcement of the National IV emission standards in 2015.

Due to our product development strategy, we added new diesel and natural gas engines to solidify our market share in the truck market and to enhance our leadership position in the bus market.

While natural gas engine sales were affected by lower oil prices, our extensive portfolio of natural gas engines help us maintain our competitiveness in the bus market in China. Our improved diesel, natural gas and high horsepower engines help us to mitigate weaknesses in other market segment in the first quarter of 2015.

The availability of new and upgraded engines is the cornerstone of our diversification strategy. In January 2015, we announced the introduction of 10 new engines to our portfolio.

YC6L-60 diesel engine compliant with National VI emissions standard, five new National V compliant engines to meet the need of a variety of trucks and buses, YC4FAN-50 natural gas engine, which is designed to be used in light duty vehicles, and three new diesel engines compliant with Tier 3 emission standard for the off-road market.

Two new models the YC6J-T30 and YC4D-T30 are for the loader, excavator and forklift markets, while the upgraded YC4A-T30 engine is designed for the agriculture market. Developing new engines and creating innovations in technologies, materials and production technique to improve quality and performance remain our top priority.

As we provide more high-quality and technological advanced engines to meet the need of the marketplace, we further strengthen our reputation and improve our customer relationship.

We have created a suite of natural gas and engines compliant with current emission standards as well as engines compliant with more stringent emission standards ahead of the curve. These actions allow us to capture first to market opportunities and establish market leadership in that segment.

For example, in the first quarter of 2015, we won a competitive tender to supply 635 engines to Beijing Bafangda Express Bus Service Company Limited, a subsidiary of Beijing Public Transportation Group. The contract is for 587 units of National V natural gas engines and for eight units of National VI diesel engines.

This contract represents the first purchase of YC6K13N engines in the Chinese bus market. GYMCL is the largest natural gas engine supplier to Bafangda by winning tenders in 2012 and 2014 to supply a total of 1,700 engines. Off-road markets are increasingly becoming an important sector in our growth plans.

The expanding off-road applications for our engines provide the ability to sell engines into many different market segments, thereby reducing our market risk and attracting new growth possibilities. In 2015, R&D activities have been focused on emission standard compliance, exhaust after-treatment system integration and fuel efficiency improvement.

The company is also expanding a number of engines compliant with Tier 3 emission standards for off-road applications.

Our R&D expertise was acknowledged in the first quarter of 2015, as a K-Gold model C&C truck equipped with the YC6K1340N liquid natural gas engine won the Fuel-Efficient Heavy-Duty Truck of the Year 2014, at the China's largest annual commercial vehicle event.

The 2014 Commercial Vehicle of the Year competition was hosted in Beijing by Commercial Motor World Magazine, the leading CV magazine and co-hosted by Research Institute of Highway Ministry of Transport, The China Automotive Technology and Research Center and Beijing Institute of Technology among others.

The YC6K13N series of engines are produced by Y&C Engine Company Limited, a joint venture of GYMCL. The YC6K1340N engine has the largest displacement and highest torque power among comparable natural gas engines in China.

By utilizing lean-burn technology, it reduces average energy consumption by approximately 35% compared with diesel engines of similar size and power. Subsequent to the first quarter of 2015, we entered into an agreement to form a new joint venture in Hong Kong and Germany with Shentou Investments Hong Kong Limited and another partner.

Shentou is a company specializing in the sale of Chinese products, including automobile spare parts in Europe. The JV companies will exclusively market GYMCL off-road diesel and natural gas engines and parts, excluding marine engines in Europe as well as provide services in engine-related areas.

Shentou's and GYMCL's shareholding in YC Europe will be 57.5% and 35% respectively, with other partners taking the remaining 7.5% equity interest. This joint venture is another step in our plan to become a global distributor of advanced engines and parts.

We expect growth in the commercial vehicle market in China to continue to be weak in the first half of 2015. However, we believe this trend will turn more positive in the long run. We remain optimistic over the long-term outlook for trucks, where we have added advanced engines and increased capacity.

We have an effective R&D program that produces leading engines in our markets as well as the largest service network across China. With that, let me turn the call over to Kok Ho Leong, our CFO, to provide more details on the financial results..

