Ladies and gentlemen, thank you for standing by and welcome to the China Yuchai International Limited Second Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. There will be presentation followed by question-and-answer session. [Operator Instructions]. I must advise you that this conference is being recorded today, Tuesday, 12, August 2015. I would now like to turn the conference over to Kevin Theiss. Please go ahead, sir.

Thank you for joining us today, and welcome to China Yuchai International Limited's 2015 Second Quarter Conference Call and Webcast. My name is Kevin Theiss, and I'm 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, we have an attendant Mr. Kelvin Lai, VP of Operations of CYI. Before we begin, I want 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, 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 conditions. 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 the script or otherwise in the future. Mr. Hoh will provide a brief overview and summary, then Mr. Leong will review the financial results for the second quarter and 6 months ended June 30, 2015. Thereafter, we will conduct a question-and-answer session. For the purposes of today's call, the financial results for the second quarter of 2015 are unaudited, and it will be presented in RMB and U.S. dollars. All of the financial information presented is reported using International Financial Reporting Standards as issued by the International Accounting Standards Board. Mr. Hoh, please begin your presentation.

Thank you, Kevin. We are very pleased to report increasing profit for the second quarter 2015 compared to the same period in the prior year. In a challenging marketplace our discipline and efficiency add enable us to maintain a strong bottom line. The number of engines sold during the second quarter decreased 9.9% to 115,208 units compared with 127,799 units in the same quarter of last year. The decline in unit sales was mainly due to general weakness of the industry in China and general slowdown in China's economy. The Chinese economy grew at an annual rate of 7% in the second quarter of 2015, the same pace as in the previous three months period. But down from 7.3% in the last quarter of 2014. The lower unit sales was partially offset by the growth in sales of agriculture applications in the second quarter of 2015. The China Association of Automobile Manufacturers CAAM reported steeper decline of 14.2% is excluding the gasoline-powered vehicles in year-over-year in the sales for the commercial vehicles industry. CAAM also reported a decrease in second quarter track sales of 17% and the decrease of 29% in unit sales of heavy-duty truck for the industry. Our revenue for the second quarter of 2015 decreased by only 2.1% to RMB 4.1 billion or US$674.2 million compared to RMB 4.2 billion in the second quarter of 2014. The slight change in revenues compared to the obvious drop in unit sales was due to sales of more higher price mentioned in the 4 and 5 due to the second quarter of 2015 resulting in a higher ever selling price. The Chinese government granted strictly on enforced in National IV emission standard from generic plus 2015 and we were well positioned with the broad portfolio of diesel and natural gas…

Thank you, Weng Ming. I will now proceed to the part on our financial performance for the second quarter and the first six months of 2015. Revenue for the first quarter of 2015 declined 2.1% to RMB4.1 million US$674.2 million compared to RMB4.2 billion in the second quarter of 2014. The total number of engines sold by GYM during the second quarter of 2015 was 150,208 units compared with 127,799 units in the same quarter in 2014 a 9.9% decrease. The decrease in unit sales was partially offset by the growth in sales of agriculture applications in the second quarter of 2015. The decline of 2.1% in the revenues was left than the 9.9% decline in unit sales. This growth represents our higher price, National IV and V engines in the second quarter of 2015. Gross profit increased 2.5% to RMB837.2 million $126.9 million compared with RMB816.8 million in the second quarter of 2014. Gross margin increased to 20.3% in the second quarter of 2015 compared with 19.4% a year ago. This increase was mainly attributable to lower material costs and efficiency gain. Other operating income was RMB16.5 million $2.7 million compared with RMD12 million in the second quarter of 2014. Research and development R&D expenses increased to 13.6% RMB138.9 million $22.7 million from RMB122.2 million in the second quarter of 2014. The increase of RMB16.7 was mainly due to the company's ongoing research and development of new engine product compliance with National V, VI and tier III emission spending. And it's continued initiatives to improve engine performance quality. As a percentage of revenue, R&D spending increased to 3.4% compared to the 2.9% in the second quarter of 2015. Selling, general and administrative SG&A expenses decreased to RMB374.1 million $61.2 million from RMB379.5 million in the second quarter of 2014.…

Thank you. [Operator Instructions] Thank you. And our first question comes from the line of Mohit Khanna from Value Investment. Please go ahead.

Hi, good morning guys. Just set of numbers here in a difficult market I can see that. Can you please give me a break down of how much was the commercial truck engine solar and how much was the bus engine?

Hi, Mohit. It's Weng Ming here. We normally don't provide others for detail. But generally what we had is that list of all 60% to 70% of this engine side commercial vehicle.

