China Yuchai International Ltd (CYD) 2024 Q4 法說會逐字稿

Good day and thank you for standing by.

Welcome to China Yuchai International Limited second half and full year 2024 financial results conference call and webcast.

(Operator Instructions)

Please be advised that today's conference is being recorded.

I'd like now 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 conference call and webcast for the second half and fiscal year of 2024 ended on December 31, 2024.

Joining us today are Mr. Weng Ming Hoh and Mr. Choon Sen Loo; President and Chief Financial Officer of CYI respectively.

In addition, we also have in attendance, Mr. LAI Tak Chuen Kelvin; general manager of operations of CYI and Chairman of MTU Yuchai Power Company Limited, MTU Power Company.

Before we begin, I will remind all listeners that throughout this call, we may make statements that may contain forward-looking statements within the private Securities Litigation Reform Act of 1995.

The words believe, expect, anticipate, project, target, 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 include but are not limited to statements concerning the company's operations and financial performance and condition and 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 risk 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 Form 20F under the headings risk factors.

Results of operations and business overview.

And in other reports filed 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 press release, made during today's call or otherwise in the future.

Mr. Hoh will provide a brief overview and summary.

Then Mr. Loo will provide the financial results for the second half and full year ended December 31, 2024.

Thereafter, we will conduct a question and answer session.

For purposes of today's call, the 2024 results are unaudited and the 2023 financial numbers are audited.

And it would be presented in RMB and US dollars.

All financial information presented is reported using the International Financial Reporting Standards as issued by the International Accounting Standards Board.

Mr. Hoh, please begin your prepared remarks.

Thank you, Kevin.

We are pleased to report that our unit sales outperform the Chinese truck and bus vehicle markets in the second half and for the full year 2024.

According to data from China Association of Automobile Manufacturers, CAAM, compared with a 9.9% year on year decline in trucks and bus vehicle sales in second half '24, our truck and bus engine sales are up by 1.6% year on year.

For the full year 2024, our truck and bus engine sales rose by 17.2% year on year, compared with a 2.6% year or year decline in truck and bus vehicle sales.

Our off sales rose by 12.6% year over year in the second half of 2024 and by 9.1% year over year for 2024 for full year.

Agriculture engine sales was flat in 2024, while industrial engine sales are up by 11% year over year, marine and gent engine sales increased by 25.5% year over year.

Revenue in [two half], 2024 was flat compared with the same period last year.

Revenue in 2024 rose by 6.6% year over year RMB 19.1 billion [or] USD 2.7 billion.

Gross profit increased faster than revenue rising by 14.3% year on year in second half 2024 and 10.8% year over year in full year 2024 to RMB 2.8 billion or USD 392.1 million compared with RMB 2.5 billion in FY 2023.Gross margin increased to 14.7% compared with 14.1% in FY 2023.

The increase in drug funding was mainly attributable to higher revenue and continuing cost reduction initiative.

Although our operating profit decreased slightly in FY 2024, our investment in associated companies and ventures delivered higher profits, growing by 80.2% year on year in second half 2024 and by 63.6% year on year for full year 2024.

Our fifty-fifty joint venture MTU Yuchai Power which sells large power generator engines achieve higher profit than the previous year.

Our YSC engines (inaudible) achieved profitability in FY 2024 compared to the losses last year.

Generator engine sales remain robust.

Additionally, Yuchai's Marine and Genset Power subsidiary and Rolls-Royce Power System division have entered into a second phase cooperation and development for MTU Yuchai Power venture.

As part of this development, production and sales of MTU Series 4,000 oil and gas engine is expected to begin shipment in late 2025.

Manufacturing capabilities will be enhance accordingly to cater to the expanded thinking box product offer.

In 2024, Yuchai Machinery Power System Thailand Company or Yuchai Thailand, a mass production operation.

Yuchai Thailand will mainly produce a range of diesel engines and other products for on and off-road applications.

We have additionally, we entered into a comprehensive strategic cooperation agreement with Kim Long Motu Q or Kim Long Motu, a subsidiary of Vietnam's Phu Tham Group.

This strategic cooperation consists of the grant and provision of technology licenses, component supply, and related support and services for the construction of a factory in Kim Long Motu's designated site in Vietnam.

Kim Long Motu [10] technology licensing rights from certain Yuchai engine models to be manufactured primarily for trucks, buses, and other commercial vehicles.

