China Yuchai International Ltd (CYD) 2010 Q2 法說會逐字稿

Thank you for standing by, and welcome to the China Yuchai International Limited unaudited second quarter 2010 financial results earning webcast.

At this time all participants are in a listen-only mode.

There will be a presentation followed by a question and answer session.

(Operator Instructions).

I would 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 second quarter 2010 earnings webcast.

My name is Kevin Theiss and I am from Grayling, China Yuchai's US Investor Relations adviser.

Joining us today are Mr.

Boo Guan Saw, President, and Mr.

Weng Ming Hoh, 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 China Yuchai's operations, financial performance and condition.

China Yuchai 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 China Yuchai's reports filed with the Securities and Exchange Commission from time to time.

China Yuchai specifically disclaims any obligation to update the forward-looking information in the future.

Mr.

Saw will provide a brief overview and summary of the industry, and Mr.

Hoh will review the second quarter financial results.

Thereafter we will conduct a question and answer session.

For the purposes of today's call, the financial results will be presented in CNY and US dollars.

Mr.

Saw, please start your presentation.

Thank you, Kevin.

We are pleased with our sales growth and improved product mix in the second quarter of 2010 compared with a year ago.

We offer a wide range of light duty to heavy duty diesel engines to meet the transportation demands of our customers within China.

According to the China Association of Automobile Manufacturers, CAAM, in the first half of 2010, commercial vehicle sales were almost 1.8m units, an increase of 37% compared to the first half of 2009.

In addition to construction arising from the ongoing infrastructure investment in China, the continuing urbanization, especially in the Tier II and III cities, has generated higher demand for trucks.

Heavy truck demand in China grew by 50% in the second quarter of 2010 compared with a year ago.

The growing urban population is also demanding more buses for travel within the cities.

China's bus market grew about 49% year-over-year as sales reached approximately 86,000 vehicles.

There are two highlights that I would like to bring to your attention.

Net revenue for the second quarter of 2010 was CNY4b, a 15.7% year-over-year growth.

The total number of diesel engines sold during the second quarter of 2010 was 132,092 units compared with 129,932 units in the previous year's quarter.

There was an increase in engine sales volume notwithstanding the tightening of bank lending and other anti-inflationary measures implemented by the Chinese government.

The higher growth, higher revenue growth in comparison to unit sales growth primarily reflects our product sales mix to more heavy and medium duty engines compared with a year ago.

Pricing in the heavy duty diesel market is relatively high with better gross margins.

We have maintained our position as the leading diesel engine manufacturer in China for the first half of 2010.

Our market share in the medium duty and heavy duty segments has increased.

And we anticipate that our new models of heavy duty diesel engines will further strengthen our market position in the future.

Our new heavy duty diesel engines will be helpful in increasing our proliferation of the industrial, marine and power generator markets, as well as the important heavy duty truck market.

The new heavy duty 12/13 liter capacity YC6K engine under development from our joint venture with CIMC-Chery will extend the power range of our heavy duty engines while providing an engine that is already national 3, 4 and 5 certified as well as being compliant with up to national 6 emission standards.

We currently have three series of hybrid engines; the 4G, 6G and 6J, which can reduce fuel consumption by up to 25% to 30%.

The immediate application of these engines is in the municipal buses where we have already established our dominance and our leading market share.

Our gross margin in the second quarter of 2010 was 22.3% versus 16.7% for the second quarter of 2009 and 20.2% in the first quarter of 2010, reflecting our improved product mix and increasing market share in heavy duty and medium duty diesel engine segments, while we are bringing on more efficient capacity.

We continue to increase our production capacity to meet the ongoing demand from our regional equipment manufacturer OEM customers.

The favorable results from our trial operations at the new foundry has led us to increase production as we have improved production efficiency resulting in both better quality and lower cost to produce high quality, high performance cast engine blocks and cylinder heads.

Our production capacity at our assembly facility at Xiamen [Yuchai] has reached an annual capacity of 50,000 units to supply to our customers in the Central and Southern parts of China.

