China Yuchai International Ltd Q4 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to China Yuchai International Limited Second Half 2025 Financial Results. Please be advised that today's conference call is being recorded. I would now like to turn the conference over to Kevin Theiss. Please go ahead, sir.

Thank you for joining us today, and welcome to China Yuchai International Limited Conference Call and Webcast for the 2025 second half and year ended on December 31, 2025. Joining us today are Mr. Weng Ming Hoh and Mr. Choon Sen Loo, President and Chief Financial Officer of CYI, respectively. In addition, we have in attendance, Mr. Kelvin Lai, General Manager of Operations of CYI and the Chairman of MTU Yuchai Power Company Limited, MTU Yuchai Power. 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, 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 its 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 risks 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's Form 20-F and 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 today or today's conference call or otherwise in the future. Mr. Hoh will provide a brief overview and summary, and then Mr. Loo will review the financial results for the second half and fiscal year ended December 31, 2025. Thereafter, we will conduct a question-and-answer session. For the purposes of today's call, the 2025 second half and fiscal year numbers are unaudited. The 2024 second half year are unaudited and the 2024 fiscal year financial results are audited. Financial results are presented in RMB and U.S. dollars. All the financial information presented is reported using the IFRS accounting standards as issued by the International Accounting Standards Board. With that, Mr. Hoh, please begin your prepared remarks.

Thank you, Kevin. We are pleased to report a strong sales and profit growth in the second half and full year of 2025. For the second half of 2025, our revenue increased by 33.5% year-over-year to RMB 1.8 billion or USD 1.7 billion. Our gross profit increased by 58.4% year-over-year to RMB 2.2 billion or USD 317 million, and our gross margin rose to 18.9%. Our operating profit increased by 193.1% year-over-year to RMB 469.2 million or USD 66.7 million. Basic and diluted earnings per share improved by RMB 108.7 million year-over-year to RMB 4.57 or USD 0.65. For the fiscal year of 2025, revenue increased by 28.9% to RMB 24.7 billion or USD 3.5 billion. Gross profit increased by 44.3% year-on-year to RMB 4.1 billion or USD 578.7 million and gross margin rose to 16.5%. Operating profit improved by 82.7% to RMB 1.1 billion or USD 155.2 million. Basic and diluted earnings per share increased by 34.4% to RMB 14.32 or USD 2.04. Our revenue growth in the second half and year was generated by higher unit sales in nearly every reporting category. Gross profit and margin were enhanced by increased unit sales volume, especially for heavy-duty and high-cost power engines. Our off-road engine unit sales in 2025 increased by 13% year-over-year with marine and genset engines and industrial engines each recording unit sales growth of over 24% year-over-year. The fast-growing demand for backup generators to provide reliable electric power for data center operations created rapid growth for our engines. Combined sales of MTU Yuchai Power and Yuchai branded high horsepower engines to data centers exceeded 2,000 units in 2025, up from 750 units in the prior year. To meet the expected increase in demand for our power generating engines, production capacity expansion is well underway. Exports were an important sales channel as our globalization has been increasing. Our agreement in Vietnam includes Yuchai's support for construction of our partners' production facility, which complements our Thailand production operations. Buses powered by Yuchai natural gas engines were delivered in Mexico, bringing the total Yuchai engine count to 2,400 units powering buses in the Nuevo Leon region of Mexico. Our foundry began batch delivery of advanced casting to Germany, demonstrating the acceptance of our casting product quality by the customer. We are expanding our international sales and service support offices as we believe potential new international partnerships will strengthen our global reach. Our strategy remains to sell into multiple end markets with a growing and diverse product portfolio. R&D expenses increased by 37.3% to RMB 1.4 billion or USD 192.3 million in the fiscal year of 2025. Yuchai continued to enhance engine efficiency and performance of its National VI and Tier 4 emission compliant engines and power generation engines. Progress continued on developing new energy products, including alternative fuel engines using hydrogen, methanol and ammonia combustion technologies. Total R&D expenditure, including capitalized costs, was RMB 1.5 billion or USD 217.1 million. Our strategic alliances and joint ventures produced a 9.4% year-over-year growth in profit in 2025, propelled by higher sales and profit mainly by MTU Yuchai. Recently, we took proactive steps to strengthen our technological capabilities and supply chain resilience by improving access to key components and advancing our participation in critical technology development. We acquired a 27.97% equity interest in Nanyue Diankong (Hengyang) Industrial Technology Company, which is a national high-tech industrial leader specializing in fuel injection systems, including common rail systems, unit pumps and mechanical parts. In addition, we became a limited partner in the Guangxi China Double Growth Fund, a private equity fund focused on investing in emerging and innovative technologies. Our indirect subsidiary, Guangxi Yuchai Marine and Genset Power Company filed an application for listing with the Hong Kong Stock Exchange in January 2026. The potential listing is subject to review and approval by the Hong Kong Stock Exchange and relevant regulatory authorities and market conditions. We believe this action will provide more resources to enhance their operations growth. Highlighting the company's confidence in future revenue, profits and cash flow generation, we paid a cash dividend of $0.53 per ordinary share in July 2025 to show our commitment to building shareholder value. Cash and bank balances were over RMB 7.9 billion or USD 1.1 billion as at December 31, 2025. With that, I'd now like to turn the call over to Mr. Sen Loo, our Chief Financial Officer, who will provide more details on the financial results.

