I'd like to turn the conference over to Kevin Theiss. Please go ahead sir.

Thank you for joining us today and welcome to China Yuchai International Limited Second Quarter 2019 Conference Call and Webcast. Joining us today are Mr. Weng Ming Hoh; and Dr. Thomas Phung, President and Chief Financial Officer of CYI respectively. In addition, we also have in attendance Mr. Kelvin Lai, VP of Operations of CYI. Before we begin, I will remind all listeners that throughout this call, we may make statements that 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, including, but not limited to, statements concerning the company's operations, financial performance and conditions, 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 risks and uncertainties and actual results may differ materially depending on 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 the headings Risk Factors, Results of Operations and Business Overview, and 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 a release or during the call made today or otherwise in the future. Dr. Phung will provide a brief overview and review of the financial results for the second quarter and six months ended June 30, 2019. Thereafter, we will conduct a question-and-answer session. For the purposes of today's call, the financial results for the second quarter and six months ended June 30, 2019 are unaudited and they will be presented in RMB and U.S. dollars. All the financial information presented is reported using International Financial Reporting Standards as issued by the International Accounting Standards Board. Dr. Phung, please begin your prepared remarks.

Thank you, Kevin. For the second quarter of 2019, China GDP grew a slower 6.2% compared with 6.7% in the second quarter of 2018. This is a slower economic growth in the last 27 years. The economy was already on a slowing trends and concern over the impact of the current trade issue with the U.S. have created additional business uncertainty, which also affecting domestic consumer in China. China’s export to the U.S., United States, declined by 8.1% for the first six months of 2019. In the auto market, consumer also are affected by the government implementation of new automotive emission standard, the National VI, which were implemented on July 1 in some provinces and Tier 1 city, representing the launch of National VI a week ahead of the mandatory implementation date. According to data reported by the China Association of Automobile Manufacturers --CAAM in the second quarter of 2019 unique sales of the commercial vehicle excluding gasoline powered and electric powered vehicle decreased by 13.9%. The truck market unit sales declined by 14.1% led by a 36.5% decrease in the medium-duty truck sale. The bus market decreased by 12.0% with a significant decline in both medium and light-duty bus sales. The rate of EV bus sales continued to negatively affect bus sales powered by internal combustion engines. However, while the bus sales declined on a year-over-year basis, second quarter bus sales increased in the heavy, medium and light-duty segment compared with the first quarter of 2019. The government decreasing incentive for electrical buses may have helped -- helping to increase internal combustion engine sales in this in some bus market within China. In contrast to the decline in the overall market our total engine sales increased by 9.3% year-over-year led by a 19.3% increase in truck sales and a…

[Operator Instructions] One moment please, for the first question. It is from the line of William Gregozeski of Greenridge Global. Please go ahead.

Hi. Engine sales were strong in obviously a top market. Do you think that growth is replicable over the second half now that there's been some early implementation of the National VI standards?

Hi. William, this is Weng Ming here. Now as you know, the National VI engine has just started to be implemented gradually in China starting with some big cities of Beijing, Shanghai and some provinces. So far, I think the number of engines sold or the demand in the marketplace has been quite low. It’s principally for prototypes for the OEMs. So we haven't seen a big impact yet as we expect that to gradually improve through the end of the year, and also to call it by July next year 2020 when the common were implemented for all its vehicles. The Nat VI or gas engine has already been implemented from July 1, 2019. So, we saw a -- we do see a big jump in some engine sales or pre-buy sales in the month of May and June. But the number involved is not that large, and so the impact on the overall engine sales for the industry also for GYMCL is really quite small. So yes, we expect -- in short, yes, we expect the Nat VI engines to gradually improve through the end of the year and even into the next year.

Okay. And you mentioned the National VI as being a reason for the margin decline in the quarter. I look back for the National V implementation and there was no similar margin decline that you guys reported. And then last quarter you were thinking long-term margins 19% to 20%, what should we be looking for over the next -- or just for the rest of this year?

Okay. Right now the thing is that the component cost, I mean -- I think this engine National VI engine has a – is a little bit different from National V. National V the actual upgrade from National IV in terms of technology is not that great, right? But from National V to National VI is actually quite a jump. So, now what was happening is that because of the small number of engines sold so far year-to-date that in 2019 in our case. There is no economy of scale yet. So we haven't seen that yet. It's more for prototypes for the OEMs whatever they get they're getting into their systems, right? So what we are seeing right now is not quite reflective of what is yet to come. We expect to see a gradual improvement and to sell more and as the volume improves together into – what I call a—some level economies of scale, there'll be no cost of the component. So if you take out the impact of this National VI for now and some transfer engine cost the actual core business with margin for the quarter – second quarter of 2019 is about slightly lower than the same quarter last year.

