China Yuchai International Limited (CYD) Q4 2024 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to China Yuchai International Limited Second Half and Full Year 2024 Full Financial Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I'd like now 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's conference call and webcast for the second half and fiscal year of 2024 ended on December 31, 2024. Joining us today are Mr. Weng Ming Hoh; and Mr. Choon Sen Loo, President and Chief Financial Officer of CYI, respectively. In addition, we also have in attendance Mr. Kelvin Lai, General Manager of Operations of CYI, and Chairman of MTU Yuchai Power Company Limited, MTU Power Company. Before we begin, I will remind all listeners that throughout this call, we may make statements that may contain forward-looking statements within the Private Securities Litigation Reform Act of 1995. The words believe, expect, anticipate, project, target, 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 include, but are not limited to, statements concerning the company's operations and financial performance and condition and 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 in 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 the press release, made during today's call or otherwise in the future. Mr. Hoh will provide a brief overview and summary, then Mr. Loo will provide the financial results for the second half and full year ended December 31, 2024. Thereafter, we will conduct a question-and-answer session. For purposes of today's call, the 2024 results are unaudited and the 2023 financial numbers are audited, and they will be presented in RMB and U.S. dollars. All financial information presented is reported using the International Financial Reporting Standards as issued by the International Accounting Standards Board. Mr. Hoh, please begin your prepared remarks.

Thank you, Kevin. We are pleased to report that our EBIT sales outperformed the Chinese truck and bus vehicle markets in the second half 2024 and for the full year 2024. According to data from China Association of Automobile Manufacturers, CAAM, compared with a 9.9% year-over-year decline in truck and bus vehicle sales in second half 2024, our truck and bus engine sales were up by 1.6% year-on-year. For the full year 2024, our truck and bus engine sales rose by 17.2% year-on-year compared with a 2.6% year-over-year decline in truck and bus vehicle sales. Our operating sales rose by 12.6% year-over-year in second half and by 9.1% year-over-year for 2024 full year. Agricultural engine sales were flat in 2024, while industrial engine sales were up by 11% year-over-year. Marine and gen set engine sales increased by 25.5% year-over-year. Revenue in 2 half 2024 was flat compared with the same period last year. Revenue in 2024 rose by 6.6% year-over-year to RMB19.1 billion or USD 2.7 billion. Gross profit increased faster than revenue rising by 14.3% year-on-year in second half 2024 and 10.8% year-over-year in full year 2024 to RMB2.8 billion or $392.1 million compared with RMB2.5 billion in FY 2023. Gross margin increased to 40.7% compared with 40.1% in FY 2023. The increase in gross margin was mainly attributable to higher revenue and continuing cost reduction initiatives. Although our operating profit decreased slightly in FY 2024, our investment in associated companies and ventures delivered higher profit, growing by 18.2% year-over-year in second half 2024 and by 53.6% year-over-year for full year 2024. Our 50-50 joint venture MTU Yuchai Power, which sells less power generator engines achieved higher profit than the previous year. Our Y&C Engine and Purem Yuchai business achieved profitability in FY 2024 compared to losses last year. Generator engine sales remained robust. Additionally, Yuchai Marine and Genset Power subsidiary and Rolls-Royce Power Systems division has entered into a second phase cooperation and development for MTU Yuchai Power venture. As part of this development, production and sales of MTU Series 4000 oil and gas engine is expected to begin shipments in late 2025. Manufacturing capabilities will enhance accordingly to cater to the expanded engine -- product portfolio. In 2024, Yuchai Machinery power system, Thailand company or Yuchai Thailand commence production operation. Yuchai Thailand will mainly produce a range of diesel engines and other products for other off road applications. We have -- additionally, we entered into a comprehensive strategic operation agreement with [indiscernible], a subsidiary of [indiscernible] Group. This strategic cooperation consists of the grant and provision of technology licenses, component supply and related support, as services for the construction of a factory in [indiscernible]. [indiscernible] technology licensing rights from certain e-train engine models to be manufactured primarily for trucks versus and other commercial vehicles. [indiscernible] will have exclusive right -- sales rights for the license engines in the [indiscernible]market, along with priority sales rights in other ASEAN countries and South Korea. These licenses are valid for 15 years with total licensing fee of $38 million. The operating in China was challenging in 2024. According to the National Bureau of Statistics, Chinese GDP increased by 5 percentage points year-over-year in 2024. The total value rose to $3.6 trillion worth of goods and services, creating a trade surplus of almost $1 trillion in ASEAN for 2024. However, property investment continued to decline in 2024. In the second half of 2024, our R&D -- total R&D expenditure, including capitalized costs, increased by 21.2% to RMB726 million or $101 million, representing 0.2% of revenue in the second half 2024 as compared to RMB599.2 million, representing $6.8 million of revenue in second half 2023. For FY 2024 total R&D expenditures, including capitalized costs were RMB1.2 billion or $165.4 million, representing 6.2% of revenue compared with RMB1.1 billion, representing 5.9% of revenue in FY 2023. We continue to improve the efficiency and performance of our National VI and Tier 4 engines and initiated the development of the next-generation emission standard engines for the on-road and off-road engine market. We continue the development of new energy products, including products using alternative fuels such as hydrogen technologies. Our innovative new energy power trains include two hydrogen-powered combustion engine and off-gas power generation system and a production plant which utilizes off-gas discharges to generate power and eliminate greenhouse gas emissions. The motor YCA07a hybrid engine, which was chosen to power 10-meter gas electric hybrid buses in Nanjing, the first 50 Suzhou King-Long buses using our hydrogen fuel cells as commenced commercial operations in Beijing. And most recently, a new foray into enhancing wind power with the launch of the high-strength QT 700-10 turbine fan-made shaft to improve wind turbine performance. In recognition of our innovative achievements with -- while we utilize hydrogen, Guangxi Yuchai Machinery Company Limited , our main operating subsidiary in China was appointed as a committee member of the new hydrogen combustion innovation consortium division of China internal combustion engine society. They encouraged improved performance directed senior leaders and key employees of Yuchai and its subsidiary and participated in [indiscernible] plan beginning in 2024. The plans award a reward and incentive to motivate these scenarios with key talent for their continued contributions and [indiscernible] dedication and loyalty to enhance long-term growth for the company. In early June, we started our first share buyback plan, whereby we repurchased a total of 3.3 million shares, amounting to a total cost of $39.8 million. In addition, the company paid a cash dividend of $0.03 per ordinary shares on August 28, 2024. These share repurchases and dividend distribution demonstrate the company's confidence in our future revenue, profit and cash flow generation and to show our commitment to building shareholder value. Despite the share repurchase and cash dividends, our cash and bank balances were RMB6.4 billion or $895 million as at 31st December 2024. With that, I would now like to turn the call over to Mr. Choon Sen Loo, our Chief Financial Officer, who will provide more details on the financial results. Choon Sen, you may begin your remarks.

