China Yuchai International Limited (CYD) Q2 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the China Yuchai International Limited Second Quarter 2014 Earnings Webcast. [Operator Instructions] I would now like to turn the conference over to Mr. Kevin Theiss. Please go ahead, sir.

Thank you for joining us today and welcome to China Yuchai International Limited Second Quarter 2014 Conference Call and Webcast. My name is Kevin Theiss, and I'm with Grayling, China Yuchai's U.S. Investor Relations adviser. Joining us today are Mr. Weng Ming Hoh and Kok Ho Leong, President and Chief Financial Officer of CYI, respectively. In addition, Mr. Kelvin Lai, VP of Operations of CYI, is joining us today also. 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, 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 are based on current expectations or beliefs, including, but not limited to, statements concerning the company's operations, financial performance and condition. The company cautions that these statements, by their nature, involve risk and uncertainties and actual results may differ materially depending on a variety of important factors, including those discussed in the company's reports filed with the Securities and Exchange Commission from time to time. The company specifically disclaims any obligation to maintain or update the forward-looking information, whether of the nature contained in this script or otherwise, in the future. Mr. Ho will provide a brief overview and summary, and then Mr. Leong will review the financial results for the second quarter and 6 months ended June 30, 2014. Thereafter, we will conduct a question-and-answer session. For the purposes of today's call, the financial results are unaudited and they will be presented in RMB and U.S. dollars. All of the financial information presented is reported using International Financial Reporting Standards as issued by the International Accounting Standards Board. Mr. Hoh, please begin your presentation.

