CAAS - Earnings call transcript Q3 2018 | China Automotive Systems, Inc.

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Operator

Greetings and welcome to the China Automotive Systems Third Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kevin Theiss, Investor Relations. Mr. you, Thank Theiss.

begin. You may

Kevin Theiss

everyone, Automotive for Welcome you, us joining XXXX third China Systems to quarter Thank today. conference call.

is Systems. available Joining of with the in today Mr. translation. Chief call Li, us of Financial the China conference Automotive answer He to be assistance will questions later Jie Officer

would all that that statements. throughout contain we may call we Before forward-looking remind begin, this I statements listeners may make

assumptions only call. Forward-looking as the statements estimates represent this the date and company's of of

third will I U.S. under GAAP, and today, with and could U.S. results financial unaudited number differ XXXX and from month As XXXX documents then those a a quarter whether of XX-K future purposes from audited. any December any the actual On otherwise. result, financial statements reported company or are our for year Securities in the the the and duty will statements Factors by a company's new quarter for call in Annual brief contained to forward-looking XX, dollars. to company call, described Risk the of conduct I in results forward-looking Form as ended are Exchange a of materially made these the the following financial other heading to with the XXXX results results call those question-and-answer events filed are this expressly including company's time-to-time filed Commission. for in provide nine summary the The will information, Exchange results and Report, a this under The due the Securities updates result period. disclaims provide Commission, and factors as fiscal Management year overview These third results review session. of in the

position. the a of China industry automobile and dynamics with Automotive's begin will We the of market recent review

sales September in quarter grew September drop years. XXXX, decline to of XXXX. Manufacturers, quarter of the of quarter Reuter's growth first XX% steepest below was the X.X% drop month sales X% quarter the represents August X of in a X.X% X.X% XXXX. year-over-year sales China's year-over-year Commercial million from $X.X first According X.X% sales year-over-year of July. quarter year-over-year and weakest decline resulting vehicle quarter XX.X% declined XXXX, in grew This in but slow expectation since car XXXX. of That down China's decline in X.X%, year-over-year. Association Passenger truck and third Automobile vehicle For in the a in September, second X.X% with approximately nearly China the of Industrial the number followed of production third in GDP to in sales third the fell the and a in fell the bus to X.X% of X%. both

were XX, ended million, With first million the $XX.X year-over-year sales vehicle totaled $X.X sales XXXX, X.X% up impacted MPV confidence. sales difficult will X.X% consumer more car XX.XX% Credit make sedan stock down loans X.XX% year-over-year, sales the X.X%. were in gain. September falling were sales on period for nine year-over-year, were X.X% vehicle up XXXX, nine SUV sales China vehicle of have exchanges prices Commercial In year-over-year. months Chinese and rose months curbs year-over-year. up Passenger a and

Japan steering declined subsidiary affected and the the $XX.X current CAAS and steering products other hydraulic the systems, XXXX their the total quickly to To Chinese power new in column in customers in EPS million joint quarter declined to limited XXXX. steering in of third power growth steering its specific KYB. venture support. penetrate KYB of levy steering vehicle technical products standard both steering transferred a development million same been products. for actions Net systems former in systems, revenue. electric passenger In power our to EPS and Hubei of manufacture due the of joint KYB of brand Specific years. systems, sales engaged to vehicle third are full combined of as geared business, the last addition, new being of EPS steering established from more product quarter Henglong XX.X% power year including KYB type Electric venture, nine for rack Steering power with system and the transferring traditional are market. of company products Company XXXX. raised known X.X% has these primarily and and for domestic EPS tax XX%. Hubei development rights passenger our production our Limited in Japan accounted electric sales softness the The the categories for type to include we in continued electric Hubei XXXX, System anchor Automobile or with vehicle electric the Chinese sales export X.X% Japan from all Net third KYB electric XX Hydraulic EPS quarter and economic for of automotive type months and sales was sales by parties systems. a domestic to of period sales of technologies $XX China markets KYB Slower Japanese with KYB

headquarters ceremony groundbreaking new at with Jinzhou in conducted facility a production our already have City. We the

joint sales to and will We are share supplier optimistic quickly China for market the venture the in highly become enhance a export automotive market products stronger our develop larger that world's build and EPS our new market.