Thank you, Weng Ming. Now let me review our unaudited six months results ended December 31, 2024. Revenue was RMB8.8 billion or $1.2 billion compared with RMB8.9 billion in second half 2023. The total number of engines sold in second half 2024 increased by 10.9% to 163,843 units compared with 147,700 units in second half 2023. The increase was mainly due to higher sales in truck, bus, industrial and marine and power generation markets. The better performance in truck and bus engine sales was achieved despite a decline by 9.9% in sales of commercial vehicles, excluding gasoline and electric power vehicles compared to second half 2023, as reported by the China Association of Automobile Manufacturers, CAAM. Gross profit increased by 14.3% to RMB1.4 billion or $195.7 million from RMB1.2 billion in second half 2023. The increase was mainly due to higher unit sales volume combined with lower material costs. Overall gross margin was 15.9% in second half 2024 compared with 13.9% in second half 2023. Other operating income increased by 31.2% to RMB401.5 million or $25.9 million compared with RMB306.2 million in second half 2023. The increase was mainly due to higher government grants, higher rebate on value-added taxes, and recognition of technology licensing fees. Research and development, R&D expenses increased by 25.6% to RMB591.1 million or $22.2 million compared with RMB470.5 million in second half 2023, due to higher mold costs and impairment of a discontinued R&D project. Total R&D expenditures, including capitalized costs, were RMB726 million or $101.0 million representing 8.2% of revenue in second half 2024, as compared to RMB599.2 million, representing 6.8% of revenue in second half 2023. Selling, general and administrative, SG&A expenses increased by 25.1% to RMB1.1 billion $147.0 million from RMB844.6 million in second half 2023. This increase was mainly due to higher trade receivables provision, and higher travelling, personnel and selling expenses compared with the same period last year. SG&A expenses represented 12% of revenue for second half 2024 compared with 9.5% for second half 2023. Operating profit declined to RMB160.1 million or $22.3 million from RMB221.8 million in second half 2023. The operating margin was 1.8% compared with 2.5% in second half 2023. Finance costs decreased by 20.4% to RMB37.1 million or $5.2 million from RMB46.5 million in second half 2023 primarily due to lower bills discounting. The share of financial results of the associates and joint ventures grew by 80.2% to a profit of RMB58.5 million or $8.1 million, compared with RMB32.5 million in second half 2023. The improvement was mainly driven by higher profits at MTU Yuchai Power Company Limited, MTU Yuchai. Additionally, Y&C Engine Co., Ltd., Y&C Engine and Guangxi Purem Yuchai Automotive Technology Co., Ltd., Purem Yuchai achieved profitability in second half 2024 compared to a loss in the same period last year. Income tax expense was RMB26.4 million or $3.7 million compared with RMB37.9 million in second half 2023. Net profit attributable to equity holders of the Company was RMB82.7 million or $11.5 million compared with RMB107.1 million in second half 2023. Basic and diluted earnings per share were RMB2.19 or $0.30 compared with RMB2.62 in second half 2023. Basic and diluted earnings per share for second half 2024 and second half 2023 were based on a weighted average of 37,809,894 shares and 40,858,290 shares, respectively. Now we'll review the unaudited financial results for the fiscal year ended December 31, 2024. Revenue was RMB19.1 billion or $2.7 billion compared with RMB18 billion in financial year 2023. The total number of engines sold in financial year increased by 13.7% to 356,586 units compared with 313,493 units in FY 2024. The increase was mainly due to higher sales in the truck, bus, industrial and marine and power generation markets. The stronger performance in truck and bus engine sales was achieved despite a 