Thank you, Weng Ming. Now let me review our unaudited six months and full year results ended December 31, 2025. For the six months, our revenue increased by 33.5% to RMB 11.8 billion or USD 1.7 billion compared with RMB 8.8 billion in the second half of 2024. The total number of engines sold increased by 28.7% to 210,913 units compared with 163,843 units in the second half of 2024. The increase in the total number of engines sold in the second half of 2025 was primarily driven by a 49.2% year-over-year rise in truck and bus engine unit sales, which significantly outpaced the 13% year-over-year growth in market shares of truck and bus vehicles, excluding traditional and electric powered vehicles as reported by the China Association of Automobile Manufacturers, CAAM. Truck engine unit sales in the second half of 2025 rose by 59.4%, led by a 146.1% year-over-year gain in heavy-duty truck engines. Off-road engine unit sales increased by 7.5% year-over-year, led by strong growth of more than 22% in both industrial and marine and genset unit sales, offsetting lower agricultural engine unit sales. Gross profit increased by 58.4% to RMB 2.2 billion or USD 317 million, up from RMB 1.4 billion in the second half of 2024. Gross margin increased to 18.9% in the second half of 2025 compared with 15.9% in the second half of 2024. The increase was mainly due to higher unit sales volume, a change in sales mix with higher unit sales of heavy-duty and high horsepower engines, and continuing cost reduction initiatives. Other operating income decreased by 44.1% to RMB 224.5 million or USD 31.9 million compared with RMB 401.5 million in the second half of 2024. The decrease was mainly due to lower government grants. Research and development expenses increased by 48% to RMB 874.9 million or USD 124.5 million compared with RMB 591.1 million in the second half of 2024, mainly driven by higher experimental costs, increased personnel expenses, higher mold costs and impairments related to fuel cell development. Total R&D expenditures, including capitalized costs, were RMB 974.2 million or USD 138.6 million, representing 8.3% of the revenue in the second half of 2025 compared with RMB 726 million or 8.2% of the revenue in the second half of 2024. Selling, general and administrative expenses increased by 4.9% to RMB 1.1 billion or USD 157.7 million from RMB 1 billion in the second half of 2024. This increase was mainly due to increased personnel expenses and higher consultancy fees, partially offset by lower accounts receivable provisions compared with the same period last year. SG&A expenses represented 9.4% of the revenue in the second half of 2025 compared with 12% for the second half of 2024. Operating profit rose by 193.1% to RMB 469.2 million or USD 66.7 million from RMB 160.1 million in the second half of 2024. Operating margin was 4% compared with 1.8% in the second half of 2024. The increase was generated by higher unit sales volume, a change in sales mix with higher unit sales of heavy-duty and high horsepower engines, and lower SG&A expense as a percentage of the total revenue. Finance costs decreased by 20.2% to RMB 29.6 million or USD 4.2 million from RMB 37.1 million in the second half of 2024, primarily due to lower bank term loans and reduced bills discounting. The share of financial results of the associates and joint ventures decreased by 15.1% to RMB 49.7 million or USD 7.1 million compared with RMB 58.5 million in the second half of 2024. The decrease was mainly due to reduced profits at Y&C Engine Co., Limited. Income tax expense was RMB 213.5 million or USD 30.4 million compared with RMB 26.4 million in the second half of 2024. The tax increase was due to higher profits in the second half of 2025 as compared with the second half of 2024 and higher deferred tax expenses. Net profit attributable to equity holders of the company increased by 107.4% to RMB 171.6 million or USD 24.4 million compared with RMB 82.7 million in the second half of 2024. Basic and diluted earnings per share was RMB 4.57 or USD 0.65 compared with RMB 2.19 in the second half of 2024. Basic and diluted earnings per share for the second half of 2025 and second half of 2024 were based on the weighted average of 37,518,322 shares and 37,809,824 shares, respectively. Now we will review the unaudited financial results for the fiscal year ended December 31, 2025. Revenue increased by 20.9% to RMB 24.7 billion or USD 3.5 billion compared with RMB 19.1 billion in FY '24. The total number of engines sold in FY 2025 increased by 29.4% year-over-year