Kim Long will have exclusive rights, sales rights for the licenses engines in the Vietnam market, along with priority sales rights in other ASEAN countries and South Korea.

These licenses are valid for 15 years, with total licensing fee of USD 28 million.

The operating in China was challenging in 2024.

According to the National Bureau of Statistics, Chinese GDP increased by 5% year on year in 2024.

The total value of our support rose to [$3 US dollars, $3.6 trillion] both of goods and services, creating a trade surplus of almost $1 trillion.

Last year for 2024.

However, property investment continued to decline in 2024.

In the second half of 2024, our R&D total R&D expenditures, including capitalized costs, increased by 21.2% to RMB 726 million or USD 101 million representing 8.2% of revenue in second half 2024, as compared to RMB 599.2 million representing $6.8 million of revenue in second half 2023.

For FY 2024, total R&D expenditures, including capitalized costs were RMB 1.2 billion or USD 165.4 million, representing 6.2% of revenue compared with RMB 1.1 billion representing 5.9% of revenue in that 2023.

We continue to improve the efficiency and performance of our national sixth and tier four engines and initiated the development of the next generation and the standard emission standard engines for the on-road and off-road engine market.

We continue the development of new energy products, including products using alternative fuels such as hydrogen technologies.

Our innovative new energy power trains include two hydrogen-powered combustion engines, and of gas power generation system and a production plant which utilizes of gas discharges to generate power and eliminate greenhouse gas emissions.

The model YCA07N hybrid engine, which was chosen to power 10-meter gas electric hybrid buses in Nanjing.

The first 50 Suzhou Qinglong buses using our hydrogen fuel cells has commenced commercial operations in Beijing.

And most recently, a new foray into enhancing wind power with the launch of the high-strength QT700-10 turbine fan main shaft to improve wind turbine performance.

In recognition of our innovative achievements which utilizes hydrogen.

Guangxi Yichang Engineering Company Limited, our main operating subsidiary in China, was appointed as a committee member of the new hydrogen combustion engine Innovation Consortium, division of China Internal combustion Engine Society.

To encourage improved performance, selected senior leaders and key employees of each has any subsidiaries have participated incentive plans beginning in 2024.

The plans are both a reward and incentive to motivate these senior leaders with key talents for their continued contributions and and their dedication and loyalty to enhance long-term growth of the company.

In early June, we adopted our first share buyback plan whereby we repurchase a total of 3.3 million shares, amounting to a total cost of USD 39.8 million.

In addition, The company pays a cash dividend of USD 0.38 per ordinary shares on August 28, 2024.

These share repurchases and dividend distribution demonstrate the company's confidence in our future revenue, profit and cash flow generation and to show our commitment to building shareholder value.

Despite the share repurchase and cash dividends, our cash and bank balances were RMB 6.4 billion or USD 895 million as at 31, December 2024.

With that, I would now like to turn the call over to Mr. Loo Choon Sen, our Chief Financial Officer, who will provide more details on the financial results.

She said he may begin your remarks.

Thank you, Weng Ming.

Now let me review our [unaudited] six month results ended December 31, 2024.

Revenue was RMB 8.8 billion or USD1.2 billion compared with RMB 8.9 billion in the second half of 2023.

The total number of engines sold in the second half of 2024 increased by 10.9% to [163,843] units compared with 1,47,700 units in the second half of 2023.

The increase was mainly due to higher sales in truck, bars, industrial, and marine and power generation markets.

The better performance in truck and bus engine sales was achieved despite a decline by 9.9% in sales of commercial vehicles.

Excluding gasoline and electric powered vehicles compared to second half 2023, as reported by the China Association of Automobile Manufacturers, CAAM.

Gross profit increased by 14.3% to RMB 1.4 billion or USD 195.7 million from RMB1.2 billion in the second half of 2023.

The increase was mainly due to higher unit sales volume combined with lower material cost.

Overall gross margin was 15.9% in the second half of 2024 compared with 13.9% in the second half of 2023.

Other opening income increased by 31.2% to RMB 401.5 million or USD 55.9 million compared with RMB 306.2 million in the second half of 2023.

The increase was mainly due to higher government grants, higher rebate on value added taxes, and recognition of technology licensing fees.

Research and development R&D expenses increased by 25.6% to RMB 591.1 million or USD 82.2 million compared with RMB 470.5 million in the second half of 2023 due to higher more cost and impairment of a discontinued R&D project.

