Weng Ming Hoh - President Thomas Khong Fock Phung - CFO Dixon Chen - IR.

David Raso - Evercore ISI.

[Abrupt Start] 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 script or otherwise, in the future. Mr. Hoh Weng Ming will provide a brief overview and summary and then Dr.

Phung will review the financial results for the third quarter and nine months ended September 30, 2016. Thereafter, we will conduct a question-and-answer session. For the purpose of today’s call, the financial results for the third quarter of 2016 are unaudited and they will be presented in RMB and U.S. dollar.

All the financial information presented is reported using International Financial Reporting Standards, as issued by the International Accounting Standards Board. Mr. Hoh, please begin..

Thank you. Sales in the third quarter of 2016 continued to reflect slow economic growth in China as GDP grew 6.7%, the same rate as in the first and second quarters, which is the slowest growth rate since 2009. Industrial activity continued to decline in the third quarter of 2016 compared with a year ago.

The slowdown combined with lower sales to the bus and natural gas engine market had an impact on the off-road segment from the transition to the more stringent Tier 3 emission standard nationwide also declined our sales overall.

During the third quarter, our sales for our engine sales were 56,013 units compared with 84,170 units in the same quarter of 2015, a reduction of 21.6%. Our revenue for the third quarter declined by 4% to RMB2.9 billion or US$432.1 million from RMB3 billion in the third quarter of 2015.

Lower fuel prices and the transition to the more stringent Tier 3 emission standard negatively affected sales of our natural gas engines and to the off-road segment, especially to the agriculture and farming economic sector, respectively.

Our top line decline was less in revenue than the decline in unit sales in the third quarter due to the improved average selling price as a result of better sales mix.

According to data reported by China Association of Automobile Manufacturers, CAAM, in the third quarter of 2016 sales of commercial vehicles, excluding gasoline-powered and electric vehicles, increased by 10.5%. The truck market has seen renewed growth in the recent years, up 15.4% year-over-year during the third quarter.

However, the bus market which is one of our key sales segment remains weak.

Heavy and medium-duty bus segments experienced a 39.3% and 17.9% decline, respectively, while sales in marine and power generation engines increased, our sales to the agriculture segment declined as a result of transition to Tier 3 emission standard in off-highway applications.

For our first nine months of 2016, the total number of engines sold was 244,575 units compared with 304,424 units in the same period last year. This decrease of 19.7% compared with the industry increase of 5.6% in unit sales of commercial vehicles, excluding gas-powered and electric vehicles for the nine months of 2016, as reported by CAAM.

The market remains weak in the heavy and medium-duty bus segment, which experienced a 20.7% and 8.4% decline, respectively. In the first nine months of 2016, EV sales reached – electric vehicles sales reached 64,332, a 92.9% year-over-year increase. The record rise of EV sales has been fueled by generous subsidies selected by the Chinese government.

In September 2016, further to an investigation on subsidies fraud cases in the EV industry, the Chinese government took action against several EV manufacturers which included clawing back subsidies previously received by the [indiscernible].

Although the subsidy program was suspended during the investigation, there is likelihood that it will resume with the conclusion of the investigation. The generous incentive has put rapid increase in EV sales, especially in the municipal bus segment, which adversely impacted the sales of our diesel and natural gas engine sales in the bus segment.

While the incentive have increased sales of commercial vehicles, going forward we expect a slowdown in sales where such incentives are gradually reduced and withdrawn, and traditional power trade systems are allowed to compete again on a more level playing field.

We continue to sell our engines into the important bus market despite bus sales declining during the third quarter of 2016. From January to July 2016, we supplied over 700 engines to the bus market in Thailand. The orders were from Shanghai Shenlong Bus Co., Ltd., Sunlong Bus, for export to Thailand.

Another order was received from Sunlong Bus for the supply of a further 264 engines comprising YC6L330 and YC6G240 engines, to be installed in Sunlong Bus' 10-metre and 12-meter buses. The YC6L330 engine is a turbocharged 6-cylinder diesel engine with an 8.4 liter displacement using FEV technology which target 11 to 13.7 meter buses.

The model YC6G240 is a turbocharged 6-cylinder diesel engine with a displacement of 7.8 liters targeting 10 to 12 meter buses. In October, we also fulfilled an order for 30 plug-in hybrid engines to be delivered to Xiamen Golden Dragon Bus Co. Our YC4G180N-50 gas electric hybrid engine powers this 3.5 meter city buses.