Thank you, Kevin. We are pleased with our consistent revenue performance in the second quarter of 2014 in the face of declining industry sales in the commercial vehicle market. Our highest-rise natural gas and National IV-compliant engines enable us to maintain our revenue while withstanding fuel initiatives compared to the same period in 2013. Our ability to reach the similar level of revenue as -- in the same quarter of 2013 is a sharp contrast to the 13.7% decline in overall commercial vehicle industry unit sales for second quarter of 2014. These exclude gasoline-powered vehicles, as reported by the China Association of Automobile Manufacturers, CAAM. We experienced a smaller decline in total unit sales of just 9.5%. This resulted in overall unit sales growth of 2.9%, compared to the 5.2% decline in the unit sales for the commercial vehicle industry in the first 6 months of 2014, as reported by CAAM. The directive from China's Ministry for Industry and Information Technology in late April 2014, providing the sales of National III vehicles are to cease by 31st December 2014, has impacted the engine manufacturing industry. While there's still demand for National III compliant vehicles, the demand is currently being satisfied from existing inventory. Although the National IV emission standards for diesel engines was implemented nationwide on July 1, 2013, enforcement of the new standard test has thus far been uneven causing potential engine purchasers to adopt a wait-and-see approach before committing to rush orders for National IV-compliant engines. As a result, overall industry unit sales of new trucks were down 40.9% in the second quarter. Heavy-duty trucks unit sales suffered the least amount of truck segment [ph] with only a 3.4% decline in the second quarter of 2014 compared to same quarter in 2013. Industry unit sales of new buses were more stable in the second quarter of 2014, but was still 5% below the same quarter in 2013. We maintain market leadership for bus engines as our unit sales were in line with industry trends. We were pleased to supply 800 engines for new energy buses to Fushun City in Liaoning Province in the second quarter of 2014. 600 buses were propelled by our gas-electric hybrid engine, and the remaining 200 buses were [indiscernible] with our liquefied natural gas engine. We sold over 8,800 natural gas engines in the second quarter, making a total of over 17,600 units sold in the first half of 2014, representing a growth of 37.6%. The majority of our natural gas engines was sold to the municipal bus market to serve the many large metropolitan areas in China. Natural gas engines are less expensive to run and release fewer pollutants compared with their diesel counterparts. Also, the natural gas infrastructure for local buses is ready -- already in place as compared to long-distance trucks, which are waiting the refueling infrastructure to build across China. With our strong reputation and dominant market share in the bus segment, we continue to receive expression of interest from global bus companies for our natural gas and hybrid engine. Our unit sales in the off-road market such as agriculture segment continue to increase in the second quarter of 2014. Government incentives has encouraged the purchase of more pump equipment utilizing diesel engines. Additionally, sales to the marine and power generator market improved in the second quarter of 2014, compared to the same period last year. Our current line of diesel and natural gas engines and new high power engines for this segment and help our ability to capture market share. We are confident that the off-road market will continue to present new growth opportunities for us. One of our key growth strategies is an emphasis on research and development, R&D. So that we can supply, improve our engines to [indiscernible] diverse market segment, meaning there are individual specific requirements. In addition to the truck and bus markets, our engine side of [ph] the marine, construction, agriculture, mining and power generation market. A broad range of engine technologies include a bulk diesel, natural gas and hybrid electric engine. This various technologies create opportunities to expand the customer relationship and attract new vehicle OEM. Investment in R&D group increased by 4% to RMB 122.2 million in the same quarter of 2014 and 7.8% to RMB 227.1 million in the first half of 2014. 8 new engines with better performance will launch in 2014 following the 12 new engines introduced in 2013. This constant innovation has strengthened our product portfolio and enabled us to expand our market share. Research and development spending in 2014 was focused on and helping our portfolio of engines to meet the growing demand from customers. We are [indiscernible] looking for strict emissions standards to improve China's air quality and emissions technology remains the forefront of our research and development. In addition to a wide range of engine compliance with National IV emission standard, we have a room full of engines meeting the more advanced National V emission standard. It's our aim to be the leader in emissions technology in China, and our R&D efforts also target ongoing enhancements to improve engine performance and quality. In the second quarter of 2014, we announced our intention to acquire control of our remanufacturing joint venture, Yuchai Remanufacturing Services (Suzhou) Co., Ltd., in short, YRC, through an equity transfer agreement whereby Caterpillar (China) Investment Co., Ltd. transferred its 49% ownership to our main operating subsidiary, Guangxi Yuchai Machinery Company Limited, GYMCL. As YRC has benefitted from Caterpillar's expertise, we believe it is now an appropriate time for GYMCL to assume control of YRC to reap the advantages from the integration of the remanufacturing business with GYMCL's manufacturing operations, since both of the engines will be produced by GYMCL. Our dedication to constant improvement carries over to our financial management strategies at [indiscernible]. We adjust our strategies to match conditions in the money and debt market, enabling us to maintain a strong financial position. For example, when interest rates were unfavorable, we utilize our cash resources and review the discounting of our bills to decrease financial expenses. Our tax position increased to RMB 2.4 billion in the second quarter of 2014 compared with RMB 2.1 billion in the 2014 first quarter. Trade and bills payables reduced to RMB 5.3 billion in the second quarter of 2014 from RMB 5.8 billion in the first quarter. Our shareholders continue to benefit from our success. We paid out a dividend of USD 1.20 per ordinary share to shareholders in July 2014 in recognition of our strong 2013 performance. Shareholders were given the option of receiving the dividend entirely in cash or new shares. As a result, this elective dividend, our share -- outstanding share capital increased from 37,257,623 shares to 38,195,706 shares. As we continue into the second half of 2014, the Chinese economy and outlook for the truck market remains unclear. However, we are confident that inventory restocking to replace older vehicles and the [indiscernible] policy will stabilize market demand in the future. We believe our broad range of products and our ability to continually build, develop and innovate will continue to drive success. We are able to quickly adjust to market opportunities in the truck segment and it has maintained our leadership in the most stable bus market. Many of our engines are enjoying increasing acceptance in their respective off-road markets, and our new high-cost borrow engines have been seeing improvement in sales. Our technologically advanced engines, efficient production and the most extensive service network in China enable us to consequently meet and exceed customer's expectations. We continue to build shareholder value by consistently generating positive cash flow. With that, let me now turn the call over to Kok Ho Leong, our CFO, to provide more details on the financial results.

