China Yuchai International Ltd (NYSE:CYD) Q2 2019 Earnings Conference Call Transcript
Aug 15, 2019 • 08:00 am ET
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] It is from the line of William Gregozeski of Greenridge Global. Please go ahead.
Hi. Engine sales were strong in, obviously, a tough market, do you think that growth is replicable over the second half now that there's been some early implementation of the National VI standard?
Hoh Weng Ming
Hi. William, this is Weng Ming here. Now as you know, the National VI engine has just been started to be implemented gradually in China, starting with some big cities like Beijing, Shanghai and some provinces. So far, I think the number of units sold or the demand in the marketplace has been quite low. It's principally for prototypes for the OEMs. So we haven't seen a big impact yet, as we expect that to gradually improve through the end of the year and also to, call it, by July next year, 2020, when government were implemented for all its vehicles. The Nat VI or gas engine has already been implemented from July 1, 2019. So we saw -- we do see a big jump in some engine sales or pre-buy sales in the month of May and June. But the impact -- the number involved is not that large, and so the impact on the overall engine sales for the industry, also for GYMCL, is really quite small. So yes, we expect -- in short, yes, we expect the Nat VI engines to gradually improve through the end of the year, and even into the next year.
Okay. And you mentioned the National VI as being a reason for the margin decline in the quarter. I look back for the National V implementation, and there was no similar margin decline that you guys reported. And then last quarter, you were thinking long-term margins, 19% to 20%, what should we be looking for over the next -- or just in case for the rest of this year?
Hoh Weng Ming
Okay. Right now, the thing is that the component cost, I mean -- I think this engine, National VI engine, has a -- is a little bit different from National V. National V, the actual upgrade from National IV in terms of technology is not that great, right. But from National V to National VI is actually quite a jump. So now what was happening is that because of the small number of engines sold so far, year-to-date, that in 2019 in our case. There is no economy of scale yet. So we haven't seen that yet. It's more for prototypes, for the OEMs, whatever they get, they're getting into their systems, right. So what we are seeing right now is not quite reflective of what is yet to come. We expect to see a gradual improvement and to sell more, and see our volume improve together into, like some level economies of scale, there'll be no cost of the component. So if you take out the impact of this National VI for