2.6% year-on-year decrease in sales of commercial engines, excluding gasoline and electric powered vehicles in financial year 2024 as reported by CAAM. Gross profit increased by 10.8% to RMB2.8 billion or $392.1 million, compared with RMB2.5 billion in FY 2023. Gross margin increased to 14.7% compared with 14.1% in financial year 2023. The increase in gross margin was mainly attributable to higher revenue from increased unit volume, and continuing cost reduction initiatives, partially offset by greater labor and overhead expenses. Other operating income increased by 30.1% to RMB575.7 million or $80.1 million, compared with RMB442.4 million in FY 2023. The increase was mainly due to higher government grants, higher rebate on value-added taxes, and recognition of technology licensing fees. R&D expenses increased by 12.3% to RMB984.7 million or $137 million, compared with RMB876.6 million in FY 2023, mainly attributable to higher mold costs and impairment of a discontinued R&D project. Yuchai had continued with its initiatives to enhance the engine efficiency and performance of its National VI and Tier-4 emission standard compliant engines, marine power generation applications, while advancing new energy solutions. Total R&D expenditures, including capitalized costs, were RMB1.2 billion or $165.4 million, representing 6.2% of revenue for financial year 2024, compared with RMB1.1 billion, representing 5.9% of revenue for financial year 2023. SG&A expenses were RMB1.8 billion or $252.1 million, representing 9.5% of revenue in FY 2024, compared with RMB1.5 billion, representing 8.3% of revenue in financial year 2023. This increase was mainly due to higher trade receivables provision, and higher travelling, personnel and selling expenses compared with financial year 2023. Operating profit was RMB597 million or $83 million, compared with RMB609.4 million in financial year 2023. The operating margin was 3.1% compared with 3.4% in financial year 2023. Finance costs decreased by 22.2% to RMB78 million or $10.8 million from RMB100.2 million in financial year 2023, primarily due to lower bills discounting. The share of financial results of the associates and joint ventures increased by 63.6% to income of RMB101.5 million $14.1 million or compared with income of RMB62.1 million in financial year 2023. The improvement was mainly driven by higher profits at MTU Yuchai. Additionally, Y&C Engine and Purem Yuchai achieved profitability in financial year 2024 compared to a loss last year. Income tax expense declined by 13.3% to RMB128.8 million or $17.9 million as compared with RMB148.5 million in financial year 2023. Net profit attributable to China Yuchai's shareholders was RMB323.1 million or $44.9 million compared with RMB285.5 million in financial year 2023. Basic and diluted earnings per share were RMB8.21 or $1.14 compared with RMB6.99 in financial year 2023. Basic and diluted earnings per share for FY 2024 and FY 2023 were based on a weighted average of 39,325,763 shares and 40,858,290 shares, respectively. As of December 31, 2024, the Company's outstanding shares were, following a share buyback plan, reduced to 37,518,322 from 40,858,290 shares as of December 31, 2023. Now we will go through our balance sheet highlights as of December 31, 2024. Cash and bank balances were RMB6.4 billion or $895 million compared with RMB6.0 billion at the end of financial year 2023. Trade and bills receivables were RMB8.8 billion or $1.2 billion, compared with RMB7.8 billion at the end of financial year 2023. Inventories were RMB4.7 billion or $647.5 million compared with RMB4.6 billion at the end of financial year 2023. Trade and bills payables were RMB8.5 billion or $1.2 billion compared with RMB7.6 billion at the end of FY 2023. Short-term and long-term loans and borrowings were RMB2.5 billion or $349.1 million compared with RMB2.5 billion at the end of financial year 2023. I will now turn the call over to Kevin for a comment for Q&A section.