Thank you, Weng Ming. Good morning, and good evening. I would now provide some more details in the second quarter and 6 months financial performance. Revenue for the second quarter of 2014 were RMB 4.2 billion, USD 684.6 million, which was similar to the second quarter of 2013. Revenue was obtained mainly by higher engine sales for agricultural applications and stronger sales of higher-priced natural gas and National IV-compliant engines. The total amount of engine sold by GYMCL during the second quarter of 2014 was 127,799 units compared with 141,147 units in the same quarter in 2013, a 9.5% decrease, which compares favorably with the industry decline of 13.7% in the unit sales of commercial vehicle, excluding gasoline-powered vehicles, in the second quarter of 2014, as reported by China Association of Automobile Manufacturers, or CAAM. Gross profit was RMB 816.8 million, USD 132.8 million compared with RMB 810.8 million in the second quarter of 2013. Gross margin increased slightly to 19.4% in the second quarter of 2014 compared with 19.3% a year ago. The increase in gross margin was mainly attributable to a change in sales mix, as small natural gas engines and National IV-compliant engines were sold in the second quarter of 2014 for on-road and off-road markets. Sales of truck and hybrid engines to municipal markets [ph] also contributed to higher gross margin. Other operating income was RMB 12.0 million, USD 2.0 million, compared with RMB 36.6 million in the second quarter of 2013. This decrease was mainly due to lower interest income from bank deposits and higher foreign exchange revaluation losses. In addition, there was a gain from sales of assets in the second quarter of 2013. Research and development, R&D expenses increased by 5.4% to RMB 122.2 million, USD 19.9 million, from RMB 115.9 million in the second quarter of 2013. The increase was mainly due to research and development of new engines, as well as continue initiatives to improve engine performance and quality. As a percentage of revenue, R&D spending increased to 2.9% compared with 2.8% in the second quarter of 2013. Selling, general and administrative, SG&A expenses, were RMB 379.5 billion, USD 61.7 million, a reduction from RMB 397.7 million in the second quarter of 2013. The decreases in expenses primarily resulted from reduced R&D costs and lower freight expenditure, as fewer units were shipped during the second quarter of 2014. SG&A expenses represented 9.0% of revenue, compared with 9.5% in the same quarter a year ago. Operating profit declined to RMB 327.2 million, USD 53.2 million, from RMB 333.8 million in the second quarter of 2013. The reduction in operating profit was mainly due to lower other operating income and higher R&D expenses. The operating margin was 7.8% compared with 7.9% in the second quarter of 2013. Finance costs decreased to RMB 30.7 million, USD 5.0 million, from RMB 39.6 million in the second quarter of 2013, a decrease of RMB 8.9 million or 22.6%. This was mainly due to last bill discounting and lower interest costs from the issuance of 3-year medium notes amounting to RMB 1.0 billion in May 2013 at a fixed annual interest rate of 4.69%. The company's share in the loss of joint ventures was RMB 9.0 million, USD 1.5 million, compared with a loss of RMB 10.0 million in the second quarter of 2013. For the quarter ended June 30, 2014, total net profit attributable to China Yuchai shareholders was RMB 165.4 million, USD 26.9 million, or earnings per share of RMB 4.44, USD 0.72, compared with RMB 166.3 million, or earnings per share of RMB 4.46 in the same quarter of 2013. Let me now go over the results for the 6 months ended June 30, 2014. Revenue was RMB 8.8 billion, USD 1.4 billion, compared with RMB 8.0 billion in the same period last year. The increase in revenue was RMB 752.0 million, or 9.4% as compared with the same 6-month period in 2013. The total number of engines sold by GYMCL during the first 6 months of 2014 was 279,708 units, compared with 271,891 units in the same period last year, representing an increase of 7,817 units, or 2.9%. This increase compares favorably with the industry sales decrease of 5.2% in the commercial vehicle units, excluding gasoline-powered vehicles, in the first 6 months of 2014, as reported by CAAM. Higher engines were mainly attributable to increase sales with the heavy-duty truck and natural gas engine market, and increased engine sales for agricultural application in the first half of 2014. Gross profit was RMB 1.6 billion, USD 260.9 million, compared with RMB 1.5 billion in the same period last year. Gross margin decreased to 18.3% as compared with 19.3% a year ago. This decline was mainly attributable to a shift in the sales mix to higher engine sales of agriculture applications and lower by scale [ph]. Other operating income was RMB 41.5 million, USD 6.8 million, a decrease of RMB 16.0 billion -- sorry, RMB 16.0 million from RMB 57.5 million in the same period last year. This decrease was mainly due to lower interest income from bank deposits, offset by lower foreign exchange revaluation losses. In addition, there was a gain from the sale of assets in the same period last year. Research and development, R&D expenses, were RMB 227.1 million, USD 36.9 million, compared with RMB 210.7 million in the same period in 2013, an increase of 7.8%. The increase in R&D expenses was mainly related to higher spending in the research and development of new engines and ongoing initiatives to improve engine quality. As a percentage of revenue, R&D spending was 2.6% in the first 6 months of both 2014 and 2013. Selling, general and administrative, SG&A expenses were RMB 745.7 million, USD 121.2 million, up from RMB 722.0 million in the same period last year, an increase of RMB 23.7 million or 3.3%. The increases in expenses was mainly due to higher unit sales in the first 6 months of 2014 as compared with the same period in 2013. SG&A expenses represented 8.5% of revenue for the first 6 months of 2014, compared with 9.0% in the same period last year. Operating profit increased to RMB 673.9 million, USD 109.5 million, from RMB 672.7 million for the same period last year, mainly due to an increase in gross profit, partially offset by higher R&D and SG&A expenses. The operating margin was 7.7% compared with 8.4% in the same period last year. Finance costs declined to RMB 68.5 million, USD 11.1 million, from RMB 73.8 million in the same period last year, a decrease of RMB 5.3 million or 7.2%. The decrease was mainly attributable to last bill discounting and lower interest costs from the issuance of 3-year medium term notes amounting to RMB 1.0 billion in May 2013 at a fixed annual interest rate of 4.69%. The company's share in the loss of joint ventures was RMB 24.2 million, USD 3.9 million, compared with a loss of RMB 25.7 million in the same period of 2013. For the 6 months ended June 30, 2014, total net profit attributable to China Yuchai's shareholders was RMB 345.3 million, USD 56.1 million, or earnings per share of RMB 9.27, USD 1.51, compared with RMB 339.8 million or earnings per share of RMB 9.12 in the same period in 2013. I shall now go to the balance sheet highlights as of June 30, 2014. Cash and bank balances were RMB 2.4 billion, USD 385.6 million, compared with RMB 3.6 billion at the end of 2013. Trade and bills receivables were RMB 8.5 billion, USD 1.4 billion, compared with RMB 7.4 billion at the end of 2013. Short-term and long-term interest-bearing loans and borrowings were RMB 2.1 billion, USD 343.1 million, compared with RMB 2.3 billion at the end of 2015. Inventories were RMB 2.2 billion, USD 355.9 million, compared with RMB 2.3 billion at the end of 2013. We remain confident in Yuchai's ability to be successful in the face of a challenging industry and environment. Our broad range of product offerings, constant innovation and leadership in the key market segments establish a strong foundation for continued success. With that, operator, we are ready to begin the Q&A session.