hydraulic million Chrysler XX.X% America in the Fiat North steering. We other remain introduce Ford The more robust technologies North products are to as to or believe based both and export sold North advanced XXXX. third America products to features well. American quarter may of able hydraulic our products as advanced net by we Our product $XX.X be rose to customers using new on to sales sales

Chinese Brazilian X our believe OEM bright future. operation in would a assembly operating tier has global the our region and continue that in we In Brazil serve to addition, customer

a higher gross XX% was mix. cost the XX.X%, raw material quarter Our compared to same mainly product This margin in and change decline XXXX. in of the due with was

As and part lowered general administrative, improve and by expenses XX.X%. to control drive and R&D efficiency, we of our our selling,

income quarter to the of million XXXX, from in the profit. Our was million third decrease quarter due mainly compared operations The was in $X.X lower $X.X XXXX. gross same of to

from income net quarter diluted $X.XX the in shareholders common the XXXX. per was Our attributable parent company's to share of $X.XX

in power and were cost XXXX. almost to controls the and The strict lower continue research more projects quarter third million in invested XXXX joint million steering related of quarter We to electronic of venture transfer our powered development $X third for $X.X invest compared steering. the of to expenses mainly our electronic to R&D research in with new

had In September the cash to other we R&D XX, our also XXXX ADAS $XXX.X future. our as and cash investment our addition Systems, equivalents, developing products new technology, Assistance pledged At is short-term Advanced for EPS cash, such Driver million. of

letter third bigger has half most important China's than Buyer levied employing of cash a of $X of planning on implementation, The successfully engines the the or industry vehicles regarding quarter, of China X% with that in have to its cut enhance withdrawal terminated going expenditures capabilities. received automotive top many purchase operations Buyer recent private. mainly company but XXXX that the capital the dated Directors on to Board purchases with the non-binding During it people. with proposal discussions has from further in the Chinese the withdrawing made decided going-private by announced the new and million In no been decision Committee X.X tax the letter, proposal to to of has vehicles. spurred is conditions, car the stated liters. and immediately was from body proposal. XX, economic market million No tax that one proposed our the the withdraw government the buy cutting vehicles, considering past $XX.X We flow the the the production Providing incentive new EPS Special any August

Systems Automotive remain China will company forward. a such, public As going

North XX supply into and product our is more products. joint than of price customer future. are prestigious with and increase venture steering as We market growing. China hydraulic returns, bear share as in in in are of steering operations International portfolio, clear significant broad America our performance well new the well will quality South high internationally EPS our We as believe our our open doors positioned and customers, the reliability new we evidence list