Thank you, Weng Ming. I would now proceed to report on our financial performance for the first quarter of 2015. Revenue for the first quarter of 2015 decreased 19.1% to RMB3.7 billion, US$599.1 million, from RMB4.6 billion in the first quarter of 2014.

Gross profit was RMB674.4 million, US$109.8 million, compared with RMB788.4 million in the first quarter of 2014. Gross margin increased to 18.3% in the first quarter of 2015 compared with 17.3% in the same quarter last year. The higher gross profit margin was mainly attributed to reduced raw material prices and the change in sales mix.

Other income was RMB1.5 million, US$0.2 million, compared with RMB29.5 million in the first quarter of 2014. This decrease was mainly due to unrealized higher foreign exchange revaluation losses as compared to gain in the first quarter last year. This contributed to a movement of RMB24.5 million.

This was mainly due to the weakening of our Sing-dollar based assets against our renminbi assets. Other operating expenses decreased by RMB23.3 million, US$3.8 million, to RMB447.8 million, US$72.9 million, and increased research and development expenses were offset by lower selling, general and administrative expenses.

Research and development, R&D, expenses increased by 8.0% to RMB113.3 million, US$18.4 million, from RMB104.9 million in the first quarter of 2014. As a percentage of revenue, R&D spending increased to 3.1% compared with 2.3% in the first quarter of 2014.

Selling, general and administrative, SG&A, expenses were RMB334.5 million, US$54.5 million, a decrease from RMB366.2 million in the first quarter of 2014. SG&A expenses represented 9.1% of revenue compared with 8.0% in the same quarter a year ago. The higher percentage in the first quarter of 2015 was mainly due to lower sales revenue.

Operating profit decreased to RMB278.1 million, US$37.1 million, from RMB346.7 million in the first quarter of 2014. The operating margin was 6.2% compared with 7.6% in the first quarter of 2014. Finance cost decreased to RMB33.6 million, US$5.5 million, from RMB37.8 million in the first quarter of 2014, a decrease of RMB4.2 million or 11.0%.

Lower finance costs mainly resulted from a reduction in the cost of borrowings. Share of joint ventures was a loss of RMB6.8 million, US$$1.1 million, compared with a loss of RMB15.2 million in the first quarter of 2014. Profit before tax was RMB187.8 million, US$30.6 million, compared with RMB294.0 million in the first quarter of 2014.

This was mainly due to lower sales volumes and higher unrealized revaluation foreign exchange losses.

In the first quarter of 2015, total net profit attributable to China Yuchai's shareholders was RMB105.4 million, US$17.2 million, or earnings per share of RMB2.76, US$0.45, compared with RMB180.0 million or earnings per shares of RMB4.83 in the same quarter in 2014. And now, we'll go to the balance sheet highlights as of March 31, 2015.

Cash and bank balances were RMB2.4 billion, US$392.4 million, compared with RMB2.5 billion at the end of 2014. Short-term and long-term interest bearing loans and borrowings were RMB2.7 billion, US$432.7 million, compared with RMB2.3 billion at the end of 2014.

We replaced certain higher-interest loans with low-interest loan during the first quarter of 2015, and interest rate declined due to monetary easing by the Chinese Central Bank.

Subsequent to the first quarter on April 14, 2015, we announced that GYMCL had issued the first tranche of RMB-denominated unsecured ultra short-term bonds, amounting to RMB400 million at the interest rate of 4.9% per annum with a maturity date of May 9, 2015.

The inventories were RMB2.3 billion, US$370.8 million, compared with RMB1.9 billion at the end of 2014. We believe our balance sheet remains strong, and we continue to diligently monitor our cash generation compared with our cash requirements. With that operator, we are ready to begin the Q&A session. Thank you..

[Operator Instructions] Our first question comes from the line of Alex Potter from Piper Jaffray..

I was wondering if we could first just start with your updated view on to the extent that you're willing to give on market level projection for heavy, medium and light duty trucks in 2015.

What do you think the growth rates are going to be for those markets?.

First quarter heavy-duty industry was down 34% year-over-year; medium-duty was down 38%, 40% year-over-year; and light-duty is down in the teens. Second quarter would still see the market continue to be weak. 2015 overall is down what we anticipated..

