China Yuchai International Ltd (CYD) Q2 2026 Earnings Call Transcript

Good day and thank you for standing by. Welcome to China Weichai International Ltd. First Half 2026 Financial Results. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 and 1 on your telephone. You can also submit your questions on webcast via the Ask a Question tab at the top of your webcast player. Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, Kevin Teese. Please go ahead.

Thank you for joining us today, and welcome to China-Yuchai International Limited's conference call and webcast for the 2026 first half year ended on June 30, 2026. Joining us today are Mr. Wei Meng-Ho and Mr. Chun-Sin Liu, the President and Chief Financial Officer of China Uchai International, respectively. In addition, we also have in attendance Mr. Calvin Lai, General Manager of Operations of China Uchai International. Before we begin, I would like to 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 financial performance and condition, and are based on current expectations, beliefs, and assumptions which are subject to change at any time. The company cautions that these statements by their nature involve risk and uncertainties, and actual results may differ materially depending upon 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 20f under this 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 a company specifically disclaims any obligation to maintain or update the forward-looking information whether of the nature contained in press release made on today's call or otherwise in the future mr home will provide a brief overview and summary then mr lu will provide the financial results for the first half year ended June 30, 2026. Thereafter, we will conduct a question and answer session. For the purposes of today's call, the first half-year numbers for 2026 and 2025 are unaudited. Financial results are presented in RMB and U.S. dollars. All the financial information presented is reported using IFRS accounting standards as issued by the International Accounting Standards Board. Mr. Ho, please begin your prepared remarks.

Thank you, Kevin. We are pleased to report continuing growth in sales and profits in the first half of 2026. Revenue increased by 30.9% year-over-year with a 10.9% year-over-year gain in unit sales. Our gross profit rose by 36.5% year-over-year to RMB 2.5 billion or U.S. dollars $268.7 million with gross profit margin increasing to 17.1 percent. Operating profit was 58.9 percent higher at RMB 988.2 million or U.S. dollar 145.1 million profit attributable to our shareholders rose by 53.2 percent year over year to r&b 516.6 million or us dollars 82.3 million with diluted earnings per share of r&b 14.81 all year dollars 2.17 cents in first half 2006. Higher sales of our larger engines enhance both our average selling price and profitability compared with the same period last year. Total truck engine unit sales were up 20.4% year-over-year, led by a heavy duty truck engine unit sales increase of 47.3% year-over-year. Engine unit sales to off-road markets increased by 7.7 percent year over year in first half 2026 primarily driven by strong demand in marine and power generation markets where engine unit sales increased by 42 percent year over year our joint ventures and associates produce a 56.2 percent year-over-year growth in profits in first half propelled by higher sales and profits mainly from MTU-HI. Other demand for high horsepower engines continues to be strong. The combined production capacity for high horsepower engines across MTU-JV and EHI currently stands at approximately 5,000 units. sales to ai data centers by mcujb and each i's own brand grew to approximately 1 800 units in for sub-2026 with increased engine technology content advancing performance and environmental impacts we increased total rt expenditures including capital capitalized costs by almost 30% to RMB, $622.5 million or US dollars, $91.4 million in first half 2026. In addition to enhancing the quality and performance of our current products, we have introduced new innovative products in first half 2026. Commercial minibuses equipped with each high YCY24-65kW flywheel range extended system of YCFRF, were launched in the heavily congested Hong Kong vehicle market. This new technology reduces the need for fixed charging infrastructure. We also created a breakthrough in our alternative fuel program with our first high-pressure direct-injection internal combustion engine capable of operating entirely on ammonia. We acquired 27.97% equity in terms of Nanyue fuel injection system or NYDK in short. It was previously known as Nanyue at Tienkong Kenyang Industrial Technology Company Limited. This transaction strengthens our technology capabilities, access to new biotrend products and supply chain resilience. Since April 1, 2006, NYDK's financial results have been consolidated following Ichai's acquisition of control over NYDK on March 31, 2006. Our subsidiary, Guangxi Ichai Machine Marine and Genset Power Company Limited, continues the process for its ITO application with the Hong Kong Stock Exchange. Upon completion, the listing is expected to provide the subsidiary with more resources to accelerate its growth while we remain we will remain the controlling shareholder of this subsidiary this will enable us to continue to benefit from the subsidiary's long-term development while focusing additional resources on our other operations to further support our strategy of identifying and participating in emerging growth opportunities we invested in and became a limited partner in guangxi each high double growth fund a private equity fund that invests in businesses focusing on innovative technologies at the end of june 2026 our cash management cash flow from operations provided higher cash and bank balances totaling approximately 1.2 billion years dollars with lower borrowings reflecting our commitment to delivering value to shareholders a cash dividend of 87 us cents for ordinary share for 2025 was paid in july 2026 compared with 53 usn for ordinary share for 2024 paid in 2025. our strong financial position empowers each eye's ongoing investment in product upgrades a new product development which furthers the establishment of our growing presence in selected international markets to support future growth. Our strategy remains to be to sell into multiple end markets with a growing and diverse product portfolio.