Total R&D expenditures, including capitalized cost will I be RMB 726 million or USD 101 million representing 8.2% of revenue in the second half of 2024 as compared to RMB 599.2 million representing 6.8% of revenue in the second half 2023.

Selling, general and administrative SGA expenses increased by 25.1% to RMB 1.1 billion or USD 147 million from RMB 844.6 million in second half 2023.

This increase was mainly due to higher receivables permission and higher traveling personnel and selling expenses compared with the same period last year.

SG&A expenses represented 12% of revenue for 2024 compared with 9.5% for second half 2023.

Operating profit declined to RMB 160.1 million or USD 22.3 million from RMB 221.8 million in the second half of 2023.

The opening margin was 1.8% compared with 2.5% in 2023.

Finance costs decreased by 20.4% to RMB 37.1 million or USD 5.2 million from RMB 46.5 million in the second half of 2023, primarily due to lower bills discounting.

The share of financial results of the associates and joint ventures grew by 80.2% to a profit of RMB 58.5 million or USD 8.1 million compared with RMB 32.5 million in the second half of 2023.

The improvement was mainly driven by higher profits at MTU Yuchai Power Company Limited.

MTU Yuchai, Additionally, YSC Engine Company Limited, YSC Engine and Guangxi program.

Yuchai automotive LG Company Limited.

Program Yuchai reach high achieved profitability in the second half of 2024 compared to a loss in the same period last year.

Income tax was RMB 26.4 million or USD 3.7 million compared with RMB 37.9 million in the second half of 2023.

Net profit attributable to equity holders of the company was RMB 82.7 million or USD 11.5 million compared with RMB 107.1 million in the second half of 2023.

Basic and directed earnings per share were RMB 2.19 or USD 0.30 compared with RMB 2.62 in the second half of 2023.

Basic and earnings per share for second half 2024 and second half 2023 were based on the weighted average of 37,809,894 shares.

And 40,858,290 shares respectively.

Now we review the unaudited financial results for the fiscal year ended December 21, 2024.

Revenue was RMB 19.1 billion or USD 2.7 billion compared with RMB 18 billion in financial year 2023.

The total number of energy sold in financial year increased by 13.7% to 3,56,586 units compared with 313,493 units in FY 2024.

The increase was mainly due to higher sales in the truck, bus, industrial, and marine and power generation markets.

The stronger performance in truck and bus engine sales was achieved despite a 2.6% year on year decrease in sales of commercial vehicles, excluding gasoline and electric power vehicles in financial year 2024 as reported by CAAM.

Gross profit increased by 10.8% to RMB 2.8 billion or USD 392.1 billion compared with RMB 2.5 billion in FY 2023.

Gross margin increased to 14.4% compared with 14.1% in financial year 2023.

The increase in block margin was mainly attributable to higher venue from increased unit volume and continuing cost reduction initiative, partially offset by greater labor and overhead expenses.

Other operating income increased by 30.1% to RMB 575.7 million or USD 80.1 million compared with RMB 442.4 million in financial year 2023.

The increase was mainly due to higher government grants, higher rebate on value-added taxes, and recognition of technology licensing fees.

R&D expenses increased by 12.3% to RMB 984.7 million or USD 137 million compared with RMB 876.6 million in financial year 2023, mainly attributable to higher more cost and impairment of a [discontinue R&D] project.[I had continued with] its initiative to enhance the engine efficiency and performance of its national 6 and tier 4 emission standard compliant engines, marine power generation applications, wow, and one thing new energy solutions.

Total R&D expenditures, including capitalized cost will RMB 1.2 billion on USD 165.4 million, representing 6.2% of revenue for financial year 2024 compared with RMB 1.1 billion representing 5.9% of revenue for financial year 2023.

SGA expenses were RMB 1.8 billion or USD 252.1 million, representing 9.5% of revenue in FY 2024 compared with RMB 1.5 billion representing 8.3% of revenue in FY 2023.

This increase was mainly due to higher credit receivables provision and higher traveling personnel and selling expenses compared with financial year 2023.

Operating profit was RMB 597 million or USD 83 million compared with RMB 609.4 million in financial year 2023.

The opening margin was 3.1% compared with 3.4% in financial year 2023.

Finance cost decreased by 22.2% to RMB 78 million or USD 10.8 million from RMB 100.2 million in financial year 2023, primarily due to lower bills discounting.

