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China Automotive Systems (CAAS)

Participants
Kevin Theiss Manager of Investor Relations
Qizhou Wu Chief Executive Officer
Jie Li Chief Financial Officer
William Gregozeski Greenridge Global
Call transcript
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Operator

Greetings, welcome to China Automotive Systems Second Quarter 2019 conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]

I will now turn the conference over to your host Kevin Theiss. begin. may you you, Thank

Kevin Theiss

Thank you, Automotive Welcome China us for XXXX second joining Systems today. quarter to everyone conference call.

are Li, from call with Joining and answer questions will today Mr. assistance the Chief to Wu, us conference on Executive be Mr. available Jie Automotive of Chief China Officer the later Financial Systems. They Qizhou Officer translation.

may listeners we will Before call, contain statements. we this forward-looking begin, that I throughout remind statements that all make

the and Forward-looking this date statements of company's only of estimates assumptions represent call. as the

As XX, the from actual to with filed could those the by December call XX-K including heading results any Securities expressly contained as March of events result updates and Form to documents on Securities report due the company's the with company a those or annual Exchange number provide from ended XXXX, a XX, statements or disclaims Commission. future Risk for company's XXXX, result, and new the year other Exchange differ the in Factors described to under as of this The in materially statements these a in company made factors, time forward-looking the duty and in filed otherwise. information, whether Commission any forward-looking time to

question-and-answer On are a and for session. will summary US unaudited The the quarter this and XXXX results will provide in results are conduct call, following I of GAAP. XXXX Management financial a overview brief then second financial reported quarter. second

I'll US dollars. call For the in purposes of review the results today, financial our

grew lower second X.X% position. China's XXXX second in the first X.X% in of of Automotive's XXXX. automobile quarter X.X%, quarter market than with and in from the review of the begin We'll the growth down quarter industry in of recent of XXXX dynamics GDP China

dependent economy X.X% purchases on XX campaigning months more Chinese last and a the XXXX. of Railroads pollution. consumers But are is United of The decline domestic less States to China nervous willing the experienced the government slowest growth major is the sharp make for first in and in exports years. becoming the represented consumption. against six to

emission this This automotive in implemented and restricted actually New Tier some improve resulted vehicle quality the emission standards, VI scheduled July in new X on ahead in X cities these air standards. areas national sales. provinces of were the implementation to of implementation is the and National

XXXX. passenger and National Bureau X.X% cars Unit the PMI in the vehicles growth in guide Index, according XX.X for Managers came of reached by below at factory level, XX.X% Chinese expansion sales the of XX not indicating June to in declined The commercial first Statistics. June six stage economic the and Purchasing months conditions an of is

growth decline the declined Manufacturers to continue XX.X. to new month in of XX cut XX.X from again jobs to while with XX.X factory XX.X slowed May's XX.X June, For May, orders in June, the employment to following May. total declining compared Chinese with XX.X the continues orders Export from from output in XX.X.

year-over-year Manufacturers, decline, of reported sales X.X% production reflected XX.X% with overall vehicle June the data to According and Association Automotive down a by year-over-year. China CAAM,

For XX.X% XX.X% by declined XXXX, the the in six year-over-year, and sales period of decline to months same year-over-year. production first XXXX compared

In total XX.X% to and unit of production to declined car combustion Vehicle X.X% sales compared declined XX.X% segment, year-over-year commercial the market significant bus was and sales XXXX. sales June down XX.X% down down the passenger in were by decrease XX.X%. commercial XXXX. was XXXX, June sales was continues June down production quarter a year-over-year. vehicles In and of Commercial internal experience sales vehicle XX.X% Overall truck in traditional second the in

vehicle with of our of EPS as Henglong the by million XX.X% sales reflects business the declined year-over-year conditions to second and transfer environment this response quarter lower market In the well sales our in as second hydraulic quarter XXXX, the $XX.X of This products joint to traditional the KYB of net steering in reduction XXXX. venture.