With that, I would now like to turn the call over to Mr. Junseng Lu, our Chief Financial Officer, who will provide more details on the financial results. just saying you may begin your remarks thank you we make now let me review our unaudited 2026 first six months results ended june 30th 2026 real new was rmd 14.7 billion or us dollar 2.2 billion compared with rmb 12.9 billion in first half 2025 a 13.9 percent year-over-year growth. Engine sales reached 277,684 units in first half 2026, an increase of 10.9% compared with 250,396 units in first half 2025. This growth was driven by stronger performance in the truck segment as well as in off-road applications particularly construction machinery and marine and power generation other truck engine unit sales were up 20.4 percent year-over-year in the first half 2026 outperforming a 5.8 percent year-over-year growth in overall commercial truck excluding gasoline and electric vehicles sales reported by the China Association of Automobile Manufacturers in the same period. Heavy-duty truck engine unit sales increased by 47.3% year-over-year compared with the 13.1% year-over-year growth in heavy-duty truck sales reported by CAAM. Light-duty truck engine unit sales rose by 23.6%, contrasted with a decline in light-duty truck sales according to CAAM. Medium-duty truck engine unit sales also grew 7.9% year-over-year. Engine unit sales to off-road markets increased by 7.7% year-over-year in first half 2026. The growth was primarily driven by strong demand in the marine and power generation markets, where engine unit sales increased by 42% year-over-year. Sales for industrial applications rose by 15.8% year-over-year, while engine sales for agricultural machinery defined by 18.9% in the same period. Gross profit increased by 36.5% to RMB 2.5 billion or US$368.7 million from RMB 1.8 billion in first half 2025. The increase was mainly due to higher sales volume, better sales mix and and reduced warranty expenses overall gross margin was 17.1 percent in first half 2026 compared with 14.3 percent in first half 2025 increased sales of larger engines enhanced the gross profit margin in first half 2026 year over year other open income net decreased by 32.2% to R&B $150.2 million or US$22.1 million compared with R&B $221.4 million in first half 2025. The decrease was mainly attributable to lower government grants and the absence of technology licensing fees income in first half 2026 as compared with that of first half 2025, Research and development R&D expenses increased by 24.5% to R&B $593.4 million or US$87.1 million compared with R&B $476.7 million in first half 2025 due to higher experimental and personnel costs and a lower level of capitalized project costs. Total R&D expenditures, including capitalized costs were RMB $622.5 million or US$91.4 million, representing 4.2% of revenue in first half 2025, compared to RMB $551.7 million and 4.3% of revenue in first half 2025. Selling general and administrative SG&A expenses increased by 12.2% to RMB $1.1 billion or US$158.5 million from RMB $962.5 million in first half 2025. This increase was driven by higher personnel expenses and legal, professional and consultancy fees compared with first half 2025. SG&A expenses represented 7.4 percent of revenue for first half 2025 compared with 7.5 percent of revenue in first half 2025. Operating profit increased by 58.9 percent to r&b 988.2 million or us dollar 145.1 million compared to r&b 621.7 million in first half 2025 the operating margin increased to 6.7 percent in contrast with 4.8 percent in first half 2025. higher operating profit and operating margin were achieved by increased sales and gross margin combined with controlled growth in operating expenses finance cost decreased by 16 percent to rmb 27 million or u.s dollar 4 million compared with rmb 32.2 million in first half 2025 primarily due to reduced term loans during the period the share of financial results of the Associates and Joint Ventures grew by 56.2% to a profit of RMB by $5.9 million or US$14.1 million compared with RMB $61.4 million in first half 2025. The increase was mainly driven by higher profits at MTU-HI Power Company Limited. Income tax expense increased by 85.3% to R&B 215.3 million or US$31.6 million compared with R&B 116.2 million in first half 2025, primarily due to higher profits and the utilization of different tax assets. The effective income tax rate increased to 20.4% compared with 17.8% in first half 2025. Net profit attributable to E2D holders of the company increased by 53.2% to RMB $560.6 million or US$82.3 million compared with RMB $365.8 million in the first half of 2025. Basic earnings per share were R&B 14.94, US$2.19, compared with R&B 9.75 in first half 2025, both based on a weighted average of 37,518,382 shares. Directed earnings per share were RMB 14.8 or US$ 2.17 based on a weighted average of 37,845,508 shares compared with RMB 9.75 based on a weighted average of 37,518,322 shares in the first half of 2025. The company adopted the Chinese-China International Limited 2025 equity incentive plan with a duration of 10 years and granted share options in August 2025 and December 2025 respectively, with a total of 820,000 share options granted as of December 31st, 2025. No comparable share options were granted in the first half. 2025 and first half 2026 now we will go through some balance sheet highlights as of june 30th 2026 cash and bank balances were rmb 8.1 billion or us dollar 1.2 billion compared with remebi 7.9 billion at the end of 2025 trade and bills receivables were rmb 14.1 billion or US$2.1 billion, compared with RMB $11 billion at the end of 2025. Eventories were RMB $5.8 billion or US$844.5 billion, compared with RMB $5.6 billion at the end of 2025. Trade and build payables were RMB $13.2 billion or US$1.9 billion, compared with R&B $11.6 billion at the end of 2025. Short-term and long-term loans and borrowings were R&B $1.4 billion or US dollar, $210.1 million compared with R&B $2 billion at the end of 2025. I will now turn the call over to Kevin for a comment for Q&A section.