Our progress with our strategic partnerships with the CIMC-Chery, Caterpillar and Geely Automobiles continues to be encouraging.

The CIMC-Chery joint venture is expected to commence production of the heavy duty YC6K diesel engines at the end of 2010, which will add capacity to our heavy duty engine volume.

We have invested approximately CNY140m to double production of our 6L and 6M heavy duty diesel engines from 62,000 units to a forecasted 120,000 units in early 2011.

The re-manufacturing joint venture with Caterpillar is expected to begin operations at Suzhou Industrial Park, Jiangsu Province in 2011.

And the joint venture with Geely is expected to yield the first generation prototype of the 4D20-2L diesel engine by the end of 2010.

In addition to manufacturing, we currently have a network of over 1,500 service stations within China with 44 service dealers internationally.

Customer service is a highly important purchasing parameter to our customers in China as well as international markets.

The Chinese government has implemented various incentives to stimulate domestic vehicle consumption and is driving the development of green energy technology, and automotive energy vehicles to reduce emissions and protect the environment.

As mentioned in my presentation at our Annual General Meeting on July 10, 2010, we have available natural gas, compressed natural gas and a liquefied natural gas, and LPG, which is the liquefied petroleum gas, engines as well as hybrid engines in the 4G, 6G and 6J series.

And our aim is to continue development of low emissions products to meet or achieve emissions regulations.

According to the People's Bank of China, China's economy grew 10.3% in the second quarter of 2010 compared with 11.9% in the first quarter of 2010 due to the effects of the Chinese government's credit tightening policy.

Notwithstanding that, 2010 is expected to continue to be a growth year in China.

China's slowing growth momentum could have an impact on our operating performance in the subsequent quarters of 2010 as compared with the first six months of 2010.

With the various projects coming on stream, we believe that CYI is in a strong position to continue its leadership position in China's diesel engine market.

With that, let me turn the call over to our CFO, Weng Ming Hoh, to walk you through our second quarter financial results.

Thank you, Boo Guan.

The financial results being presented here for second quarter and six months of 2010 have been prepared in conformity with international financial reporting standards as secured by international accounting standards for IFRS.

Net revenue for the second quarter of 2010 was CNY4b or $591.4m compared with CNY3.5b or $511.1m in the second quarter of 2009, representing a 15.7% year-over-year growth.

The number of diesel engines sold by the Company's main operating subsidiary, Guangxi Yuchai Machinery Company Limited, GYMCL, during the second quarter of 2010 was 132,000 units compared with 130,000 units in the previous year of the same quarter.

The stronger growth in revenue was primarily due to a shift of product sales towards more heavy and medium duty engines compared with a year ago.

Gross profit was CNY895.1m or $131.8m in the second quarter of 2010, representing a 54.2% increase over the gross profit of CNY580.6m or $85.5m in the second quarter of 2009.

The gross margin was 22.3% for the second quarter of 2010, a 5.6% improvement over the gross margin of 16.7% for the second quarter of 2009.

In the second quarter of 2010, the Company sold more heavy and medium duty engines which carry higher gross margins, than in the same quarter last year.

Other income increased to CNY17.2m or $2.5m compared to the same period in 2009, mainly due to the increase in interest income.

Research and development, R&D, expenses were CNY82.9m or $12.2m in the second quarter of 2010 versus CNY73m or $10.7m in the second quarter of 2009.

As a percentage of net revenue, R&D spending was 2.1% of net revenue in the second quarter, in line with the same quarter last year.

Selling, general and administrative expenses in the second quarter of 2010 were CNY498.3m or $73.4m compared with CNY383.6m or $56.5m in the second quarter of 2009.

These expenses represented 12.4% of second quarter 2010 net revenue compared with 11.1% of second quarter 2009 net revenue.

The expenses increased compared to the same quarter a year ago due to the increase in selling and distribution expenses relating to warranty, freight and delivery charges and sales promotion.

Operating profit was CNY331.1m or $48.8m in the second quarter of 2010, a 162.9% increase over CNY126m or $18.6m in the second quarter of 2009.