Thank you, Choon Sen. Please note, some officers of China Yuchai are remotely calling into the conference call. This may result in a slight delay in providing answers to some questions. We apologize for any inconvenience, and thank you for your patience. With that, operator, we are ready to begin the Q&A.

Thank you. [Operator Instructions] We will now take our first question from the line of Yiming Liu from Haitong Securities. Please ask you question, Yiming.

No, this is Yiming from Haitong Securities. Thank you very much for having me. So I have two questions. Number one is about your data center generator business. So it looks like your JV with MTU got a very good result in 2024. But -- so I'm just wondering how many units did you sell from both sides, I mean, from both [indiscernible] you are controlling interest and from the MTU JV. This is my question number one. Thanks.

Kelvin, take that question, please?

Regarding on the genset sells, genset engine sales and then for 2024, the MTU joint venture sales is about more than 700 units. But this is including not only -- not all four data center, it is including the other applications. And for the [indiscernible], the high horsepower we saw last year is about 1,000 -- no, no, it's about 800, yes, altogether, yes. But that is again, it will be in [indiscernible].

Okay. All right. Thank you. So just a continuation of this question. So it looks like MTU JV was very profitable. And -- so I wonder what is the profitability of your -- of this type of generators in the GMYCL either in terms of like gross margin or net margin or something like that? Thanks.

I'm sorry that we cannot call the margin of the two different type of engines because the -- in terms of the output or in terms of the performance and [indiscernible] meet with the requirement of the data center requirement, and they had -- with similar power range and the suitable for a major streamline of the data center construction. And so, I would take it this way. And then the MTU is because of international branding and there will be some premium, the end user would like to buy them. But for price-wise, and then I cannot make any comment.

Okay. Okay. Understood. Thank you. So my question number two is what is expected growth rate on the data center generator business in 2025? If possible, could you describe separately for GMYCL and the JV business. I wonder if there is any difference on what is the expected growth rate in 2025. Thanks.

I would take it this way. The -- no matter the GYMCL or the MTU joint venture and the -- our order book for 2025 is already full. And then we are actually in -- we are refusing further order because we cannot take any due to the capacity is constrained or due to the component supply -- but I would say, and then in the 2025, it's a very significant growth compared to last year is at least 30%, yes.

Okay. Great. Thank you. So just one more additional question. So it looks like the profit attributed to the minorities in the second half of 2024 was pretty high. I just -- it looked like it was like 47% of the total profit. So would that be a constant value in the future? Because in the past, it looks like it was like 30% or so. Thanks.