The share of financial results of the associates and joint ventures increased by 63.6% to income of RMB 101.5 million or USD 14.1 million compared with income of RMB 62.1 million in financial 2023.

The improvement was mainly driven by higher profits and NGO each.

Additionally, YSC engine and program each achieved profitability in financial year 2024 compared to a loss last year.

Income tax expenses declined by 13.3% to RMB 128.8 million or USD 17.9 million as compared with RMB 148.5 million in financial year 2023.

Net profit attributable to China Yuchai's shareholders was RMB 323.1 million or USD 44.9 million compared with RMB 285.5 million in financial year 2023.

Basic and valued earnings per share were RMB 8.21 or USD 1.14 compared with RMB 6.99 in financial year 2023.

Basic and directed earnings per share for FY 2024 and FY 2023 were based on the weighted average of 39,3085,753 shares and 140,858,290 shares respectively.

As of December 21, 2024, the company of the shares were following a share buyback plan reduced to 37,518,382.

From 40,858,290 shares as of December 31, 2023.

Now we'll go through our balance sheet highlights as of December 21, 2024.

Cash and bank balances for RMB 6.4 billion or USD 895 million compared with RMB 6 billion at the end of financial year 2023.

Trade and bills receivables were RMB 8.8 billion or USD 1.2 billion compared with RMB 7.8 billion at the end of financial year 2023.

Inventories were RMB 4.7 billion or USD 647.5 million compared with RMB 4.6 billion at the end of financial year 2023.

Trade and bills receivable will RMB 8.5 billion or USD 1.2 billion compared with RMB 7.6 billion at the end of financial year 2023.

Short term and long term loans and borrowings were RMB 2.5 billion or USD 349.1 billion compared with RMB 2.5 billion at the end of financial year 2023.

I will now turn the call over to Kevin for a comment for the Q&A section.

Thank you, Choon sen.

Please note, some officers of China Yuchai are remotely 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.

Thank you.

(Operator Instructions)

We will now take our first question from the line of Yiming Liu from High town Securities.

Please ask your question, Yiming.

No, this is, Yiming from High town Securities.

Thank you very much for having me.

So I have two questions.

Number one is about your data center generator business.

So, looks like your JB with MTU got a very good result in a '24, but, so I'm just wondering how many units did you sell from both sides, I mean from both G and YCL you are controllings and from the NTU JB.

Yeah, this is my question number one.

Thanks.

Okay, can [Kelvin take the question], please.

Hi, regarding on the genset sales and genset engine sales and then from 2024, our, the NTU joint venture sales is about, more than 700 units.

But this is including not only not all for data centers is is including the other applications and for the GIM so the high horsepower we saw last year is about 1,000, no, it's about 800, yeah, altogether, yeah, but that is again and then it will be putting our application.

Yeah.

Okay.

All right, thank you.

So just a continuation of this question.

So, looks like MTU JB was very profitable, and so I wonder what is the probability of your, of this type of generators in the GMYCL?

Either in terms of like gross margin or net net margin or something like that.

Thanks.

I'm sorry that we cannot call the margin of the two different type of engines because and then the, in terms of the of the output or in terms of the performance and then both engine and then can meet with the requirement of the data center requirement and they they had the very similar power range and the suitable for the major streamline of the data center construction and so I would take this way and then the NTU is because the international branding and then there will be some premium and then the end user would like to buy them and but for the price wise and then I cannot make any comment.

Okay, understood.

Thank you.

So my question number two is what is the expected growth rate on the data center generator business in '25?

If it's possible, could you describe separately for the GMYCL and the and the JV business?

I wonder if there's any difference and what is the exact growth rate in '25.

Thanks.

I would say it this way, the, no matter the GYMCL or the MTU, joint venture and the, our order book for 2025 is already full, and then we are actually and then we are we are refusing for the order because we cannot take any because due to the capacity is constraint or due to the component supply, but, I would say and then the in the 2025.

It's very low compared to last year.

It's at least 30%.

Okay, great.

Thank you.

So just one more additional question.

So it looks like the profit attributed to the minorities in the second half of '24 was pretty high.

I just calculated it it looks like it was like 47% of the total profit.

So would that be a constant value in the future, because in the past, it looks like it was like 30% or so.

Thanks.

Okay, let me answer that question.

Compared to the past, I think, our, the performance of our associate companies has been significantly better, in particular MTO because I feel alluded to earlier, where there's a big growth and demand for the data centers which fits right into our product offering.

