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China Yuchai International Limited (CYD)
Q3 2012 Earnings Call
November 12, 2012 8:00 AM ET
Kevin Theiss – IR
Benny Goh – President
Kok Ho Leong – CFO
Alexander Potter – Piper Jaffray
Gerwin Ho – Citi
Ravi Gill – Goldman Sachs
Jonathan Brodsky – Advisory Group
Ben Ling – Bank of America Merrill Lynch
Jeff Geygan – Milwaukee Private Wealth Management
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Thank you. I would now like to turn the call over to Mr. Kevin Theiss. Please go ahead, sir.
Thank you for joining us today and welcome to China Yuchai International Limited’s third quarter 2012 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. Benny H. Goh, President; and Mr. Kok Ho Leong, Chief Financial Officer.
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 conference call or otherwise in the future.
Mr. Goh will provide a brief overview and summary and then Mr. Leong will review the financial results for the third quarter and nine months ended September 30, 2012. Thereafter, we will conduct a question-and-answer session. And for the purposes of today’s call, the financial results are unaudited and they will be presented in RMB and U.S. dollars.
Mr. Goh, please start your opening remarks.
Thank you, Kevin. The China Association of Automotive Manufacturers, CAAM, overall recently reported that sales of diesel-powered commercial vehicles declined 8.0% in the third quarter of 2012 and sales of heavy duty diesel-powered trucks and trailers declined by 28.7% quarter-over-quarter. In the first nine months of 2012, overall sales of diesel-powered commercial vehicles declined by 12.1% and by 31.0% on diesel-powered trucks and trailers respectively as compared with the last – the same period last year.
In this weak commercial vehicle market environment, unit bus sales continued to be resilient as total unit sales rose by 0.8% in the third quarter of 2012 versus the same quarter of 2011. For unit sales in the first nine months of 2012, total bus sales rose by 3.8% as compared with the same period last year.
During the third quarter of 2012, our overall engine sales declined by 8.5% compared with the third quarter of 2011, as sales of commercial vehicles decreased in China. Our net revenue was RMB 3.08 billion, US$485.2 million, compared with RMB 3.45 billion in the third quarter of 2011. Gross margin increased slightly to 20.2% in the third quarter of 2012 as compared with 20.0% in the same quarter of 2011, driven with a slightly higher proportion of light-duty engine sales.
Our operating profit increased 28.9% to RMB 215.2 million, US$33.9 million from the third quarter of 2011. For the nine months ended September 30, 2012, based on our unit sales, we remained market leader in diesel engine industry in China, with the products range of diesel engines and the growing technology base to build more advanced engines to capture market share.
Our cost controls continue to enhance our operational effectiveness. In addition to our lower cost of goods sold, SG&A expenses declined 40.8% in the third quarter of 2012 to RMB 353.1 million, US$55.7 million from the third quarter of 2011.
Phase 1 of our foundry expansion has reaped good returns on our investment on cost savings. The savings for engine cuttings are personally RMB 100 million per annum. As our Phase 2 of the foundry expansion, the trail production is expected by the end of 2012 and we will progress the full scale production in March and April 2013. With the completion of Phase 2 expansion, the total capacity will reach 1 million engine hits and blocks. With this expansion, we will have the largest foundry and engine casting facility in China.
Research and development, R&D expenses rose 12.5% to RMB93.9 million, US$14.8 million compared with RMB83.5 million in the third quarter of 2011 due to increased R&D stock costs for new products including engine emission improvement, lower emission natural gas engines, hybrid products and high horse power products as well as continued quality improvement initiatives. As a result of net revenue, R&D spending rose to 3.1% compared to 2.4% in the third quarter of 2011.