Ladies and gentlemen, thank you for standing by, and welcome to the China Yuchai International Limited Unaudited Fourth Quarter and Full Year 2016 Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions]. I must advice you that this call is being recorded today, 22nd of February 2017. I would now like to turn the call over to Kevin Theiss. Please go ahead, sir.

Thank you for joining us today and welcome to China Yuchai International Limited's fourth quarter and full year 2016 conference call and webcast. Joining us today are Mr. Weng Ming Hoh and Dr. Thomas Phung, President and Chief Financial Officer of CYI respectively. In addition, we also have in attendance Mr. Kelvin Lai, VP of Operations of CYI. Before we begin, I will remind all listeners that throughout this call we may make statements that 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 not limited to, statements concerning the company's operations, 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 heading Risk Factors, Results of Operations, and Business Overview, and other reports filed with the Securities and Exchange Commission from time-to-time. All forward-looking statements are applicable only as of the date it is made and the company specifically disclaims any obligation to maintain or update the forward-looking information, whether of the nature contained in the release, conference call, or otherwise, in the future. Mr. Hoh will provide a brief overview and summary and then Dr. Phung will review the financial results for the fourth quarter and 12 months ended December 31, 2016. Thereafter, we will conduct a question-and-answer session. For the purposes of today's call, the financial results for the fourth quarter of 2016 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 begin your prepared remarks.

Thank you, Kevin. Our engine sales in the fourth quarter of 2016 were 75,849 units compared with 60,143 units in the same quarter of 2015, an increase of 26.1%. According to data reported by China Association of Automobile Manufacturers, CAAM, in the fourth quarter of 2016, sales of commercial vehicles excluding gasoline-powered and electric vehicles increased by 15.7% year-over-year. The truck market rebounded with 24.1% growth led by a 69.5% increase in heavy-duty truck sales. However the bus market experienced a decline with the heavy and medium duty bus segments recording an 18.6% and 13.2% decline respectively. Our on-road engine sales reflected the sales trend in the commercial vehicle engine market. Our revenue for the fourth quarter climbed by 27.7% to RMB3.7 billion or US$538.5 million from RMB2.9 billion in the fourth quarter of 2015. The revenue increase was larger compared with that of unit sales due to our higher average selling price which resulted from a better sales mix. The transition to the more stringent Tier 3 emission standard restricted our sales for the agriculture and farming equipment sectors and our sales in the bus segment continue to be affected by commercial electric bus sales. The bright spot was that we saw improved sales of our truck, industrial, and marine and power generation engines in the fourth quarter of 2016. During the fourth quarter, our gross margin rose to 27.3% from 23.7% in the same period in 2015. This increase was achieved mainly through lower raw material costs and better product mix. Our diluted earnings per share climbed 270% to any U.S. sales in the fourth quarter of 2016. A total of 320,424 engines was sold in 2016 compared with 364,567 units in 2015, a decrease of 12.1% mainly due to lower unit sales to the agriculture market. According…

Thank you, Weng Ming. Now let me review our fourth quarter results. Net revenue for the fourth quarter of 2016 increased by 27.7% to RMB3.7 billion, US$538.5 million compared with RMB2.9 billion in the fourth quarter of 2015. The total number of engines sold by GYMCL in the fourth quarter of 2016 increased by 26.1% to 75,849 units compared with 60,143 units in the same quarter a year ago. According to the China Association of Automobile Manufacturers, CAAM, in the fourth quarter of 2016, sales of commercial vehicles excluding gasoline-powered and electric-powered vehicles, increased by 15.7%. The market was led by a 21.4% increase in the truck sales with heavy duty truck sales climbing 69.5%. The bus market was already showing decline in every size category led by 18.6% decrease in the heavy duty bus sales. GYMCL 100 engine sales reflect the sales trend in the commercial vehicle engine market. Gross profit increased by 47.2% to RMB1.0 billion, US$146.9 million compared with RMB692.1 million in the same quarter of 2015. Gross margin rose to 27.3% in the fourth quarter of 2016 compared with 23.7% in the same quarter of 2015. The gross profit increase was mainly attributable to lower raw material costs and better product mix. Other operating income was RMB43.6 million, US$6.3 million compared with RMB25.8 million in the same quarter of 2015. This increase was due to the higher government grants in the fourth quarter of 2016 compared to the same quarter of 2015. Research and development R&D expenses increased by 53.0% to RMB187.3 million, US$27.0 million from RMB122.5 million in the same quarter of 2015. As a percentage of net revenue, R&D spending was 5.0% compared with 4.2% in the same quarter of 2015. R&D expenses reflect development and testing of new engine meeting higher emission standards…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Mr. Paul Gong of Citi. Please ask your question.