me Let quarter the the of third review financial XXXX. results for

last in in Selling the for quarter third quarter third America compared were change third X.X% quarter $XX.X XXXX, XXXX. XXXX. in the product the sales represented million XXXX, Research the grew in the financial net to due was quarter R&D with Chinese $X.X controls domestic of of in over the lower XXXX. to with tax due cost million due income utilizing expenses expenditures third compared $X.X $X.X some sales mainly million to the automobile of development G&A lower as X.X% XXXX, quarter $XX.X compared was same to compared the million venture, million was gross were $X.X to to earnings quarter in of $X.X Hubei $X expenses Income $XXX.X X.X% $X.X $X.X compared greater third of X.X% represented expenses in to transfer lower to decrease mainly and Income America in net third $X the third third demand to as the quarter XXXX, sales of to XXXX from the companies equity R&D operations in in third The quarter compared XXXX. net Gross The compared of to in companies expenses. XXXX. of before the the Net to lower of of in in XXXX. of was quarter an to the for mainly third third XXXX. income diluted to The XXXX income margin quarter expenses of of company's common in $X.X third tax the mainly $X.X the third Lower share Diluted of mainly compared $X.XX and was operating due shareholders in quarter equity the million sales common million in product company's XXXX. income to of quarter were XX.X% higher due was of of The due the third million profit to in quarter administrative of to quarter the cost income compared third $X.XX increase in of the XXXX. and in XXXX. average was XXXX, XXXX, were of quarter year. to and to of export to expenses of changes domestic year. per quarter financial and XXXX. outstanding compared in the third compared weighted and in per in was million XXXX. in affiliated the to a of volume product products. third XXXX. sales the the of quarter decline represented in company's in the XXXX. due product well lower were million was quarter lower quarter attributable market. in expenses power quarter in compared million X.X% of were compared lower third XXXX, of XXXX, in raw third the our for profit Selling in third due in same decrease Net mainly primarily the quarter $X.X to XXXX, number personnel the quarter $X.X in and XX.X% of earnings of mix. in of income income third third of North earnings the mix million expenses XX,XXX,XXX expenses selling shares to advanced in of was expenses quarter attributable last in margin. quarter million compared earnings million quarter the XXXX in of The The quarter gross the The $XX.X decrease sales General the and XXXX, the lower quarter third shippers. net XXXX sales X% net with net compared million in million to joint share sales Our of XX,XXX,XXX materials were period million the $XX.X expenses R&D of softer $X.X million more sales third of in was net same new parent research unit Net brand of common steering. to before was quarter third of increase $XXX.X to affiliated diluted the in of Gross XXXX, of the due quarter KYB same XX% million of compared compared the million electronic third to same cost to income parent quarter the North sales projects the mainly shareholders to

for Let go me of the XXXX. the over nine results first months

the period Nine-month Our net $XXX.X months was compared was Nine-month margin first corresponding months year. in nine for gross compared of to XXXX. nine XX.X%, of million the $XXX.X $XX.X first corresponding XXXX. million, million sales to for gross to in in were the the $XX XXXX last profit compared period XX.X% million,

shareholders the year. Diluted XX, share diluted million, XXXX, Income other nine XXXX, million corresponding period compared the in corresponding income operating in was $X in XXXX. to parent was $X.X XXXX. for operations the period months per months of share from X.X%, on ended to with last $X.X of of the was $XX.X for attributable period first $X.XX of million For million to earnings in gain $XX.X to corresponding were the the million September compared XXXX. X.X% company's compared compared for amounted per months The million earnings to common period compared to XXXX. $X in Net first nine the sales $X.XX corresponding nine margin

balance highlights. sheet Our

$XX.X This notes XX, cash cash the was accounts operating its loans the of compared views September $XXX.X million, to operator, including cash and $X pledged nine as current outlook, $XXX payable stockholders' deposits to Net Q&A and cash were parent million including payable December change. $XXX.X for on are XXXX. XX, were equity session. business was has year activities full total and of in to $XXX.X on were million. total subject equivalents, XXXX, XX, and the we're company's - that, from target short-term million, were $XXX.X operating ready is million. management million from begin Total to investments million months million reduced receivable company flow as short-term September of Operator? guidance XXXX first receivable conditions, which based the of $XXX.X accounts As million, $XXX XXXX. the Management With market revenue notes

Operator

Thank you.

to get session. We [Operator Instructions] will our now you. start question-and-answer Thank Q&A,

from the [ph] of comes Polawich] investor. line with question your a private first proceed Our [Robert Please question.

Unidentified Analyst

be too something Do new wondering, be that into on of what's the timeframe will I that's the Oh, I'm as on the course, the couple plan yes. for here. contracts of Good to morning. Thanks increases XXXX? for and, taking materials? as a higher the raw getting cover move cost you think have that have your - price cost - raw guess, that's just indicated, gross really can you call. of we down of materials. I with And, difficulty? margins without questions And passed much come

Unidentified Company Representative

Language] Okay. Thank [Foreign you.