Okay. Let me answer that question. Compared to the past, I think our -- the performance of our associate companies has been significantly better, in particular, MTU because, as I alluded to as to earlier, where there's a big growth in demand for the data centers, which is right into our product offering. And at the same time, our other associate companies, joint ventures, there are a couple of [indiscernible] from losses to profitability. So that's why this year, we're seeing a larger [indiscernible] for number for our [indiscernible] companies.

Okay. All right. Thanks. I'm sorry, just one more question. So look, there's an item called other operational profit or something which is pretty big. It was like RMB500 million in 2024. So I wonder how to expect that in the future. So is that going to be like proportional to your revenue or something like that? Thanks.

Sorry, I can you repeat the question, I missed that.

All right. We have lost line of Yiming. So we'll take our next question from [indiscernible] from Pinpoint Asset Management. Please ask you question, Pengyu.

Right. Actually, I have a question is, are we going to raise our price since the demand for, I think, 2 megawatts generators in China, AIDC is very strong. And as we know, the supply is fixed. So in the future, both regarding 2025 and also 2026, are we going to raise our price for the generator. That's my first question.

Well, in terms of raising price, I think we will, of course, there will be some improvement in the pricing. But as it stands now, we haven't had any significant plan to increase [indiscernible], but we believe there will be some improvement in prices.

All right. Okay. Got you. So as I understand, we are going to increase our price, but it is not right now, maybe in the future. Okay. My next question is, are we going to produce the generator set or the module by ourselves since we only produce generator right now. So are we going to do the set in the future if the demand is very strong.

There's no plan for that. We are actually engine manufacturer. So we only -- we produce engines mostly for our OEM customers. If there is any customer specifically want us to produce a genset, we can work on that, but that would not be our main business.

Okay. Okay. Got your question. So my last question is, I just heard that we already produce anyway, 700 or 800 generators in the last year. So what is our capacity plan for 2025 and also 2026, are we going to increase it by a very strong number, for example, above 100%? Can you actually give us some color on this question?

Kelvin, you want to take that question? Kelvin?

So are we going to expand our capacity for a very large number in the future, in this year and also for the next year.

Kelvin, please?

Actually, and then we have the planning and then to increasing our -- to expand our capacity since last year. And the -- but the -- I mean there's two different [Technical Difficulty] category and that we had to consider. First is regarding how to -- how can we increasing our supply of the casting for the big engine on the line and in block and margin [Technical Difficulty] of the machining center, and then we will be arrival Yuchai and then by mid this year. So likely [indiscernible] this year and then we can increasing our capacity. And we will be gradually running up. And so the next year and then will be about 35% to 40% increase and then will be another fill-up on 2027. So this is our current planning on trying to meet up with the market demand.

Okay. Okay. Got you. So you just mentioned that the growth rate is about 30% to 40%. So at least for this year, we are going to have more than 1,000 2 megawatts generators capacity in this year, right? It's more than 1,000.

Yes, yes.

All right. Got you. And I believe that’s all my questions. Thank you.

Thank you. [Operator Instructions] We will now take our third question from the line of Andy Li from Daiwa. Please ask your question, Andy.

Hi. Thank you management for taking my question. This is Andy Lee from Daiwa. Yes, I just want to quickly clarify. I think I heard another 30% capacity up in 2027, right?

Yes, by 2026, yes. Hello?

I mean, we start building capacity now the capacity will come onstream by 2026. Can you hear us Andy Li? We lost him. Can you hear?

No, I can't hear anything, yes.

Yes. we have lost in there.

We have lost the line of Andy. If you have further questions, please request to rejoin the queue. I'll be turning back to the presenters in the room for webcast questions.

Okay. There are a few questions from webcast. The first one was readout now is the surge in demand for diesel engines driven by AI data centers. We have for that impact on the revenue growth could they gave us some color on both revenue and net profit impact from AI. And now yes, there's a big demand now for data centers let's call segment of our business. We expect to see growth in ex growth, as we discussed a little. So yes, that will have an impact on our -- definitely have an impact on our revenue growth, particularly for the partial segment. Now how is that going to impact our overall business revenue or total group revenue. That I don't think we are ready to release that part of the information. And we can't -- unfortunately, I can't tell you exactly how much revenue it is for this segment, now the profit -- net profit impact for this segment. So the next question is from [indiscernible]. Congratulations of your great performance currently an explosive growth in the CapEx of major Chinese Internet companies lead to significant transition power generators. If you entered domestic data center market with major clients, is there room for price increase? What's your future expansion plan? Can you share your overall outlook for the [indiscernible] IDC sector this year. Kelvin, do you want to take that line?

