Ladies and gentlemen, thank you for standing by, and welcome to the China Yuchai International Limited Fourth Quarter and Full Year 2013 Earnings Call. I would now like to turn the conference over to Kevin Theiss. Thank you. Please go ahead, sir.

Thank you for joining us today and welcome to China Yuchai International Limited's fourth quarter and year ended December 31, 2013 conference call and webcast. My name is Kevin Theiss, and I am with Grayling, China Yuchai's U.S. Investor Relations advisor. Joining us today are Mr. Weng Ming Hoh; and Mr. Kok Ho Leong, President and Chief Financial Officer of CYI, respectively. In addition, Mr. Kelvin Lai, VP of Operations of CYI, is joining us today. Before we begin, I will remind all listeners that throughout this call we may make statements that may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words believe, expect, anticipate, project, targets, optimistic, intend, aim, will or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that may be deemed forward-looking statements. These forward-looking statements are based on current expectations or beliefs including, but not limited to, statements concerning the company's operations, financial performance and condition. The company cautions that these statements, by their nature, involve risks and uncertainties and actual results may differ materially depending on a variety of important factors, including those discussed in the company's reports filed with the Securities and Exchange Commission from time to time. The company specifically disclaims any obligation to maintain or update the forward-looking information whether of the nature contained in this release or otherwise in the future. Mr. Hoh will provide a brief overview and summary and then Mr. Leong will review the financial results for the fourth quarter and full year ended December 31, 2013. Thereafter, we will conduct a question-and-answer session. For the purposes of today's call, the financial results are unaudited and they will be presented in RMB and U.S. dollars. All the financial information presented is reported using International Financial Reporting Standards as issued by the International Accounting Standards Board. Mr. Hoh, please start your presentation.

Thank you, Kevin. We are pleased to report the highest revenue in any fourth quarter in the company's history. Net revenue increased 24.5% to a fourth quarter record high of RMB 4.1 billion or USD 666.6 million compared with RMB 3.3 billion in the fourth quarter of 2012. The record revenue achieved in the fourth quarter of 2013 follows the highest revenue achieved by the company in any third quarter. In the fourth quarter of 2013, according to data from China Association of Automobile Manufacturers, CAAM, industry sales of diesel-powered commercial vehicles grew 10.8% year-over-year, led by a 48.2% growth in heavy-duty diesel trucks. Solid growth in truck sales was primarily attributable to the prebuying of heavy-duty trucks as a result of the implementation of National IV emissions standard nationwide in China in mid-2013 and inventory restocking to meet future demands. We continue to increase our leading market position as our diesel engine unit sales grew 18.9% year-over-year to 110,583 units, exceeding the industry growth rate of diesel-powered commercial vehicles. Our robust sales of diesel engines to the heavy-duty truck segment also surpassed the sales growth of heavy-duty diesel trucks in the fourth quarter of 2013. Looking ahead, at the full year -- sorry, looking at the full year 2013, our net revenue increased by RMB 2.5 billion or 18.2% to RMB 15.9 billion or USD 2.6 billion from RMB 13.4 billion in 2012. Revenue growth was led by stronger unit sales of higher priced heavy-duty truck engines and natural gas engines. The total number of engines sold during 2013 was 500,756 units compared with 431,350 units in 2012. Our total engine sales volume growth of 16.1% in 2013, which included engines for both on-road and off-road applications, surpassed the 5.6% growth rate for diesel-powered commercial vehicles as reported by…

Thank you, Weng Ming. Net revenue for the fourth quarter of 2013 increased 24.5% to a fourth quarter record high of RMB 4.1 billion, USD 666.6 million compared with RMB 3.3 billion in the fourth quarter of 2012. The total number of diesel engines sold by GYMCL during the fourth quarter of 2013 was 110,583 units compared with 92,996 units in the same quarter of 2012, representing an increase of 17,587 units or 18.9%. This growth was mainly attributable to an increase in the sales of engine to truck and bus markets. Gross profit increased 5.8% to RMB 851.4 million, USD 139.6 million compared with RMB 804.9 million in the same quarter of 2012. Gross margin was 20.9% in the fourth quarter of 2013 compared with 24.7% in the same quarter in 2012. The lower gross margin compared to the fourth quarter of 2012 was attributable both to higher sales discount in the fourth quarter of 2013. Other operating income was RMB 61.6 million, USD 10.1 million, an increase of RMB 7.6 million from RMB 54.0 million in the fourth quarter of 2012. Research and development, R&D, expenses were RMB 146.3 million, USD 24 million compared with RMB 102.7 million in the same quarter of 2012, an increase of 42.4%. As a percentage of net revenue, R&D spending was 3.6% compared with 3.1% in the same quarter of 2012. The increase in R&D expenses were mainly due to higher investment for the development of new engine products as well as continued emphasis on quality improvements. Selling, general and administrative, SG&A, expenses were RMB 297.6 million, USD 48.8 million, down from RMB 365.2 million in the fourth quarter of 2012, a decrease of RMB 67.6 million or 18.5%. SG&A expenses represented 7.3% of the net revenue compared with 11.2% in the…