Kevin, please. Kevin, please. Yes.

All right. So, please note some officers of China Uchai are remotely calling into the conference. 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. Now, operator, we are ready for questions.

Thank you. As a reminder, if you'd like to ask questions via the phone, please press star one and one on your telephone and wait for a name to be announced you can also submit your questions on the webcast by the ask a question tab at the top of your webcast player please hold while we compile the q a roster for the first question our first question comes from the line of weishin from ubs your line is open please go ahead thank you for taking my question

and first, congratulations on strong results. My question is about the AIDC kind of volume guidance. So we have achieved like 1,800. And I think at the beginning of the year, we are targeting like 2,600. So any color into the second half of this year? This is the first question. and my second question is about the dividend. I noticed that the company announced the 2025 dividend, but the payout ratio seems to be lower than 2024. So I'm wondering any color on this. Thank you.

Okay, I'll take the questions on dividend and I'll let Kevin to the question on No, there's no particular reasons. I think the payout ratio, if you look at our payout ratios in the past 10 years, it ranges from about 30 to 40 percent, sometimes a little bit higher, sometimes a little bit lower. So it's still within that range. So that has to change. So yeah, there's no anything untoward there.

Morning, Mr. Sun.

Let me be brief regarding the volume of the AIDC. So in the first half and then the total volume of the AIDC from both the UCHI and past the MQ joint venture is 1,800 units. So that is for the ARDC only. And for the second half, we will expect the whole year, and then we'll be around about 3,500 and more. So this is where we have adjusted the production and also the sales volume of the whole year of the 2026. And it means that there will be quite a significant growth in comparison to the year of 2035.

