China Yuchai International Limited (CYD) Q2 2026 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to China Yuchai International Limited First Half 2026 Financial Results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, 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 2026 first half year ended on June 30, 2026. Joining us today are Mr. Weng Ming Hoh and Mr. Choon Sen Loo, the President and Chief Financial Officer of China Yuchai International, respectively. In addition, we also have in attendance, Mr. Kelvin Lai, General Manager of Operations of China Yuchai International. Before we begin, I would like to 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, 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 upon 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 on 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 first half year ended June 30, 2026. Thereafter, we will conduct a question-and-answer session. For the purposes of today's call, the first half year numbers for 2026 and 2025 are unaudited. Financial results are presented in RMB and U.S. dollars. All the financial information presented is reported using IFRS accounting standards as issued by the International Accounting Standards Board. Mr. Hoh, please begin your prepared remarks.

Thank you, Kevin. We are pleased to report continuing growth in sales and profit in the first half of 2026. Revenue increased by 13.9% year-over-year with a 10.9% year-over-year gain in engine unit sales. Our gross profit rose by 36.5% year-over-year to RMB 2.5 billion or USD 368.7 million with gross profit margin increasing to 17.1%. Operating profit was 58.9% higher at RMB 988.2 million or USD 145.1 million. Profit attributable to our shareholders rose by 53.2% year-over-year to RMB 560.6 million or USD 82.3 million, with diluted earnings per share of RMB 14.81 or USD 2.17 in first half 2026. Higher sales of our larger engines enhanced both our average selling price and profitability compared with the same period last year. Total truck engine unit sales were up 20.4% year-over-year, led by a heavy-duty truck engine unit sales increase of 47.3% year-over-year. Engine unit sales to off-road markets increased by 7.7% year-over-year in first half 2026, primarily driven by strong demand in marine and power generation markets, where engine unit sales increased by 42% year-over-year. Our joint ventures and associates produced a 56.2% year-over-year growth in profits in first half 2026, propelled by higher sales and profit mainly from MTU Yuchai. Order demand for high horsepower engines continues to be strong. The combined production capacity for high horsepower engines across the MTU JV and Yuchai currently stands at approximately 5,000 units. Sales for AI data centers by MTU JV and Yuchai's own brand grew to approximately 1,800 units in first half 2026. With increased engine technology content, advancing performance and environmental impact, we increased total R&D expenditures including capitalized costs by almost 13% to RMB 622.5 million or USD 91.4 million in first half 2026. In addition to enhancing the quality and performance of our current products, we have introduced new innovative products in first half 2026. Commercial minibuses equipped with Yuchai's YCY24-65kW Flywheel Range Extender System, or YC-FRS, were launched in the heavily congested Hong Kong vehicle market. This new technology reduces the need for fixed charging infrastructure. We also created a breakthrough in our alternative fuels program with our first high-pressure direct injection internal combustion engine capable of operating entirely on ammonia. We acquired 27.97% equity interest of Nanyue Fuel Injection Systems or NYDK in short. It was previously known as Nanyue Diankong (Hengyang) Industrial Technology Company Limited. This transaction strengthens our technology capabilities, access to new powertrain products and supply chain resilience. Since April 1, 2026, NYDK's financial results have been consolidated following Yuchai's acquisition of control over NYDK on March 31, 2026. Our subsidiary, Guangxi Yuchai Machinery, that genset power company limited continue to process for its IPO application with the Hong Kong Stock Exchange. Upon completion, the listing is expected to provide the subsidiary with more resources to accelerate its growth while we remain -- we will remain the controlling shareholder of this subsidiary. This will enable us to continue to benefit from the subsidiary's long-term development while focusing additional resources on our other operations. To further support our strategy of identifying and participating in emerging growth opportunities, we invested in and became a limited partner in Guangxi Yuchai Growth Fund, a private equity fund that invests in businesses focusing on innovative technologies. At the end of June 2026, our cash management and cash flow from operations provided higher cash and bank balances totaling approximately USD 1.2 billion with lower borrowings, reflecting our commitment to delivering value to shareholders. A cash dividend of USD 0.87 per ordinary share for 2025 was paid in July 2026, compared with USD 0.53 per ordinary share for 2024 paid in 2025. Our strong financial position empowers Yuchai's ongoing investment in product upgrades and new product development, which furthers establishment of our growing presence in selected international markets to support future growth. Our strategy remains to be to sell into multiple end markets with a growing and diverse product portfolio. 