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

I was wondering if, first, we could just focus on the market for truck volume and your expectations in 2014 first. You mentioned the prebuy impact in 2013. There's a fairly wide range of opinions on truck volume in 2014. Some people think that we're going to continue seeing growth in 2014 like we have been. Some people think that because of the prebuy, we're going to see a contraction in 2014 in truck volume. What's your opinion on the matter?

Right. Obviously, as you know, we do not give any guidance. But from the way we look at it, Alex, yes, quite frankly, there was prebuying in 2013. And as a result, I think you should see that the market growth there. So we expect 2014, the prebuy to have an effect on 2014 outlook. How bad or how good it is, sorry, it's hard to gauge right now, but I believe there will be some, particularly in the commercial vehicle market.

Okay, yes. I was wondering, on a related question there, what percentage of your volume right now of your engine volume for -- on-highway applications, do you estimate is compliant with NS IV? And obviously, I know all the natural gas engines that you're making are NS IV compliant, but of the diesel engines, how many of those in percentage terms would you say are NS IV compliant?

For the year 2013?

If you could give the latest figures, that would be great. So maybe in the quarter or even so far this year?

Okay. Well, I will give you some color on the 2013 National IV, NS IV -- National IV engine sales. Now as you know, National IV engine standards were fully implemented in July 2013. So that's hardly any before that. In the third quarter of 2013, the number of National IV engines sold were not much, but it picked up in the third quarter -- sorry, in the fourth quarter. Now because of the short period of time, the overall number -- percentage of National IV engines [indiscernible] the total engine sales is actually quite low.

Okay. And how about so far this year, have you seen that percentage continually increase?

Okay. We -- there is some -- the reason is this, I think particularly in the bus market, we see a lot more National IV engines sold there compared to the truck markets now simply because in China, the big cities, Tier 1 cities, obviously have implemented and enforced the National IV standard. Now the second tier cities are starting to do that as well. So from our last count we think there are over 20 cities that have already enforced the National IV standards. Now these are cities in Tier 1 and Tier 2 is namely the -- mainly the big cities and the provincial capital. So we will expect that to continue into 2014. So hence, yes, we do expect the National IV engine sales to improve and increase further.

Okay, okay, very good. Was wondering if you could comment a little bit on the sales discounts that you mentioned in Q4 driving lower gross margin? What were some of the reasons behind that? Is there competitive pressure in the market that's materializing? Is that something that you expect to continue, or was it just a onetime issue at the end of the year?

Okay. In Q4, we did have this effect. This is largely due to the interaction with all the OEM because on the annual basis, we look at [indiscernible] and look at the volume that they have. In this year, we have given slightly more than the previous year's quarter and it does impact our profit a little. That already has occurred. As to what is the future, we are not able to comment on at the moment. But generally, it is an ongoing negotiation.

Okay. May I add to that, Alex. If you look at our sales number, actually it's gone up by 16%. So I think with an increase in volume, obviously our customer would get [ph] a little bit of incentive back as well.

Okay, all right. And then was wondering if you could comment also on inventory of new trucks at the dealer level, whether it's NS III or NS IV trucks. You've mentioned that there was a prebuy impact that helped volume in 2013, but there was also inventory restocking that took place at the dealer level. Can you comment on whether you think inventory is at an appropriate level, whether it's getting too high at the dealer level? Any color you have there would be helpful.