And at the same time, our other associate companies, joint ventures.

There are a couple of them most significant ones have turned from, losses to profitability.

So that's why this year you're seeing a largest, whitefall, number for our, associate trumpets.

It Is that a sufficient?

Okay.

All right, thanks.

I'm sorry, just one more question.

So looks like there's an item called Operational profit or something, which is pretty big.

It was like RMB 500 million in '24.

So, I wonder how to expect that in the future.

So is that going to be like proportional to your revenue or something like that?

Thanks.

Sorry, can you repeat the question?

I missed that.

Sorry, can you repeat your question?

(inaudible)

[Pretty big item income].

(inaudible)

All right, we have lost the line of Yiming.

So we'll take our next question from Peng Yubai from Pinpoint Asset Management.

Please ask your question, Peng.

Hi.

Actually, I have a question is, are we going to raise our price since the demand for, I think two megawatt generators in China, AIDC is very strong, and, as we know, the supply is fixed.

So in the future, both regarding 2025 and also '26, are we going to raise our price for the generator?

That's my first question.

Well, I mean, in terms of raising price, I think we will, of course, there will be some improvements in the pricing, but at this stage now, we haven't had any significant plans to increase in a big way, but we believe there will be some improvement in pricing.

Okay.

Gotcha.

So, as I understand, we are going to increase our price, but it's not right now, maybe in the future.

Okay.

My next question is, are we going to produce the generator set or the module by ourselves since we only produce generator right now.

So, are we going to do the set in the future if.

(multiple speakers)

The there's no plan for that.

We are actually an engine manufacturer, so we only produce, we produce the engines mostly, for our OEM customers.

If there is any customers want us to to produce the jet set, we can work on that, but that will not be our main business.

Okay.

Gotcha.

So, my last question is, as I just heard that we already produced, anyway, 700 or 800 generators in the last year.

So, what is our capacity plan for 2025 and also for '26?

Are we going to increase it by a very strong number, for example, above 100%?

Can you, actually give us some color in this question?

Yeah.

Calvin can you take that question?

(inaudible)

So, are we going to expand our capacity for a very large number?

In the future.

In this year and also.

(multiple speakers)

Actually, and then we have the planning and then to increasing our to expand our capacity since last year and the but you know the two I mean that there's a two [different major factory and then] we have to consider first is regarding how to How can we increasing our supply of the casting for the for the for the big engine on the like the engine block and engine heads and then (inaudible) authority of the machining center and then will be arrival you try and then by mid this year so.

Lightly and then by end of this year and then we can increasing our capacity and the, we will be gradually running up and so the next year and then we'll be about 35% to 40% increase and then we'll be another further up on the 2027.

So this is our current pending on how to try to meet up with the market demand.

Oh, okay.

Gotcha.

So, you just mentioned that the growth rate is about 30% to 40%.

So at least for this year, we are going to have more than 1,000 to two megawatts generators capacity in this year, right?

It's more than 1,000.

Yeah

all right.

Gotcha.

And I believe that's all my questions.

Thank you.

Thank you.

(Operator Instructions)

We will now take our third question from the line of Andy Lee from Daiwa.

Please ask your question, Andy.

Hi, thank you for taking my question.

This is Andy Lee from Daiwa.

Yeah, I just want to quickly clarify.

I think I heard another 30% capacity up in '27, right?

Yeah, by 2026, yeah.

Hello?

I mean, we are, building capacity now the capacity will come on stream by 2026.

Can you hear us, Andy Lee.

He lost it

Daiwa, can you can you hear us?

No, I can't hear anything, yeah.

Yeah, if we have lost it there.

We have lost the line of Andy.

If you have further questions, please request to rejoin the queue.

I'll be turning back to the presenters in the room for webcast questions.

Okay, there are a few questions from webcast.

The first I'm going to read out now is the search in demand for producer engines, driven by AI data centers.

Will that have an impact on the revenue growth?

Will they give us some color on both revenue and net profit impact from AI.

And now, yes, there's a big demand now for data centers, we called segment of business.

We expect to see growth in it growth as we discussed earlier.

So yeah, that will have an impact on our, definitely have an impact on our revenue growth, particularly for that particular segment.

Now, how is that going to impact our overall like our business revenue or our group revenue that I don't think that we are ready to release that part of that information.

And we can't unfortunately, I can't tell you exactly how much revenue it is for this segment, not the profit impact for this segment.