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 2026 first 6 months results ended June 30, 2026. Revenue was RMB 14.7 billion or USD 2.2 billion compared with RMB 12.9 billion in first half 2025, a 13.9% year-over-year growth. Engine sales reached 277,684 units in first half 2026, an increase of 10.9% compared with 250,396 units in first half 2025. This growth was driven by stronger performance in the truck segment as well as in off-road applications, particularly construction machinery and marine and power generation. Total truck engine unit sales were up 20.4% year-over-year in the first half 2026, outperforming the 5.8% year-over-year growth in overall commercial truck, excluding gasoline and electric vehicles sales reported by the China Association of Automobile Manufacturers, CAAM, in the same period. Heavy-duty truck engine unit sales increased by 47.3% year-over-year compared with the 13.1% year-over-year growth in heavy-duty truck sales reported by CAAM. Light-duty truck engine unit sales rose by 23.6%, contrasted with a decline in light-duty truck sales according to CAAM. Medium-duty truck engine unit sales also grew 7.9% year-over-year. Engine unit sales to off-road markets increased by 7.7% year-over-year in the first half 2026. The growth was primarily driven by strong demand in the marine and power generation markets, where engine unit sales increased by 42% year-over-year. Sales for industrial applications rose by 15.8% year-over-year, while engine sales for agricultural machinery declined by 18.9% in the same period. Gross profit increased by 36.5% to RMB 2.5 billion or USD 368.7 million from RMB 1.8 billion in first half 2025. The increase was mainly due to higher sales volume, better sales mix and reduced warranty expenses. Overall, gross margin was 17.1% in first half 2026 compared with 14.3% in first half 2025. Increased sales of larger engines enhanced the gross profit margin in first half 2026 year-over-year. Other operating income net decreased by 32.2% to RMB 150.2 million or USD 22.1 million compared with RMB 221.4 million in first half 2025. The decrease was mainly attributable to lower government grants and the absence of technology licensing fees income in first half 2026 as compared with that of first half 2025. Research and development, R&D, expenses increased by 24.5% to RMB 593.4 million or USD 87.1 million compared with RMB 476.7 million in first half 2025, due to higher experimental and personnel costs and a lower level of capitalized project costs. Total R&D expenditures, including capitalized costs, were RMB 622.5 million or USD 91.4 million, representing 4.2% of revenue in first half 2026 compared to RMB 551.7 million and 4.3% of revenue in first half 2025. Selling, general and administrative, SG&A, expenses increased by 12.2% to RMB 1.1 billion or USD 158.5 million from RMB 962.5 million in first half 2025. This increase was driven by higher personnel expenses and legal professional and consultancy fees compared with first half 2025. SG&A expenses represented 7.4% of revenue for first half 2026 compared with 7.5% of revenue in first half 2025. Operating profit increased by 58.9% to RMB 988.2 million or USD 145.1 million compared to RMB 621.7 million in first half 2025. The operating margin increased to 6.7% in contrast with 4.8% in first half 2025. Higher operating profit and operating margin were achieved by increased sales and gross margin, combined with controlled growth in operating expenses. Finance costs decreased by 16% to RMB 27 million or USD 4 million compared with RMB 32.2 million in first half 2025, primarily due to reduced term loans during the period. The share of financial results of the associates and joint ventures grew by 56.2% to a profit of RMB 95.9 million or USD 14.1 million compared with RMB 61.4 million in first half 2025. The increase was mainly driven by higher profits at MTU Yuchai Power Company Limited. Income tax expense increased by 85.3% to RMB 215.3 million or USD 31.6 million compared with RMB 116.2 million in first half 2025 primarily due to higher profits and the utilization of deferred tax assets. The effective income tax rate increased to 20.4% compared with 17.8% in first half 2025. Net profit attributable to equity holders of the company increased by 53.2% to RMB 560.6 million or USD 82.3 million compared with RMB 365.8 million in first half 2025. Basic earnings per share were RMB 14.94, USD 2.19 compared with RMB 9.75 in first half 2025, both based on a weighted average of 37,518,322 shares. Diluted earnings per share were RMB 14.81 or USD 2.17 based on a weighted average of 37,845,508 shares compared with RMB 9.75 based on a weighted average of 37,518,322 shares in first half 2025. The company adopted the China Yuchai International Limited 2025 Equity Incentive Plan with a duration of 10 years, and granted share options in August 2025 and December 2025 respectively, with a total of 820,000 share options granted as of December 31, 2025. No comparable share options were granted in first half 2025 and half 2026. Now we will go through some balance sheet highlights as of June 30, 2026. Cash and bank balances were RMB 8.1 billion or USD 1.2 billion compared with RMB 7.9 billion at the end of 2025. Trade and bills receivables were RMB 14.1 billion or USD 2.1 billion compared with RMB 11 billion at the end of 2025. Inventories were RMB 5.8 billion or USD 844.5 million compared with RMB 5.6 billion at the end of 2025. Trade and bill payables were RMB 13.2 billion or USD 1.9 billion compared with RMB 11.6 billion at the end of 2025. Short-term and long-term loans and borrowings were RMB 1.4 billion or USD 210.1 million compared with RMB 2 billion at the end of 2025. I will now turn the call over to Kevin for a comment for Q&A session. Kevin, please.