I was wondering, if I could also ask a couple questions regarding the new emissions standard. I was wondering first of all, what was the percentage of production in the quarter that was compliant with the new standard.

When do you expect it to be 100%? And the reason I ask these questions is Cummins had mentioned in their recent conference call, that they don't yet believe that NS4 compliance has reached 100% for engine production in China. I was just wondering if you agree with that view and when you think it will be fully NS4 compliant in the marketplace..

Alex, are you referring to the market or are you referring to our company?.

Well, I guess both would be good..

In terms of market, you're right, it's not 100%. If you look at truck factor, some of this percentage NS4 and 30% is not combined to NS4, reason being is those engines are selling to the international market, such as Southeast Asia or Africa. They don't require NS4 engine. So there is a god portion of that will remain in a mix.

And also there are some of the NS3 engine that has received the license and they are still being installed into the vehicle. So these are a portion of that. And in terms of the product in the marketplace NS3 products after four months January to April, we believe there is a quite a bit income. So these NS3 will be reduced.

And so from this point on, we'll see in domestic China market mostly our NS4 in the truck business. However, we still will have exported this, which is not going to be 100% by earnings for NS4 production. And in terms of Yuchai, we comply to the highest standard NS4 standards, so most of our products are NS4.

There are some smaller players in the marketplace that are violating the rules is still selling NS3 engine product, but it's not our case, we're selling NS4..

If you exclude the international sales, the sales to the international market towards the end of the year, we believe the overall NS4 will account for about 90% the total production. However, there are a portion of construction equipment also increment they are not going to be NS4..

My last question is regarding natural gas vehicles. Recently, the Chinese government cut natural gas pricing and I'm interested to hear what sort of impact you think that will have on demand for natural gas, trucks and buses..

So to answer your question on the price cut on natural gas, we have not seen the effect taking place yet. Reason being, the dramatic drop on the gasoline price; global oil market crisis has affected the overall relationship between natural gas pricing and the gasoline diesel price.

We believe in order to have natural gas to become attractive as a source of vehicle fuel, the proportion has to be 70% with the diesel. So natural gas price has to be 70% of the diesel price or lower than 70% fuel price..

Our next question comes from the line of Mohit Khanna from Value Investment Principals..

I wanted to know what has been the real effect on the working capital, because if you see quarter-over-quarter, the working capital has gone up and do you see any reversal taking place?.

This is a question about working capital. I think the concern is that you may see some build up in the total accounts receivable and bills. This is of the factors.

Number one is the natural increase, because you see at the end of the year the customer will settle and this will bring in the accounts receivables and bill receivables or some will pay in cash, okay. And thereafter we will slowly billed our accounts receivables and bills as the customer continues to purchase in the beginning of the year.

But this year we do affect by the general slowdown in the economy involving -- we have not changed the payment terms. We see some customer payment is prolonged a little and that is the reason why you see the build up of the accounts receivables.

So this will tie in very much to our industry as we have experience relatively weak in Q1 and Q2 remains uncertain. But we believe as the second half comes to bank as usual, we believe working capital will improve by that time..

Mohit, just to add onto that, one other reason why we have a higher CR is because we have not been discounting as many bills as we used to.

One of the reasons is because the difference in the interest rate cost and discounting and the borrowings directly from banks has suffered, has changed a little bit this year, essentially, more efficient or chipper to actually set up a bank borrowing than to discount bills, okay..

But if you see the cash has continued to come down, whereas the debt on the balance sheet has continued to slightly inch up a little.

So do you think that when more normal situation this should reverse back and company should have more cash then its debt?.

Well, honestly Mohit, if you look at those bills and trade receivables, the bulk of it is actually billed, all right. And if you want to [indiscernible] is quite usually just discount those bills.

So the reason why we have not done so is because of the cost and the cash level that we have right now as you can see RMB2.4 billion is sufficient for our operating yields of needs..

And you think second half of the year should be better than the first half in general?.

In what respect?.

In terms of working capital management cash and overall sales for the company?.

The sales we have commented just now that's we believe the first half of the year remained weak, and the cashing out will be done in a second half. Bearing debt in our situation, our cash back position will follow through..

We will have couple of questions from the webcast. One of them is relating to our readout section.

