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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
Robert Pavlovich Private Investor
Call transcript
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Operator

Greetings, and welcome to the China Automotive Systems Third Quarter 2019 Earnings 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] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Kevin Theiss. you. Thank begin. may you Kevin,

Kevin Theiss

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

are Li, of 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 GAAP. US results for session. will summary are financial The the quarter this and XXXX nine will provide and results months conduct call, following I of reported XXXX Management financial a overview brief then third and unaudited quarter. under third

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

of in second down from The in market at automobile decline by China's the position. September accelerated of X.X% of XXXX down decreasing quarter automotive grew begin in XXXX. from the China with in the review industry quarter XX.X%. of will dynamics We first in and the third recent China's export X.X% quarter GDP growth X%, in the

year from declined earlier the September the XXXX, For in to XX.X% nine China's terms. XX, by exports the U.S months ended dollar

stricter emission government to the were Tier VI some on National to implemented new time emission and pollution. same at in Chinese promoting automotive standards [indiscernible] standards cities X X, The The air reduce vehicle a National the vehicle vehicles pre-buy national sell in nationally needed as their the V that implementation dealers improve of was new to that event This vehicles inventory mandated. standard July quality. resulted before was

In addition, consumers. a to retail VI National vehicles carry price higher

result reached Purchasing straight the stayed Managers Statistics. to has and XXXX. a stage expansion an Index, gauge to eight headwinds, mark As not an and according National for reported was XX.X% months for XX the in to XX sorry has the in economic activity manufacturing Below -- six fell to Chinese of declined economic the factory growth still The Chinese October. the that PMI months low I’m level XX.X% of the conditions Bureau October September XX.X% below index

represented a XX.X% According by China CAAM, year-ago. passenger Automobile The X.X% sales X.X% year-over-year passenger to a total declined X.X% of Chinese the data branded declined and of with decline market sales Association of and X.X% total compared cars cars Manufacturers, and year-over-year. of the of XXXX in passenger share reported of production by by the cars, sales the September

respectively. China respectively. were sales X.X% production sales XX.X% X.X%, the down decreased and and of in production last respectively of same July, of in month. below In China sales X.X% automobiles automobiles and In and and automobiles .X% the September, year's were year-over-year, production year-over-year, the In August, and X.X%

of production and XX.X% and of decline sales for were segment, production of XX.X% cars, the and and were sales by X.X% months the production experienced were MPVs nine vehicles XX.X% compared and respectively. a XX.X% down down and year-ago Across XX.X% sales first the passenger and percentages and cars by down the and SUVs same the year-over-year Production decreased sales XX.X% to and and XX% For XX.X%, period respectively. passenger XX%, a vehicle respectively.

cars sales a decreased market year-over-year passenger branded Chinese The of of XX.X% first passenger nine XX.X% of share had months X.X% were branded Chinese market and down year-over-year cars the share. XXXX. The in

first the by nine of For year-over-year. X.X% XXXX, exports months auto Chinese decreased

For the of nine year-over-year. months, first sales vehicles production declined X.X% respectively and the and by commercial X.X%,

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

in electric quarter. product third with XXXX a steering XX.X% and million, $XX.X Our were compared sales the XXXX of power the quarter third decline

percentage a accounted of Electronic consistent or third net Product As XXXX, EPS which XXXX. our second of the for was the quarter sales, XX.X% in quarter with Sales of

China. with KYB with venture competitor [ph] joint branded in KYB more Company Limited in non-Chinese electronic It steering Japan and branded providing on passenger systems. Henglong focuses gearing Our Chinese segment is power the EPS vehicles advanced a powerful

as In addition, our future to potential EPS products have well. generate the exports

Wall electric contract. Approximately units model are supply this is expected RXXX one ORA application Great under vehicle, their shipped EPS indication of small our EPS to products be XX,XXX with for Motor in OEMs XXXX their for Company evaluating capabilities. in the contract to exclusive are our systems Our vehicles. new Other all

we Company We future OEMs. produce of the with cost Hyoseong continue for to benefit quality, These production vehicle best-in-class will EPS small our systems, sell to joint activated automotive our we Electric these products sales them in systems. to another venture and small products motors, provide believe own other the electromechanical as the electric channel