The increase is mainly due to higher gross profit and continued cost saving measures.

The operating margin was 8.2% in the second quarter of 2010 compared with 3.6% in the second quarter of 2009.

In the second quarter of 2010, total net profit attributable to the Company's shareholders increased 176.5% to CNY179.1m or $26.4m, or earnings per share of CNY4.81 or $0.71 in the second quarter of 2010 compared with CNY64.8m or $9.5m, or earnings per share of CNY1.74 or $0.26 in the second quarter of 2009.

For the six months ended June 30, 2010, net revenues rose 41.6% to CNY9.1b or $1.3b.

The gross profit increased by 80.1% to CNY1.9b or $282.8m representing a 21.1% gross margin.

Operating income was CNY799.8m or $117.8m.

The net profit attributable to China Yuchai's shareholders for the six months ended June 30, 2010 was CNY450.9m or $66.4m, or earnings per share of CNY12.1 or $1.78.

As of June 30, 2010, the Company had cash and cash equivalent of CNY3.5b or $509.9m compared with total short-term and long-term interest bearing loans and borrowings of CNY929.5m or $136.9m.

Total equity attributable to China Yuchai's shareholders increased to CNY4.4b or $653.6m on June 30, 2010, from CNY4b on December 31, 2009.

The total shares issued and outstanding as of June 30, 2010 were 37,267,673 shares.

With that, Operator, we are ready to begin the Q&A session.

(Operator Instructions).

One moment please for the first question.

(Operator Instructions).

And your first question comes from the line of David Raso with ISI Group.

Yes, hi, hello.

I'm sorry for the bad connection.

Hopefully you can hear me okay.

Yes, we can hear you.

I wanted to get a little more perspective on your comments about some of the actions by the government and how it could impact your business.

How were you thinking about sales growth and mix over the next couple quarters relative to the growth we've seen slow a bit in the last couple quarters?

Okay, David.

This is Boo Guan Saw.

What it is, is that the Chinese government obviously have this tightening policy whereby they will curtail quite a lot of all these credits.

And there will be some impact especially when people really want to get credit and then they will not really be able to really purchase a truck or purchase a bus.

However, if we look at those businesses that is really ongoing, say for example that they are really -- their infrastructure, they have all this urbanization projects that is going on, so on the balance, we will really see that some of the purchases especially for vehicles will be curtailed, but others that are really important projects, they are really ongoing.

So on a balance, we say that well okay credit tightening will curtail some of their purchases.

But overall, we believe that it is really going to be okay for some growth in terms of what we see in the China market, especially for truck and buses.

So the next couple quarters, as much as you're seeing some slowdown, you still expect to post positive revenue growth year-over-year?

Okay.

I would not really want to do any forecast right now.

But I believe that on the long term the Chinese government is really going to see that that's really going to be sustainable growth in the economy.

So I am really looking more towards well if the government continue to have a growth rate of 10.3% or even 9.5%, that will really be good.

9.5% is really good anywhere in the world.

I am still confused.

Can you give a little more color on which markets do you feel you'll have the best growth the next couple quarters and which are the ones that might be feeling more the slowdown in your shipments?

And somewhat tied to that question is, how are you viewing inventory in the channel related to that growth rate for the end markets?

I'll answer your second question first.

Okay, in terms of the inventory, when I mentioned about it earlier on in our first quarter review, the inventory has been quite normal right now.

And people are really putting in orders.

So for my inventories then what has really not given so bad an impact.

Then, okay, the next question on where really there's growth in terms of the markets, what we really do see those, especially when you heard about all this, the infrastructure development, so that's really going to be those seamless plant that is really ongoing.

And we'll definitely see that that's going to be a process I mentioned and also the bus, because there's also really increasing urbanization.

A lot of people migrate to the urban city.

So these are really good development, okay, in terms of this market segment.

Now the recent flooding in China.

Yesterday you have already read in the papers and heard the news about that.

So those are really going to really impact the market segment like marine, power generators, whereby all this flooding is really going to impact those stationary machinery.