Okay. I think this is quite difficult and right now, Alex, I think I'm sure you understand. Because of the National IV standards has been implemented, but not strictly enforced through our country. So it's affecting the buying decision or rather the stocking decision of some of the dealers. So it depends on how the dealer is viewing that enforcement going forward. But from where we -- from our understanding of the market, we're seeing that the inventory level is actually quite appropriate, quite comfortable. It's not too high right now.

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

The first question -- actually, I want to follow-up a little bit with Alex's question about 2014 outlook. You mentioned that you are pretty confident to gain market share in 2014 with your products and your technology advantage versus your peers. But you also mentioned that there would be some prebuy effect in late 2013 that may have some negative impact on the 2014 outlook. So may I assume that for the whole market you are kind of expecting year-over-year decline? While for yourself, perhaps you are expecting some like a flattish 2014 or slight or slighter growth? Is this a fair assumption?

Now I think 2 different prebuy in 2013, obviously, the commercial vehicle market, particularly the truck market, and maybe even the bus market, is going to have some impact. Now the commercial vehicle market is still a big segment of our business so we would expect to see some effect as well. But we hope to overcome it by other segments.

So if 2014, you achieved overall flattish year-over-year, that would be a triumph, did that sum your expectation?

Yes, it would be great.

Okay. Then the second question is also regarding the pricing. I read from -- like in fourth quarter, you have actually decreased the incentives but also offered more discounts. So net-net, it's pretty difficult for me to really see how the pricing have been changed? Of course, the blended ASP has kind of like 6% up in the first quarter. But I believe this is pretty much driven by the product mix change. So if we compare the apple to apple, what is like the absolute pricing change and how is your own cost structure have been changed for each same engine you produce?

This is going to be difficult. Just the thing is that, I think it's difficult to do it on a product-by-product basis. Now all I will suggest is overall, I do comment on overall. Overall, if you look at it, we have, if you take this revenue and divide it by the number of units, it's gone up a little bit. Now it's probably also due to our components. But now with the implementation of National IV engines, obviously National IV engines come on a higher price than National III, okay? So that would drive up the prices a little bit and have a positive impact on the average selling price. But coupled with that, the cost of producing National IV engines would be higher as well. I mean that in a way negates the gain on this average selling price.

And based on current pricing, like you can [indiscernible] slightly higher margin on the National standard IV engine than National standard III, right?

Yes, yes, the pricing is definitely higher. Yes.

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

I just wanted to catch up on the revenue breakdown from different industries where you are selling your diesel engines and natural gas engines? And also, there has been mounted concerns about air quality in Beijing and surrounding areas, so are you guys seeing some kind of traction in natural bus market -- natural gas bus market engines in other cities as well?

Well, we are selling -- our natural gas engine is selling very well. In fact, we had a very significant massive growth. In fact, if you look at it, we sold 32,000 units in 2013 compared to 19,900 units last year, so it's about 60% growth rate. Now part of the reason obviously is the environmental issue. The big cities especially in Beijing, you rightly pointed out, they are trying to clean up the environment. So for the buses, following that you have to use a much higher emission standard before they will grant the license. This is slowly -- in fact, this is also trickling to other big tier cities as well.

Could you just break down there on the dollar terms, how much revenues comes from natural bus -- natural gas engines in the fourth quarter?

Sorry, I think we are not prepared to do that. But if you look at it, in terms of sales, unit sales, it has gone up by over 60% compared to the previous year.

Yes, that's very encouraging.

Yes, we expect that to continue to grow. We expect the natural gas engine -- natural gas engine market to continue to grow significantly.

Right, right. And could you just comment on the upcoming dividend probably in the month of May? I guess you guys declared that.

I would like to, but I've been told not to. We can't comment this at this point in time. Look, we will let you know as soon as we have made our mind later on in the year.

Yes, generally the company do not have a written dividend policy, but you can look at our past trend that may be a good reference for you to extrapolate.

With that, I would like to turn the call over to the presenters for some questions through webcast.

Okay. I will take some questions from the webcast. Okay, the first question is, it talks about, again natural gas engines. It says, "What's Yuchai's market share of natural gas engine in China and how about the global market share in natural gas engines?" Now we -- I don't -- it's difficult to look at it overall, but I can tell you this, in the bus market, we -- I think I believe we have -- we dominate the bus market in terms of natural gas engines. Most of our natural gas engines are sales that come from the bus segment. We sell parts of natural gas in the truck segment as well, but it will not be as high as the bus segment. Okay. I think the next question I would like to answer is this, "China has appetite to modernize agriculture industry. How manageable is it for CYI?" The central government -- in fact, we have [indiscernible] last year from the government position. We actually -- our agricultural engine has actually grown -- grew quite significantly in year 2013. Now we also understand that the central government is promoting the use of larger harvesting machines instead of labor. Now this definitely is beneficial for all engine makers, including ourselves, where bigger engines for machinery -- for this machinery application. So yes, we do see it as beneficial to us, yes.

