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

Hi, everyone. I'm Wong Teck Kow. I will start this call on behalf of Kevin Theiss. Thank you for joining us today, and welcome to the China Yuchai Limited's Fourth Quarter 2018 Conference Call and Webcast. Joining us today are Mr. Weng Ming Hoh and Dr. Thomas Phung, President and Chief Financial Officer of CYI, respectively.

In addition, we also have in attendance Mr. Kelvin Lai, VP of Operations of CYI. Before we begin, I will remind all listeners that throughout this call we may make certain statements that contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

The words believe, expect, anticipate, project, targets, optimistic, confident that, continue to, predict, 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, including, but not limited to, statements concerning the company's operations, financial performance and conditions, are based on current expectations, beliefs and assumptions, which are subject to change at any time.

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, such as government and stock exchange regulations; competition; political, economic and social conditions around the world and in China, including those discussed in the company's Form 20-F under the headings Risk Factors, Results of Operations and Business Overview and other reports with the Securities and Exchange Commission, from time to time.

All forward-looking statements are applicable only as of the date they are made and the company specifically disclaims any obligation to maintain or update the forward-looking information whether of the nature contained in the release made during today's call or otherwise in the future. Mr. Hoh will provide a brief overview and summary, and then Dr.

Phung will review the financial results for the fourth quarter and 12 months ended December 31, 2018. Thereafter, we will conduct a question-and-answer session. For the purpose of today's call, the financial results for the fourth quarter and 12 months ended December 31, 2018, are unaudited, and they will be presented in RMBand U.S. Dollars.

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

Thank you, Wong Teck Kow. For the fourth quarter 2018, we achieved a 19.7% top line growth and reached RMB4.5 billion or $660.4 million on a 27.5% sales volume growth to 93,881 units.

We not only achieved double-digit growth in both on and off-road engine segment, but also recorded this growth in a slowing economy where China's GDP growth was 6.4% in the fourth quarter and 6.6% in 2018 full year, the slowest pace since 1990. The industrial production growth in China was 6.2% in 2018 compared with 6.6% in 2017.

According to data reported by China Association of Automobile Manufacturers, CAAM, in the fourth quarter of 2018, sales of commercial vehicles, excluding gasoline-powered and electric-powered vehicles, decreased by 6.3%; truck sales decreased by 6.0% with heavy-duty truck sales increasing by 3.6%.

GYMCL's heavy-duty and medium-duty truck engine sales in the fourth quarter 2018 increased with the latter growing by double digit in percentage terms. The bus market continued to decline in the fourth quarter 2018.

GYMCL's off-road engine sales rose by double digit in percentage in the fourth quarter of 2018, led by higher sales in the agricultural equipment market. During the 2018 year, 800 buses manufactured by Anhui Ankai Automobile Company Limited were exported to Saudi Arabia and powered by -- exclusively by Yuchai's engines.

Our heavy-duty YC6MK model was installed in 600 bus units with the smaller heavy-duty YC6L model powering the remaining 200 buses. The resource rich Middle East and Saudi Arabia in particular, continue to be important growth markets for our engine.

Our research and development, R&D, expenses decreased by 53.4% to RMB107.7 million or $15.7 million from RMB231 million in the same quarter in 2017. We capitalized the development costs of new engines that met IFRS capitalization criteria.

In fourth quarter 2018, our total R&D expenses, including capitalization, were RMB222.9 million or $32.5 million and represented 4.9% of revenue. In 2018, we won the National Technological Invention award and a National Science and Technology Progress award, second prize for the National Office of Science and Technology.

This award and recognition continue to serve as testimonials of our R&D program and develop leading domestic engine technology. 2020 is a totally a year of -- for companies with advanced technologies to look forward to.

The more stringent National VIA standard for on-road vehicles is expected to be implemented in mid-2020 followed by National VIb in mid-2023. Tier 4 emission standard for off-road vehicles is also expected to be implemented within the next two years.

Tier 4 and National VI emissions standards are particularly designed to make drastic reductions in oxides of nitrogen, or NOx, and particulate matter, PM, emissions compared with earlier emission standards. National VI is a significant advance over National V with regards to NOx limits.

By adapting the National VI vehicle emission standard, China can achieve a significant reduction in the vehicle emission of pollutants like fine particulate matters of PM2.5 reducing the risk of ischemic heart disease, lung cancer, stroke and asthma.

These changes with National VI standard are leading to full advances to the full suite of vehicle engine and aftertreatment design. Engine manufactures are installing new aftertreatment technologies to limit NOx emissions.

