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Operator
Thank you for standing by and welcome to the China Yuchai third quarter 2010 financial results earnings 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 now like to turn the conference over to Kevin Theiss.
Please go ahead, sir.
Kevin Theiss - IR
Thank you for joining us today, and welcome to China Yuchai International Limited's third 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 beliefs and expectations, including, but not limited to, statements concerning China Yuchai's operations, financial performance and financial 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 third 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 begin your presentation.
Boo Guan Saw - President
Thank you, Kevin.
While it is typical for sales in the automotive industry to slow down during summertime, the commercial vehicle market continued to grow, especially in the heavy-duty sector.
According to the China Association of Automobile Manufacturers, CAAM, in the first nine months of 2010, truck production was 2.88m units.
And truck sales were even higher, at 2.92m units.
Ongoing infrastructure construction and a continuing urbanization are generating greater truck demand in China for transporting supplies and staples.
Total heavy truck demand in China grew by 31% in September of 2010, compared with a year ago.
China Yuchai's heavy-duty truck engine sales increased 85% in the nine months of 2010, exceeding the 74% growth of the overall Chinese heavy-duty truck market.
Our market share for heavy-duty truck engines increased from 9.8% in 2009 to 10.5% in the first nine months of 2010.
The sales in the heavy -- medium-duty market in the nine months of 2010 grew by 6.1%, versus 5.9% for the overall medium-duty market.
Our light-duty engine sales also increased slightly during the nine months period ending September 30, 2010.
Growing urban populations are also demanding more buses.
Yuchai's sales to the large bus market for the nine months increased 72.9%, while China's large bus market increased 43% year over year, as we expanded our market share.
We maintained our position as the overall leader in sales of our diesel engines in China for the first nine months of 2010.
Our third quarter gross profit rose slightly more than 10%.
And the gross margin climbed to 23.1% from 19.9% a year ago.
The higher gross margin reflects the ongoing shift in our product mix -- sales mix to the more profitable heavy-duty engines, combined with the greater manufacturing efficiencies as a result of economies-of-scale from our foundry operations.
Through a series of cost control measures and financial management, total net profit for the third quarter of 2010 was CNY285m or $42.7m, up almost 40% year over year.
I will now provide some more updates on our various joint ventures.
The CIMC-Chery joint venture is on schedule to commence production of the new heavy-duty YC6k diesel engines by the end of 2010.
Several YC6k engines, installed and tested in heavy-duty trucks, have exceeded 150,000 kilometers.
And we are pleased with this engine's performance.
The YC6k will extend the power range of our heavy-duty engines beyond our current limits and are certified for National 3.5 emission standards, as well as being compliant up to National 6 emissions standard.
The Geely joint venture produced the first-generation 4D20 diesel engine, designed for the passenger vehicle market.
And the next development phase of this engine is underway.
The crankshaft manufacturing equipment was delivered to Geely joint venture facility in Zhejiang.
And our crankshaft production should begin, the second quarter of 2011, with a capacity of 100,000 units to supply to Geely's gasoline engines.
Finally, our Caterpillar remanufacturing joint venture is expected to commence operations in early 2011.
We are also doubling production of our 6L, 6M heavy-duty diesel engines to approximately 120,000 units in early 2011.
Combined with our new heavy-duty diesel engines, this expansion will allow us to further penetrate our current markets and provide access to new markets.
Installation of our heavy-duty 6L, 6M [tape] machining unit is scheduled to be completed in the second quarter of 2011.
Our hybrid engine sales are relatively small today.
But their ability to reduce fuel consumption by up to 25% to 30% will make them more important in the future, as the Chinese government raises fuel prices.
We maintain a large lead in the sales of our diesel hybrid engines in China.
The new foundry has increased production to improve efficiency with better quality and lower unit cost for our high-quality, high-performance cast engine blocks and cylinder heads.
Capacity is expected to increase to 45,000 castings per month.