But in terms of the construction, although okay the market is not as big, but it is also another potential growth of the market segment because of those infrastructure developments that brought the market demand in terms of construction equipment.

(Operator Instructions).

And you have a question from the line of Evan Fox with Olympia Capital.

Hi, guys.

I had a question with regards to the SG&A; just with regards to really your expectations.

Do you expect it to continue to increase sequentially or level out at this 12.5% of revenue area?

Hi, this is Weng Ming here.

I will answer the question.

I think this, if you look at quarter one, [it actually is] (inaudible).

But I don't think it will increase very much more going forward into the next two or three quarters.

But I think the increase for this year is probably due to a few things.

One is the warranty.

The reason for that is of course we're selling more heavy duty engines and medium duty engines than light duty engine parts, so as a result, actually the cost of the warranty has gone up, okay.

The cost of delivery has gone up.

The cost of the CAGR is a bigger increase as well.

And our costs to promote these engines, the promotion costs are higher also.

Okay, if the lack in credit really continues then I think yes, I think it probably fall around this region.

Okay, great and just one more follow-up just with the government credit tightening.

Do you still expect at least an 8% GDP growth at a minimum?

What would it be -- we won't be able to forecast any GDP growth.

But what we see is that whenever there is the growth that's really being slowed down the governments, the Chinese government will think about ways to massage and boost up the economy.

And that they have been really doing an excellent job in terms of maintaining their GDP growth, whereas such a high number above 8%.

So the target is always above 8%, or 8% or more, so I would only say that while okay if there is really any real slowdown, there's really going to be some of those plans that really will improve the China economy.

That's really what I can really tell you.

But I will not be able to forecast what is really the GDP growth will be in the next few quarters.

And you have a question comes from the line of David Raso with ISI Group.

Yes.

I had a follow-up about the new capacity, the 6L and the 6M going from 62,000 units to a forecast of 120,000 by early '11.

When it comes to your cost through your P&L, we get that production capacity in place, when do those costs begin to fade?

And when do you expect to be utilizing -- I assume you must be running at pretty high capacity utilization right now on the 62,000 units.

When do you expect to be producing close to 80,000, 90,000 units of that 120,000?

I'm just trying to get a feel for the benefit you may see in operating leverage within those incremental cost waning, and you start to utilize that new capacity?

David, this is Boo Guan Saw.

What it is in terms of when really do (inaudible) purchase that will pay the bills and all that, that will really be a lot of equipment.

And that will have to really get through all this depreciation and all these expenses to get that.

But just to let you know that in terms of getting the 6L and the 6M, that is really our 8L to 9L engine, by the way.

Those engines is already in production.

What we really did is that we really add a few more of those equipments and then to really increase the capacity because of some of the synergy that's really involved in getting that production.

So in terms of the cost, we believe that is really going to be an economy of scale, okay, when we really purchase all this equipment.

And it will only complement the current 62,000 units that we have in our production line.

And the market demand for heavy duty, as you know, that it is really increasing.

So we are really lucky to be able to really launch that at the really right time and really being able to already capture the market share.

So what I really say is the worse case increment is in there.

We'll really be able to really ramp it up very quickly to 90,000, 130,000, if that's where demand for it.

Is it fair to assume, though I know you don't want to give 2011 revenue guidance, but from that capacity increase, is it fair to say that you expect solid double digit growth then for '11 versus 2010 for the heavy duty diesel engines?

Is that a fair assumption?

Only if there's really demand that we will really be able to really meet those demands.

Thank you very much.

Thanks, David.

Okay, what I would like to really do is that there are really various questions to get relating, put on the website.

And I will try to answer those questions that's already been asked.

I have looked at all those questions and I will broadly categorize those as those questions that have been asked.

One is CapEx.

So the question asked on CapEx, I would just briefly say that in terms of CapEx, I will -- the year to date Q2 in terms of the CapEx expenditure is CNY240m.

And then in Q2, we have a cash flow in terms of CNY99m.

And in terms of the CapEx budget, obviously, well when there is really a good project in terms of a joint venture or partnership, we really have to increase our CapEx.