In addition, EGR, DOC, or Diesel Oxidation Catalyst, DPF, or Diesel Particulate Filter, and SCR, or Selective Catalytic Reduction, are often used along with ECU or engine control units. Engine development is a capital-intensive business.

As one of the largest independent engine producers in China, we have invested heavily in the related technologies in the past. The new market opportunities associated with National VI and Tier 4 standards will validate our investments and long-term commitment to emission reduction.

While awaiting the new emission and regulations to be implemented, we proactively showcased that our new products are ready for change -- for the change. In January 2018, we introduced 14 new on-road engines that comply with more stringent National VI emission standards.

The city of Shenzhen, a Tier 1 city in Southern China with a population of 13 million, there are growing number of new school buses powered by our National VI complaint YCS04 engines. In October, we introduced another 10 off-road engines that comply with the Tier 4 emission standards.

To turn this new design into reliable product, require new emission technologies, more advanced components and new production lines. Our comprehensive portfolio of new engine growth provide us with a catalyst for future growth in a number of downstream markets in China.

Our model YC6K -- sorry, YCK08 engine became the first domestic engine -- diesel engine to be certified for the National VIb emission standard, consider the more stringent and advanced emission certification in China. The K08 model literally outperformed at the upcoming National VI emission standards.

This model and 24 new engines are consistent with our strategy of introducing advanced engines comply with the next generation of emission standards ready for national implementation. With this engine, we can better serve for our customers and communities, and we gain valuable experience to further enhance these engines in the future.

Furthermore, our JV Eberspaecher Yuchai Exhaust Technology Co. Ltd. is progressing in its development to produce and sell exhaust emission control systems for Chinese commercial vehicles, especially to meet China's National VI standard. We remain optimistic that this new emission controls will benefit both ours and Eberspaecher customers in the future.

Our balance sheet remains strong at the end of 2018. Cash and bank balances were RMB6.1 billion or $893 million compared with RMB6 billion at the end of 2017. We declared for fiscal year 2017 dividend of $2.21 per share and paid fully in cash during 2018.

2018 was a turbulent year, and I'm pleased we grew sales, remain profitable with positive cash -- operating cash flow, maintained a strong balance sheet and paid a significant cash dividend in 2018.

We established a diversified strategy to address and meet off-road buses with heavy, medium and light-duty diesel and natural gas engines, so that we can take advantage of growth opportunities in the market segments where they exist.

In January 2019, we signed a strategic partnership with one of the major heavy-duty truck producers in China, Shaanxi Holdings, and we hope this can open up access to a significant market for us.

We look forward to the growth performance of our comprehensive portfolio of new engines that are compliant with the upcoming National VI and Tier 4 emission standards. With that, I will 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. The comparative figures for the fourth quarter and 12 months ended December 31, 2017 were restated due to the adoption of IFRS 15 from January 1, 2018, for revenue from contracts with customer by a full retrospective application.

The financial impact on the adoption of IFRS 15 is described and attached at the end of the press release. Now let me review our fourth quarter results for 2018. Net revenue increased by 19.7% to RMB4.5 billion, $660.4 million compared with RMB3.8 billion in the fourth quarter of 2017.

Gross profit decreased by 18.0% to RMB0.9 billion, $125.6 million compared with RMB1.1 billion in the fourth quarter of 2017. Gross margin was 19.0% in the fourth quarter of 2018 compared with 27.7% in the fourth quarter of 2017. The decrease in the gross margin was mainly attributable to the market conditions and product mix.

The market conditions resulted in a drop in the average selling price compared with the fourth quarter of 2017. The product mix effect was from a higher sales volume of lower -- smaller capacity engine, a lower average selling price and a lower gross profit from off-road engine sales as compared with the fourth quarter of 2017.

Other operating income was RMB64.4 million, $9.4 million compared with RMB370.6 million in the fourth quarter of 2017. The decrease was mainly due to a onetime gain in the fourth quarter of 2017 of RMB324.1 million on the sales of HL Global Enterprises Limited, HLGE, hotel assets.

Research and development, R&D, expenses decreased by 53.4% to RMB107.7 million, $15.7 million from RMB231.0 million in the fourth quarter of 2017. Lower R&D expenses was mainly due to the capitalization of development costs for National VI and Tier 4 engine that met the IFRS capitalization criteria.