But as a backdrop of this and so you do must acknowledge, 2013 was a very good year in terms of the agricultural sector, the government has given some very generous incentive in 2013 as compared to previous year and that saw our number grow by a very big growth in these agriculture engines.

The next question that I'd like to address is talk about the heavy-duty engines. It says, "Please talk about your market share in heavy-duty engines. We understand it has increased in 2013. How about its growth potential in 2014 and beyond?" Now as I mentioned earlier, our growth in the heavy-duty engines in 2013 was higher than the industry growth. So we did get a little bit of market share there, so I think this has done well for us. Now going forward, 2014 and beyond, there again, I think it depends on the enforcement of the National IV engines as an effect of a prebuy that has taken place in 2013.

There's a question relating to the free cash flow for operations. We continue to generate free cash flow in 2013. When we publish the 20-F document, you're able to see from that. I say, if you look at our past trends, we have been comfortably delivering positive operating cash flow. That much I can say. The rest probably, 20-F would give you more color to it. There's a question on the impairment of the joint ventures. At the end of this year, we made some evaluation on some of our joint ventures. There were 2 that at hand and we make a total provision and that account for most of the increase in the loss of share of joint venture. One of which is relating to a hospitality business that is owned by our subsidiary. This is actually affected by the overall weakening of hotel market in China, as well as the tightening of the government spending at large. This affects our loss, okay?

Okay. There is another question here, asking about the foundries. "Are the foundries totally done and finished?" And also next question is from the same person, "What is our export expectation?" Now we have completed Phase 1 and Phase 2 of our foundries. That has allowed us to produce in-house about 1 million cylinder heads and blocks. Now the first stage for the -- has just started, so we will take a little while for that to complete. And in terms of export expectation, we -- our export sales business has grown quite a bit last year as well. We hope and in fact we expect it to grow again into -- to grow again in 2014. Hopefully, quite an estimate [ph].

Okay. There is a question asking, "What's the CapEx for the 2014 and where is it to be used? And when will the natural gas production line be expanded?" And also there's another question, "Is there -- any Phase 3 for adding capacity to the foundry?" In fact, [indiscernible] and then we will spend about quite significant sum on the CapEx and then to [indiscernible] and then comprising for the maintaining CapEx and then the operating facility in the plant and to meet with the safety requirement and also and then try to improvement of the performance as well. So including the project and then we support our long-term strategy. Now regarding on the foundry, we already have the Phase 1 and Phase 2 and then be compete [ph] and then has been answered before. And it would be -- have a capacity and then up to 1 million engine checker and enhance engine capacity. So that we are now pending on the Phase 3 at this stage. In fact, and then we have our another phases on the last casting items, and then for the high horsepower engines. Regarding on the natural gas production, actually we already extend our capacity in the year 2013 and then to cope with the increasing demand. And the -- because of the high demanding of the gas engine from the markets, so we actually are now expanding the capacity to cope with this. There's another question is asking about market share in the marine engine and the growth potential. We will say that in the marine industry and then they experience a drawback in the last couple of years and then due to the macroeconomic climates. Also in there, together with excessive capacity in the China shipbuilding industry, so that's it, getting worse and then of the markets. But traditionally, in Yuchai engine, we only concentrate on the engine for the coastal vessel and then for the commercial boats, on the business boats and then on the fishing boat as well. So I think that we didn't have such a significant impact. But having said that, and then we still suffer about 10% to 15% reduction in the 2013 comparing to the 2012 level. For 2014, and as we do expect and then the we can return to the 2012 level, or hopefully then we can still have some slightly growth from there.

We have now reached the end of our question-and-answer session. I will now turn the call back over to Mr. Hoh for closing remarks. Please go ahead.

Thank you all for participating in our fourth quarter and full year 2013 conference call. We look forward to speaking with you again. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participation. You may all now disconnect.