Thank you.

Thank you. Very clear.

Hold for our next question.

The next question comes from the line of Fiona Leung of Bank of America. Your line is open. Please go ahead.

Hello, management. This is Fiona from Bank of America. I have a question about our gross margin profile. So in the first half, we see that the blended gross margin improves quite a lot. Could you explain more about the factors behind? whether it is due to the product mix change or our improving cost efficiency. And lastly, I also want to ask the worst margin or the net margin on Yuchai MTU. So for the first half, our share of profit from associate and JV improved a lot. So what's the margin profile for Yuchang MTU currently.

Okay. So I'll take the first question regarding the gross margin expansion or improvement from 14.0% to 17.1%. So I think you mentioned earlier on that the first thing first is that the product mix actually drove the margin up. in particularly you know in the last engine or house power engine right so so that that gives us a nice uptake for the margin all right so that's number one okay and then we also mentioned that our heavy duty you know engine unit seals has increased as well so that also give us some flavor available margin increase you know in that aspect okay of course you know uh the third point is that i think you also mentioned that you know we have continued to to enhance our operational efficiency right that is actually um will help our cost uh uh rationalization right uh in the first half of course our first half we also uh you know um been affected by some unfurlable you know pressure metal price increase so it's kind of being offset against the what we have been doing for the cost of improvement yeah i hope that i addressed your first question uh fiona okay then the second question okay i took the mtu uh question and said so the actually um this year

then 20 2060 the gp of the mtu joint ventures um is a little bit reduced and then mainly because of the cost of the engine and also the um there's some pricing pressure and we had to offer further discount and then also our partners and the the overall the sales of the first half and then increasing by over 40 percent and so the the what the new and also the the net profit is also increase but net profit percentage is not as good as the revenue growth but we are still maintaining about over 30 percent uh gp of the OSS overall so this is uh still uh quite promising and on the on the net profit yeah thank you thank you our next question comes from the line of Yiming Liu of Guotai Haitong Securities please go ahead hi uh thank you very much for taking me so uh congratulations for your strong H1. So I've got two questions. So number one, could you describe any progress on your gas engine product? Is there any chance that they could be used in the data center business for prime power, especially in North America? And another question on fuel cell. So could you describe any progress on your fuel cell business? Is there any chance that they could be used in the data center in the future? Thanks. the gas engine so uh the gas engine actually the um is a traditional uh engine product and then it's available in utah for many years so when we developed the diesel and then the gas engine is also available so it's it's it's a very available product and then ready for the market but you mentioning about on the north american market and then the at the moment our engine is still under the certification process so um now it's waiting and then for all the testing and it can be fully done and then before we can release the engine and then for any other region and at this stage uh we still and then using our our existing port of the vc engine and index is up to uh 2.5 megawatt for diesel and about 3 megawatt for the Greenway application. So if we don't have exact timing regarding when we can get into the U.S. market, we are actually doing everything we can. Thank you.

Can you repeat your second question again on the fuel cell?

Yeah, so could you give us some introduction of your fuel cell business and is there any chance that they could be used in the data center power generation in the future? Thanks.

Well, I mean our fuel cell unit is still sort of in progress. We have been developing products in the past. We have some products that's been installed in the past, especially in Beijing. We have not started working on the power generation side of it. So I guess at some point in the future, it is a possibility, but definitely not in the short term. We do not have a product in the short term for power generation for fuel cell system as yet. Okay.

Okay.

Thank you very much.

Thank you for the questions. As a reminder, to ask questions, you can press star one and one on your telephone and wait for her name to be announced. At this time, there are no further… I beg your pardon. One moment for our next question. You have a new question from the line of Natalie Ong from CGSI. Your line is open. Please go ahead.