In the fourth quarter of 2018, the R&D capitalization amount was RMB115.2 million, $16.8 million. The ongoing investment in R&D continued to be focused on new engine to meet the next-generation National VI and Tier 4 emission standard and initiative to improve engine quality and performance.

As a percentage of net revenue, R&D expenses was 2.4% compared with 6.1% in the fourth quarter of 2017. In fourth quarter of 2018, the total R&D expenditure, including capitalization costs, was RMB222.9 million, $32.5 million, and it's represent 9 point -- sorry, it represents a 4.9% of net revenue.

Selling, general and administrative, SG&A, expenses decreased by 11.4% to RMB485.8 million, $70.8 million from RMB548.5 million in the fourth quarter of 2017. SG&A expenses represent 10.7% of the net revenue compared with 14.5% in the fourth quarter of 2017.

The lower SG&A expenses was mainly attributable to lower warranty expenses in the fourth quarter of 2018 and the extraordinary event including an impairment charge of RMB40 million related to the intellectual property right and a staff severance cost of RMB31.5 million in 2017.

Exclude this extraordinary event, the SG&A expenses would have been RMB477.0 million in the fourth quarter of 2017. Operating profit declined by 48.2% to RMB332.6 million, $48.5 million, from RMB641.7 million in the fourth quarter of 2017.

The decrease reflects a gain of RMB252.6 million from onetime and extraordinary event in the fourth quarter of 2017. The operating margin was 7.3% compared with 16.9% in the fourth quarter of 2017. Excluding the one-time and extraordinary event, the operating profit would have been RMB389.1 million in the fourth quarter of 2017.

Finance cost increased to RMB31.1 million, $4.5 million from RMB24.5 million in the fourth quarter of 2017, mainly due to increased bank borrowing. In the fourth quarter of 2018, total net profit attributable to China Yuchai's shareholders decreased by 45.0% to RMB191.8 million, $27.9 million from RMB348.6 million in the fourth quarter of 2017.

Basic and diluted earnings per share were RMB4.69, $0.68, compared with basic earnings per share of RMB8.54 and diluted earnings per share of RMB8.52 in the fourth quarter of 2017. In the fourth quarter of 2017, the net profit attributable to China Yuchai's shareholder includes a net gain of RMB111.6 million from onetime and extraordinary event.

Adjusted total net profit attributable to China Yuchai's shareholders in the fourth quarter of 2017, excluding the onetime and extraordinary event was RMB237.0 million. Adjusted basic and diluted earnings per share were RMB5.81 and RMB5.79, respectively, in the fourth quarter of 2017.

A reconciliation table reflecting the impact of the onetime and extraordinary event on the fourth quarter of 2017 results is attached at the end of the press release.

Basic and diluted earnings per share in the fourth quarter of 2018 was based on a weighted average of 40,858,290 shares compared with 40,832,405 shares basic and 40,889,954 diluted shares in the fourth quarter of 2017. In July 2017, 99,970 new shares were issued to shareholders who elected to receive share in lieu of a dividend in cash.

Now I will review the annual results for 2018. Net revenue of RMB16.3 billion, $2.4 billion compared with RMB16.2 billion in 2017. According to CAAM, sales of commercial vehicles, excluding gasoline-powered and electric-powered vehicles, decreased by 1.7% in 2018. The truck market decreased by 1.3% with a 2.7% increase in heavy-duty truck sales.

GYMCL truck sales increased by a gain in medium-duty engine sales. The bus market remained weak and experienced a decline in overall sales. GYMCL off-road engine sales increased in 2018 compared with 2017. Gross profit declined by 9 point -- sorry, gross profit declined by 7.9% to RMB3.1 billion, $450.5 million compared with RMB3.4 billion in 2017.

The gross profit margin was 19.0% in 2018 compared with 20.7% in 2017. The 2018 gross profit and margin declined primarily due to change in the market conditions and product mix. Other operating income was RMB192.7 million, $28.1 million compared with RMB509.4 million in 2017.

In 2017, the company had a onetime gain of RMB324.1 million from the sales of HLGE hotel assets. Excluding this onetime event, the other operating income in 2018 was higher than that in 2017, which was mainly attributed to higher interest income partly offset by lower foreign exchange revaluation gain.

R&D expenses declined by 26.4% to RMB447.7 million, $65.2 million compared with RMB608.2 million in 2017. Lower R&D expenses was mainly due to the capitalization of the development costs for National VI and Tier 4 engine that met the IFRS capitalization criteria. The R&D capitalization amount was RMB195.9 million, $28.5 million.