Jie Li

increase raw of is [Interpreted] depreciation affecting - margin cost only factors the decline. one material the margin gross Okay. gross Basically,

The product basically are other two mix. factors the

of During the were the third we steering increasing products. lower margin quarter XXXX, mechanic sales

So increase affecting increase those our last expenses. gross margin. due the the of are to And factor blended is also, of products warranty the

we pressure see past, In three first instance, to product raw we to - pass mix a the then are some and challenges, the were is the the In - gross And material we and of the so, past, and of increase the those able suppliers. warranty the our factors combining material gross margin. expenses, raw time. not margin, for pressure were able

buyer. This negotiate so challenges large raw them. longer with suppliers, cost renegotiate of going material a some are the they're well, because not able run, during volume the year, as are we through Some in able we're do to to it them we're we to But material procurement able believe this the of raw as quarter. with we

Unidentified Analyst

Okay.

Jie Li

[Interpreted] Go ahead, Robert.

Unidentified Analyst

Okay. is the startup million into signing from And reports now. about is like million new in that ramp venture, - of - the an what of we is years? projections looks at I projection the the US$XXX can you to Thanks, increase will up assuming startup US$XXX see US$XXX about is the is which And that million. about over the volume about September. XXXX, was I venture, the let's this combined And looking business as it the growth I'm for and combined. joint guess, move was joint happening I see. next year say for two KYB's

Unidentified Company Representative

[Foreign Okay. Language]

Jie Li

venture given the both really We are Chinese [Interpreted] EPS to after products numbers. achievable we've And can think come you market. mentioned So - you on size China market. the projection Robert, those discussion tell in joint of for as sides also the is catching the up the it's

EPS the our We products Our to partnership from believe for the force - out product KYB, and share there. is moment, EPS - still a able we expand our at market with modest. China major in build we're can with the relatively

point XX% XX% So our to from that can on, year increase and we market share. grow a

Unidentified Analyst

also will it to doing looks XX%, I in month. Do I think, think the that is now vehicle you last sales, Brazil help - Automotive situation had picking like Brazil? up, were China is see what with their Okay. that they up

Unidentified Company Representative

Language] [Foreign

Jie Li

Yes. [Interpreted]

in right, are Brazil. XX% nine experienced In Brazil very Robert. basis, also first You a year-over-year months growth. in the grew strong we XXXX, sales a of our On

Unidentified Analyst

I question or guess, can say, have, I quick last I two. Okay. a

continuing any company, Automotive, we that's potential some even for that China dealing year from that light as in in buyout share it level share is, shareholders. been Chen, buyback there for see time. I China as shareholders minority know held that that a and about confident feel we I've for the of for it the X.X at of it could Are shareholders of faith, a mean, guess Chairman that's U.S. we owned the possibility nice a know As personally, of we shares. And were we Automotive status long transpired, vote well as with as will see confidence confidence price regarding being stock the you. existing traded feel China we now as can a we hold new And Automotive canceled. vote to in of I everything where public point, markets? is a good remain comfortable almost be the that could some potential I now low but in would light Thank of sure to

Unidentified Company Representative

Okay. [Foreign Language]

Jie Li

[Interpreted] Okay.

So comment, your back comment. to first

and In decision NASDAQ-listed terms that Chairman's CAS long And the of run. withdrawing his proposal, is remain go-private public the company final. party's a U.S.-listed the will into or

And know, very a so you CAS status. we to are listing maintain want to committed U.S.

of points a government are very now Chinese and The is right stringent the terms strict challenge a and your control In buyback, policies. implemented capital taken. well

the As outside transfer situation capital approval. the you China of know the moment, China U.S. the been China so difficult in getting from and has at through government's to Chinese

However, be to out we able to are goal. that trying achieve some and working solutions

Unidentified Company Representative

CFO, Li, something company In looking he's worth it. - in the undervalued. that at he the terms he a of think, it's And buyback, personally with is Jie agrees you

Unidentified Analyst

have familiar doubt. this Thanks joint a I I'm Thank have the questions. significant And XXX lot with I good company. success will with They're I that my joint you. no answering for venture call. just years to to with development say taking that, me. is I you venture, I great over that old. sounds you're and a know KYB Okay. wanted appreciate that the mean,

Unidentified Company Representative

Thank you.