Okay. All right. So please note some officers of China Yuchai are remotely calling into the conference. This may result in a slight delay in providing answers to some questions. We apologize for any inconvenience and thank you for your patience. [Operator Instructions] Now operator, we are ready for questions.

[Operator Instructions] Our first question comes from the line of Wei Shen from UBS.

Congratulations on strong results. My question is about the AIDC kind of volume guidance. So we have achieved like 1,800. And I think at the beginning of the year, we are targeting like 2,600. So any color into the second half of this year? This is first question. And my second question is about the dividend. I noticed that the company announced 2025 dividend, but the payout ratio seems to be lower than 2024. So I'm wondering any color on this.

Okay. I'll take the questions on dividend, and I'll let Kelvin take the question on the AIDC. No, there's no particular reason. I think the payout ratio, if you look at our payout ratios in the past 10 years, it ranges from about 30% to 40%, sometimes a little bit higher, sometimes a little bit lower. So it's still within that range. So that hasn't changed. So yes, there's no anything untowards there.

[Indiscernible] Lai Chuen regarding on the volume of the AIDC. So in the first half and then the total volume of the AIDC from both the Yuchai and plus the MTU joint venture joint venture is 1,800 units. So that is for the AIDC only. And for the second half and then we will expect the whole year and then will be around about 3,500 and more. So this is -- we have adjusted the production and also the sales volume of the whole year of 2026. And it means that there will be quite a significant growth compared to the year of 2025.

The next question comes from the line of Fuyin Liang of Bank of America.

Management, this is Fuyin from Bank of America. I have a question about our gross margin profile. So in the first half, we see that the blended gross margin improved quite a lot. Could you explain more about the factors behind whether it is due to the product mix change or our improving cost efficiency? And actually, I also want to ask the gross margin or the net margin on Yuchai MTU. So for the first half, our share of profit from associate and JV improved a lot. So what's the margin profile for Yuchai MTU currently?

So I will take the first question, right, regarding the gross margin expansion or improvement, right, from 14.3% to 17.1%. So yes, I think you mentioned earlier on that the first thing first that the product mix, right, the product mix actually drove the margin up particularly in the large engine or high power engine, right? So that gives us a nice uptick for the margin, right? So that's number one, okay? And then we also mentioned that our heavy-duty engine unit sales has increased as well. So that also give us some favorable margin increase in that aspect, okay? Of course, the third point is that I think you also mentioned that we have continued to enhance our operational efficiency, right? That is actually will help our cost rationalization, right, in the first half. Of course, our first half, we also been affected by some unfavorable precious metal price increase. So that is kind of being offset against what we have been doing for the cost improvement. I hope that I addressed your first question, Fuyin. Okay. Then the second question on...

Okay. I'll take the MTU question. So the -- actually, this year and 2026, the GP of the MTU joint ventures saw a little bit reduced and mainly because of the cost of the engine and also the -- there's some pricing pressure, and we had to offer further discount in engine, both to OEMs and also our partners. And the overall sales of the first half and then increasing by over 40%. And so the revenue and also the net profit is also increased, but net profit percentage is not as good as the revenue growth. But we are still maintaining about over 30% GP of the whole assets overall. So this is still quite promising on the net profit. Thank you.

Our next question comes from the line of Yiming Liu of Haitong Securities.

Congratulations for your strong H1. So I've got 2 questions. Number one, could you describe any progress on your gas engine product? Is there any chance that they could be used in the data center business for prime power, especially in North America? And another question on fuel cell. So could you describe any progress on your fuel cell business? Is there any chance that they could be used in the data center in the future?

Okay. Let me take the first part, Yiming, and regarding on the gas engine. So the gas engine actually is a traditional engine product and then it is available in Yuchai for many years. So when we develop the diesel and then the gas engine is also available. So it's a ready available product and ready for the market. But you're mentioning about on the North American market. And then at the moment, our engine is still under the certification process. So now is waiting and then for all the testing and it can be fully done and then before we can release the engine and then for any other region. And at this stage, we still end up using our existing platform of the VC engine and then that is up to 2.5 megawatt for diesel and about 3 megawatt for the rail application. So we don't have exact timing regarding when we can -- I mean, get into the U.S. market. We are actually doing everything we can there. Thank you.

And can you repeat your second question again on the fuel cell?