But in general, CapEx at the rate just looking from above here, of CNY400m to CNY500m per year in terms of upgrading all these facilities in our CapEx expenditure.

And now the other question about JV update.

I have really mentioned our various JV updates.

And I know it was really a question about when will they really contribute in revenue and earnings.

We would not really be able to do that forecast.

But what I tell you is that once, so you have really heard from the update, in 2011 there will be revenue and because two other JVs is really going to start up their production.

So we are really happy to say that.

And currently, like Xiamen Yuchai, it has really been progressing very well.

So we hope that all the JV projects will run smoothly, as we already expected.

And in terms of the question, if we are really being asked about Geely joint venture, so the Geely, as I already mentioned in my update, there will be the construction progressing.

Equipment there is relating.

So we put in place and it [deliver].

So we would have our production in terms of okay our crankshaft by 2011.

Now that crankshaft really is going to be procured by Geely because Geely do need those crankshafts and we have already capacity to really start the crankshaft production to supply to Geely.

Okay, what I'll do is, I'll just take a pause and I will get the questions from the audience.

(Operator Instructions).

And you have a question from the line of David Raso with ISI Group.

Hi, I appreciate you taking the time.

I apologize for the third question.

But I'm curious what you're seeing on the competitive landscape.

How do you feel the migration to heavier truck is playing out?

You've spoken of your market share.

But I'm just curious how you're seeing the industry evolve right now.

Have you seen some smaller competitors back away from the market?

Have you been surprised their ability to step up and try to sustain some team on the heavy and of course some of the bigger competitors out there like Wuxi and Cummins?

Just curious to get your perspective on the evolution.

Yes.

In terms of heavy duty truck market, generally in terms of getting investment, there is -- it's quite high.

So that's why that if you look at the general landscape in terms of diesel engine industry in China, there are a lot of players, particularly in the small forces in the engines and below.

So if you look at the 6L or the heavy duty truck, there are very few players.

But are there any other players who are really going to come in?

Yes, but that's really going to be a heavy investment in that.

Okay, that's really one of the barriers in terms of the heavy duty engine market.

The second thing is that as you know, the emissions level is getting more and more stringent.

So there will really be a lot more of technology that's really involved in getting the heavy duty truck industry.

So what you would really see is that as well, investment is really a barrier.

Then the second thing is that there will really be a lot of, I would say, a number of heavy duty truck manufacturers.

There's really going to be a [problem] with key engine suppliers to be able to really supply the products.

So in a way there is really going to be a few very, very strong players, and there will probably be international or overseas participants coming in as we move on.

But I would not really see that there is really going to be very [product] heavy duty truck market.

So you would say in summary, the weaning, or the decreasing of players in heavy as we move up in emissions challenges and the required investment, we are getting the natural progression, which is a good progression as long as you're one of the survivors?

We are seeing some of those small players simply decide we're not going to even try to step up to the heavy side.

So we are already starting to see the evolution.

Is this emission cycle here a notable increase in that evolution?

Is it an acceleration?

It just seemed like maybe this standard was one to see even a little more acceleration, and some small players just saying, forget it, we just can't step it up at that level at that size engine?

Yes, you're absolutely right.

What I really want to add is first of all, there is really this barrier to entry.

They want to enter but it has really this barrier to entry.

We should get, I believe, that it will really be limited to certain players that will really be able to meet those challenges, emission challenges, and those investments in the heavy duty engine technology.

Thank you very much.

Thanks, David.

The next, I have again another question about the outlook for the industry heavy duty engines and bus engines.

What I would say is that in Q2, the year to date second quarter, the truck market, heavy duty truck market increases 109%.

That is really a huge increase compared to last year.

And Yuchai, in terms of the heavy duty truck market, we increased by 135% in terms of the unit volume.

And therefore the bus market, the total bus market, our volume increased by 54%.

But overall market for bus increased by 49%.

I mentioned it in my report.

So again that's about it.

If you were to really look at the heavy duty engines and the bus engine, yes, there is really demand and then in general, the first quarter has been really outstanding.