to 461,309 units compared with 356,586 units in FY 2024. Truck and bus engine units rose by 42.8% compared with CAAM data for vehicle market sales growth, excluding gasoline and electric powered vehicles of 4.5% for 2025. Total truck engine unit sales rose by 50.7% year-over-year compared with a 5.9% year-over-year increase from CAAM data for truck unit sales. Heavy-duty truck engine sales increased by 80.1% year-over-year in 2025, followed by a 34.2% year-over-year increase in medium-duty truck engines and a 67.6% year-over-year improvement in light-duty truck engine sales. Off-road engine unit sales increased by 13% year-over-year, with both industrial and marine and genset unit sales growth of more than 24% year-over-year, offsetting lower agricultural engine unit sales. Gross profit increased by 44.3% to RMB 4.1 billion or USD 578.7 million from RMB 2.8 billion in FY 2024. Gross margin increased to 16.5% compared with 14.7% in FY 2024. The increase was mainly due to higher unit sales volume, a change in sales mix to higher unit sales of heavy-duty and high horsepower engines and continuing cost reduction initiatives. Other operating income decreased by 22.5% to RMB 445.9 million or USD 63.4 million compared with RMB 575.7 million in FY 2024. This was primarily due to lower bank interest income and reduced government grants. R&D expenses increased by 37.3% to RMB 1.4 billion or USD 192.3 million compared with RMB 984.7 million in FY 2024, primarily driven by higher experimental costs, increased personnel expenses and impairments related to fuel cell development. Yuchai continued with its initiatives to enhance the engine efficiency and performance of its National VI and Tier 4 emission standard compliant engines and power generation engines for data centers and marine applications, while also advancing its new energy solutions. Total R&D expenditure, including capitalized costs, was RMB 1.5 billion or USD 217.1 million, representing 6.2% of the revenue in FY 2025 compared with RMB 1.2 billion or 6.2% of the revenue in FY 2024. SG&A expenses increased by 14.3% to RMB 2.1 billion or USD 294.7 million, representing 8.4% of the revenue in FY 2025 compared with RMB 1.8 billion or 9.5% of the revenue in FY 2024. This was mainly due to higher personnel expenses and consultancy fees as well as increased sales and service expenses that partially offset lower accounts receivable provisions. Operating profit increased by 82.7% to RMB 1.1 billion or USD 155.2 million compared with RMB 597 million in FY 2024. The operating margin was 4.4%, up from 3.1% in FY 2024. Finance costs decreased by 20.8% to RMB 61.8 million or USD 8.8 million from RMB 78 million in FY 2024, primarily due to lower bank term loans. The share of financial results of the associates and joint ventures increased by 9.4% to income of RMB 111.1 million or USD 15.8 million compared with income of RMB 101.5 million in FY 2024. The improvement was mainly driven by higher profits of 18.8% at MTU Yuchai Power Company Limited and increased profits at Guangxi Purem Yuchai Automotive Technology Company, partially offset by lower profits at Y&C Engine Co., Ltd. Income tax expense increased by 106% to RMB 329.7 million or USD 46.9 million compared with RMB 128.8 million in FY 2024. The tax increase was driven by higher profit in FY 2025 as compared with 2024 and higher deferred tax expenses. Net profit attributable to the company's shareholders increased by 66.3% to RMB 537.4 million or USD 76.5 million compared with RMB 323.1 million in FY 2024. Basic and diluted earnings per share rose by 74.4% to RMB 14.32 or USD 2.04 compared with RMB 8.21 in FY 2024. Basic and diluted earnings per share for FY 2025 and FY 2024 were based on the weighted average of 37,518,322 shares and 39,335,753 shares, respectively. Now we'll go through some balance sheet highlights as of December 31, 2025. Cash and bank balances were RMB 7.9 billion or USD 1.1 billion compared with RMB 6.4 billion at the end of FY 2024. Trade and bills receivables were RMB 10.4 billion or USD 1.5 billion compared with RMB 8.8 billion at the end of FY 2024. Inventories were RMB 5.6 billion or USD 791.8 million compared with RMB 4.7 billion at the end of FY 2024. Trade and bills payables were RMB 11.1 billion or USD 1.6 billion compared with RMB 8.5 billion at the end of FY 2024. Short-term and long-term loans and borrowings were RMB 2 billion or USD 287.4 million compared with RMB 2.5 billion at the end of financial year 2024. I will now turn the call over to Kevin for a comment for Q&A section.