With the extreme winter climate in each one [ph], our engine’s excellent performance was the main factor for our customer who decided to select GYMCL as their preferred supplier. This hybrid engine further demonstrate our best-in-class technology which includes both National V and VI engines which exceed the current National IV emission standard.

Also recently in western China, 40 hybrid 8.5 meter buses installed with our light-duty YC4G engines were recently delivered to the Chongqing Pengshui public transportation company.

Notwithstanding the development of new energy buses, hybrid engines are still the preferred choice in Chongqing and GYMCL's engines, recognized for their high quality and performance, is the flagship product in the Chongqing's hybrid bus market.

As a technology leader in the Chinese engine market, we can capture orders and strengthen relationship with our customer that has higher technical or emission requirements. In the truck segment, we introduced China’s first gas-electric hybrid truck at Xinjiang International New Energy Vehicle and Electric Car Exhibition in Urumqi.

Dongfeng Motor Corporation and GYMCL jointly introduced the new parallel hybrid system and gas engine powertrain. This new product generated great attention as the gas rich provinces in western China have been actively seeking more economic fuel solutions to address their growing transportation needs.

With this newly developed plug-in truck application, we demonstrated our ability to go beyond our plug-in hybrid engine for the bus market in which we are currently dominant. As a technology leader in commercial vehicles market, we continue to focus on being the first-to-market with a vast engine which meets increasingly stringent emission standards.

Our research and development expenses increased 22% to 161.4 million or $24.2 million in the third quarter of 2016. As a percentage of net revenue, R&D spending was 5.6% compared with 4.4% in the same quarter of 2015.

Our best-in-class R&D program continues to rollout new engine design and for the improvement for our broad line of diesel, natural gas and hybrid engines.

As we continue to execute our product strategy even in third quarter, we improved our gross margin to 21.9% from 19.5% in the same period in 2015 through a combination of selling higher value products, lower raw material costs and enhanced cost controls.

In the first nine months of 2016, we generated positive cash flow that sustained our strong cash position and financial strength. We are tightening our inventory levels to adjust for our unit volumes and lower our short and long-term debt level by RMB1.7 billion.

We continue to review our financing and performance policies to optimize our operations are market positioned. With that, I would now like to turn the call over to Dr. Thomas Phung, our Chief Financial Officer, who will provide more details on the financial results..

Thank you, Weng Ming. Now let me review our third quarter results. The net revenue for the third quarter of 2016 declined by 4.0% to RMB2.9 billion, US$432.1 million from RMB3.0 billion for the same quarter last year. The total number of engines sold was 66,013 units as compared with 84,170 units for the same period last year, a reduction of 21.6%.

According to the China Association of Automobile Manufacturers, CAAM, in the third quarter of 2016, sales of commercial vehicles, excluding gasoline-powered and electric vehicles, increased by 10.5% led by an increase of 15.4% in the truck segment whereas sales in the bus segment decreased by 13.1%.

China Yuchai's sales reflect these trends as our engine sales to the truck segment increased whereas the sales to the bus segment decreased compared with the same quarter last year. Sales of marine and power generation engines increased as compared with the same quarter last year.

As a result of the transition to the Tier 3 emission standard in the off-highway segment, sales to the agricultural segment declined as compared with the same quarter last year. Gross profit was RMB630.7 million, US$94.5 million, as compared with RMB586.8 million in the same quarter last year.

The gross profit increased by 2.4% to 21.9% as compared with 19.5% in the same quarter last year. The increase on gross profit margin was mainly due to lower raw material costs and better product mix. Other operating income was RMB12.4 million, US$1.9 million, compared with other operating loss of RMB24.5 million in the same quarter last year.

The improvement resulted mainly from lower foreign exchange revaluation losses. There was also a loss of RMB12.5 million in the third quarter of 2015 which resulted from the disposal of GYMCL's entire shareholding interest in Xiamen Yuchai Diesel Engines Co., Ltd., Xiamen Factory.

Research and development, R&D, expense increased by 22.0% to RMB161.4 million, US$24.2 million, from RMB132.3 million in the same quarter last year. R&D expenses increased mainly due to the ongoing research and development of new and existing engine products as well as continued initiatives to improve engine quality.