was a million, quarter. the decline second with Our electric XXXX quarter XX.X% sales steering the power product second compared of $XXX.X in XXXX

the future. EPS Limited As consistent revenues quarter a Chinese which sales same and percentage accounted new in We growth in net potential with for of of brand XX.X% the for venture Japan quarter second Japanese KYB among Henglong our XXXX. KYB believe in the vehicles with stronger the XXXX, was Company joint has

our the market exclusive as for Our as market position our Chinese We EPS for of remain the combined create future. well contract expected with Approximately are in the this to to under Company our exports in vehicle us XXXX in operations be will products, electric model small success all Wall products new optimistic increase enhance contract. Motor RXXX. steer units shipped XXX,XXX for Great EPS to systems ORA

these control with the are for optimistic to We systems. producing our systems. Company also Electric Hyoseong cost these about EPS of electric of we better joint ourselves, EPS quality, over production motors products electric future own and motors have By for venture use in small our the produce

our North XX,XXX technology system initial new steering America i-RCB October XXXX annual for program project. the one us Commercial units. to customers steering growing of tier sales recirculating-ball autonomous their production our in with one expected a selected is approximating Recognize vehicle develop

quarter North decreased the second America in of by sales hydraulic of products our X.X% steering year-over-year XXXX. in export Our

are through the in be autonomous products on will progress in used XX new program company's the that recirculating-ball steering systems now future. the so other i-RCB We developed making vehicle, for

$X.X operating We the in the gross the product XXXX XXXX with the compared the second reduced XX.X% quarter XXXX. in margin And to million in in our of from quarter from quarter XX.X% due in quarter mainly of second XXXX, of XX.X% second in second quarter increased operations Second by $X.X XXXX, the XXXX. of changes expenses increased mix. quarter XXX.X% to point million of income to second

to $X.X or $X.XX, income earnings to to in increase the per common of $X.XX of $X.X attributable second quarter to of parent income common attributable per share compared Net net company's earnings diluted diluted of XXXX. million company's or share parent shareholders million shareholders

June of cash XX, and equivalents million. and $XX.X As XXXX cash pledged were

and on stand XX, elected Dr. Mr. Robert XXXX, Kooi Dr. independent meeting of and Lu Henry were the for annual the Arthur Tung, members replace who did Teo They re-election. July not Wong general directors. as new Mr. At of board Tong

For the using beyond infrastructure RMB using Other affecting XXXX actions and economy. tax initiated the including government trillion slowly billion $XXX about has X debt regulations of is central stimulus in fiscal government the economy. help boost projects for plan, recent include the government to or some cuts which a

the for rural Commission with the rural monetary sector and emissions area emission new Reform areas. The efficient, and announced growth of complying standards cars subsidize vehicles incentives meters in with XXXX vehicles. consumers with Development cars National will China's has replacing in X.X or complying purchase older the plan standards engines more to to smaller promote automobile compact

owned of emission adding meet the do under purchases, programs encourage purchase incentives discounts Vehicle standards. new these to significant sales And vehicles including are some future may also the that new to stimulate XXXX. state in automobiles car new sales not companies to sell later affect

supply other mark we products As and autonomous ventures knowledge into to of We emergent America. a the China, as quality South and ventured better continue opportunities vehicle a and even North steering to of gain in are number steering new X high establish to steering growth in positioned one foothold the joint Tier in position suppliers from of EPS manufacturers well we largest benefit technology. create market, in

be and to the continue goals. to strategic resources financially We our strong maintain accomplish

XXXX. Now, quarter review second financial of the let me results the for

by million to decreased the Our automobile domestic products $XXX.X declined $XXX.X in to XX.X% in of compared brand of quarter weakened net million, sales the as market. sales XX.X% demand XXXX. Net traditional steering Chinese same

of sales XX.X% of power steering million. total American North its declined Additionally, the by net sales. company's represented $X.X to customers electric Sales

in was was change cost Gross quarter product to profit million XXXX, second $XX mix. second XXXX, The million in versus XX.X% mainly a lower in quarter in gross second of of unit of The the due the decrease to profit decreased sales, the compared to XX.X% margin quarter of and higher $XX.X the quarter XXXX. XXXX. gross in second

in second of in second million the $X compared to $X.X was quarter of sales quarter other XXXX, on the XXXX. Gain million

quarter The of quarter. Selling quarter XXXX. compared expenses logistics in sales X.X% quarter due the lower decreased to second second compared million in the net represented X.X% the second in to of Selling mainly million of expenses the with during was of were related quarter XXXX, $X.X sales second decrease expenses XXXX $X.X the XXXX. to of in