Yes. So could you give us some introduction of your fuel cell business? And is there any chance that they could be used in the data center power generation in the future?

Well, I mean, our fuel cell unit is still in progress. We have been developing products in the past. We have some products that's been installed in the past, especially in Beijing. We haven't -- we have not started working on the power generation side of it. So I guess at some point in the future, it is a possibility, but that's definitely not in the short term. We have not -- do not have a product in the short term for power generation for fuel cell system as yet. Okay?

[Operator Instructions] We have a new question from the line of Natalie Ong from CGSI.

Congratulations on this good set of results. I have some questions regarding your AIDC capacity. I'm not sure if I heard this wrongly earlier. At the start of the call, you mentioned that your current capacity for high horsepower engines/DC engines is currently 5,000 for 2026. Is that correct?

Yes, that's correct.

So does that mean that actually there has been an increase in capacity? Because I think previously, you were guiding about 4,000 capacity for 2026.

Let me take this question. Last year and then our capacity for the high horsepower engine, I mean the combined Yuchai local brand plus the MTU JV brand and all add together is about 3,000 last year. And we had the capacity expansion program at the end of 2024, so that it was complete last year. So we had about -- increasing about 700 unit capacity for the high horsepower. But at the beginning of this year, then we also by then modified our internal process so that we had to subcontract out some of our machining process and to the external subcontractor. Through this practice and then we can increasing about 1,000 unit capacity for machining. So now we have all add together and then total is about 5,000. So this is our current capacity for the high horsepower engine, so including then for those AIDC or non-AIDC application. We are still in the planning to further increase the capacity for next year. But I think we are now not had a final decision regarding what's the volume will be increasing and then for the next and then the year on this. Thank you.

Okay. So my understanding is that the capacity has increased due to outsourcing of certain machining requirements. Is that correct?

Yes. Yes, we contract out some of the machining process in the past and then we do all the machining in-house. But now and then we are using the external contractor and then to do some of the machining for us so that we can scale out and then further capacity and then to build more engine.

Okay. So does this mean that you're still guiding for 3,500 only AIDC, that means excluding those sold to non-AI?

That is -- it's AI only, yes. 3,500. Yes.

So that means we expect to sell all the capacity that we have, which is going to be 5,000 for the year?

Yes, this is -- yes, exactly. It is 5,000 for the year.

And to be clear, right, the ASPs for high horsepower engines, be it sold to AIDC customers or non-AIDC, the ASPs are actually similar.

Yes. Correct. And because the high horsepower engine is not only for application of AIDC, this is only for using the engine for the power generation. So the power generation can be using in the factory. You may be using in the commercial building. And then so there's quite a lot of non-AIDC application and then using the high horsepower engine as well.

That's perfect. Can I also check? I know some of your competitors have also been ramping up their manufacturing capacity. How has that affected your ability to command or maintain increase your average selling prices for these high horsepower/AIDC engines?

In fact, the -- I mean that because of the surge in demand of the AIDC engine in the high horsepower engine market, so not only Yuchai with MTU, but I mean all other engine manufacturers, they also do the same thing and then have the capacity expansion program. And then the beginning of 2024, 2025 and this year. So I think the market is still very competitive. And the engine supplier and then they -- I mean, they have to do whatever they can to win the order. Otherwise, the expansion program and then we will have to be -- I mean difficult then to get the return. So the pricing-wise and then we haven't had any -- I mean, a real pricing increase compared to last year, except we have the cost increase and then from our suppliers and then coming by to the end user for all those additional costs [indiscernible] quite stable pricing, anyway, yes. Thank you.

One last question. I know you mentioned that you have not firmed up your capacity -- available capacity for next year. So do you mean to say that you could try to outsource more of this machining and maybe increase capacity? Or do you think that this will require expansion of lines and therefore, more CapEx spending?

Actually, we will do in a dual way. I mean, one is that we will further outsource some of the process. But we cannot outsource every process, I mean to the external supplier because we can do the -- what we call the first machining, the fine machining, we need to do it in-house anyway. So we still have to -- I mean, increasing some of the machinery and then for the fine machining process inside the factory. So we will have to do it both ways. And then also then try to increasing the subcontract processing. And secondly, and then we still have to be increasing -- I mean to buy some more equipment and then for the internal process as well. So we will do the same. And we have some planning done or reasonable planning regarding on the capacity of next year, but we need to finalize and then before we absolutely put into action.

[Operator Instructions] At this time, we do not have any further questions from the phone or webcast. Allow me to hand the call back to Mr. Hoh for closing.

All right. Thank you all for participating in our conference call. We wish all of you good health and look forward to speaking with you again. Thank you. Goodbye.

This conference call, thank you for your participation. You may now disconnect your lines.