evaluation review product program. verification. one recently material quality IVECO to commercial testing control, ranged procedures, producers quality passed by aftermarket Europe, The technical and the new quality production and product Daily workshop largest pre-production vehicle S.p.A. procurement supplier added in report IVECO's control, management, another the project We of management, also We’ve review, from rectification van inspection,

world our European market. over the IVECO in CAAS van is This with project Daily iconic duty awarded the for of one IVECO markets. light large million presence development over right significantly the project. van sold evaluation, X XXX units in Daily the the most commercial geographic in After The the increases vans new

sophisticated increasingly steering America headquartered the of an be a in part October annual their projected designated to global sales recirculating-ball and units. has the vehicles, approximating of our with in autonomous the us XX,XXX production new intended steering one program. development XXXX commercial This North initial to With I-RCB read system, are technology, began customer products technology integral future

million in XXXX. sales products steering the third export increased to XX.X% hydraulic America of North Our year-over-year our $XX.X in quarter of by

i-RCB recirculating-ball North new our Tier program. the to X systems the steering We in develop changes continue in program on customer advance our for mix. autonomous the vehicle America's to to product progress Thanks

from third the increased million quarter to XX.X% second XX.X% XXXX quarter of quarter in in third in and compared third third XXX.X% of quarter operations million from XXXX. increased gross XXXX, $X.X XX.X% the in of XXXX XXXX, Third from margin the XXXX. the of $X.X quarter in to quarter the Income with

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

and on XX, As pledged of XX, September million were and June cash XXXX million compared with cash $XXX.X equivalents December XXXX. $XX.X XXXX and $XXX.X million at XX,

to shares market During approximately building third transactions quarter commitment value. XXXX, demonstrate in our common shareholder open we to XX,XXX repurchased

during of XXXX, quarter the Henry annual Tong as the members new general third At company's Teo of Kooi Lu of Board Dr. were meeting Directors. Dr. elected and independent the

our veterans strengthen significant Board. are proud and China experience business to financial We of with caliber adding high

growth despite stimulate these in forward, positive reversed economy, initiated dilution Looking are the slowly the aspects and [indiscernible] facing future. a Central recovery in China. government [indiscernible] Chinese has a have to media promising slowdown regulations challenges Furthermore, impact economy. policies number These U.S price economy. still the recent provide in of China the the dynamics measures measures [ph] will be Chinese [ph] incentive of the including trade on on and there monetary will the the for trend cuts, both

areas. purchase for liters incentives Commission newer purchase especially monetary cars to National The Development Reform subsidy the included smaller. China's and less promote autos, X.X the of engines announced in has of with rural or incentives polluting of

of to during to replacement XXXX. boom purchase adding purchased for the XXXX cycle is coming companies incentives vehicles as Some the additional state of are the years owned also encourage automobiles

a long-term a well perspective, well-positioned of passenger in China. From across additional We segments expanding we including vehicle as manufacturers. number are China vehicle the as as from well as opportunities look to new outside Tier our to market of growth benefit in OEM customers X forward vehicle commercial

market positive financial from including their ventures in steering steering strength remain flow committed joint autonomous position developing generate We are and and EPS, operations. Our cash evolving to building our improve technologies. and markets

net quarter in -- same third of domestic were the XXXX. domestic and demand quarter million XXXX, Now product automobile financial the brand were sales review market. net in sales mix to let quarter in income XXXX. lower for the sorry volume the third net of the to product the primarily due due compared results in me to $XXX.X The Chinese a decrease sales million of In softer $XXX.X I’m change

or $XX.X to North in EPS sales the products. Net product sales the sales electric steering, for export XX.X% the net same XX.X% XXXX. higher million of advanced power sales to America due million for were more compared of America Company's primarily million, $XX.X $XX.X increase grew quarter to to The North products in to Net was sales. Company's