Thank you, Mr. Loo. 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. If you would like to ask a question in Chinese, please kindly translate your own question to English before turning to the management for answers. And before we start the Q&A, we would also like to announce that management will be attending the forthcoming Jefferies Conference on March 19, the HSBC Conference on April 14 to the 16, Bank of America Merrill Lynch Conference in Shenzhen on May 13, JPMorgan Conference on May 20 to 22; and the UBS Conference in Hong Kong on May 26 to 29. If you are interested in a one-on-one or a small group meeting, please contact the salespeople at these banks. Given the tight meeting schedule and travel plans, we will not be able to accept meeting requests outside the conference venues. Now operator, we are ready for questions.

If you would like to schedule a one-on-one or small group meeting, please reach out to the sales teams at these banks. Due to our packed schedule and travel arrangements, we cannot accommodate meeting requests that are not held at the conference venues. Now, we are ready for questions.

Operator, I've seen the questions online. Okay. So I'll read out the questions from the audience.

So the question is that thanks for the information and congrats on the strong results year-over-year. Can you potentially share more on the much higher expenses in the second half where the effective tax rate is about 44%?

Okay. I'm Choon Sen, CFO of CY. So I will take this questions. So I think this question is about tax expense; we should look at the full year, right? So from a full year basis, there's a 7% to 8% higher due to the deferred tax. So on a year-on-year basis, we were off about a net basis RMB 100 million. So that is actually a noncash item. That is also due to the recognition of accounting that we look at the future profits for all entities. And eventually, then we need to impair those deferred tax assets that should be shown to be assessed. So the company has started to write off those deferred tax assets and reduce it to the level to sustain for the future profit. That's also part of the accounting requirements that we have done that. Yes. So if you exclude that, it will come down to about 20% to 21% effective tax rate on a year-on-year basis. So the changes are probably only about 1% to 2% if you look at 2025 and 2024. Okay. I hope that answers your questions.

We do have questions from the phone line. The first question comes from Wei Shen of UBS.

My question is about the other operating income. I found that in 2024, it decreased significantly. I'm wondering about the reasons and the outlook in 2026.

Okay. I'm Choon Sen here. So your question is on the operating income, right? I just want to confirm your question.

Yes.

Okay. So the reduction is mainly due to the lower government grants. In 2025, probably a lot of people on the call may know that they tightened up the incentive policy issued by the Chinese government. So that has reduced substantially. It's actually half of the government grant that we received in 2024 compared to 2025. As for your next question regarding whether that will continue this trend, we won't project what will be the incentive from the government. But for now, I would think that the trend probably will remain the same as in 2025.

Okay. My next question is about the share of the joint venture having profit in 2025 because we only have the combined results; we don't have the details. Can you provide the numbers for the MTU joint venture? What’s the profit growth for the joint venture?

Well, we'll let Kelvin Lai answer that; he's the Chairman of MTU. He can tell you about it.

Okay. Thank you for the question. The joint venture last year generated a net profit of about RMB 211 million, which increased by 22% from the year 2024. However, the sales volume and revenue are much higher, about a 30% plus increase. The reason why the profit is not as good as the volume sales or the revenue generated is because the product mix has changed, and we sold fewer of the 20-cylinder engines and the profit and revenue is a little bit lower than the other versions.

Our next question comes from Fuyin Liang from Bank of America.

This is Fuyin from Bank of America. I have two questions for the management team. The first one is that in the second half of 2025, we see that the company's gross profit margin improved significantly year-over-year. Could you please elaborate more about the reasons behind that? Is it because we have more delivery to the power generation clients, resulting in a better product mix and hence, the higher gross margin? That’s the first question.

Okay. Let me answer that question. If you look at the unit sales that we disclosed in the announcement, the unit sales actually went up by about 30%. That's one of the major reasons why the profit improved, due to the increase in volume. Additionally, we also sold significantly more of our high horsepower engines. Our numbers show that we went from 750 units to 2,000 units. These two major contributors significantly improved our performance. With the higher volume that we have, higher unit sales will kind of leverage the fixed cost, which contributes to the better gross margin too.