The quality at the new foundry has improved over the already high standards of the older foundry.
Phase 2 of the foundry expansion has started with a planned investment of [CNY500m].
Also, capacity at our assembly facility at Xiamen Yuchai has grown from the original 10,000 annual unit rate, to over 150,000 annually.
And this will be increased to 60,000 units in 2011.
In 2010, China Yuchai started to build six sigma programs, and the next phase of these programs will be launched in 2011 to improve operations and overall efficiency.
With our new and expanded operations, we believe that China Yuchai is in an ever -- even better market position to continue its leadership 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 third quarter 2010 financial results.
Weng Ming Hoh - CFO
Thank you, Boo Guan.
The financial results being presented herein for third quarter and nine months of 2010 have been prepared in conformity with international financial reporting standards, as issued by the International Accounting Standards Board, IFRS.
Our net revenue for the third quarter of 2010 was CNY3.3b, or $497.6m, compared with CNY3.5b or $524m in the third quarter of '09, representing a 5% year-over-year decline.
The total number of diesel engines sold by the Company's main operating subsidiary, Guangxi Yuchai Machinery Company Limited, GYMCL, during the third quarter of 2010 was 109,023 units, compared with 114,855 units in the third quarter of 2009.
The decline in unit sales volume and net revenue were mainly due to a shift in the product mix and higher demand for heavy-duty engines.
Gross profit was CNY769.8m or $114.9m in the third quarter of 2010, representing a 10.2% increase over the gross profit of CNY698.5m or $104.2m in the third quarter of 2009.
Our gross margin was 23.1% in the third quarter of 2010, a 3.2% improvement over the gross margin of 19.9% for the third quarter of 2009.
In the third quarter of 2010, the higher gross margin was mainly attributable to a combination of increased sales of heavy-duty engines and enhanced in-sourcing capability through the highly-automated new foundry facility.
Our other income was CNY36.5m or $5.5m, compared to CNY8.8m or $1.3m in the third quarter of 2009.
The increase was due to exchange gains, as well as gain from the disposal of shares in Thakral Corporation Limited.
Research and development expenses were CNY95.7m or $14.3m in the third quarter of 2010, versus CNY74.8m or $11.2m in the third quarter of 2009, a 28% increase.
As a percentage of net revenue, our R&D spending was 2.9% of net revenue in the third quarter of 2010, compared with 2.1% in the third quarter of 2009.
The higher R&D expenses were mainly due to an increase in staff costs.
Selling, general and administrative expenses in the third quarter of 2010 were CNY353.7m or $52.8m, a 3% improvement from the CNY364.5m or $54.4m in the third quarter of 2009.
As a percentage of quarterly revenue, selling, general and administrative expenses were 10.6% in the third quarter of 2010, in line with the same quarter in 2009.
Operating profit was CNY356.9m or $53.3m in the third quarter of 2010, a 33.2% increase over the CNY268m or $40m in the third quarter of 2009.
The increase is mainly due to the higher gross profit.
The operating margin increased to 10.7% in the third quarter of 2010 from 7.6% in the third quarter of 2009.
In the third quarter of 2010, total net profit attributable to China Yuchai's shareholders increased 35.8% to CNY217.5m or $32.5m or earnings per share of CNY5.84 or $0.87, compared with CNY160.2m or $23.9m or earnings per share of CNY4.3 or $0.64 in the third quarter of 2009.
Nine month ended September 30, 2010.
For the nine months ended September 30, 2010, our revenue -- net revenue rose 25.1% to CNY12.4b or $1.9b from CNY9.9b or $1.5b for the nine months ended September 30, 2009.
The gross profit increased by 52.4% year over year to CNY2.7b or $401.4m from CNY1.8b or $263.3m for the nine months ended September 30, 2009.
Gross margin for the nine months ended September 30, 2010 rose to 21.7% from 17.8% in 2009, mainly due to increased selling of higher-margin heavy-duty engines.