In light of the prevailing valuations of machinery companies in China and Hong Kong equity market, is the Board of Director of China, which are looking to listings GYMCL in either or this markets are also to raise new capital? Now, we have to all continuously review options, our listing options.

As it stands now, I think we still believe that New York Stock Exchange is a place for us to list. It's still the most prestigious stock markets in the world with great strict regulatory oversight. So this should provide a lot more comfort for shareholders.

There's a question relating to when will we announce the dividend of 2014? Unfortunately, we have not made any announcement and we would not make it at this juncture. If you look at the past history of the company, you probably would find some indication from there, okay.

And usually, if you look at it, once we receive dividend from GYMCL, our main operating company in China, we will follow through with the dividend to our shareholder at China Yuchai International level.

All right, another question we have from the webcast is what part of our sales will be exported in 2015 both units and revenue? Fortunately, for us, the export sales have been going quite well for us this year. So far this year our export sales have increased by about nearly 28%, all right, to various countries in Asia.

So in terms of percentage of export sales as far as the percentage of our unit sales at the moment, the export sales for the first quarter is accounting for about 10% of our total sales. I think we have a question here regarding government stimulus. Do you see any government's stimulus targeting our business? Mr.

Dixon, could you translate that?.

Can you say it again, what's the question in English?.

Do you see any government's stimulus targeting our business?.

There is a possibility for the stimulus package as the weakening economy, as well as the overall struggling business in the truck and a construction equipment sector has government officials' attention. So we see if there is a possibility, there's some kind of sales stimulus policy coming in place.

If that comes, most likely it will be towards the end of third quarter and fourth quarter in 2015. Overall, we see governments are making some policy changes such as for the real estate market, they're loosening thing up on the real estate market. They also restarted some of the infrastructure projects such as the trains and highway.

The recently announced President Xi's recently announced One Belt, One Road policy. These are all going to be a positive initiative from government side, and it can move this sector, positively move the sector. Now, switch to the other areas also we use our engine.

For instance agriculture sector and that sector actually been doing very well, and we just booked a record high in our first quarter. And then also some of the marine application, that sector by itself is also having quite decent growth. And so if there is policy come in mostly on the on road and the construction equipment sector.

But either way it's not going to come in until towards the end of third quarter and fourth quarter, and that's what we can tell you at the moment..

That's another question here is relating to the electric vehicles.

In light of Chinese government strong support for electric vehicles, can you shed light on your electric engine development for both cars and buses?.

Electric vehicle, we're remotely seeing this in the bus space in terms of competition, and they are mostly used in the public transportation. There are two type of EV buses, one is hybrid and other one is pure EV.

And we see quite a bit increase in the overall EV bus space, mainly due to government stimulus impact or subsidy policies, which create some impact to all the business. So every time there is a increase of EV bus, it's going to be decrease on the diesel powered vehicle.

So what we are doing now, at first we are proactively launching our product for the hybrid EV bus. And that's an area where we still can play a important role. On the pure EV sector we are also developing our own solutions in that area.

So overall we see this seven meter coach bus sector, this is where EV is creating through our internal combustion engine vehicles. But in the 12-meter coach bus area we're still very confident, EV is not going to come in, because of the technology is still not mature enough.

And overall, where we've seen EV is a subsidy play, and we don't believe the subsidy will go out forever. And so we are closely watching the market, developing our product, but in the meantime we believe at the time of the termination of EV subsidy, and you will see some changes swing back to the traditional fuel source engines.

The EV powered, the battery power works well in a 6-meter coach bus, but when they reach up to 10-meter size vehicles, and their advantages start to go down. So we still see and there is technology barrier out there, and it's not going to affect our large coach business.

But again, we are working on all kind of solutions to defend our market share in a smaller coach business, smaller bus business..

And I think the last question for the webcast.

The last question is what droves the increase in inventory 18% compared to December 2014?.

I think the inventory reduction has to seen the light of our unit sales. In the first quarter, our unit sales dropped by 30%. We have adjusted our production schedule accordingly, but still as a factory we have to maintain the factory to run at a certain optimum level of utilization, and that is the explanation for that..

With that, we have come to the end of our Q&A session..

We have now reached the end of our Q&A session. And I will turn the call back over to Mr. Hoh. End of Q&A.

Thank you all for participating in our conference call. We look forward to speaking with you again. Thank you..