Sorry.

You have to answer these questions?

Can you repeat the question?

Okay, let me answer that. Okay.

I can't see it

Okay. Okay. All right. So sorry, Kelvin is calling from China. So you probably can’t see the question. Okay. Let me answer some of it, right? Have we entered domestic data center market with major clients? Yes, we had. We have entered China domestic market, and we have orders from some of the big data centers operators in China. We also know that we also expected to the [indiscernible] market as well. So yes. Is there room for price increase, we think there will be improvement. But again, a lot of these data centers [indiscernible] sales achieved through tenders. So in the case of tender, the price is actually quite transparent, right? So we do see improvement by [indiscernible] improvement unless everybody also increased the price economy. So it's still a very, very competitive industry out there for gensets. What is the future expansion plan. We are building capacity to cater to the huge demand that we saw this year. So we expect the capacity to come on stream next year in 2026 for both [indiscernible] MTU. Can you share your overall outlook for diesel engines, diesel generator business of IDC sector this year? We believe this year is going to be significant growth. There's a lot of demand out there still. So -- and this demand has not been quite satisfied as of this year, as Kelvin mentioned earlier, our order book is full for the year. So we will expect to see more demand next year, I would say. But by then, the capacity for most of the different engine manufacturers and the genset manufacturers OEM would have also increased the economy so we believe that a lot of the demand will be satisfied next year, over the next two years. R&D, the next question is from [indiscernible]. Your R&D expenses grew meaningfully in 2024 in excess of revenue, what [indiscernible] R&D expense growth should we expect in 2025 [indiscernible] we will answer these questions.

Hi. [indiscernible], thank you for your questions. Yes, we expect the 2025 will remain pretty much the same or a slight increase. [indiscernible] are balancing the market demand, right? So we are commercial retail and we have offload marine power generation and impartial and so forth. So we are balancing the spend. But overall, R&D spend will continue. We'll continue to maintain that to improve our engine efficiency and performance. That we will not slow down. We'll continue to do that. And -- but overall expense perspective, we will still maintain and we'll have a moderate increase in the sales, okay?

So next question, again from the same person, does management expect a growth acceleration in 2025 on the back of national [indiscernible] traded policy. Yes, we do see some acceleration, but it's very hard to determine how much they will be for now. Yes, the chart say, yes. The last question on the website page is, your SG&A expense increased a lot in second half 2024. Could you please give us some guidance on the expense going forward.

Okay. I will take this question. Lastly, the -- thank you for your question. Yes, in fact, our second half 2024, our SG&A expenses mainly -- the increase mainly caused by the receivables provision, right? So that we have accounted for that 2024, although the market is still challenging, we expect that will be better in the 2025 in terms of our trade receivable provisions. So other than that, the spending -- the SG&A spending will pretty much make the same as the 2024 level. [indiscernible] we continue to expand our [indiscernible] and overseas market that we expect a slight increase from that perspective.

Great. Thank you. We will now take our next phone question from the line of Andy Li from Daiwa. Please ask your question, Andy.

Hi. I’m back. This is Andy. My line was cut off. I hope my phone properly this time. Yes, thanks for the clarification before. So my question is on associates and JV profit. This accounted for over 30% of your second half profit. So just wondering, could you please breakdown how much is from MTU Yuchai? And I also know you have different lines of production lines for MTU. So can you walk us through which lines are for the large power generators applicable for data centers, please?

Kelvin, you want to take that question?

I mean regarding on the product-wise, the MTU product at the moment and then we had different center configuration. So we have 12V, 12 cylinder and 16V, 16 cylinder and also the 20V, that’s the 20 cylinder. So I think the -- I would say -- I would say this way, the bigger the engine the better the return, because of the limited, I mean, the competition because of the high horsepower engine and the -- I mean -- but it will always -- and that depends on the customer requirement. So at our joint venture, we were manufacturing then the -- according to the customer spec, but of course, we can have the top product mix and then can have a more higher power engineers, they will be more benefit to the operation.