Operating income increased 131.8% to CNY1,156.8m or $172.7m from CNY499.1m or $74.5m for the comparable period in 2009.
The total net profit attributable to China Yuchai's shareholders for the nine months ended September 30, 2010 was CNY668.4m or $99.7m or earnings per share of CNY17.93 or $2.68.
Total equity attributable to China Yuchai's shareholders increased to CNY4.7b or $695.9m on September 30, 2010 from CNY4b or $604.3m on December 31, 2009.
With that, Operator, we are ready to begin the Q&A session.
Operator
Thank you.
We will now begin the question and answer session.
(Operator Instructions).
And your first question comes from the line of David Raso with ISI Group.
David Raso - Analyst
Hi.
Hello, everybody.
My question, the first one, relates to the gross margin.
We obviously saw a quarter where the revenues were down.
But you're still seeing a big gross margin expansion.
When you look out to '11, if you want to even speak longer term, this mix shift that you're getting in your product profile, how do you view the gross margin, say '11 or '12?
How should we think of the run rate, just given the mix I would assume would continue to work in your favor, as we move forward?
How are you viewing the business model, what the gross margin level should be, with the -- moving forward?
Boo Guan Saw - President
David, this is Boo Guan Saw.
What it is, is that if we were to go back down to history whereby the light-duty engines have a -- get a larger percentage, say for example, it goes from about 51%, 52% versus the medium and heavy-duty, which is 48%, the gross margin was about 19%.
That's the [rule], 19.9%.
Now if we shift more towards the medium and heavy-duty right now, it is -- right now, I would say that the medium and heavy-duty, the proportion is 51.8%.
And that is compared to the light-duty.
Then the margins shift by about 3.4% -- 4.3%.
So that is going to be, going down toward 2011.
So what we see is that the medium and the heavy-duty product is still going to be featured, but on again a larger percentage.
So if we are going to shift 1%, that is going to be a tremendous improvement, in terms of our margin.
So I would say in general is that last year, if we had about 48% of medium and heavy-duty, the margin was about 19.9%.
So this year, we have about like 51.4%, the margin was about 23.3%.
That was really reported in that.
(Multiple speakers).
David Raso - Analyst
-- my question.
So for a pretty modest swing in that mix, 300 basis points of gross margin was pretty significant.
Boo Guan Saw - President
That's correct.
David Raso - Analyst
And I'm trying to get a feel for if the Company did go to 55% heavy and medium, I'm just trying to get a feel for how much the mix could show itself, to get to a 25% gross margin company
Boo Guan Saw - President
It would probably be a little bit difficult to estimate that David, because what we are seeing is that -- well we are going to have some new product coming on-stream, which is heavy-duty, for example.
And when we introduce that in the market, we are going to get the volume first.
And there's going to be some price pressure as well, as we move into a fairly mature product.
So I would not be able to estimate for you, well, a certain percentage will give a certain percentage of gross margin.
David Raso - Analyst
And regarding some of the recent economic data out of China, the PMI was very strong.
And overnight, we had the reserve ratio increase, trying to maybe tap the brakes on.
How should I think about what you're seeing in your markets right now?
Is it starting to -- I know the comparisons are hard, year over year -- but are you getting the impression from your order book that business is starting to reaccelerate?
Or should we look for another quarter or two of down revenue year over year?
Boo Guan Saw - President
Well, what we are seeing is that if I were to look at the first quarter of this year, it is a tremendous quarter.
So can we repeat it in the first quarter of next year?
I doubt that it is going to be that great.
But in terms of compound annual growth rate, I would say that there is going to be quite a sustainable growth, in terms of the heavy-duty truck market.
David Raso - Analyst
And again, while I appreciate the comparisons are hard the next couple quarters, if we forget about year over year, just kind of from a standstill right now, is your order book somewhat consistent with the PMI, that maybe things are actually starting to accelerate?