So the next question is from Jack Xia.

Congratulations on your great performance currently.

And explosive growth in the effects of major Chinese internet companies leads to significant shortage of power generators.

If you entered Domestic data set mark with major clients.

Is there room for price increase?

What's your future expansion plan?

Can you share your overall outlook for data generators of IDC sector this year?

Kevin

(inaudible)

Sorry.

you have to answer this question.

Can you repeat the question?

You can see it.

(multiple speakers)

I can't see.(multiple speakers)

Okay.

All right.

So sorry, Kelvin is calling from China, so he probably can't see the question.

Okay, let me answer some of it, right?

So have you entered domestic data center market with major clients?

Yes, we have entered China domestic market, and we have orders from some of the big data centers, operators in China.

We also, not only that, we also expanded to the sub-estation market as well.

So yes, is there room for price increase, we think there'll be improvement, but again, a lot of these data centers, for, sales, achieved through a tender.

So in the case of a tender, the price is actually quite transparent, right?

So, we do expect to see improvement, but it's, I don't think it's going to be a huge improvement unless everybody also increase, the price accordingly.

So it's still a very competitive, industry out there for, gensets.

What is your future expansion plan?

We are building capacity to cater to cater to the huge demand that we saw this year.

So we expect the capacity to come on stream next year in 2026 for both ourselves GICL as well as the NTU.

And can you share your overall outlook for this engine diesel generated business of IDC sector this year.

We believe this year is going to be significant growth.

There's a lot of demand out there still.

So and this demand has not been, what got satisfied as of this year.

As Kevin mentioned earlier, our order book is full for the year.

So we we are, we will expect to see more demand next year, I would think.

But by then the capacity for most of the these tractors and the jet site manufacturers over yes would have also increased the economy, so we believe that the, a lot of the demand will be satisfied next year or in the next two years.

R&D, the next question is from from Jay Chan.

Your R&D expenses grew meaningfully in 2024 in excess of revenue.

What sort of R&D expense growth should we expect in 2025?

Was it moderate?

Okay, so we will answer this question.

Hi, Jay Chan, yeah, thank you for the questions.

Yeah, we respect the, 2025, we remain, pretty much the same or slight increase.

What happened is that we are, we are balancing that, the market, demand, right?

So we have commercial retail and then we have offload, marine power generation and, induction and so forth.

So we are balancing the the spend, but overall, I need.

Spend will continue, we'll continue to maintain that, to improve our engine efficiency and performance, that we will not slow down, we'll continue to do that, and but overall expense perspective.

We will still maintain and, we will have moderate increased defense.

Okay.

So next question again from the same person, does management expect a growth acceleration in 2025 on the back of a national six [four-trust trade-in policy?] Yes, we do hope to see some more, some some acceleration, but it's very hard to, determine how much they will be for now.

Yeah, the chances, yes.

The last question on the website page is, your SG&A expense increased a lot in second half to '24.

Could you please give us some guidance on the trend going forward?

Okay, I will take this question, Lastly, thank you for the question.

Yeah, in fact, our second half, 2024, our actually expenses, mainly, they increase mainly cost by the, receivers provision, right?

So that we have accounted for that in 2024, although the market still, challenging, we expect that, will be better in the 2025 in terms of our trade receivable provisions.

So, other than that, the spending, the spending will will pretty much remain the same as the 2024 level, but of course, when we continue to expand our part and overseas market, that you expect was slight increase, from that perspective.

Right, thank you.

We will now take our next phone question from the line of Andy Lee from Daiwa.

Please ask your question, Andy.

Hi, I'm back.

This is Andy.

My line was cut off.

Hope my phone work properly this time.

Yeah, thanks for the clarification before.So my question is on the associates and JV profit.

This accounted for over 30% of your second half profit.

So I was just wondering, could you please break down how much is from MTU you try?

And I also know you have different lines of production lines for MTU.

So can you walk us through which lines are for the large power generators applicable for data centers Please?

Okay, Kevin, you want to take a question?

I mean, the, regarding on the product wise and.

The MTU product at the moment and then we had different cylinder configuration.

So we have the 12V 12 cylinder and the 16V 16,6 cylinder, 16 cylinder and also the 20V that's the the 20 cylinder.

So I think the I would say this way, the bigger the engine and then the better the return because of the limited.

I mean the competition because of the high horsepower engine.

And the I mean, but it will always and it depends on the customer requirements.