As a percentage of net revenue, R&D spending was 5.6% as compared with 4.4% in the same quarter last year. Selling, general and administrative, SG&A, expenses declined by RMB35.3 million, or 9.9% to RMB320.6 million, US$48.0 million, from RMB355.9 million in the third quarter last year.

The decrease was mainly due to lower warranty expenses and lower provision for doubtful debts. SG&A expenses represented 11.1% of net revenue as compared with 11.8% in the same period last year. Operating profit increased by 117.2% to RMB161.1 million, US$24.1 million, from RMB74.2 million in the third quarter last year.

The increase was mainly due to higher gross profit, lower SG&A costs and other operating income compared with the same quarter last year. The operating margin was 5.6% compared with 2.5% in the same quarter last year. Finance costs decreased by 40.0% to RMB18.5 million, US$2.8 million, from RMB30.9 million in the third quarter last year.

Lower finance costs mainly result from reduced bank loans and lower borrowings. External borrowings decreased to RMB763.1 million from RMB2.7 billion in the same period last year. Profit before tax was RMB142.3 million, US$21.3 million, compared with RMB37.3 million in the third quarter last year, an increase of RMB105.0 million.

Total net profit attributable to China Yuchai's shareholders was RMB76.8 million, US$11.5 million, or earnings per share of RMB1.89, US$0.28, compared with RMB0.3 million, and RMB0.01 respectively in the third quarter last year.

Earnings per share in the third quarter of 2016 was based on a weighted average of 40,712,100 shares compared with 39,142,533 shares in the third quarter of 2015. Now let me walk you through our first nine months 2016 results.

For the nine months ended September 30, 2016, Net revenue declined 8.1% to RMB9.9 billion, US$1.5 billion, from RMB10.8 billion in the same period last year. The number of engines sold was 244,575 units compared with 304,424 units in the same period last year, representing a reduction of 19.7%.

The decrease was due to a decline in sales to the bus segment, and the transition to the Tier 3 emission standards in the off-highway segment which impact our sales to the agricultural market. This decrease was mitigated by increased sales to the truck and marine and power generation markets.

According to CAAM, in the nine months ended September 30, 2016, sales of commercial vehicles, excluding gasoline-powered and electric vehicles, increased 5.6% led by an increase of 8.1% in the truck segment whereas sales in the bus segment decreased by 8.0%.

Gross profit was RMB1.9 billion, US$291.3 million, compared with RMB2.1 billion in the same period last year. The decline was mainly attributable to lower unit sales. Gross profit margin increased by 0.2% to 19.6% as compared with the same period last year.

Other operating income was RMB51.8 million, US$7.8 million, versus a loss of RMB6.5 million in the same period last year, an increase of RMB58.2 million.

This increase was mainly due to foreign exchange revaluation gains and higher interest income from bank deposits as compared with foreign exchange revaluation losses and a non-recurring loss from the disposal of Xiamen Factory in the same period last year.

Research and development, R&D, expenses increased by 4.2% to RMB400.7 million, US$60.0 million, compared with RMB384.5 million in the same period in 2015. R&D expenses increased mainly due to the ongoing research and development of new and existing engine products as well as ongoing initiatives to improve engine quality.

As a percentage of net revenue, R&D spending was 4.0% compared with 3.6% in the first nine months of 2015. Selling, general and administrative, SG&A, expense declined 5.2% to RMB1.0 billion, US$151.1 million, compared with RMB1.1 billion in the same period last year.

This was mainly due to lower spending on outward freight costs, lower staff costs, and lower provision of doubtful debts, partially offset by higher provision for warranty expenses. SG&A expenses represent 10.2% of net revenue for the first nine months of 2016 compared with 9.9% in the same period last year.

Operating profit decreased to RMB587.9 million, US$88.0 million, from RMB643.0 million in the same period last year. The decrease was mainly due to lower gross profit and higher R&D expense. The operating margin was 5.9% in the first nine months of 2016 and 2015.

Finance costs declined 27.5% to RMB68.4 million, US$10.2 million, from RMB94.3 million in the same period last year, a decrease of RMB25.9 million. Lower finance costs resulted from lower bank loans and reduced borrowings. External borrowings decreased to RMB763.1 million from RMB2.7 billion in the same period last year.

The share of joint ventures was a loss of RMB5.9 million, US$0.9 million, compared with a loss of RMB19.3 million in the same period last year. Lower losses from joint ventures were mainly due to Y&C Engine Co., Ltd's improved operational performance and the reclassification of Copthorne Hotel Qingdao Co., Ltd as assets held for sale.