The second quarter is moderate a little bit.

And we hope as well that it's second half that we will really be able to meet the customers' demand in terms of the continuation of what the market is really going to be.

And we believe that as well, the bus market is going to be continually demanding those engines.

And the next thing that we want to mention is that for international market, while we also really see again demands for buses as well for trucks that is being exported overseas.

So that's really opportunity for Yuchai to have to have better engines in OEM trucks or buses which is exported overseas.

Okay, I will take the question from audience.

This is Weng here.

I've seen some questions regarding our cash position that came in from audience.

Let me perhaps quickly just to correct that.

Now, if you look at our cash and cash equivalent, at the end of June we have close to CNY3.5b coming down from -- at the end of December.

Some of this is due to really the acquisition -- some of this is due to the joint ventures, as Boo has mentioned earlier.

And we're also having to pay our suppliers as well, those suppliers that we have bought from and credit them where the issue bills to them.

Some of these bills are maturing.

But the result is that the cash has dropped slightly from the end of the year.

Now there's also a question in relation to the cash that we received from the sale of our shares.

Now those cash receipts have added about SGD50m are used to pay down the loans that CYI, China Yuchai has with the banks, so our bank loan at China Yuchai level has gone down significantly.

Okay.

Okay, that's really a question from the audience.

It says is the roadshow still being planned for this year?

Yes, we are still planning to go, yes, for the roadshow.

And in terms of analyst coverage, I just really want to let everybody know that there are analysts whom we have met in China and we have a teleconference call in the US, and also that we have met some of the analysts that are from Singapore as well.

And also I think in early April we have hosted analysts going to this Yuchai, Guangxi Yuchai, to see the plant.

So yes, we are really having this coverage on analysts, and we are -- if there's any analysts would like to talk to us we will be able to talk to those analysts and talk a little about our business.

We'll take questions from the audience okay.

(Operator Instructions).

Okay, I have a question here from the audience asking whether the receivable days seem to have gone a little bit.

Do you expect it to come down.

Well, it is receivable days is very good.

We do have very high receivable days.

It will go up and down, depending on the sales volumes that we had.

That would be a main driver of the days of -- receivable days and payable days.

A question from the audience?

(Operator Instructions).

There are no audio questions at this time.

(Operator Instructions).

We have now reached the end of our Q&A session.

And I will turn the call back over to Mr.

Saw.

Well I do have another question from the audience.

In the past, you mentioned R&D will be 3% and noted that it's still just 2%.

Do you expect the R&D percentage of sales to increase?

What it is, is that the R&D percentage, as a percentage of sales, let's say it ranges between 2% to 3%.

In terms of what we really see is that more of this R&D is really -- we are going to be very proactive in terms of the work projects that we are doing.

And then what we do is that we have got a list of priorities in terms of projects on R&D.

And if we are going to go ahead and do it, then you will have to see what are really other forces and then we'll reset our priorities in terms of all these R&D projects.

And at the end of the day, yes, we also we really want to control those expenses, as well.

So that is really where we look at it as well.

In terms of the R&D, it might really range from 2% to 3%.

But I think that that is really what we need to do, in terms of prioritizing those R&D to make sure that those projects that we are doing in R&D will benefit Yuchai in the long term.

Are there questions from the audience?

There is a question from the audience.

It says that Shenzhen recently implemented the Euro 4 tender.

How fast do you think the oil companies to supply the Euro 4 diesel readiness?

What it is, is that currently the diesel is already available.

That has been supplied by the oil companies.

It's just that the cost there is relatively high.

So there will really be -- with those Euro 4 diesel that is really being sold within those big cities.

But there are also those that are not of a Euro 4 diesel grade sold outside the city.

So there will be a lot of this fuel in terms of the non-Euro 4 diesel, as well.

So it is already available.

It's just that the cost is relatively high, compared to non-Euro 4 diesel.

There is another question on Six Sigma initiative.

How far along are you and ultimately, what are your targets before margins?

Well what we have really done is that this is really the very first introduction of the Six Sigma project.