Boo Guan Saw - President
Yes, I believe that in a way it is, because when you look at some of those PMIs, that increased.
We also see some of those increase because of economic activity, which is really related to the sales of diesel engines.
David Raso - Analyst
And last question.
Are you seeing that more, off-highway or on-highway?
Boo Guan Saw - President
What I can say is that our off-highway volume has increased substantially, but our volume is small, as a total volume.
So I must say that off-highway, I see that there is a tremendous increase, although our volume is very small.
But it is going to be quite substantial for on-highway, I would say, because of the infrastructure development.
David Raso - Analyst
Thank you for the time.
Operator
Your next question comes from the line of Alex Potter with Piper Jaffray.
Alex Potter - Analyst
Hi guys.
Congratulations on the quarter.
Boo Guan Saw - President
Hi Alex.
Alex Potter - Analyst
I was wondering if you could dive in a little bit more on gross margin.
I know that obviously the mix shift is contributing a lot to the increase in gross margin.
But I know that you're also working on increased automation.
You've got that new foundry.
So is it possible to quantify in any way how much of the increase in the gross margin was due to internal efficiency improvements, versus the mix shift?
Weng Ming Hoh - CFO
Hi Alex.
This is Weng Ming here.
Now the -- although the foundry is working, we -- they are starting to produce, but we don't see the full impact of the foundry as yet.
So I would say, at the moment, the -- most of the gain or the improvement in the margin came from the change in the shift.
Alex Potter - Analyst
Okay.
So you'd say that it's fair to say that at some point over the next couple quarters, in addition to -- if the favorable mix shift continues, you could also see some additional gross margin benefit from increased automation at the foundry.
Boo Guan Saw - President
That is likely the case, Alex, because what we are seeing right now is that -- I believe that there was a question on the utilization.
Right now we are ramping up the volume production, as you have seen, at the foundry -- that we are ramping up production.
So when we were to do some of those calculations in terms of our cost reduction, yes, there is quite some cost reduction in terms of product.
So if this is going to be matured, so we are going to see some of this benefit that come from the cost reduction part of it.
Alex Potter - Analyst
Okay, very good.
Then also, I was just wondering if you could comment a little bit on the competitive landscape in heavy-duty engines.
And clearly you are gaining share, as you mentioned, in heavy-duty market.
I was wondering why you think that is.
What are your competitive advantages?
What is it that makes somebody choose a Yuchai diesel engine in the heavy-duty market, versus Weichai or some of the other larger competitors there?
Boo Guan Saw - President
Well what it is, is there are quite a number of factors.
But what I can tell you, first of all, in the early part of this year, there was this shortage of diesel engines.
And Yuchai has produced, certainly, the heavy-duty engine.
And that was a good timing.
So we managed to sell those engines.
And then the OEM seems to get used to our engine and they started purchasing more.
So that is going to be something that we are going to develop, [those long-term partners].
And then the second reason is that OEMs, that when they buy the heavy-duty engines, so some of those heavy-duty engine producers, they also have their own trucks that they are producing.
So it looks like, well okay, I'm an OEM; I buy an engine from you, but in the market you also supply -- you also sell the trucks that I'm competing with you.
So I would like to have -- I would prefer to have an alternative source as well.
And Yuchai being an independent, different engine manufacture we benefit out of that.
So in a way that when we were to look at also -- the other additional point is that we have been very strong in the medium-duty engines.
And with the addition of these new products so sometimes this is good for an OEM to want to continue from a medium-duty to a heavy-duty as well to add into their product lines.
So these are the various factors that will give us an increased gain in the market share.
Operator
Your next question will come from the line of Gerwin Ho with Citi.
Gerwin Ho - Analyst
Hi, Boo Guan.
Congratulations on the results.
Boo Guan Saw - President
Thank you.
Gerwin Ho - Analyst
Yes, it's been a very strong year for the heavy-duty truck market in China.
