China Yuchai International Ltd. 2026 H1 Earnings Call

Please go ahead, sir. 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. Weng Ming Hoh and Mr. Chuen-Sin Lu, the President and Chief Financial Officer of China Yuchai International, respectively. In addition, we also have in attendance Mr. Kelvin Lai, General Manager of Operations of China Yuchai 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 20-F under those 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 on today's call, or otherwise in the future. Mr. Ho will provide a brief overview and summary. 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 US 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 engine unit sales. Our gross profit rose by 36.5% year-over-year to RMB 2.5 billion or $368.7 million, with gross profit margin increasing to 17.1%. Operating profit was 58.9% higher at RMB 988.2 million or $145.1 million. Profit attributable to our shareholders rose by 53.2% year-over-year to RMB 560.6 million or $82.3 million, with diluted earnings per share of RMB 14.81 or $2.17 in first half 2026. Higher sales of our larger engines enhanced 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 heavy-duty truck engine unit sales increase of 47.3% year-over-year.

Engine unit sales to off-road markets increased by 7.7% 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% year-over-year. Our joint ventures and associates produced a 56.2% year-over-year growth in profits in first half 2026, propelled by higher sales and profits, mainly from MTU Yuchai. Order demand for high-horsepower engines continues to be strong. The combined production capacity for high-horsepower engines across the MTU JV and Yuchai currently stands at approximately 5,000 units. Sales to AI data centers by MTU JV and Yuchai's own brand grew to approximately 1,800 units in first half 2026. With increased engine technology content advancing performance and environmental impacts, we increased total R&D expenditures, including capitalized costs by almost 30% to RMB 622.5 million, or $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 Yuchai's YCY24-65kW flywheel range extender systems or YC-FRS, 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 fuels program with our first high-pressure, direct injection internal combustion engine, capable of operating entirely on ammonia. We acquired a 27.97% equity interest of Nanyue Fuel Injection Systems, or NYDK in short. It was previously known as Nanyue Diankong (Hengyang) Industrial Technology Company Limited. This transaction strengthens our technology capabilities, access to new powertrain products, and supply chain resilience. Since April 1st, 2026, NYDK's financial results have been consolidated following Yuchai's acquisition of control over NYDK on March 31st, 2026.

Our subsidiary, Guangxi Yuchai Marine and Genset Power Company Limited, continues the process for its IPO 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 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 Yuchai Double Growth Fund, a private equity fund that invests in businesses focusing on innovative technologies. At the end of June 2026, our cash management and cash flow from operations provided higher cash and bank balances totaling approximately RMB 1.2 billion with lower borrowings.

Reflecting our commitment to delivering value to shareholders, a cash dividend of $0.87 per ordinary share for 2025 was paid in July 2026, compared with $0.53 per ordinary share for 2024 paid in 2025. Our strong financial position empowers Yuchai's ongoing investment in product upgrades and new product development, which furthers the establishment of our growing presence in selected international markets to support future growth. Our strategy remains 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. Jun Seng Loo, our chief financial officer, who will provide more details on the financial results. Jun Seng, you may begin your remarks.

Thank you, Weng Ming. Now let me review our unaudited 2026 first six months results ended June 30th, 2026. Revenue was RMB 14.7 billion, or USD 2.2 billion, compared with RMB 12.9 billion in first half 2025. 13.9% 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. Total truck engine unit sales were up 20.4% year-over-year in first half 2026, outperforming the 5.8% year-over-year growth in overall commercial truck, excluding gasoline and electric vehicles sales reported by the China Association of Automobile Manufacturers, CAAM, 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 declined by 18.9% in the same period. Gross profit increased by 36.5% to RMB 2.5 billion or $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 reduced warranty expenses. Gross margin was 17.1% in the first half 2026, compared with 14.3% in first half 2025.

Increased sales of larger engines enhanced the gross profit margin in first half 2026 year-over-year. Other operating income net decreased by 32.2% to RMB 150.2 million or $22.1 million, compared with RMB 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 RMB 583.4 million or $87.1 million, compared with RMB 476.7 million in first half 2025. Due to higher experimental and personnel costs and the lower level of capitalized project costs. Total R&D expenditures including capitalized costs were RMB 622.5 million or $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% of revenue for first half 2025 compared with 7.5% of revenue in first half 2025. Operating profit increased by 58.9% to RMB 988.2 million or US$145.1 million, compared to RMB 621.7 million in first half 2025. The operating margin increased to 6.7%, in contrast with 4.8% 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 costs decreased by 16% to RMB 27 million or US$4 million, compared with RMB 32.2 million in first half 2025, primarily due to reduced term loans during the period.