Yes, sure, thank you management for taking my questions. Basically I have two questions. The first one -- on congratulations for the great results by the way. The first question is on the truck, would you see like a strong pickup in trucks especially on the heavy duty trucks in the recent few months. But some just based on your estimates how long do you think this riding could continue and what would be the magnitude of this riding and which year do we expect the whole industry to come back? The second question is related to the bus market. As we understand during the past few years, the biggest threat for the bus market was actually the energy buses, which has been really using the market share. However we also see this year the government subsides on the energy buses has been declined by so much. Do you foresee any recovery of the bus demand for the engines or you think that is a permanent account. Thank you.

Hi, Paul this is Weng Ming, thank you for calling in. Okay, first question on the trucks, the recovery of the truck market started from the late of last year was due mainly to the government enforcement, strict enforcement of the anti-loading -- sorry anti-overloading policy, right. Okay so this has -- this debate on I think we still see some pickup so far this year, how long it has gone through, I think it is going to go on for a while longer this year whether or not it's going to go on to next year, I think that's a very difficult question to answer. It all depends on how fast the truck has been replaced and what the governments can do. Now in the case of the bus, the EV, electric vehicle trucks or the EV trucks we saw very strong growth in the last two years -- we saw in the year 2016 and last year 2016. With a new subsidy that's literally been in place, we hope to see that the truck lessens but to what extent it's going to be hard to say but the main effect for us is the energy buses, municipal buses has been affected by this EV. That is the largest affect of this EV by EV series. So those that has been bought -- I think the trend will continue. I don't think it's going to go away completely you know, because the still the government incentives, incentivizing the end user. But I think it will not be as strong as it used to be. I hope that answered the question.

Yes, if I can follow-up with the government subsidies on the buses has been declining by 40% to 60% compared to last year. So and we're also seeing generate on the lump of electrical buses has been really declining or shutting. So we're just kind of thinking there are like opportunities for the traditional Internal Combustion Engine to recover at least in the rest of this year and do we hear any of the talks by the downstream customers on this issue recently?

Well it's generally its too early to tell, I think they've released [indiscernible] the bus market hasn't really picked up yet. So we haven't really seen any. But incentive although it's been reduced, it's still quite significant, right. So I think the EV, my personal view is that EV bus is not going to go away, it's going to be a good fair state. Now whether or not we're going to gain back some of those shares that we lost to EV, we hope we can but we can't be sure. I mean it's hard to tell at this point in time.

Can you give a rough number or right now how much percentage of revenue does the truck comes from and does bus contribute to us?

In our case?

Yes.

In our case the truck and bus market still helpful. The last part of our business and it's become part of our business. I think more than 70% you know.

And out of this 70% may be like 60% coming from the trucks and --?

And well in terms of sales mix yes, I think the truck market in terms of -- I'm talking more in terms of unit sales as opposed to revenue right.

Yes.

Yes, the truck would account for little bit more than the bus, yes.

Your next question comes from the line of Manas Tiwari of Value Investment Principals. Please ask your question.

Hi congratulations on very strong quarter four results. I have two questions. First regarding the operating margin improvement, can you please elaborate at as to which segment contributed to operating margin expansion and what level of operating margin should we expect in financial year 2017 or going forward?

Okay. The operating margin has improved due to a few factors. One of them is from our cost reduction program, the lean manufacturing program that we put in place in the last two years. We are seeing that it's starting to bear fruits for us. We hope that it's going to continue which segments and also for the year because our margin has also improved due to selling more, I will call higher emission standards -- emission engines plus we are also starting to sell a bit more of the high horsepower engines. The high horsepower engines has given us some pretty good margin. So that's a few factors in it, right. And from our lean manufacturing, the lean program we are able to reduce our cost quite significantly in this respect. Now whether margins is going to be still the same again it depends, it's going to be hard to say seeing that the commodity prices have been going up recently. So how far it will go up and it's hard to guess for us as well. So I think for now I think we are having been able to improve our margin for last year, we hope that it can continue.