Okay.

Right, so it's not far away, if you remove this abnormally.

Okay. It looks like you guys had much higher than normal other operating income was that – was anything specifically sold? Or what was that from?

Thomas you want to say – respond to that. Thomas?

Yeah. We had to – we have received basically the release of the government grant that have contributed to the other income. So there's sort of – there's the upside on it.

Okay. And last question is there any additional detail you can provide on the Foton partnership?

No. This strategy – it's the strategy aligned for – it's mainly for National VI. So we won't see much impact in the near-term. Maybe later on you will probably see a impact, but not at this stage. We can't provide much information or clarity on it right now.

Okay. That's all I have. Thank you, guys.

Thank you.

Thank you. [Operator Instructions] Yes. We have one from Ke Chen of Shah Capital. Please go ahead.

Yes. My first question is regarding cash. Apparently, we have – on the balance sheet you have more cash. Could you talk about the operating cash flow in the first half? My rough estimation is around like US$90 million to US$100 million, is that right?

Thomas you want to comment? Yes Thomas?

Yeah. So yeah – it is Thomas. In the first half of 2019 we have positive cash flow from operation. And it is in range of about RMB1 billion.

Sorry. RMB1 billion operating cash flow?

RMB1 billion.

Okay. Thank you.

Okay.

Okay. Yes. We're talking about National VI engines do you have rough estimation for your market share in the first half for National VI engine right now?

No. No, it's too early to tell Mr. Chen. It's too early to tell. In fact this – what we call the National VI hasn't really been implemented officially yet until 1st July next year. Probably seeing some early implementation by some major cities and provinces. So the number of engines sold so far I think in the marketplace is really not that high.

Okay. But similarly, we will see like you said obviously, you'll have more National VI engines sold in the second half and probably in 2020, so what is the -- like what's your margin improvement?

Well, I mean, at the moment, right now -- sorry?

Yes. What's the margin improvement that you will expect?

Okay. At the moment the -- because of the economy of scale that's not there. We don't see a lot of -- it's actually -- the component actually is quite expensive. So, as and when the National VI has been implemented and if it reach the level of unit sales as we had for National V, we should expect to see the margin growing gradually -- gradually growing back up to the late teens or early 20s.

Okay. We all know that Cummins and Caterpillar reported poor results in China, but you guys and all the Chinese dominant player have better results. So is that -- you guys getting market share from that?

We can't comment on competitors. And what we're seeing is that the market is actually quite weak especially in the heavy-duty and medium-duty segment. If you look back in the last two years, especially in the year 2018 and also perhaps 2017, you see that the heavy-duty engine market sales was about 1.1 million and if you add medium-duty engines, it's 1.3 million or 1.4 million. It's a historical high, all right? So if you go back further into a few more years when the cycle was slow the heavy-duty net sales was about 700,000 to 800,000. So, I mean with the cycle as I speak right now so we should see some decline in the next few months or even into next year.

Okay. Again you mentioned that China is actually cutting VAT tax and provide more R&D grant to promote innovation and it's showed in your results. First of all, can you quantify that how much grant you have been receiving? And secondly, do you see that continue going forward?

Well, we've received some government grants from time to time. But no we are not at this point ready to disclose that information.

Okay. Lastly on your new LNG products, can you provide some outlook when you're going to see the revenue coming maybe in the second half or in 2020?

Okay. No recently we launched four products. One is the hybrid. We've got the fuel cell. We have the Axel [indiscernible] and have electric powertrain right? So the -- we've seen some interest in the fuel cell – no, sorry, not the fuel cell, in the hybrid not a recent tender. And also, we are starting to sell some in the let’s call it the electric vehicle segment. Not a lot right now, but we expect it -- we hope that it'll grow. But I think the impact right, if any, a positive impact of this is, of course, new energy vehicles would not be seen in a lashed way or in a cynical way this year nor in the first half of next year. I think it will be a bit longer than that before it's here simply because of the impact.

Okay. Thank you. That's all.

All right.

Thank you. [Operator Instructions] We have now reached the end of our Q&A session. I'll now turn the call back over to Dr. Phung.

Thank you to all for participating in our conference call. We look forward to speaking with you again. Good bye.

Thank you. Ladies and gentlemen, that does conclude the conference for today and we thank you for participating. You may now all disconnect. Speakers please don't disconnect yet. Thank you.