And breakdown between diesel and gas engines, I just wanted to get a sense that what is holding up?

Sorry. They are mostly in this area...

Okay. And how is that fraction can you please talk about a more about the bus and natural gas bus engines and how that has helped this quarter?

The natural gas engine has been mostly affected by the lower oil price, right? The lesser price. So I'm also in China their properties are very big in - election vehicle. So those two factors has affected our natural gas mixture. Just most our natural gas engines or buses are sold in the bigger series and where those are pretty most impacted by the new government incentive.

Okay and on the normalized level, how do you how much leverage or debt do you see from suitable bid on the balance sheet.

On a debt - we have closed about just over RMB2 billion of borrowing. We are very comfortable with that. And I don't see the need to increase that basically. As you can see on the balance sheet we have liability of cash available for right now.

Okay. And the last one from me right now in the earnings just go back to the queue again. How much fee hello can you hear me?

Yeah, please go ahead.

Yes I wanted to know do you see the shares have come down a lot in a greater percent year-to-date. Do you see you read some of this cash to buy back from the shares that should also help the promoter holdings to probably go up they don't tender the shift.

Yeah, I think we haven't changed our policy on that one yet we prefer the give the cash back to the shareholders. And whether shareholders decide whether or not they have to buy more shares or give the money. Whether that's why we have paid out quite a good dividend sometime in May, so for those of you who want buy more this is the fact we need to buy.

Definitely I mean stock that has come down a lot.

So mean we calculate - we cannot guide you on that. I mean if we saw individually we have to make the - division so the size we pay our nice dividend so that as we just --.

Thank you. And I'll just go back to the queue again. Thank you.

Okay. Mohit if you like you can continue.

Yeah definitely. And how do you see market going forward for the current year and also do you see some numbers changing in terms of market supply chain management going to the next year.

Okay. As you know the general economy in China is now growing at about 7%. In fact it's weaker and then last year. It’s maintained same rate at later this year. The industry as we experienced a difficult year this year. If you look at the see and reported down by more than 20%. So the market hasn't I mean there is just one of fact get back to for that wanted to weaker economy the one is that - additional pole so there are pre-buy effect on previous year. There is they say a lot so this it is a market for what we can see. So it's still a very weak market right now.

So. You don't see any kind of recovery coming with this year.

Well the government has recruit facility and reduce interest rate in the last 6 to 8 months. So as if today, we haven't seen any effect yet on our industry on our business. So we have maintained the decline in unit sales so far. But suppose bright - to as we like to know. One is however - market has improved it's now gone up by about 34% compared to the previous year. This year our agriculture engine sales will improve compared to last year. I don't know a lot of this is improved by about 7% as compared to the previous year. But the biggest improvement that we have or the biggest impact on the profitability that we had is the improvement in the average selling price and the improvement in our gross margin. So we have been at - I mean because of weak market we have been focusing on internally to improve our efficiency and improve our control cost structure.

And talking about exports, how much is it right now, and in terms of total sales.

It's about 10% to 12% of our unit sales it's within --.

And what should be what is the internal target of management here and the European JV has also come in. Also the third part of this question the recent reference rate reduction for Renminbi. How do you think will that affect your strategy for export?

Okay. This is marginal it's not really a big drop I think our strategy will continue. We hope to hopefully there was $5 million be better at cost performance growth.

We are predominantly China player selling to a China economy. So in that sense, we are trading in US and Renminbi as well reporting in Renminbi.

Great. And anything else you guys want to talk about or do you think the cash from current levels should go up because there is a free cash flow quarter-over-quarter.

Yeah. If you look at our numbers, our cash has been fairly stable in the sense that compared to our business. We've increased now from December since now about by RMB0.9 million is mainly because of some of the view that has been matured we understand with the cash. We see the current level is the comfortable. But - on the overall China economy as well as we have to be more vigilant in collection to maintain that cash level.

I was just seeing the balance sheet here for the current reported quarter. The dues receivable as more than RMB500 million than dues stable and approximately the whole market cap here. So if you can remember some important in that.

Sorry, Mohit you're referring to which bills payables or bills receivable just for clarity. Because if you look at the bills payable the amount is fairly stable as at December 31, 2014. It is RMB4.2 million as we compared with RMB4.5 billion yeah.

Great.

You mean has that difficult by looking at the dollar kind comparative for the current period.

Great. That's what I am getting at, that there is a lot of value that has been long in the balance sheet here. And it somehow you’ve raised in and get more cash on the balance sheet and investors can benefit from that investing the --.