As a percentage of net revenue, R&D expenses were 2.8% compared with 3.8% in 2017. In 2018, total R&D expenditure, including capitalization costs, was RMB643.5 million, $93.8 million and represent 4.0% as a percentage of net revenue.

R&D expenses were mainly for research and development of new engine compliant with the more stringent National VI and Tier 4 emission standards that are to be implemented over the next few years. SG&A expenses declined by 5.9% to RMB1.6 billion, $226.5 million from RMB1.7 billion in 2017.

These expenses represent 9.6% of net revenue compared with 10.2% in 2017. SG&A expenses include an impairment charge of RMB40.0 million related to the intellectual property of 4Y20 engine platform and the staff severance cost of RMB107.7 million in 2017, which are extraordinary events.

Excluding these extraordinary event, the 2017 SG&A expenses were RMB1.5 billion. Operating profit decreased by 20.1% to RMB1.3 billion, $186.9 million from RMB1.6 billion in 2017. The operating margin was 7.9% in 2018 compared with 9.9% in 2017. In addition, 2017 benefited by a gain of RMB176.4 million from onetime and extraordinary event.

Excluding these onetime and extraordinary event, operating profit in 2017 would be RMB1.4 billion. Finance costs increased by 12.6% to RMB113.1 million, $16.5 million from RMB100.4 million in 2017 mainly due to increased borrowing costs.

The net profit attributed to China Yuchai's shareholders decreased by 21.8% to RMB695.3 million, $101.3 million or earnings per share of RMB17.02, $2.48 compared with RMB888.8 million or earnings per share of RMB21.80 in 2017.

Net profit attributable to China Yuchai's shareholders in 2017 include a net gain of RMB62.1 million from the onetime and extraordinary event.

Adjusted total net profit attributable to China Yuchai's shareholders in 2017, excluding the onetime and extraordinary event was RMB826.7 million and the adjusted basic and diluted earnings per share were RMB20.28.

Basic undiluted earnings per share in 2018 was based on a weighted average of 40,858,290 shares and in 2017 was based on weighted average of 40,764,569 shares. Now we will go over our balance sheet highlights as of December 31, 2018. Cash and bank balance were RMB6.1 billion, $893.0 million compared with RMB6.0 billion at the end of 2017.

Trade and bills receivable were RMB7.4 billion, $1.1 billion compared with RMB7.0 billion at the end of 2017. Inventory were RMB2.5 billion, $366.9 million compared with RMB2.6 billion at the end of 2017. Trade and bills payable were RMB4.6 billion, $664.5 million compared with RMB5.2 billion at the end of 2017.

Short and long-term borrowings were RMB2.0 billion, $293.8 million compared with RMB1.6 billion at the end of 2017. We continue to generate annual positive cash flow. We review our financial options and operating policies and enhance our operational and financial performance to create value. With that, operator, we are ready to begin the Q&A session..

[Operator Instructions]. And we have our first question from the line of William Gregozeski from Greenridge Global..

I wanted to know what your outlook for the commercial market was in 2019? And given that you outperformed in each segment on this current reporting period, if you think you can repeat that in 2019 and then what the gross margins will be for this year?.

Okay. Thank you. Thank you, William. It's Weng Ming here. If you go by segment-by-segment I think I will give you more color. Now before that let's look at the regulations in the next 12 to 18 months.

In the next 12 to 18 months, there is going to be the National VIA implementation in China with the official implementation dated in the middle of next year. But some cities are bringing forward the implementation date to the end of this year, all right.

So now -- and also, if you look at the last two years for -- just let's talk about heavy-duty trucks, for that matter, it's been at a very high level of over 1.1 million units. So this is pretty high. I think there are a quite few engine manufacturers who are actually thinking that the -- you will drop somewhat in the year 2019.

However, because of the implementation of the National VI in the later part of this year and early next year, the decline will probably be mitigated somewhat by the prebuy of the National VI engines. In the case of bus engines, I think it's going to be flat. The incentives for EVs is coming off.

So we doesn't -- we think that bus market has come -- reached a mature point and the diesel engine bus is going to be flat for next year. For off-road engines, I know the market is weak, but we have been able to grow quite significantly, especially in the last quarter for our agriculture machinery engine.

We will be getting the market share there, so we think that will continue for us. Now in terms of gross margin, if you look at our gross margin for the full year, and if you look at it on a quarter-by-quarter basis, it averages about 19%. So the full year gross margin is about 19%. It's a little bit lower than last year of 21.7% for whole year.