So, at our joint venture, we were manufacturing then the according to the to the customers back, but of course, and then we can have the product mix and then can have a more high power high power engine and they will be more benefit to the to the operation.

Yes, and, say for example, any number or percentage contributed to our profit.

Sorry, I cannot give the figure.

Okay.

Okay, so do you do you start to negotiate with the data centers and what's the what does the competition look like?

Did you encounter any Chinese peers in the bidding or you know kind of competition?

I mean, the genset market is It's very competitive, because, in the China and then the, it's always, it's an open tender and then from the telecom telecommunication operator or from the AI and then for example, from the by the dance and then so it's transparent, I mean the if you want and then the, we understand, the winner that what's the price they are at the end of the day.

So, I would like to say it's very fierce competition, and that's why and then the, I mean the, there's a very difficult and then to raise the bar of the pricing at this stage, even though the very high demand because I then we had to make sure and then we can win the bid of the major projects and then from those key payers because, in one single tender, it could be, up to 200, 300 or 500 engines.

So, that is a very careful and then they regarding on the, on the pricing.

So competition is too feasible, yeah.

Got it.

Thanks for the color.

Maybe lastly on your capacity expansion, what keeps you up at night, any bottleneck you are, spend most of your time addressing on like maybe super alloy in Cornell has to lie.

Yeah, I appreciate it if you can share and comment on this.

Thanks.

It's a little bit different between the GYMCO and the and the and the MTU joint venture.

MTU joint venture, actually we had the, problem of the supply chain because, there's still some component we had, I mean we are imported from Germany and they, there's a, I mean there's a shortage of the some of the key components from our parent from our partners.

And this is a handicapped, the overhaul assembly of the engine.

So the, I mean the our partner MTU and then they are also doing some more investment and then they also work with their supplier and then try to ease up the supply chain issue.

Hopefully by next year and then we can have more, available resource and then we can take more engine orders.

I said any chance you can use the Chinese domestic supplier in replace of those imports.

We actually, we have what we call the localization program and so we will localize and then the majority of the T-com majority of the engine component in China and but there's this some of the very key component and then the our partner and then we serve the right and then to not to localize and then we had to buy from them anyway.

So this is some of the bottom left sometime, yeah.

Got it.

That's all from me, and also congratulations on the results.

Thank you.

Thank you.

Our next question comes from the line of Yiming Liu from High Town Securities.

Please go ahead, Yiming.

Hello, this is, Yiming again.

Thank you very much for having me again.

So I was cut off, so I'm trying to continue with my question.

So, from your income statement, there's a, big item called other operating income.

Which is 576 million in the fiscal year '24.

So I wonder if this value is proportional to your revenue or if there's other factors that is impacting that.

So how do we accept that in '25 or in the future?

Thanks

Hi, Yiming, thank you for the questions.

Yeah, in that line, we have this, government grant income, right, as I mentioned earlier on, right.

So that is, that's based on the revenue that, the income that you recognize according to the project, that we earn during the period.

So that's told by the timing, so the second part is the VAT rebate, right?

So, there's a tax policy that, for us, we are in this, advanced technology, zoom that we are qualified or or we are eligible for that incentive.

So basically we get a rebate for the VAT, tax, right?

So that's another big part, contributed the income for 2024.

So that, from our understanding that will be subject to the applications each time.

So once we're successful, that will continue in 2025 if we are successfully applied.

So, that another part, the part is the, licensing fee, right, for that right now Kim Long, right, so we have recognized half of that, USD 28 million right, in 2024.

Yeah, so that the big increase in our other income.

So, can we treat the majority of this value as recurring?

Or I mean, what is the percentage of this value which is not recurring in the future?

Okay, the right time is a subjective that, how much, you can, recognize based on what we earn for the project.

So that is probably, may remain, pretty much flat, right, but VAT, we repeat that subject to, the applications and also subject to the VAT input output offset, right, that is still yet to be determined, yeah.

Of course that likely income as I mentioned, you recognize, that, half of it from the what we have awarded, right, 28 million.

So that we shall see some in 2025.

Okay.

I guess.

I see.

Thank You very much.

Thank you.

Thank you.

I'll now turn to the room for webcast questions.

No, not yet.

Okay, that we answer some of the questions from, the webcast.

The next question now is, From the, from, okay Rodin Xiao.

For data center generator, is there any particular part source from third party could face more bottleneck I think can answer that, for MTU.