Yes. Yeah I mean good point but we also want to understand now if you follow our counter you will see this due receivable and take will be building out. And it close to the end of the year we will have our user the end collection exercise. So in that sense, we are following our practices. What we can do is when we avoiding to dues it's all depend on the market money market. If the money market is - and we may want to discount, but for this moment the bank borrowing rates are low. So we have no pleasure to discount because there will be discount then we have to pay a price while and that account for our situation at the moment.

Great, okay. And I think that's all from me right now. If you have anything to just add to the outlook or something. Thank you.

Right, thank you. Our next question comes from the line of Paul Gong [ph] from Citi. Please go ahead.

Hi good morning and good evening. Thanks for taking my question. Actually I think the results look pretty impressive especially during this economic downturn. And it seems are not better now competitors. If you could analyze a few reasons which one do you think and as I'm curious and you said because we have more exposure and the bosses which are more resilient in this market on trucks or is it because we have like 100% of the exposure in the national standard 4 and we are kind of on the technology later or is it because we are higher I don't know - can you just make sure some of the reasons and also what do you think about the second half of this year?

Thanks for resuming. Now, as you know the market did not decline as much as a stock market. So yes there is one of the contributing like business sense that the mix of change a little bit. But I didn't say that we also now telling all National IV for domestic market in China. So higher as I feel so the average talent price is gone up and despite our second quarter in the sales dropping by close to 10%, our revenue only dropped by 2.1%. Also one of the products that I don't really give you also selling some high horse power engine compared to the... So though others contribute the higher average selling price and a little bit better margin. Now other factors that contribute to the better margin is one- the material cost has lowered has come down and by having selling more National IV engines and National V ever getting better margin from those of truck. So this affects us, that has contributed a better profit for us.

Okay. Do you think there is...?

Yeah, sorry.

Do you think there is any contribution from the natural gas engine and so can you remind me what's portion of the engines coming to the natural gas engines?

The natural gas is used our sold this year is very low. Natural gas engine has been effective badly by the electric vehicle and also by the lower oil prices. So the contribution from natural gas engines at a very low this time around.

Got it. And how do you think about the second half of this year?

I think it's there right now. There is no low visibility. Obviously we think that the second half still continue it's going to be - it's going to be uncertain. So the economy generally is strong as we were likely to be. So the industry brings us in my view look to be there.

Okay. Thank you very much and congratulations for the good results as well as the 50 year anniversary of Singapore.

Thank you.

Thank you. Our next question comes from the line of Gretchen [ph] from Shaw Capital. Please go ahead.

Yes, my first question is about export and I understand that you improve in the export and could you talk about the China one go to one built policy, how it will benefit the export going forward?

We have been - our export has been growing quite well. This year it's grown up grown by more than 33% so far.

Okay.

So we are benefiting in the way from the Chinese policy or the probably the one built policy, that Chinese - introduce. So we will hope to see this continue and the improvement for us going forward.

Okay. My second question is about could you talk about the technology road map of the product? Again your gross increased quite lap and it's driven by the high emission product. Could you talk about your product road map going forward and how it will drive the gross over the gross margin?

This is Kelvin. The emissions stand that now in China is still in the National IV. It's just only competing and implementing by the beginning of this year. So we still haven't had any sign of the next improvement and into the National V this stage. But the industry and that will coming soon because of the difficulty to our National IV and National V is not so significant. In Yuchai I think we actually we have our National V ready for both diesel and gas and also and then we also had a prototype and then recently a MP launch in the bidding - product liability, public transit buses and for the National VI as well. So we are get our but we will make sure that we will do right and before the implementation on National VI. And also we are also working on the off-road in the tier 3 as well because the implementation of GP will be by early October this year and then fully implement by the April next year so that we will have to look importantly for that.

It has now gone to bigger cities like Shanghai and Beijing and Guangzhou. They're likely to introduce the National V earlier than from that maybe may I - even introduce --. So yeah so that took for us in the way.

Alright that's great. And again with this higher technology requirement, and that your demand higher price. Do you I think you gain the market share in the first half of this year and then again squeeze all the competitors. Is that the case and do you expect do continue to gain market share because your higher standard technology and that your leading position in China in the engine development.

I guess in a sense than better than the time of the competitor I guess with our lower reduction in our volume embedded competitors. Well, I think this is a difficult market right now it's going to be a very difficult to say well this is happen in next two quarters or next year. So at least to be sure that we do our best to improve the performance of our company.

Thank you. We have now reached the end of our Q&A session, and I will turn the call back over to Mr. Hoh.

Okay, thank you all for participating in our conference call. We look forward to speaking with you again in the next call. Thank you.