So going forward, I think, this will be a good number to use.

Hope that answer your questions?.

We have the next question from David Raso from Evercore ISI..

Question about the new National VI engine.

What will be the impact on the average price point?.

I believe the -- because of emission requirements for National VI are so much more stringent than National V, the components that's needed to make it happen. We believe the price point will be higher than National -- what National V would be..

Can you help us with a little bit of quantification just trying to understand the desire to prebuy is probably predicated a little bit on how much more expense that the National VI are? And I'm just trying to understand to try to think through the impact.

Is it -- I know it's a big jump, but I mean is it -- let's talk to total truck and maybe not your engine, when you think of the truck price, is it 5%, 10%?.

Okay. If you look at the engine price, I mean, if you look at the truck side, engines are a big component of a truck.

If you look I think -- I guess, it appears the thing is that, at this point, we haven't actually finalized any pricing yet with our OEMs, but we expect it to go up by at least 5% to -- no, I think would be more than 5%, at least 10% to 15% in terms of pricing..

And with that kind of increase, and I appreciate your thoughts, there'll be some prebuy, have some of your truck customers already indicated strengthening of their build schedules later in the year related to the prebuy? Or is it still a little bit more speculative that there will be a prebuy? I'm just curious to see, it's a logical thought, I'm just not sure if -- are we yet hearing from the manufacturers their planning for it..

Right. Yes, David, in our case, we will have visibilty for up to a month, right? We get a month's order for delivery. So it's a lot of -- it's a bit of an assumption on our part here that there must be some prebuy partly largely because we expect the cost of the new vehicle to be higher.

In fact, based on what I just said earlier, it will make a difference in the pricing to buy earlier..

We have the next question from the line of Ke Chen from Shah Capital Management..

My first question is regarding your market share. Obviously, you have outperformed the market in the fourth quarter significantly.

And could you talk about your market share, especially in the marine and power generation? What's your market share today? And what's your projectary as we already know that maybe bus and agriculture is already #1 in the market?.

Mr. Chen, this is Kelvin. I mean, the -- talking about our market share in the Q4 for marine and power generation, we actually -- we had recorded a small growth in the power generation. But on the marine side, there is a little bit of drop.

And so -- but along the whole year, we are very -- little bit much better than the industry in overall sales we have been made.

However, the -- even then we had a slight drop in the marine segment, but we had a more share on the high horsepower engine which -- and there is a benefit to overall sales revenue and also on the profit level of the marine segment. So that is really an advantage of the whole operation..

Okay. My second question is regarding your new strategic alliance with OEMs.

Weng Ming mentioned Shaanxi because the new National VI engines, I'm wondering, do you see maybe 10% or higher sales uplift from your new partners like FAW and other OEMs in 2019 because of all these new engines? And also because of it's a capital-intensive new product, do you see your market share increase because of smaller engine competitors going out of business?.

Okay. It's Weng Ming here, Mr. Chen. Now obviously with this -- now these new OEMs that we signed up as strategic partners, we will see a increasing number of engines will be sold to them. Now whether or not that reaches 10%, I think it's a bit too early to say.

Personally, I don't think it will hit 10% within the first year of cooperation if that is there. It will gradually build up. And also because the actual National VI full implementation is not this year, it's going to next year, middle next year, there will be some major cities that will implement this year, so we will see some improvement, I believe.

But I don't think we will see the full impact until the National VI is fully implemented..

Well, we did hear a lot of cities actually implemented July 1 of this year, so that's different from what you mentioned in the prepared remarks. So I just want to make sure that....

Well, I mean, in the last year, they have mentioned it, but I think lately, if you look at this year's announcement, some of the cities are actually pushing back the implementation dates..

[Operator Instructions]. We have the next question from Andrew Norris from Lazard Asset Management..

I have a just kind of clarification on the gross margins, and I think you kind of highlighted in respect to why Q4 this year gross margins were less than what they were last year due to the mix effect.

But my question here is that the magnitude of that difference is so great, yet if I take your volume of engines sold and divide the sales into the volume, you basically don't get that much of a significant decrease in the overall ASP.

So can just kind of highlight exactly what's going on, on a year-over-year basis? Because if I look also on Q4 '16, you also kind of generated 27% gross margin similar to what it was last year in Q4, but this year is basically almost 800 basis points less or 900 basis points actually. So I think there is something more to it.

So I just want to understand what's driving that real big difference because I do see also the cost of goods sold is significantly higher than it was last year? Any detail on that will be great..