Okay. So I have a follow-up question. Given the better product mix in 2025, what's our guidance for 2026?

It's going to be quite challenging and difficult to provide a good guidance in China. A lot of the sales are driven by government policies. Last year, one of the biggest reasons for the increase in revenue or unit sales was the government replacement policy, which drove much of our vehicle sales and non-vehicle sales volume. Whether the government will continue with that and how strongly they will push that next year is yet to be seen, and that will determine the impact on the overall unit sales growth. However, we do see a significant demand in the data centers last year, which has maintained and is expected to improve this year, but it's hard to give a specific percentage for the growth. Overall, I think this year's non-data center sales are going to be more or less the same if the government continues with the same policies as last year.

So my second question is about our R&D expenses. In 2025, we see that R&D expenses increased over 30%. Looking at 2026, what do you expect the R&D expenses growth rate to be? And what's our key R&D focuses looking at 2026 and 2027?

R&D expenses have grown by around about 5% of our revenue. If we maintain the same type of revenue growth, we anticipate our R&D will also increase proportionately. We are focusing on several areas of R&D, one of them being new energy solutions, particularly in the development of standard EVs and integrating our systems into customers' vehicles. Additionally, we are looking into new energy systems such as ammonia, methanol, and hydrogen-powered combustion engines other than fuel cells. Moreover, the Chinese government is also considering introducing National VII emission standards in the next two to three years; therefore, we are starting R&D efforts to prepare for that emissions requirement. We have multiple areas we are working on to continue improving product efficiency and fuel efficiency.

Our next question comes from Ying Xu of CICC.

Congratulations. I have two questions to ask. The first one is about the future business of the high horsepower engines. We noticed that Caterpillar has announced its reciprocating generators can be used as prime power for data centers. How does CYI view this industry trend? Do we have existing natural gas engine products and technologies to support this industry trend?

Kelvin, would you like to...?

Yes. Let me take this question. The high horsepower engine business forecast still depends on the development of those Internet Service Providers and how fast they build the data centers. We do expect there will still be growth in 2026 when compared to 2025, but we don't have the exact figure as we have not received all the orders from the customers. Regarding your question about natural gas generators from Yuchai, we do have our natural gas engine for power generation. We have the technology and the right product as well. Our natural gas engine will perform similarly to the diesel engine, generating about 2 megawatts for power generation. However, the application of natural gas for high horsepower is currently primarily focused on industrial applications in the region of China or Asia, where customers are concerned about engine costs and have not yet adopted natural gas engines for data centers at this stage.

Very clear. My second question is about our significant market share gain in truck and bus engines, especially in 2025. How do you view the 2026 outlook for domestic truck and bus industry sales, and whether market share growth can be sustainable?

You're talking about vehicle engines. Major vehicle OEMs in the market, some of them are using our engines. In particular, we have been working with the vehicle OEMs for quite a while to get our engines certified and designed into their vehicles, which has recently borne fruit. We expect that this trend will continue into 2026 unless there are unforeseen events. Yes, we do expect to see some continued growth in that area.

Our next question comes from Yiming Liu from Haitong Securities.

I have two questions. The first one is about your backlog, especially for those associated with the data center business. If we compare your backlog right now with half a year ago, is that getting larger? Is the demand and supply getting more and more constrained?

Kelvin?

We need to separate operations. For the Yuchai brand high horsepower engine, most of the component supply comes from China. So we haven't had much trouble on that side. However, costs are increasing this year due to rising raw material prices. The joint venture side does have bottlenecks regarding supply chain issues with our partners in Germany, causing limited supply of components for the joint venture operations.

Alright, but I guess I didn't get it clear. So I'm trying to ask about your backlog, meaning the orders you received from your customers. Is the size of that getting larger during the past few months?

No. We are still working very hard to fulfill those requirements. Delivery remains between three to four months.

Alright. Okay. And my second question is about exports. Do you see any increase in your European business? What are the detailed segments involved? Is it about diesel engines or gas engines? What's the outlook for your European business?

Are you referring to high horsepower engines or truck engines?

Mostly about the large horsepower engines.

Yes. For the export market referring to the Yuchai brand operation, our export markets account for a small percentage, about 10%, primarily in Asia. However, for the MTU joint venture side, we have about 20% to 25% of export opportunities, which are also growing.

What is the outlook for your export to the Asia market?

At this time, there are no further questions from the phone line. We have now reached the end of our Q&A session. I would like to turn the call back over to Mr. Hoh.

Well, thank you all for participating in our conference call. We wish each of you good health, and we look forward to speaking with you again. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.