XXXX. General expenses G&A the XXXX. in compared percentage of second in of of second to to $X.X and increase net the and second mainly the represented administrative sales million due XXXX. were of quarter expenses, G&A quarter The X.X% of quarter was sales second XXXX each in of XXXX the in reduced expenses X.X% quarter

the other development of of of on company's in focus second decreased R&D of and X.X% $X.X expenses compared second R&D compared R&D expenses in quarter of second sales the the XXXX, XXXX. with XXXX, quarter second XX.X% XXXX. quarter the $X.X expenses, X.X% to of in and Research represented in to continue the new development million million quarter EPS to the expenses products.

second of primarily Income increase operations in to and on operating other the The same from XXXX. million $X.X was of $X.X quarter in due sales a was quarter to the lower million gain higher XXXX, costs. compared

of to a margin XXXX. in XXXX, second the the second net was X.X% quarter operating X.X% percentage compared of sales, the quarter of As in

million, $X.X of with Net second million the quarter compared second in of was $X.X XXXX XXXX. Financial income the in quarter

the affiliated to quarter million compared before in in Income equity in income of earnings XXXX. second to the increased expenses $X.X XXX.X% of companies quarter XXXX, million tax and second $X.X of

increased attributable parent the of shareholders million compared shareholders $X.X to Net parent XXX.X% quarter of common company's to attributable in company's income of income net to million quarter second corresponding common XXXX. XXXX, in $X.X to the

The number to share diluted in XXXX, $X.XX diluted earnings quarter quarter second the compared of compared quarter outstanding shares was average second XX,XXX,XXX of were share to common quarter XX,XXX,XXX second XXXX. per Diluted per of in in of weighted earnings second in XXXX. XXXX, of the the the $X.XX of

Net compared Six months compared months first million $XX.X month six six the first the to sales million, in in gross $XX.X over profit was to million XXXX, $XXX.X last six to year. of highlights. go we'll Now in XX.X% corresponding $XXX.X XXXX. decreased period months financial the of million

was in on year. million last of first months six in gross compared six compared sales first the the period of $X.X million The in margin the with XXXX. $X.X corresponding in gain XX.X% other corresponding was month XX.X% in months the XXXX XXXX Six period to

XXXX, Income X.X% the million six the of from compared of months period first was compared to $X.X the of million in the months margin Operating in of in $X.X six first XXXX. corresponding in to XXXX, operations six X.X% months was XXXX. first

XXXX. Diluted six was parent share to shareholders million corresponding months of to corresponding of the Net in the of compared per per common the earnings $X.XX $X compared in were earnings income $X.X XXXX, in attributable company's in XXXX, six to of first the XXXX. first share period million in period $X.XX months diluted

and now go will flow over some balance sheet cash items. We

As and compared were to $XXX.X company of million. $XX.X notes XXXX, million $XXX.X and June stockholders' as and Accounts of receivable million XX, $XXX.X December parent million. were payable $XX.X loans equivalents XXXX. pledged XX, accounts as $XXX.X million. including was receivable cash of Total cash June were Total XXXX, million were equity short-term XX,

million six million in cash $XX.X Net compared to of months plant first $X.X million in first six acquire in million property, was and of months six the with operating operating of months $XX.X Payments used activities first net compared in cash $XX.X of used XXXX. in 'XX, XXXX. equipment activities were with the the

outlook, revenue subject market on guidance and the company's million conditions, This its for management the million. full on has current are $XXX to is target XXXX year views operating revised $XXX change. to based which business The from

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

Operator

first you. question Global. [Operator proceed. William Instructions] with from Gregozeski Thank Our Please Greenridge is

William Gregozeski

in you Sales the XXXX XXXX American expecting for of remainder are from guys. to the the Hi fell these customers? customers and What into North quarter.