I think we both understand that this could be a 1m unit a year in 2010.
I think the big question a lot of investors have is what's the outlook for 2011 for the heavy-duty truck market.
I would love to hear your view on that.
That's the first question.
And secondly it's interesting to see you gaining market share in the market.
And you did address the reason why in your previous answer.
In particular can you tell us which customer has been increasing sourcing from you?
I know traditionally we've been big with DongFeng and also maybe some of the smaller truck makers, non-top five truck makers, but can you name a few customers which you see increasing sourcing from?
Thank you.
Boo Guan Saw - President
Okay.
I will answer to you on the landscape on the heavy-duty market growth in 2012.
If I were to look back on the 2000 to 2008 heavy-duty truck market, then I did some calculation this afternoon and it was like about 21% compound annual growth rate.
So the 2008/2009, there was just a dip in terms of the overall market in China.
So when I look further down in 2011 and 2012, I believe that the market will be growing, but it's really not going to be like a 35% or 50% that we are going to see in this year, because this year, you are saying right, that heavy-duty truck is going to hit 1m or over that number.
So I would say that the growth will be continuing, but not as great as 35%.
That's my forecast.
But I do not really have a number or I do not have a range of number whereby I can say that well, for sure this is going to be the percentage.
But it's going to be a growth in terms of heavy-duty truck market, the reason being that there's going to be a lot of infrastructure development.
There's going to be a lot of transportation in terms of the overall market.
And also there is going to be this urbanization and they need a lot of trucks in order to be able to build their second, third tier cities.
And I believe that the 12th five-year plan, which is going to be introduced next year will be able to give us a little more of the future of the next five year growth.
Then in terms of the engine customer, you are right, DongFeng is our biggest customer.
But what I can tell you is that all the top five or so of the heavy-duty truck manufacturers are our customers as well, because when they're on highway we are probably going to be the supplier for those top five, top ten of those truck manufacturers.
Whether they're buying a lot of volume from us or a small volume from us, they are still our customers.
And we want to maintain that and we want to increase our volume.
And that is the key.
Gerwin Ho - Analyst
So I have one more follow-on question.
Another interesting development we've been hearing about is that the EGR type of fuel injection system seems to be coming back a bit this year.
For us in 2010 year to date in terms of heavy-duty truck engine, what's the percentage of EGR engines that we're selling right now?
Boo Guan Saw - President
More than 60%, Gerwin.
Gerwin Ho - Analyst
More than 60%.
How is this compared to a year ago?
Boo Guan Saw - President
A year ago is probably around that range, but this year is a little bit higher but not significantly higher.
So a year ago it's about like 60%, and here it's over 60% for this year.
Gerwin Ho - Analyst
Okay.
Operator
Your next question is from the line of [Zing Huang] with First Beijing.
Zing Huang - Analyst
Hi.
Thank you for taking my call and congratulations on the excellent performance.
Can you give us an idea of the Company's pricing strategy for its heavy-duty engines because, as we understand it, there's many dominant players in the market.
How are you pricing your products to get the new orders and the new business?
Boo Guan Saw - President
Okay.
To make it short, I would say that this year, right now we are working with the OEM to put in a price for our product for next year.
So if I were to look at it there's going to be a whole year pricing discussion between now and end of the year, so that we can have this price being signed, this contract being signed for the whole year from the OEM.
Now in terms of the pricing strategy, what it is, is that I can say, in general, whereby if we have a new product that is just launched sometimes we have got to give a little bit of discount in terms of the prototype sort of an engine, so that the customer can use the engine and then when they run the engine they would like it and then they would be able to purchase in large volume.
So every year the OEM will look at the range of the suppliers and they will start negotiating on the price.
And it is sometimes very difficult to say, pinpoint whereby -- whether we are the highest price or the lowest price.
We are working with the OEM to be able to tell them we have also a value-added in terms of service, in terms of parts, in terms of application engineering, in terms of our service network.