[Operator Instructions] The first question comes from the line of Alex Potter from Piper Jaffray.

I guess my first couple of questions here are on NS IV. What percentage of your volume, of your engine volume now would you say is compliant with the new emission standard?

Well, I'll answer this in 2 parts, Alex, the bus and the trucks. With the bus market, because we sold most of the bus market to the big city, probably, I would say in the vicinity of 80%, 90% will be National IV- and V-compliant. Whereas for the truck it's increasing, so I think about up to about June, we think is we have about 30% that's National IV-compliant.

Okay, that's good. And so would you -- do you think then that once we get to January 1, 2015, do you think it will be 100% of your trucks and 100% of your bus engines are all NS IV-compliant? Do you think that, that's going to be a hard, fast deadline, no matter what?

Yes, I think this time around, the government is pretty straight, they mean business. So I expect to be soft. If not, we'll be very close to it.

Okay, good, that's very helpful. Then, I guess, another question, a related question. Do you see, on the truck side, do you see a difference right now between National IV compliance for light duty and medium duty and heavy duty or they're all approximately 30%?

I think they are more on the heavy duty right now, because I think the heavy-duty truck, the fact they go longer distance into bigger cities, whereas the light one, they operate within those smaller towns where the enforcers are obviously are not too strict, maybe as soon as they [ph] start enforcing, then the percentage of this National IV standard will be lower. So yes, I think in short, I think the bigger heavy-duty ones, the heavy duty and medium, and light medium duty will be more National IV-compliant than the light one.

Okay, that makes sense. And then I suppose also, do you think if you kind of put on your forecasting goggles here, if you look toward 2015, do you think that there's going to be one kind of last burst of, I guess, pre-buying activity in maybe Q4? And then, 2015, directionally, it should be a down year in terms of volume, do you think that's a fair way to think about the market over the next year?