$XX.X changes profit quarter Gross of $XX.X compared XX.X% in the Gross third quarter to XXXX, same compared the in for was million product the to the of third in mainly mix. due period XXXX. million was XXXX, XX.X% of to margin

third million to Selling $X.X in quarter quarter net the $X.X expenses Selling third third quarter XXXX. of in XXXX, of the sales expenses of of X% third the in X.X% were represented XXXX, quarter XXXX. million compared in to of compared the

increase XXXX, G&A primarily expenses, in the of $X.X of X.X% quarter in the third million General $X.X compared sales compared G&A, quarter the same and the to with third quarter higher XXXX. expenses fees. net to represented XXXX professional in XXXX. of The of administrative were due was third of quarter in X.X% million

were quarter expenses in R&D mainly expenditures. million third with quarter the development X.X% in R&D represented expenses the sales to in Research and XXXX lower to third million expenses quarter strict year. also due R&D compared third that in of and were more last controls cost of $X XXXX, the compares XXXX. X.X% of quarter the of over The $X.X third net

financial was third exchange compared the the was Net significant income $X.X million of financial the foreign of to quarter million net due which against RMB. as of in $X.X gain in to of result a XXXX quarter U.S dollar increase appreciation the XXXX, of in income third mainly

and profit compared operations increase XXXX, gross quarter same was $X.X $X.X million higher XXXX. Income due margin. of of to in gross The from was the the to million mainly third in quarter increased

tax before income income the of expenses increase of of expenses the equity third in before Income third The higher of $X.X in compared of companies earnings companies $X.X earnings third affiliated million million third in the compared in to tax XXXX. was was quarter affiliated income quarter in mainly XXXX and equity quarter XXXX, quarter of the income and due operating with in to XXXX.

XXXX. Net income $X.XX in of million net share to to income in $X.XX parent XXXX. the third of in of diluted was attributable third shareholders were compared common third compared the $X.X XXXX, shareholders quarter share per earnings quarter to of company's earnings the $X.X third company's parent attributable million common quarter in per to of the of Diluted quarter XXXX,

outstanding of nine months The weighted sorry, to number XX,XXX,XXX quarter in XXXX. in the XX,XXX,XXX in I’m average shares common compared -- diluted the of XXXX, was third

gross go XX.X%, Now, profit first nine in $XX million will $XX.X XXXX months over the months $XXX.X of nine $XXX.X million, period we XXXX. Net to financial in compared the was Nine-month million year. of for period for compared XX.X% corresponding Nine-month last XXXX. highlights. in sales gross were to the nine million, the months corresponding compared to first was margin

million gain in X.X%, for in September period the was For Operating of XXXX. compared XXXX. was the months margin from first million, to nine XXXX. million compared of nine the corresponding compared X.X% ended period months $X.X Income million for XXXX, $X sales other $X.X on $X the operations corresponding XX, to to amounted to

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

we sheet and Now some items items. will go balance flow over cash

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

nine cash was Net of acquire activities operating of million million first cash months by months provided compared provided and operating first activities Payments by to in XXXX compared property, XXXX. the $X.X nine were in quarter and $XX.X $X XX,XXX million the with net of third to repurchased the million of future. nine the in stock XXXX. were with shares equipment expects months XXXX, in Approximately more common of repurchase shares the of the first Company plant during $XX.X

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

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

Operator

proceed line of Gregozeski your question. with Please Thank Our the Global. first William you. [Operator Greenridge from comes with question Instructions]

William Gregozeski

you Great so, through Wall units be in the you if Did how shipped guys Hi. shipped to quarter? say And many the XX,XXX were third still will XXXX? expect

Kevin Theiss

started Okay. year we the XXX,XXX Great Yes, for Wall ambitious -- units. plan started very the

quarter full-year is XXXX they XX,XXX adjustment, as some second for number new the mentioned. now so made the the you During

units. XXXX, During we shipped about third over XX,XXX the quarter

are So on track. we

William Gregozeski

Okay.

Just that? obviously what higher about were you to is still the if your and in what to get get general, with customer on can to EPS struggling, it talk the least there sales sales your can EPS units several back response [indiscernible] to in doing you’re years can when but ago market well, you at as regards that they’re JV the own you the sales from

Kevin Theiss

Okay.

down factors. the -- well now, all product brands the sales as as industry also are auto their off -- tell is So One, truth auto the shipment know the share to and EPS our Chinese our two months. we Chinese is this the attributable below sales, domestic been first expectation And year. the brand, nine in domestic behind, growth have to tapering market mainly has

beginning earlier, mentioned ambitious year. the one we start very the adjust is a the -- the throughout of beginning and Great the They at Wall As started then example. year, to plan

adjustment. downward So

It's the price, margin either, good the And all -- the are helping the be with China. this them market disturbing the because for the low by environment. have our provider domestic some factor it's brands to competitors borrowing too business significant So affecting aggressively we that, cannot largest second who in kind we’re of anybody is and price. not low because it