So there are a lot of factors that we have in terms of pricing.
But in terms of a specific -- the heavy-duty truck engines pricing is a little bit better in terms of how we work through those pricing.
So the light-duty is a little bit more competitive and it's a little bit difficult in terms of negotiating price increases.
That is I can tell you in general.
Zing Huang - Analyst
Okay, thank you.
And it seems like a lot of truck OEMs are joining forces, are either being acquired or are having joint ventures with some of the vehicle manufacturers.
Are you seeing -- how will this affect Yuchai in the long run if more and more [truck] OEMs are having their own engine suppliers instead of looking for external engine suppliers.
Do you think that it will potentially limit Yuchai's [truck] engine business?
Boo Guan Saw - President
There is a concern from our side, yes.
Now the most important thing for us in terms of selling heavy-duty engine or even any truck engines or bus engines is that what we are doing is to make sure that the end user customers prefer our product versus their own OEM products.
Say, for example, like you probably know, that some of these OEMs they have a few engine suppliers and they have their own engine as well, but the customer prefers Yuchai's engine.
And why the customer, the end user customer prefer our engine is because they're more -- the engine really is a better product, reliable product and our service is excellent.
So we have a lot of value in terms of what we added to the end user customer.
And we want to maintain that and we want to capture as much as possible end user preference in terms of their purchasing the engine.
So that is one of the things that we want to do for our engine.
And you're right, we always have that concern and we are working hard with the end user customers to maintain our value added.
I have a question that comes through the Internet.
The question is --
Unidentified Speaker
Good morning, guys.
Congratulations on a great third quarter.
I see that the sales trend of selling the high margin medium and heavy-duty units is continuing.
Do you see this trend continuing going forward?
Boo Guan Saw - President
We believe that it is going to continue forward.
And if you look at what I have mentioned earlier on during my speech, we have added capacity to our heavy-duty engines manufacturing.
So in a way that when I see that the end user customer is happy with our product and the end user views our product is reliable, we will be able to supply more of those engines if we add in more capacity.
So, for example, like in the 8.9-liter engine that we have increased from 80,000 units to 120,000 by second quarter of next year, and then in Xiamen we have increased another 10,000.
And then there's the production for the CIMC-Chery that we are going to introduce a 12-liter engine next year as well.
So overall I see that yes we are going to increase the market share and volume of heavy --
The next question.
Compared to foreign diesel engine players operating in China market like for example Cummins, what is Yuchai's edge?
What it is is that I would want to talk about Yuchai's engine per se.
Yuchai's engine is, we talked to a couple of customers and we were having this conversation about why the OEMs choose our engines and why we are selling heavy-duty engines in large volumes.
They have given me the feedback.
One is that Yuchai's engine is very focused towards automotive and it's reliable.
That is one of the reason they told me.
The second thing that was mentioned is that Yuchai's engine is easy to service and we have 1,500, over 1,500 of these service stations all over China.
So for a truck driver they will be able to get service wherever they go, even to the remote area like in Xinchuan or to the western part of the country.
So in terms of what Yuchai -- Yuchai sees that the after-market service and the reliability of the product that fits into this automotive application is very suited for these truck end user.
So that is why we have a lot of value added to the end user customer.
Weng Ming Hoh - CFO
There is a question here relating to accounts receivable.
Now it says accounts receivable have been going up in terms of days of sales to [142] days at the end of September.
Why is that and do you expect this trend to continue?
Now the accounts receivable has been going up, I think compared to the second quarter.
Now one of the reason is that when we receive payment it's usually in the form of bills.
But we expect these accounts receivable to come down towards the end of the financial year when our customers settle the bills with us.
Now, as usual, in this industry when they settle their bills they will also settle using bank bills, which will mean to say that the receivables will stay on for a little while before they come back down again, unless we decide to discount the receivables.