Yes. And see, for example, any number or percentage did MTU Yuchai contributed to our profit.

Sorry. I cannot give you the figure.

Okay. So do you start to negotiate with the data center clients? And what does the competition look like? Did you encounter any Chinese peers in the bidding or kind of competition?

I mean the genset market is very, very competitive because in China and then the -- it's always is an open tender and then from the telecommunication operator or from the AI and then, for example, from the [indiscernible] Financial. It's transparent. I mean, the -- as you want and Andy, we understand the arena, the what surprise there at the end of the day. So, what I would like to say is, very fears competition, and that's why and then -- I mean, the -- there's a very difficult then to raise the bar of the pricing at this stage, even though the very high demand because -- and then we had to make sure that we can win the bid of the major projects and then from those key payers because in one single tender, it could be up to 200, 300 or 500 engines. So -- that is very careful and then regarding on the pricing. So competition is to fearful, yes.

Got it. Thanks for the color. Maybe lastly, on your capacity expansion, what keeps you up at night, any bottleneck you spend most of your time addressing on like maybe [indiscernible] Yes, I appreciate if you can share any color on this. Thanks.

Is it a little bit different between the GMC and the MTU joint venture. MTU joint venture, actually, we had a problem of the supply chain because there's still some component we are -- I mean we have imported from Germany. And there's -- I mean, there's a shortage of some of the key components from our partners. And this has handicapped the overall assembly of the engine. So -- I mean, our partner, MTU and then they are also doing some more investment and then they also work with their supplier and try to ease up the supply chain issue. Hopefully, by next year and then we can have more available resource and then we can take more engine orders.

Any chance you can use the Chinese domestic supplier in replace of those imports?

We actually -- we have what we call the localization program. And so we will localize and then the majority of the -- majority of the engine component in China -- but there some of the very key components and then the -- our partner and then we see right and then to -- not to localize and then we had to buy from them anyway. So this is some of the bottleneck some time, yes.

Got it. That’s all from my side. And also congratulation on the results.

Thank you. Our next question comes from the line of Yiming Liu from Haitong Securities. Please go ahead, Yiming.

Hello. This is Yiming again. Thank you very much for having me again. So I will cut out, so I'm trying to continue with my question. So from your income statement, there's a big item called other operating income, which is RMB576 million in the fiscal year 2024. I wonder if this value is proportional to your revenue or if there's other factors that is impacting that? So how do we accept that in 2025 or in the future? Thanks.

Hi, Yiming. Thank you for your questions. Yes, in that line, we have [indiscernible], right, as I mentioned earlier on, right? So that's based on the revenue that the income that you recognized according to the projects that we earned during the period. So that's still about the timing. So -- the second part is the VAT rebate, right? So there's a tax policy that for us, we are indeed advanced technology soon that they are qualified or we are eligible for that [indiscernible]. So basically, we get a rebate for the VAT tax, right? So that's another big part contributed the income for 2024. So that -- from our understanding is that will be subject to the applications each time, so once they are successful, that will continue in 2025 if we are successfully applied. So another part of the part is the licensing fee, right? For that [indiscernible] loan, right? So we have recognized half of that $38 million, right, in 2024, so that [indiscernible] increase in our other income.

So can we treat the majority of this value as recurring or I mean, what is the percentage of this value, which is not recurring in the future?

Okay. The [indiscernible] is subject that how much you can recognize based on the broader for the project. So that is probably remain pretty much flat, right? But VAT rebate this subject to the amputations and also subject to the VAT input ARPU offset right. That's still yet to be the main. Yes. those the likely fee income, as I mentioned, we recognize that half of it from what we have awarded, right, [indiscernible]. So that we shall see some in 2025.

Okay. I guess I see. Thank you very much.

Thank you. I'll now turn to the room for webcast questions.