Good afternoon. Evening management. Can you hear me? Hi, Wame and team. Congratulations on this good set of results. I have some questions regarding your AI DC capacity I'm not sure if I heard this wrongly earlier at the start of the call you mentioned that your current capacity for high house power engine slash DC engines is currently 5,000 for 2026 is that correct yes that's right so does that mean that actually there has been an increase in capacity so I think previously you were guiding about 4 000 capacity for 2026. okay let me take this question last year and then the our capacity for the high-ross power engine i mean they combine the uh uchi local brand plus the the mtojv brand

and then all add together it's about three three thousand last year and we had uh had the capacity extension program in the at the end of the 2024 so that it was complete last year so the um we had about increasing about 700 unit capacity for the for the highest power but at the beginning of DC and then we also and then modify our internal process so that we have subcontract out some of the machining process and then to the external subcontractor through this practice and then we can increasing it enough in a thousand unit capacity and for machining so now we have all act together and then total is about five five thousand so this is our current capacity for the high horsepower engine so that including and then for those AIDC or on the AIDC application we are still in the in the in the in the panning to further increase the capacity for next year but I mean that we can we are now not had a final decision regarding what's the the one will be but and then we will be increasing the and then for the next and then the year on this thank you okay thank you so my understanding is that capacity is increased due to outsourcing of certain machining requirements that's correct yeah yeah we squandered out some of the machining process in the past and then we do all the machining in-house but now and then we are using the external contractor and then to do some of the machining for us so that we can spare out and then further capacity and then to build more engine.

Okay, so does this mean that you're still guiding for 3,500 only AI DC, that means excluding those sold to non-AI?

That is AI only, yeah, 3,500.

So that means we expect to sell all the capacity that we have, which is going to be 5,000 for the year.

Yeah, yeah, this is exactly 5,000 for the year.

And to be clear, right, the ASPs for high-mod power engines, be it sold to AIDC customers or non-AIDC, the ASPs are actually similar.

Yeah, correct. And because the high-mod power engine is not only for application of AIDC, Yeah, this is only for using the engine for the power generation. So the power generation can be using in the factory. You may be using in a commercial building. And so there's quite a lot of the long AIDC application and then using the high-risk power engine as well.

That's perfect. Can I also check, I know some of your competitors have also been ramping up their manufacturing capacity. How has that affected your ability to command, you know, or maintain, increase your average selling prices for these high horsepower slash AIDC engines?

In fact, I mean that because of the surging demand of the AIDC engine in the high horsepower engine market. so uh not only uchi went here but i mean the all other management research right they also uh do the same thing and then to have the capacity extension program and then since uh the the beginning of the 204 205 and this year and then so i mean the the market is still very competitive and the um every uh engine supplier and then they to i mean they have to do whatever they can and to win the order otherwise yeah um the extension program and um we will have to be um i mean the uh i mean difficult and to uh to get the return so surprising wise and then the uh we haven't and then had any uh i mean the real pricing increase in any compared to the last year except uh we had the cost increase and then from our supply and everything by to the end user for all those additional costs. Engine is still, and then still, I mean, quite a stable pricing anyway. Yeah, thank you.

Thank you so much. Sorry, I have one last question. I know you mentioned that you have not firmed up your capacity, available capacity for next year. So you need to say that you could try to outsource more of this machining and maybe increase capacity or do you think that this will require expansion of lines and therefore more KPEC spending?

Actually we will do in a new way. I mean the one is and then we will further outsource some of the process but we cannot outsource every process I mean from to the external supplier because we can do the what we call the the first the first machining but the fire machining we need to do in-house anything so we still have to I mean increasing some of the machinery and then for the fine machining process inside the factory so you will have to do it both way and then first I said I also and then try to increasing the subcontract processing and secondly and then you still have to increasing I mean to buy some more equipment and then for the internal process as well so we will do the same and the we already had some

kind of user planning regarding on the capacity of next year but we need to finalize and then before we actually put it in the in the action yeah thank you for the questions as a reminder if you like to ask question please press star one and one and wait for a name to be announced once again if you like to ask question you can press star one and one and wait for a name to be announced at this time we do not have any further questions from the phone or webcast allow me to hand the call back to Mr. Ho for closing thank you all for

participating in our conference call we wish all of you good health and look forward to speaking with you again thank you goodbye this conference call thank you for your participation you may now disconnect your lines