I do not disagree with you. I think there's good value to be -- I mean, the market for the same quarter of this year doesn't look quite bad. I think also the whole industry is digesting the remaining National III-compliant engines. Now I would think, going to this last part of this year, Q4 this year, I would expect to see a spike, a little bit spike, but I don't how much it's going to be. Because many of the big cities have already implemented the National IV, enforced the National IV. So there will be some spike -- okay, going back -- going forward into 2015, I agree with you, maybe we should see some dip in the truck market.

Okay, that's very good. My last question here is, the international revenue right now for you guys, what is that as a percentage of total sales? I guess, up to the most recent quarter, where are you for international? And what do you think that will be about 3, 5 years down the road and what regions?

International sales we've, in fact, have been growing quite well in the last year or so, last 1 or 2 years. Now I'll give the indication in total. This includes engines that we sold through our OEM and sales directly by ourselves. Last year, we grew quite exclusively in the 20s. This year, so far, this year, we are growing by about 17%. So I expect this year, as a percentage of volume, we expect the international piece, for those that we sold through OEM and sold directly ourselves to reach perhaps about 8%, 9% of our total sales. Going forward, I think we expect -- we will try to make that better.

The next question comes from the line of Mohit Khanna from Value Investment Principals.

My question is regarding the division between the trucks and the buses engines. And also, could you please just throw some light on the working capital management that you would likely to see in coming quarters forward?

Sorry, can you repeat again on the first part of the question?

The division between of how many engines were sold to the buses and the trucks division for the quarter?

Well, I mean, the follow-up of our business is still at the on-road business, the division, I think is within trucks and buses, we have about 130 buses.

Okay. Do you see a possibility of buses business improving a bit more than the trucks? So in 2015, we expect a softer truck market?

Are you talking about 2015?

Yes.

Okay, now as I stated earlier, I will expect the truck market to dip slightly for 2015 because of pre-buy. Now for buses, they're already selling, the bigger cities are already using National IV in case -- or better, National V. So I do not expect the bus segment to dip much at all.

Okay. And on the working capital management side, what would be the normalized level of accounts receivable on the balance sheet if be discounted as per normal?

Come year end or now?

For the year end.

I think you'll probably see it in all of the year-end financial statement. We bill in the contracts. Most our contracts we -- is what we call an incentive for all customers to pay us either by bills or by cash towards the end of the year. So come end of the year, our actual receivable as such are very low, okay. Most of our receivables are actually billed, were issued by banks, were issued -- we guaranteed. You can see it every year.

So is it because seasonality in the business, you should see the trade receivables should be going down and the cash on the balance sheet should be coming up.

No, not in that respect. You see, in China, they don't pay you cash. They pay when the debt is due for payment, they give you a bank bill. So you see trade bills going up, accounts receivables going down..

Okay, okay. And that should convert to cash for the company in how much time?

Depending on the bill, 3 months, 6 months, some even 9 months.

But they're also depending through the average about 90 days but it's also depending on the money market because when the money market is tight, we may want to keep the bills. But when the money market rate is good, we will discount more of our bills. That's the strategy we have -- that is the reason why, if you look at our balance sheet, we do constantly maintain a certain buffer of working capital.

Okay, we will take a question from the let me read the question to you. Please explain why was popular letter 3 [ph] offer dividend option at this time? I just beg to differ the offer going forward on a regular basis.

; Yes, the initiative to have a dividend, both in the form of cash and share, is also partly suggested by one of the shareholder. And we have taken in his advice, suggestion, we make the evaluation. And whether it will be on a regular basis, that will depend because at the point of time of dividend, the board will deliberate again and evaluate. There's another question on the equity compensation plan. Weng Ming, you want to say something on the equity plan?

Okay, I think the equity compensation plan is something that's achieved very much in line with the market. There are many [indiscernible] for that. It's the incentives for the management to perform. So now it's mainly issued to the key employees of the company but not to the directors.

Okay, there is a question on the remain -- the question is who initiated the transaction to acquire the remainder of the engine room effects on JV, Yuchai Caterpillar? When is the JV expected to become profitable? Now, it's actually a mutual agreement between both parties. Now the rationale for that is the facilities service mostly Yuchai manufacture or produce engines, it makes a lot of sense for Yuchai to actually acquire the remaining shares and the control of the operations..