Okay. Thanks that was helpful. And the agriculture unit sales have been weak in financial year 2016 which brings me to your recent partnership with Zoomlion for its agricultural equipment. So how big is the potential for incremental unit sales from this partnership?

The joint venture with the Zoomlion is only just I've been confirming still have to take time and to view up the modification of the manufacturing equipment. So we expected MDM, it will bring -- bringing another few thousand agricultural engine by that particular joint venture in the coming years. But still have to improve the product and then obviously sales and then to be acceptable by the market. So at this stage an MDM, we don't have any increasing of the earnings engine sales from that particular joint venture at this stage.

Okay. So maybe next year?

Well it may take some time for engines to be -- I mean this is a new joint venture right, so it takes us time for little bit designed to the machine and we've to market it for customers acceptance. So in a business ours it's that this, the cycle is quite long time, quite long while.

[Operator Instructions]. Your next question comes from the line of Mr. Helen Wang of Mountain Capital. Please ask your question.

I have one question. That's a part, that's okay. So you'll still be environmental friendly by now, the government [indiscernible] will be more interested in especially engine cost. So what do you think about the future of natural gas cost? Thank you.

I think natural gas is still one of the new energy, part of the new energy truck vehicles right. So I think there is still place for it although the government is focusing on the EV but I think they'll be selling some still continuing to sell some. But I think one of the more let's call it another sector that's affecting us the natural gas business is the oil prices. It's been quite low, so if the oil price is going to increase then it may come back.

[Operator Instructions]. Your next question comes from the line of Ke Chen of Shah Capital. Please ask your question.

Thanks. My first question regarding ASP again, ASP increased lot in fourth quarter 2016 and the industry is doing well and weights high and are the competitor are rising continued rising engine price by 2% to 3% in first quarter this year. So my first question is you try doing the same to increase price or even higher?

Well this is still light. We have to talk. In fact the way we do it, we will have to work with our OEM customers. Okay to see what they can accept, what the end user can accept before we actually increase price. So it's a fine balance but at this point in time we can't comment on that yet -- we can't comment on that yet. We know better towards the end of the year.

But I'm talking about right now first quarter 2017?

No, I said we can't comment on that at this point.

Okay. My second question according to CAAM and again Alis just mentioned we have rally in truck engine sales. CAAM also mentioned in first months of 2017 truck, heavy duty truck sales has increased almost 100% and also Yuchai website also recently mentioned you have order out hand in the first half about 300,000 units, which is most sustainably like you're producing whole year 2016. So I'm just wondering is this I mean the rally the outlook of Yuchai in first half like 307 units to great instant.

I don't know. I mean -- the -- those I think you can look at the context in which what you mentioned is better now we're talking in terms of the confidence we have a joint venture or talking about the whole shareholding Yuchai Group. I think, as I said, I don't know how we come up with a number, how to come up with a number. But here as a policy we do not give forecast, we do not forecast all right we do not provide forecast.

But do you seek right now, do you feel this is one of the best operating environment; you're doing for a while?

The operating environment is good is yes finally actually because of the improvement in the truck market, heavy duty truck market in particular. And it's largely driven by the [indiscernible] policies of the government all right. So the [indiscernible] is going to be there but will come a point in time where the truck -- like for the end user or the use of the truck will have replaced the whole fleet with a right sized vehicle that comply to the EVT government requirements. And also whether there is additional -- we've reached at, this will be hard to say. Obviously, we don't know what to comment at this point.

Okay. Next question regarding HLGE you just mentioned on the call actually HLGE allowance the sale about almost US$80 million assets and assuming you finished that transaction and HLGE payback loan to China Yuchai International, will China Yuchai International use that money to buy back shares or increase dividends?

Well this is for the director to decide at this point without the transaction going through. I think we will not just be able to talk about it. Now as I mentioned in the earlier the HLGE filed Memorandum of Understanding, they have not filed the sales and purchase agreement yet. So at this time, I think really pretty much to talk about how we are going to use the cash, cash and what the directors can decide.

Okay. Well in light of very strong operating performance, should we expect higher dividend payout ratio compared to 2016?

You have to wait and see. We've not decided yet.

We have now reached to the end of our Q&A session. I will turn the call back over to Mr. Hoh. Please go ahead.

Okay. Thank you all for participating in the conference call. We look forward to speaking with you again. Good bye. Thank you.

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