Okay. we'll answer some of the questions from the webcast. The next question down is from [indiscernible]. For data center generator, it's any particular part source from third party could face a bottle that I think heavily answer that for MTU. So there some parts that we buy from Germany, which we should post a bottleneck. So I think it's aggressive question. The next one, I'll go down to what is your capacity CapEx plan this year and next year given the strong demand for their share repurchase. Our CapEx plan this year and next year will be probably still remains about the same. There'll be more of course the resources that will be channeled towards data centers is big demand for it. But that has already started. So we have to see what the demand is going forward and how much capacity they are in the whole industry before we think we decide on more capacity expansion or more CapEx on that area. -- will then be a new share repurchase plan. so you that we haven't discussed this since the last plan that was simply mentored -- so yes, for now, this has not been discussed. And you share your revenue breakdown by domestic sales and export sales help us understand how product mix shift in 2025 and the impact on ASP profit gross margin. I enter the top part, but not probably not probably too sensitive for us -- so in terms of domestic sales and export sales, about close to more than 20%, 20%, 25% of our engines in terms of unit sales are exported -- so it's grown quite far in the last few years. In the case of how the product is shift -- it was -- the whole -- for the entire group, it will shift slightly more towards the Marina Power generation, which is the Jets because of the big demand that they're facing now from the data centers. So that will have an impact on the ASP for sure, also gross profit or -- profit margin. We consider more share buyback program and much dividend policy, okay? We have addressed the share buyback program. The dividend policy, we do not have a formal dividend policy, but if you look at the dividend payout in the past, you'll get an idea as to how we defeat the dividend payout, but we do not have a formal dividend policy.

Thank you. We will now take our next phone question from the line of [indiscernible]. Please ask you question, William.

Hi, [indiscernible], what is the expected start date that you'll ship a new kit? And do you have like a number of units you expect to sell in a rough margin profile for those.

Sorry, Bill, I didn't quite catch that, can you repeat that again.

Yes. On the [indiscernible], when do you expect to start shipping the engine kits? And then do you have an estimate on the number of kits and margin profile for those?

Kelvin, [indiscernible] address the question.

So we need to help them and then to build up the whole plant. And also, we need to assist them and then to purchasing the all the equipment for the factory. So I would expect and then after all and then all this -- I mean, the installation commissioning and then is done and then also the carry on further testing of the whole line and then it will be -- take at least about 9 to 10 months. By the end of this year. if we -- everything is moving and we may start shipping the parks, this is my explanation.

Okay. Do you have an idea of how big this plant is going to be or how many units they expect to do a year?

In fact, the market is quite a good design market. I mean because from TIM so our export to Vietnam is about 20,000, 25,000 per annum. And that's -- so I mean if they take off most of those and then the order we previously and then we ship from China and then there will be around this number. But I will, of course, and it will be -- depends how is the competitiveness of the [indiscernible] motor in the Vietnam market. So I mean, we didn't have any concrete sales number because our agreement with them is only a licensing agreement. And so that we will help them and to build up the whole plant, then we will provide a component according to the actual demand.

Okay. All right. And then my last question is, do you have expectations for this year for the in-vehicle engines just in general?

Can you repeat this again, Bill, it is not quite fast.

Yes. I was looking for -- if you can provide any expectations for in-vehicle engines for this year?

You mean the total engine sales for the year?

Yes.

EV. Are you talking about EV, are you? Are you talking about electric vehicles?

I mean if you can break out the new energy versus the traditional, that would be even better.

I see. No, I think this year, we saw about 356,000 engines, right? So in segment by segment, we expect the vehicle engines to move within minus 5% to 5%, maybe 10%. So it's pretty for the domestic market. So as for the Meridian power generation, we expect it to perhaps increase by about 10% this year. For the -- as far as the industrial and agricultural visionary, the agro conservation are expected to have a slight growth in the industrial machinery, I think for the market, it will be quite flat, but we actually see some growth in there. So -- but sorry, I can't give you a number, but generally, that's how the market is.

Thank you. We have now reached the end of our question-and-answer session. And now I'll turn the call back to Kevin Theiss.

Thank you very much all for participating in our conference call. We wish each of you good health, and we look forward to speaking with you again next time. Thank you.

Well, thank you for your participation in today's conference. This does conclude the program. You may now disconnect.