Boo Guan Saw - President
Our next question that asks about updates on foundry expansion phase two and phase three.
I have mentioned in my speech on the new foundry, so the latest in September the production was about 50% of the utilization.
What we are seeing is that the capacity, currently the capacity that we are catering for in phase one is about 45,000 as what I've stated, castings per month.
And in terms of the ramping up, we believe as well it is 50% utilization after six months.
And we'll probably be able to ramp it up to the maximum capacity in early 2011.
Then what we are doing right now is that we have started on the phase two of the foundry.
So the phase two of the foundry, as I mentioned, that we are spending CNY500m.
And that capacity will have a capacity of another 645,000 cylinder heads that we're going to produce.
This is a dedicated cylinder heads line for the foundry.
There is no phase three yet because phase three is going to be again a new investment.
So our original CNY996m capital is for phase one and phase two.
Another question.
Is the light-duty market down in general in the third quarter or is Yuchai losing market share?
The light-duty market is up about 28%, but our market has been flat.
One of the reason is because of the very stiff price competition.
And what we prefer to do is to maintain the pricing.
Obviously we are going to lose some market share, but we are also looking at the alternatives in terms of our cost reduction.
So there are a few things that we are working on to reduce our cost in terms of the four-cylinder or light-duty market.
Okay.
The next question that I have is, Yuchai heavy-duty engine greater than 12-liter, YC6K, has no apparent competitors for now.
Please talk about the market demand and the potential for YC6K.
The YC6K is a 12 to 13 liter engine and is produced by our joint venture partner CIMC-Chery.
I believe that there are competitors in the market for the 12/13 liter range.
Right now what the joint venture is going to produce on the YC6K to supply to the joint venture partner CIMC.
So in April this year there was this Beijing Truck Show, CIMC has exhibited two trucks.
One of them is the cement mixer and they are using the YC6K engines.
And the [OE] was exhibited over in Beijing.
And I believe that with a partner like CIMC that's willing to take the YC6K engines we believe that we have a customer, and we believe that the market for CIMC trucks will be a good start for the YC6K engine.
So to summarize the question is that, yes, there will be competitors, but we have got a great partner who is going to take the volume.
Operator
Excuse me, gentlemen, we have a question from the phone and it comes from the line of [Chris Wang] with [Ocam].
Chris Wang - Analyst
Hello.
Good morning, guys.
Boo Guan Saw - President
Hi Chris.
Chris Wang - Analyst
Hi.
Congratulations and -- [very happy] shareholders.
I just have one question.
I noticed that in terms of average sales price, if I divide the revenue by the units that you sold, it's similar to what it was in the third quarter in 2009.
However, your margin has improved by almost 2 to 3 points -- by over 3 points.
I was just wondering if you could give us a bit more color on that.
It looks like it cost-wise has become a lot better.
Does that have to do with the foundry, or what's the situation here?
Weng Ming Hoh - CFO
Now -- sorry your name is again?
Chris Wang - Analyst
Chris Wang.
Weng Ming Hoh - CFO
Chris.
Weng Ming here.
Now we are able to hold our cost, especially our raw material cost.
It was not -- we did have -- we had a very healthy negotiation with our suppliers and we were able to hold the cost there.
So as a result the mix, the improvement in mix didn't -- it resulted in pretty high -- much higher gross margin shift.
Obviously the foundry coming on stream also helped the efficiency.
There are some efficiency gains from the foundry as well.
Chris Wang - Analyst
Okay, thank you.
Operator
(Operator Instructions).
Okay, thank you.
We have now reached the end of our Q&A session.
I will turn the call back over to Mr.
Saw.
Boo Guan Saw - President
Okay.
Thank you to all for participating in our third quarter 2010 earnings webcast.
We look forward to speaking with you again and I wish you all a good day.
Thank you very much.
Operator
Thank you.
That does conclude our conference for today.
Thank you for participating and you may all disconnect.