So, there is some parts that we buy from Germany, which will be, we will cost a bottleneck.

So I think he has expressed that question.

The next one, I'll go down to what is your capacity, CapEx plan this year and next year given the strong demand, would there be new share repurchase?

Our CapEx plan this year and next year will be probably still remains about the same.

There, there'll be more of the resources that will be channeled towards the data centers since there's a big demand for it, but that has already started, right?

So we have to see what the demand is going forward and how much capacity there are in the whole industry before we take, we decide on more capacity expansion or more backs on that area.

Will there be a new share repurchase plan?

I can't say you that, we haven't discussed this, since the last plan that was implemented.

So, yeah, we can, for now, this has not been discussed.

Can you share your revenue breakdown by domestic sales and export sales?

Can you help us to understand how that makes a shift in 2025 and the impact on ASD profit gross margin.

I will answer the top part, but not probably not the scale probably too sensitive for us, right?

So, in terms of, domestic sales and export sales, about close to More than 20%,[ 20%], 25% of our engines in terms of unit sales are exported.

So it's grown quite rapid in the last few years.

In the case of how the product needs to shift, it was the whole for the entire group, it will shift slightly more towards.

The marine power generation, which is the jet set, because of the the big demands that they're facing now, from the data centers.

So that will have an impact on the ASP for sure, and also gross profit margin.

Do you consider more share buyback programs and what's the dividend policy?

Okay, we have addressed the share buyback program.

The dividend policy, we do not have a formal dividend policy.

But if you look at the dividends that payout in the past, you get an idea as to how we decide on the dividend payout, but we do not have a formal dividend policy.

Thank you.

We will now take our next phone question from the line of William Grzegorzewski from Green Bridge Global.

Please ask your question, William.

Hi, I'm, Kim Long. When is the expected start date that you'll ship the engine kit and you have like a a number of units you expect to sell and a rough margin profile for those?

Sorry, Will, I didn't quite catch that.

Can you repeat that again?

Yeah, on the Kim Long, when do you expect to start shipping the engine kits and then do you have an estimate on the number of kits and margin profile for those?

Kelvin.

Do you want to address that question?

So we need to help them and then to build up the whole plant and also we need to assist them and then to purchasing all the equipment for the factory.

So I would expect and then after all and then all this I mean the installation commissioning, and then it's done and then also the carry on the, further testing of the of the whole line and then it will take at least about nine to 10 months.

So by the end of this year.

If we, everything's moving and, we may start shipping the parts, yeah, this is, my explanation.

Okay, do you have an idea of how big this plant is going to be or how many units they expect to do a year?

In fact, the market is quite quite a good design market.

They, I mean because from GYM sale, our export to Vietnam is about 20,000-25,000 per annum and then the the so I mean, to take, if they take all most of those and then the order, we previously and then we shipped from China and then there will be around this number, but I will, of course, and then it will be depends how is the competitive lats of the Kim Long motor in the Vietnam market.

So, I mean, We didn't have any concrete sales number because our agreement with them is only a licensing agreement and so that we will help them and then to build up the whole plan then the we will provide the component according to the actual demand.

Okay.

All right.

And then my last question is, do you have expectations for this year for the in-vehicle engines?

Just in general?

Can you repeat that again, it's not quite that.

(inaudible)

Yeah, I was looking for if if you can provide any expectations for in vehicle engines for this year.

It means it means the total engine sales for the year.

Yeah.

Oh, EV, you're talking about EV are you?

Are you talking about electric vehicles?

I mean, if you can break out the new energy versus the traditional, that would be even better.

Oh, I see.

No, I think this year we sold about 356,000 engines, right?

So, I think segment by segment, we expect the the vehicle engines to move within minus 5% to 5%, maybe 10%.

So it's pretty for the domestic market.

So, as for the marine power generation is expected to perhaps increase by about 10% this year.

For the, as far as the industrial and agricultural machinery, the agriculture machinery I'm expecting to have a slight growth and the industrial machinery.

I think for the market it'd be quite flat, but we expect to see some growth in there, so.

But sorry, I can't give you a number, the number, but generally that's how the market is.

Thank you.

We have now reached the end of our question and answer session and now turn the call back to Kevin Theiss

Okay, thank you very much all for participating in our conference call.

We wish each of you good health, and we look forward to speaking with you again, next time.

Thank you.

Well, thank you for your participation in today's conference.

This does conclude the program.

(Operator Instructions)