Profit before tax was RMB513.6 million, US$76.9 million, compared with RMB529.5 million, a decrease of RMB15.9 million. Total net profit attributable to China Yuchai's shareholders was RMB289.7 million, US$43.4 million, or earnings per share of RMB7.28, US$1.09, compared with RMB282.1 million and RMB7.32, respectively, in the same period last year.

Earnings per share for the first nine months of 2016 was based on a weighted average of 39,783,353 shares compared with 38,514,783 shares for the same period in 2015. Now let’s review our balance sheet highlights. Cash and bank balances were RMB3.1 billion, US$462.7 million, compared with RMB3.8 billion as at December 31, 2015.

Short and long-term borrowings were RMB763.1 million, US$114.3 million, compared with RMB2.5 billion at the end of 2015. Net inventory was RMB1.6 billion, US$232.5 million, compared with RMB1.7 billion at the end of 2015.

In summary, despite headwinds in several of our important end markets, we achieved higher profitability, enhanced our product line and strengthened our balance sheet. With that operator, we are ready to begin the Q&A session..

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of David Raso from Evercore ISI. Please ask your question..

Yes. Hello, everybody..

Hi, David..

The market for next year, I know it’s hard to pin it down exactly, but a) how do you feel about inventory in the channel? And then b) when do you expect to see your units year-over-year kind of flatten out and potentially turn positive? Obviously, if some of the data out of the market broadly has improved and I know there’s some nuances around your position in the market right now.

But if you can give us a little visibility into a) where is inventory? And b) when would you expect to start to see some positive year-over-year unit growth?.

Okay. David, it’s Weng Ming. I’ll answer b first. Then let Kelvin answer the a question. Firstly, let’s look at the sales performance this year. Then I’ll move on to next year.

Firstly, for this year, why are we down? The main reason we are down is related to two areas; one is the bus market segment and the other one is the off-road, agriculture and industrial equipment. Now for the bus market we are affected by the electric vehicles and the subsidies that’s been in place for a long period of time, the general subsidies.

So we are losing quite a bit of sales in the inner-city bus segment. Now, while the incentives we believe will gradually decline, I think the demand for the unit will continue to be there.

But it will come a point where – we don’t know when, it will be a predication here that it may be removed altogether at some point when the government’s comfortable. At that point, we’ll both see a more level playing field. That we don’t know how it’s going to predict, it’s going to be some way off.

Now the other area is the off-road, agriculture and industrial equipment segment. Now one of the main reasons – this is the biggest reason why we are experiencing a big fall this year. That’s because of the transitions from T2 to T3 emission standards.

And for our engine manufacturers, we have the spot manufacturing T2 engine from October last year to the December 1 this year. Then the OEMs are allowed to use T2 still until December 1 this year. So from next year on we hope to see the agriculture segment coming back. It’s a big part of our business.

For the trucks, I think the truck segment has been quite good lately and we have benefited from that. We think it will continue into next year. One of the big drivers there is the government enforcement of overloading of the trucks that’s causing a lot of demand for the trucks demand. Our marine engine is also doing pretty well this year.

So we are beating the market share there. And with the marine we have higher – average selling price and bigger powered engines as well..

Hello, David. This is Kelvin. Back to your question a, and regarding on the infantry of the trucks. As you are aware of the truck sales and then from the beginning of this year and then cautiously and then increasingly [indiscernible] gaining the markets. So the infantry level has been reducing.

And by the end of September, the inventory in the channels around – it’s less than 100,000 units in the channel, because of the [indiscernible] try to reducing the inventory total.

However, in the October sales it has been raising significantly because of the overloading policy of which was implemented by September 21 and also the increasing of the core pricing. So the demand of the truck has been increasing.

And I believe that the [indiscernible] will increase the infantry because of the demand of the trucks in the coming months..

So there should there you’re saying an inventory build.

The confidence in next year, is that high now where they’re willing to build some inventory into year-end? Did that I hear that correctly?.

Yes. They’ll probably see this..

Okay, that’s interesting. Okay. Thank you very much for the detail..

Okay..

[Operator Instructions]. We have now reached the end of our Q&A session. I will turn the call back over to Mr. Hoh..

Okay. Thank you for participating on the conference call. We will look forward to talking to you again in the next quarter. Thank you..