stabilizing, recovering. as we However, we see -- the markets our see are some areas

and [indiscernible] And joint venture and EPS One a product momentum is are efficiency regaining getting the business or well having -- efficiency share the so secondly, through Japanese is noticeable now. seen our factors improvement. We’ve market And very operation seeing venture improving managed the [indiscernible] we’re quantitative now benefits our some have joint is some There for -- the partners back. we’re significantly. been now quality. operational

of consistency above product our and our We seeing quality are [indiscernible] product. now previous

before market And become this product will the is this margin. very all will our now grow gross has share team our thirdly, of -- now new we existing than kind even more margin confident platform, the are take it been when working With improving. business. we and So with gross

growth. So well all have our regain XXXX regain we said, confident, as EPS as our cautiously some things -- optimistic in are these business will are QX

William Gregozeski

the And do cash future? balance that you last all right. have the for near All sheet, Okay. in you have question plans the with guys is in what

Kevin Theiss

third market on mentioned are we buy For to are one as shares from good looking bought the answer in a back open we in to actively question secondly, a And going related shares the quarter. for are hand, your we on -- we this -- technologies. and chunk significant opportunities of with auto and cash, have other back we investment the components to -- continue we quarter or

us. we -- to to portfolio engine develop for new and and looking So expand are our growth also a

William Gregozeski

Okay.

just fund to invest be buy but will with as looking have outright? you something you So not structures, passively the

Kevin Theiss

Yes, right. you’re

passive vehicle anymore. So investment investment it's not through

looking we’re for in be So going to actively technology. projects specific

William Gregozeski

All right. Thank you. Okay.

Kevin Theiss

Thank you.

Operator

you. Thank

Pavlovich, line Private Investor. Robert the question. question proceed Please with a of your next comes Our from

Robert Pavlovich

the start electric the Yes. motors. like is startup a Good venture, the I of we what motor electric up, had you. To was new Korean morning. I late of think target wondering joint October. status initially Hyoseong, Thank

Kevin Theiss

Okay. Thank you.

venture the been for constructed the motor, installed. Korea electric just have equipment joint For from and has the facility, South we been workshop The has -- procured completed. a they arrived

now now. we’re the -- done stage We the batch production volume have so testing, small are right production, we volume at trial --

track. So everything on is still

Robert Pavlovich

Okay.

difficulty]? the production quarter actual maybe [technical [indiscernible] expect You first to begin in like of of

Kevin Theiss

will during mass quarter. some production -- shipment April first shipment We XXXX. the will have and But start production in the

Robert Pavlovich

is I Mexico do expand these some wondering was possibly Okay. America? location doing any they days and in how manufacturing where and China to is that Brazil possibility might automotive to to there North supply

Kevin Theiss

is production our Brazil, On track. on

We are is FCA And about a year. a capacity Chrysler. expanding have Brazil. also contract Fiat production as order major you may which that we signed book units a recently -- The Brazil our XXX,XXX with is know, in

We about it. are excited pretty

Fiat continent and from the have then very Fiat -- us. self that engineering see contract have [ph] with for years this Italy mandate a way FCA, in quality them way Chrysler with with Brazil. have in with a an Chrysler, Chrysler in different [indiscernible] track X great merger really major then XX we Chrysler a opportunity is positioned Tier a supplier, to in just that’s and relationship notch started and three America, you and we year we our being And supplier we capability. and this to really markets, over top the our We come and see Fiat between record And -- strong we build Fiat the long news Peugeot,

start, -- is to Brazil XXXX the Italy think I are contract going online contract we as well. is coming and the So

Group, they to access great are demand. and us we merger, we believe the to more within Fiat are have with -- So the the global well-positioned gave quality products line then product right and this and and Chrysler their we confident and meet we Peugeot

that said, being us. excited So we it, ahead pretty about of are opportunities the

Robert Pavlovich

you. Thank Okay.

Kevin Theiss

you. Thank

Operator

like closing Thank you. the I time. There at floor appear management further this to to back no turn for would questions be [Operator remarks. over Instructions] to

Kevin Theiss

great Thank today to call Have our a in speaking forward you we in conference you look for again. participating and day. to

Operator

your you Ladies and for today’s gentlemen, thank This teleconference. conclude participation. does

disconnect this your at may time. lines You