Ladies and gentlemen, thank you for standing by. 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 Third 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 meanings 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. Within 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 a summary and then Dr. Phung will review the financial results for the third quarter and nine months ended September 30, 2019. Thereafter, we will conduct a question-and-answer session. For the purposes of today's call, the financial results for the third quarter and nine months ended September 30, 2019 are unaudited and they will be presented in RMB and US dollars. All the financial information presented is reported using International Financial Reporting Standards as issued by the International Accounting Standards Board. Mr. Hoh, please begin your prepared remarks.

Thank you, Kevin. For the third quarter 2019, China's GDP growth was 6%, slightly below the expected 6.1% growth consensus. This was the slowest growth since the first quarter of 1992. The economy's slowing trend continued as there were lower exports from China in September and softness was noted in freight shipments, factory power generation as well as in the services sector. Overall, auto sales in September 2019 reported the 15th straight month of lower sales. Some economic analysts believe GDP growth will decline in the fourth quarter of 2019 to below 6% as weakening global demand may affect Chinese exports and domestic business [indiscernible]. Automotive sales have been affected by the government's implementation of the automotive emission standards, the National VI, which were implemented on July 1 in some tier 1 cities and gas engines. These local regulations reflect the early launch of National VI vehicles before the mandatory national implementation date for the diesel engines. Vehicle dealers were focused on selling the National V inventory before the mandated implementation of higher emission standards, so they will not have unsellable vehicles on their lot. According to data reported by China Association of Automobile Manufacturers, CAAM, in the third quarter of 2019, sales of commercial vehicles excluding gasoline powered and electric powered vehicles decreased by 30.6% overall compared with the same quarter in 2018. This included a 4.1% decrease in the truck segment and an 8.4% increase in the bus segment. During the third quarter of 2019, the sales of heavy-duty trucks increased by 3.7%, while the medium-duty truck sales declined by 14.2%. Heavy-duty bus sales increased by 5% and light-duty bus sales rose by 10.7%. The government's setting out of incentives for electric buses may be helping to increase the sale of buses propelled by internal combustion engines in…

Thank you. Now, let me review our third quarter results for 2019. The net revenue for the third quarter of 2019 increased by 3.7% to RMB 3.3 billion (US$467.7 million) from RMB 3.2 billion for the same quarter last year. The total number of engines sold by GYMCL during the third quarter of 2019 was 70,140 units compared with 71,062 units for the same quarter last year, a decrease of 1.3%. Higher bus, industrial and other engine sales partially offset by lower truck and agricultural engine sales compared with the same period last year. Total off-road engine sales increased in the third quarter of 2019. According to data reported by the China Association of Automobile Manufacturers (CAAM), in the third quarter of 2019, sales of commercial vehicles excluding gasoline-powered and electric-powered vehicles decreased by 2.6% overall compared with the same quarter in 2018. This included a 4.1% decrease in the truck segment and an 8.4% increase in the bus segment. During this period, the sales of heavy-duty trucks increased by 3.7% while the medium-duty truck sales decreased by 14.2%. Gross profit decreased by 13.8% to RMB 524.1 million (US$74.1 million) from RMB 607.7 million in the same quarter last year. Gross margin was 15.8% compared with 19.1% in the same quarter last year. The decrease in gross profit was primarily attributed to higher production costs on the National VI engines and pricing pressure. Other operating income was RMB 91.3 million (US$12.9 million) compared with RMB 44.1 million in the same quarter last year. The increase was mainly due to higher government grants and higher interest income compared with the same quarter last year. Research and development (R&D) expenses increased by 28.7% to RMB 81.8 million (US$11.6 million) from RMB 63.6 million in the same quarter last year. Higher R&D expenses…

[Operator Instructions]. We have the first question coming from the line of William Gregozeski of Greenridge. Please go ahead.

Hi. I have a few questions. Regarding the National IV engines, can you talk about how the sales have been and what the outlook is you're seeing from your customers for those engines?