So we have moved quite a fair bit in terms of probably about four or five months now in terms of Six Sigma.

But in terms of the benefits and all that, we see that there is a great enthusiasm in terms of the implementation.

But I would not really want to quantify how much of this quantitative savings and all that will be.

But it is definitely going to get the operating into the productivity, as well as the rate of cost reduction within the Yuchai manufacturing.

There is a question that since the end of the quarter, have you seen any change in behavior of your customer.

Given what has been reported, in the drop off in auto sales, are you seeing any change in trucks?

Well trucks market is a little bit different.

What it is, is that in the first quarter, there is really a very strong demand of trucks.

And definitely those engines that we have, have been in great demand.

So there is really less price pressure.

So we have again the second quarter, which is really a good quarter, and there are no price pressures as to what we have seen in the second quarter.

So moving on, if the market really drops, we might see this situation like the auto sales.

But so far, we have really not seen that behavior in terms of price gouging.

So that's really the observation for Yuchai.

There is a question that says, can you characterize the market as you see it today?

Has there been ratcheting down in terms of orders?

What it is, is that as we have reported in our second quarter, that the sales here in the first quarter was outstanding.

And the second quarter has been moderating.

And with those credit tightening and also those anti-inflationary measures, there is really still this moderation that goes on, as a lot have seen.

But when we look at the characteristics of the market, what we see is a lot of these medium, heavy duty trucks that have been sold as compared to the light duty truck.

Maybe this is really a good trend for the medium and heavy duty truck market, which is really good for Yuchai.

There is another question.

Do you expect to a full year-on-year increase in shipments for Q3?

Sorry for -- I apologize.

I would not be able to really forecast on Q3.

We'll talk about Q3 here when it comes to our earnings conference call next.

There is a question here asking when is the roadshow in the US?

Well what we have planned is that we are looking at a few of those conferences where we will be able to really make an impact in terms of our presentation on a roadshow.

So we have not really decided which one we wanted.

It will probably be fourth quarter.

And I see that as well, if there is going to be something that is really excellent in terms of presenting China Yuchai, we will get then those conference.

There is a question that says what percentage of sales are exports?

The current export percentage is about 8% to 9%, of the total sales.

So there is going to be quite a lot of opportunity for us to be able to sell more towards the international market.

Okay.

Any more questions, Lori?

There are no audio questions at this time.

There is a question here asking whether or not we can breakdown the margins for heavy, light duty engines.

All we can say here in the public conference is that heavy duty engines are significantly higher in terms of margins than a light duty engine.

That's why we had a good improvement in our overall margin for the Company, from 16.7% to 22.3% for the quarter.

I look through here.

There is really a long list of questions.

I look for an interesting question that was asked.

It looks like Yuchai is on track to deliver the finest prototype for this joint venture by end of Q3 2009, referring to the joint venture with Chile.

And in early June, SAIC, Shanghai Auto Industrial Corporation, announced it was buying [Unipower] based in (inaudible) Southwestern China because SAIC believes there is an opportunity in diesel powered passenger cars.

Is Yuchai still confident that this joint venture with Chile has great potential?

I want to say that for the project that we get into, if it's really viable, then we'll really get into it.

And for -- if the gasoline price is relatively higher, then I believe that clean diesel is really a better alternative in terms of the diesel power for the passenger cars.

So going back to what we see in the market in terms of light vehicles, the -- last year, during the stimulus plan that was released, this rumor of the eco-stimulus program in the stimulus plan.

And in 2008, for light vehicles, the sales was 1.35m units.

And in 2009, which is really a continuance -- a continuation of the rural eco-stimulus plan, so the sales increased by (technical difficulty).

I'm sorry for the technical delay.

Today's conference will resume momentarily.

Until that time, your lines will be placed on music hold.

Thank you for your patience.

We wish you all a good day.

And if you have additional questions, please email them to me and I'll make sure the management gets to review them.

Again, sorry for the technical difficulties.

Thank you.

Thank you all for participating in our second quarter 2010 earnings webcast.

We look forward to speaking with you again.

And I wish you all a good day.