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[Foreign Language]

Unidentified Company Representative

slight $XX second i-RCB [Interpreted] increase and the due out, half product half half product of North in first coming to to North have Okay, of our will model a we anticipate XXXX coming first second new America sales customer out – America of million the around a for XXXX. the the the was that's export to

half. similar to it's XXXX, flat. total So will that will sales so be second see increase in North equivalent XXXX, in total the be we or going to America sales

William Gregozeski

Okay.

on So we forward growth this going not any market? should really expect

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Unidentified Company Representative

such but be as Yes. America is sales – South will we flat of markets Okay. answer other not increase. to be short It in yes, international in see growth terms expect terms from coming in The compared XXXX, North we When [Interpreted] will sales America. the you XXXX. see of would

XXXX. We have the XXXX. unit – have also XXX,XXX in XXX,XXX in with a contract with that's Fiat. a That's we another Chrysler, Fiat Europe, for with a sorry, Also shipment

So see a our we see joint we these would are venture KYB significant China, with in in will boost off the our internationally. growth area Domestically take That joint venture way. sales.

have a number of we product upgrade. So

And be growth. so to we going much stronger think the of XXXX EPS is in in terms product

William Gregozeski

can more profitable? when the reaction will Okay, business is about talk you that a customer that bent and to turn How KYB? little we see the

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is has so of same now, some in Okay, quality on of in materials, some of six also of [Interpreted] venture, fine quality joint six selling – you reached and standard tuning To months significantly. we standard so level – terms KYB after have the we of give terms grade examples, did market. we increased the engineering feedback higher in in quality, KYB tuning product product Japanese more the Japanese fine customer quality than our some our use

we So customers. positive from with overwhelming Chinese feedback that received domestic already our

On also the period. right measures cost during make side this we

We the have of the made cost side, some fine-tuned production to production procedures. on reductions

gross Now, XX%, previous increased now producing are margin to but from XX%. we our

are improvement significant loss. to volume cost terms be going reached we hasn't in structure right we venture a joint is seeing now of invested and in the level of still XXXX KYB slight a that's XXXX because So so

that profit. turn turn will However, to we expect XXXX around to

So be that XXXXs boost business. will a in

William Gregozeski

with last are sales still And why the seeing falling, alright. Okay, question overall inventory is, increase? the we

Unidentified Company Representative

again? Say the quick question

William Gregozeski

but the in the near is Why obviously sales is that? from sales The the and is increasing still future, are levels. lower inventory previous for falling guidance

Unidentified Company Representative

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question, our sales product inventory increase the our during it's to [Interpreted] due has Okay mainly your the is structure shift mix mix, mainly – answer product to to the quarter. due changed product – or and

we terms this end XX XX inventory. we don't and now mainly a mix sales products. as These kinds products to market, million inventory is million our of are adapt we other to this used to We use at to we're the – the response shifting market of in increase are components moving trend. because we in significant. change shifting from the increased However, to year see of hydraulic believe the of are for And from to we now some natural

will not I at worry the the So about inventory moment.

William Gregozeski

do any larger this might you the mean, you then well, with Okay, year? the there on like of lower might a that write later risk I have guidance, is products hand, some off need to

Unidentified Company Representative

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Unidentified Company Representative

[Foreign Language]

Unidentified Company Representative

Okay. we appraisal more and [Interpreted] moment. do this inventory inventory in We provision, make on of to at there's needed and evaluation provision done have the already quarter every whatever need to no is been do terms it's

answer any to we question, coming. your write see further So don't down

William Gregozeski

Thanks. Okay.

Unidentified Company Representative

you. Thank

Unidentified Company Representative

Thank you.

