Ladies and gentlemen, thank you for standing by and welcome to China Yuchai International Limited Second Half and Annual 2020 Financial Results. I would now like to turn the conference over to Kevin Theiss. Please go ahead, sir..

Thank you for joining us today and welcome to China Yuchai International Limited’s 2020 second half and fiscal year 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 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, confident that, continue to, predict, intend, aim, will or similar expressions are intended to identify forward-looking statements..

Thank you, Kevin. 2020 year started out with despair, but ended with strong momentum for China, which was the first country hard hit by COVID-19 pandemic. This widespread infection caused major disruptions in the Chinese economy, including the large and important automotive industries in China.

Customers, suppliers, workers, service networks and other auto related occupations were all impacted in the first half of 2020..

Thank you, Weng Ming. Now let me review our second half result for 2020. Revenue for the second half of 2020 increased by 18.1% to RMB10.6 billion, US$1.6 billion compared to RMB9.0 billion in the second half of 2019.

The total number of engines sold by GYMCL during the second half of 2020 was 217,138 unit, an increase of 31.8% compared with 146,789 units in the second half of 2019.

The increase was mainly due to higher engine unit sales in the truck markets where total unit sales to the heavy and medium duty trucks market segment more than offset the overall unit sales declined in the bus engine segment.

The off-road market also achieved significant sales -- unit sales growth in the second half of 2020 compared with the second half of 2019.

According to data reported by the China Association of Automobile Manufacturers, CAAM, in the second half of 2020, commercial vehicle unit sales, excluding sales of gasoline-powered and electric-powered vehicles, increased by 35.4% compared with second half of 2019, as unit sales of bus declined by 4.6%, while truck unit sales rose by 43.4%.

GYMCL's engine unit sales to the on-road commercial vehicle market increased by 23.5% with truck unit sales rising by 43.4%, matching the truck market growth. GYMCL's engine unit sales to the off-road markets increased by 51.0% compared with second half of 2019.

The Company's higher off-road engine unit sales were led by a strong growth in the agriculture segment in the second half of 2020 compared with the second half of 2019. Gross profit increased by 4.9% to RMB1.7 billion, US$262.3 million compared with RMB1.6 billion in the second half of 2019.

Gross margin was 16.1% compared with 18.1% in the second half of 2019 mainly due to changes in the sales mix and higher material costs..

Thank you. Please note that due to the COVID-19, the officers of China Yuchai are locally calling into the conference call. This may result in a slight delay in providing answers to some questions. We apologize for any inconvenience and thank you for your patience. With that, operator, we are ready to begin the Q&A..

We have the first question from the line of William Gregozeski from Greenridge Global. Please go ahead..

Hi, guys..

Hey, hi, William..

Could you talk about what your expectations are for the current year in terms of volumes, the unit volume sales and also the mix of that?.

While we don't provide forecasts or guidance, William, but what we are seeing in the first 2 months of this year seems quite positive. The order numbers seems -- it's much better than what we had in the last year or two. So we believe the first quarter, which will be super good for us.

One of the reasons for that is probably because of the implementation nationwide for the National VI A emission standard. So that will be implemented 1st July 2021. So that could have resulted in some pre-buy effects that is causing some the higher order numbers we're seeing now in the -- in January, February..

Okay. In terms of product mix, I mean, do you think that it's going to be somewhat similar to last year, or I guess I'm trying to get towards the gross margin, it was down quite a bit in 2020. And if there's things we can do to get that up this year..

Right. I think this last year -- in year 2020, we saw some pretty good growth in our agricultural segment. That sale has slightly lower margin, right, compared to the truck segment. So we will still expect the agricultural segment to grow next year in the. Now with the truck is already very high.

I mean, for especially for the heavy, medium duty truck in 2020. We don't see too much more growth in there. We some decline for the whole year..

Okay, okay.

So we should probably expect lower gross margins for 2021 compared to 2020?.

More or less what we have is basically I think we should go forward to 2021. Actually more National VI, we expect that to margin..

Okay..

I don't see too much of deterioration there any further..

Okay. Can you talk about the R&D, obviously, you're spending a lot more now than you have in the past.

Can you talk about where all that money is going towards?.

Well, it's -- in fact for the new, this National VI actually gone and develop a whole new platform. So that has taken up a fair bit of R&D money, especially in the last 3 years. is actually took place in 2021, potentially 2020. Now with the National VI now implemented the product already, so we didn't expect it to grow further.

In fact, they to be less compared to the previous 2020..

Okay, all right. Great.

And then last question is what was the loss from the JVs from?.

Okay. That's from our unit up north. The two things are there. One is the -- in fact for the cost of precious metals like platinum, rhodium and palladium, has been shot through the roof right in the last couple of years too. So that that's one of the costs of materials that has impacted that unit.

And also one of the in new products that we had there, we ran into some problems. So there were some replication costs there that that should be behind us for 2021..

Okay, all right. All right. Great. Thank you. Thank you, Weng Ming..

Okay..

Thank you. We have the next question from line of Don Espey from Shah Capital. Please go ahead..

Good morning..

Hi, Don..

Approximately what -- hello.

Approximately what percent of the RMB1.2 billion R&D spend was spent on new energy vehicles, including transmission and green hydrogen initiatives?.

is actually spent on the National VI and development in the last 3 years. So the reason why the above is on this is because the National VI standard will be implemented nationwide by July 1st, right? This was 6A, 6BOB 2 years later. And Tier 4 is scheduled to be implemented in 2020 -- sorry 2022. Now -- so the power of has gone in there.

So we will have -- certain amount is spend on the new energy side of things. But it will not be as high as the other two. I would say it's less than 20% -- perhaps somewhat there..

20%?.

Yes, or less. Yes..

Yes..

Okay. Thank you. That's all from us..

Thank you. We have now reached the end of our Q&A session, and I will turn the call back over to Mr. Hoh..

Thank you all for participating in our conference call. We wish each of you good health and please be safe during this crisis. We look forward to see you again. Good bye..

Thank you. Ladies and gentlemen, that concludes the conference for today. Thank you for participating. You may all disconnect now. Thank you..