Andrew, this is Thomas. As we explained, the market condition that resulted the change -- the drop in the average selling price, as you would have analyzed the financial statement, you will see that approximately 7% drop on the average selling price from -- as compared with the Q4 of 2017 so that would have contributed.

But if you look at a year-to-date, you will see that the year-to-date is pretty much flat quarter-by-quarter is we stay at a range above 19%. So I would say that, overall the full year, the percentage are very constant..

Yes. But if you look at the cost of goods sold, you will have $535 million of cost of goods sold in Q4 '18 this year versus $400 million last year, so that's a $135 million. So if you're thinking that your mix is weaker or a different mix with small engines, I would think that the cost of those engines will be less than what it was.

So I'm just trying to kind of understand better, what's going on in these Q4s?.

Yes. Andrew, it's Weng Ming here. Now I think mix is one big major factor that caused the fourth quarter to drop this year. But if you look at our gross margin, quarter-by-quarter, from 1 to 4, the gross margin is a little bit higher than the same period last year, especially in the first quarter, all right.

So now the other thing is -- that we need to highlight here is that, I think, come, at the end of the fourth quarter, we issue -- we'll make provisions for our sales rebates for performance of sales -- volume rebates, payments certain conditions that we have to meet. So we have made the necessary adjustments in the fourth quarter.

So this year, I think, there are a lot of customers who have met our -- the sales conditions. So there's a bit of increase in the sales rebates as well back to customer for volume for -- to achieve kind of volume and whatnot, right, so that also has a impact. And the other impact of our cost is the mix.

We are selling a lot more -- less four cylinder engines in the fourth quarter this year or even throughout this year compared to the same period last year..

Right.

So those -- these provisions that you basically -- so it's a rebate back from the customer if they didn't meet certain volume?.

Yes. There are few conditions that is required to meet. One is, of course, the volume, right? In order to achieve certain sales volume, we have a step-up to have rebate systems to them. And the other one, of course, is the payments. We expect them to make regular payment or prompt payment.

If you look at our receivables, you see that our collection's actually very good if you take the yields. Our total payout days is less than that a month, about 2 weeks or less. So that drives it.

So there are various conditions, I won't go into a lot of details that go through the initial customers to determine whether or not they meet the requirements and are titled to the rebates as agreed. And I'm not allowed to talk a lot about negotiations..

So just to kind of -- if I understand this correctly, so in Q4 '17 you basically had these payments back or whatever provisions that were kind of written off or written back that reduced the cost of goods sold?.

More towards the pricing, which was further expected due to cost of goods sold..

We have the next question from the line of Ke Chen from Shah Capital Management..

Weng Ming, you mentioned about Eberspaecher joint venture.

Could you guys talk about more about other joint ventures like MTU, Zoomlion and CIMC? And how this joint venture will impact our future bottom line?.

Mr. Chen, this is Kelvin, again. I'd like to answer about -- regarding on the -- some of the joint ventures under GYMCL. Regarding on the MTU-Yuchai, I mean, the Baotou, China has already been expanded and now they can ready for full-scale production.

But in the year 2018, production is only around 100-plus unit, but in the year 2019 they will really introduce and then the production volume [indiscernible] for 400 units. So this is another picture on the MTU-Yuchai joint venture.

Regarding on the Eberspaecher Yuchai, that JV for the aftertreatment facility manufacturing has already been -- the company has already been set up and the renovation work for the factories are now being processed. So we are planning an [indiscernible] joint venture in operation by Q3 of this year.

And so that will be the main supplier for the Yuchai engine for the next 6 engine and also too many in future.

Regarding on the YC engine, our 6K engine joint venture with the CIMC, so that one and then -- also we will expect there will be slight growth on the engine production in the year 2019 mainly because we have new market on the off-road for the 6K engine, so that's the -- some of the update for you..

Okay. Well, my second question is regarding your patents.

As a leaders in National VI engines, could you talk about how many issue patents for your products? More importantly, how you capitalize these patents like, for example, for future domestic and international licensing revenues?.

This is Kelvin, again. We have a number of patents for the National VI and also Tier 4 engine. I'm not going to declare the numbers of patent here. But most of those patents will remain the propriety of the Yuchai instead of the licensing or transfer.

And then at the moment, we don't have any pending licensing of these patents to other manufacturers or to rather any third party..

Thank you. We have now reached the end of the Q&A session. I will return it now back over to Mr. Hoh..

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

Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may all disconnect. Thank you..