For the National VI engines, as you'll probably know, some of the major cities have implemented it and gas engines has been – also been implemented since 1 July, 2019. We're getting some orders. In fact, it's increasing. So, we expect this year to [indiscernible] a good number of units sold. And we'll be ready for next year to sell quite a bit of National IV engines. I think up to the end of this year, we expect we should reach at least between 15,000 and 30,000 engines.

Okay. And are you still – on the gross margins, you mentioned the National VI. Are you still doing them in the batch production and when will you switch to the commercial production for these engines?

Some of them are still in batch production and some of them are in what we call volume production. So, we're seeing improving trend of gross margins for National VI products. So, actually, in the last few months, it's been on increase as to volume of National VI engines sold increase as well. Gross margin for the remaining engines for National V and below, the gross margins are basically at about the same level as previous year, perhaps a little bit lower.

Okay. And then, on the new energy technology development, can you talk more about kind of where you are in that cycle? Obviously, there's a lot more – not even just buses, but now there's other vehicles moving to electric. Where are you in the development of these? And when do you think you might have something on the market that you can compete with?

Okay. We're selling some electric power systems. Those that we have launched in May in Beijing, we got awarded especially in particular for the range extender. We're getting a lot of very good inquiries for that particular, let's call it, the system. We are at a stage where we're actually selling the prototypes to some of our OEMs for them to pack on their vehicles and put in their vehicle. So, now for other LDB, like the four fuel cells units that we have, [indiscernible] a bit more longer before you get to the stage where we can actually say we have commercial sales.

Okay. When do you think you'll be getting more commercial size orders for the electric motor systems?

The electric motor systems, I think, we are doing some integrations. We have full time integrated systems right now. But we don't see that we'll have it in a big way yet. It's going to take us a little while, I think, to build it up. We're still in the early stage of the electric vehicle segment of the market, whereas for the range extender, we are a little bit further ahead. So, we should see some sales, I think, maybe in the year 2021.

Okay. All right. Thank you.

Thank you, sir. [Operator Instructions]. We have our next question coming from the line of Ke Chen from Shah Capital. Please go ahead.

Yes. What's the operating cash flow in your third quarter?

Ke Chen, this is Thomas. We're almost neutral. We are slightly under by minus RMB 40 million. So, we're almost breakeven.

Okay.

Compare with Q3 of last period, we're very much better. Last Q3 was a huge negative. It is mainly due to strong collection for the third quarter.

That's great. Please talk about to the MTU JV related revenue and profit in your third quarter. And more importantly, what's the outlook for this JV?

Mr. Chen, this is Kelvin. Regarding the MTU joint venture, we have sold around 60 units in the third quarter of 2019. And our forecasts for the next years are not finalized yet, but we expect it in the range of range of 200 to 250 units for 2020.

What's the revenue range?

Revenue is around in the range of above $85 million or 60 engines.

I see. With the better legal environment in Hong Kong, are you guys considering listing Hong Kong, like what Alibaba did recently?

We haven't thought about it yet. Yeah, at this point, we don't like to do so, no.

You mean, you will consider it? Are you going to think about it or…?

Well, we haven't discussed it. We haven't really given it much thought. So, no. At this point in time, there is no plans right now.

Okay. My last question about gross margin, again, to trend actually is improving from second quarter. Do you see this gross margin go back to 19% overall, like you did for the last couple of years? Do you see that trend eventually?

Yes, it is. We're seeing an improving trend now because as the volume increases, the gross margin also improve for the National VI. So, going to next year, when the government starts to buy only National VI engines in the middle of next year, we should see a substantial increase in the unit sales for next year. So, over time, yes, we do expect to go back to the same kind of gross margin. Q – Ke Chen: Okay. So, with this higher emission standards and higher technology requirement in China, do you see more engine market consolidation going forward?

Well, it's hard to say. I don't know, to sort of comment on our competitors, but we hope that there'll be some [indiscernible].

Okay. Thank you. That's all.

Thank you. [Operator Instructions]. We do not have any further questions at the moment. We have now reached the end of our Q&A session. I will turn the call back to Mr Hoh. Please go ahead, sir.

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

Thank you, sir. Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may disconnect now.