The next question comes from the line of Paul Gong from Citigroup.

Actually, I have seen the industry data for both the trucks and buses. It's more understandable, like the second quarter weakness, working the weakness of the truck segment. But some also say that bus has been rendered weaker compared with the first quarter of this year. Why do you think this main reason. Is it due to the basic fare [ph]? Or is there anything like cost slowing down? As you just mentioned, the National IV vendors didn't have significant impact in terms of the weakness or strength or the panic purchase buy or destocking. So could you please give us a little bit color on what happened on the bus segment, please?

Okay, in the bus segment, in fact, there are few areas to look at. One is within the cities, there are quite a lot of bus, and otherwise, intercity buses and the school bus. Now, those buses within the cities, I mean, those that use, mostly National IV gas engines, above emissions test compliant engines to that. Bear in mind, we do not see much movement there. In fact, where we see a decline is in the intercity buses. I think, I guess some of the reason is that, as you know in China, there's a lot of high-speed rail have been built, and the prices, although it's higher than the -- what you call the fare for the buses, but it's a lot more comfortable, I mean, how we will settle it before. So that, in a way, had some impact on the bus market for us. Also in this year, we saw some decline in the school buses too.

So in terms of like a breakdown, could you please give us a definite color like what is roughly proportion of local bus, intercity bus and the school bus, respectively.

School bus is quite small. Between the intercity and the, what we call the local bus, the breakdown is probably about 50-50 right now.

So in terms of the height of the threats from high-speed rail, so when do you foresee this would kind of weaken compared with what is current to them now? And so how can we like maybe calculate the cyclicality of this intercity bus segment?

Sorry, if you can say that again, I didn't quite catch you.

How should we like estimate when this would pick up or like end the weakness? Or why it is sudden in second quarter instead of first quarter? Because we launched [ph] the high-speed rail they appeal every year, they are grabbing market share from the intercity buses. Perhaps every year. So why is it suddenly in the second quarter or versus the first quarter, it has been hurt by the high-speed rail?

I guess, you said, for the intercity buses, I think we have also associated to the smaller cities. I will guess that they will also gain some National IV engine compliance impact in there, although not in the big cities. So as I think -- as more and more high-speed rail have been built, as more and more light become available, the impact will, gradually will increase.

So you're kind of like, I'm not optimistic on the intercity bus over the longer term?

Well, I mean, at the moment, I think the bus market is quite stable. I think in the longer term, intercity bus will be affected by the high-speed rail, I will think so, yes. Now, how much I think, it's hard to guess and hard to forecast right now. For us, I think, there is an effect, but it's not that bad at this point in time.

The next question comes from the line of Mohit Khanna from Value Investment Principals.

Just a follow up on the JVs. So after the JV, how are the other 2 JVs progressing and what can be expected from them over the next few quarters?

I think the JVs are still in the development mode. That's actually the case of the one in Wuhu, the tunnel is well. In fact, the sales has increased significantly this year compared to last year. But it still hasn't quite reached the available point yet. We hope we will soon. Hopefully, next year. Year after that, we should get there. Whereas the one with Chile is still somewhere to go. Okay, there is a question here. Asking us when will investors -- when could investors visit the CY facilities in China? We hope to arrange one soon. But we have been receiving what you call some visits from analysts and investors as and when they express interest on the need basis. So if any of you want to come, let me know. But we will be looking at something for a group tour, hopefully, later part of this year, or maybe early next year. Now there's another question here again along the line of export market. It say, please provide an update on the export business and the new markets being penetrated. As I said earlier, our export market has been growing quite well in the last 2 years. This year, so far, this year, we have grown by about 70%, close to 70%. Now for us to be the Asian company, the bulk of our customers such we over the bulk of our engines that's gone to the Asian countries, they account for more than 50% of our export sales. Now the next market that we have quite a decent penetrations are the African continent and the Latin American continent. We also sold some to the Middle East as well.

Thank you, we have now reached the end of Q&A session. I will turn the call back over to Mr. Hoh

Thank you, all, for participating in our 2014 quarter conference call. We look forward to speaking with you again. Thank you.