Operator

[ph], from Robert proceed. next is Our Povich question investor. private Please

Unidentified Analyst

I morning. a Good have couple questions. of Yes.

be I know where electric The motors. plant for think regards first guess joint for what a is that product. other but Hyoseong the wondering in companies the electric to, ultimately will motors was thinking we production? this the thought, might I you these to I I sold in venture just case. were are steering I building they I'm systems? making It's power and a that that stage are be with guess,

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Language] [Foreign Okay.

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[Foreign Okay. Language]

Unidentified Company Representative

[Interpreted] Okay.

Hyoseong joint of venture been So it in the right the completed production now, completed. construction factory the been of terms workshop, the has status workshop and or has

in and the XXXX. in production we'll as the that in start the believe mass our by ordered fourth prototype interiors out launch done Korea time. moment. And end Now meantime, have from be the end We of will At to will time that plan of the October. we're at trail doing it we probably equipment October. And March we quarter production will coming be this during the during is coming at well

terms general Hyoseong So joint that's venture. plan in of the

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[Foreign Language]

Unidentified Company Representative

[Foreign Language]

Unidentified Company Representative

on this EPS [Interpreted] To companies question yes. motor the producers. electric sales your short Yeah, of from venture future joint is to other answer

for capacity million X design production. venture Our is units’ joint the annual

for other sales mainly portion CAAS X, we'll X used X coming big With additional used units. and will million that be online, be of internally a million to The EPS that at X In aiming decide for the Phase remaining will we're of million product. producers. units Phase EPS the X

Unidentified Analyst

I North know answers. Okay, Brazil. regarding, question some appreciate operations. and Brazil America market, the I My US is have next guess I you those

North I issues extent of In everything and would going in light don't a good what on US products You're know assembling, location. this sure what American with the that develop continue is at at be make the trade to strategy grow the that you point and market? to

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Okay. [Interpreted]

trade in of issues, specifically trade the of on in part tackle to – issues, conversation America how our yes, North we we ongoing of incremental in it. with we have customers terms So terms going extended

positive So coming. Brazil our customers comment we particular negotiations the discussion have how South we of resolution of of progress optimistic. have tariff. Brazil. capacity market, some increase increased We'll terms of made We our some share your – in America, in terms on And in to our remain have our we going on in

South we already in order XXXX, on book an That's from mentioned America, Fiat, units. we have XXXX. for XXX,XXX As earlier,

Brazil. are And produced production. will facilities product hoping increasing us become in to particular, of so be will that the help we the as market, most And Brazil in US South we're locally another route also America, to

In crosshair countries are trade other at not and a well. terms Malaysia Canada of as locations, we're district. in These of possibly the looking

the So another markets to we are working of on some develop solution.

strategic are in international as that other growth said, diversify being America we we'll well to are we and our making as So making progress, prospects think maintain markets. – planning we to North

Unidentified Analyst

Automotive owned China the told with And back was private has was I to become privately do proposal go a in and I there had it Okay, company. thank – guess you. and that for to a another fall, question

is at in public remaining this company my share position? a have they so, something if their buyback point are those are the Is or still this ongoing? where point? a where at Thank final China that questions. company effect. be wondering that And Are we will committed in Just to And did Automotive you.

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[Foreign Okay. Language]

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Unidentified Company Representative

or no listed And There's to shareholders. we plan be [Interpreted] a go large to listed a are US we intention private Chinese from far further as US company. heard as committed –

process Chinese you control capital past implemented the year strong whole a China. The in longer for even have of leave of share a the a our and reached buyback, has terms to get terms in has we and also, have very to should of fund to for capital out see will heard we believe point approved restrictions share application, capital come coming buyback In that in do quarters – as but may point, future. to we become the processes application government near our

will plan. our that, And Yeah, the announced that's buyback resume we we part as so share of the past. with in so

Unidentified Analyst

you thank Okay, appreciate I those it. for questions. answering

Unidentified Company Representative

Thank you

Operator

concludes Instructions] [Operator teleconference. That today's

this your thank You may time disconnect at for you lines participation. and your

Kevin Theiss

again. Thanks for We with look forward speaking participating today's conference you in to call.