Operator

Thank you.

line question. proceed comes Our of investor. private a next from Sheehe] [John [ph], with Please your the question

Unidentified Analyst

about the far. answers be KYB call, capital will so all provided some the taking you for year? detailed expenditure Hello, for everybody. you joint required Thank you and over my how much the venture to next Can share for of expectations you questions the thank

Unidentified Company Representative

Okay. [Foreign Language]

Jie Li

[Interpreted] Okay.

joint the So and will the equipment we of production line contribute based and venture CAS have the contribution contribute cash existing because to venture. the have the production from equipment is the KYB and formation line, we'll - joint upon the side the we'll the

capacity for So EPS increase increase they the million our about EPS the product. - production probably able were for with product to $XX putting we're in production in equipment,

Unidentified Analyst

China over capital side, for make Systems So will you from large year a Automotive that Is the correct? not the next venture. the expenditure joint

Jie Li

Correct.

Unidentified Analyst

can U.S. And export the comment Okay. North tariffs on to That's of sales impact great. America? you on

Unidentified Company Representative

[Foreign Language]

Jie Li

State So short of a announcement since North in the to series Department's the answer announcement, impact evaluations, our the business yeah. we tariff so the [Interpreted] The of controllable, it's America. potential on have through increase manageable, imports, is, the it's gone

America North currently one-third So government, to but we've is announced and - million, is finalized, tariff. the XX% of year. the potential at has to the our projected And still potential sales to it's about end not increase the $XXX with that of facing that who the XX% U.S. about

Okay.

discussion both the favor subsidy North which a the agreement is after appreciation we'll mutual So discussion, in also on after the and some impact some dollars share our to - to government we in combining And with of to also sides. seeing of us. US receive our customers America, we're of come along

impact of And three we mitigate help together so, will things of tariff. the increase these the us believe

impact And negative our business we and manageable America believe will minimal. the North potential so, be to

Unidentified Analyst

very great. Thank that all my That's questions. much detail. That's for you

Jie Li

Thank you.

Operator

you. Thank

Our next Peter from Halesworth your with Heng question. Ren. Please with question of line the proceed comes

Peter Halesworth

acceleration pull-through part avert first U.S. in any this tariff or was question quarter Yes, is there first sense on of an there if there the question. is That's mitigate my order customers? orders, to of so my was in

Unidentified Company Representative

repeat question? is Peter, low. voice can your Your you

Peter Halesworth

customers to Yes, the tariff? beat is acceleration there orders any evidence an U.S. question. of evidence Is of first That's from there my was any that? there that

Unidentified Company Representative

Okay. [Foreign Language]

Jie Li

book customer from has been relatively the U.S. stable. [Interpreted] order Our

chapter, is there that for that growth So area. accelerating no

Peter Halesworth

of to advisor second the was arrived failed the Houlihan question was then value Special what Houlihan that Chairman? during And Lokey Okay. by at? representing which was provided company shareholders was buyout the from is, Lokey, company valuation that the the Committee of the my the the What

Unidentified Company Representative

Language] [Foreign

Jie Li

of was the answer retained Houlihan Lokey Board formed Special To by members. question, Committee, [Interpreted] your by some which is

to So has never the - access senior no report. has that management

the by evaluation Committee. Special done was So the whole

Peter Halesworth

we're relates this heard very [ph] the of who the loss price is what It's Okay. of before, over not and poor for it's is penalty shareholders. And needs change have of and in Mr. matter see And IR. of the can that call, an fact, corporate question governance XX suffering Automotive that because Chairman to just on behalf start positive confidence Automotive governance last governance given IR. concerning not corporation listed this this how on China CEO mentioned on directly to is Delaware, we And high from a the Shareholders China $X [Polawich] in been fact American call. IR, want to their shareholders in and ignored. about it's to corporate haven't improve a it. corporate And and months. on Also it NASDAQ and like act ideas stock my

to need meet investors. You

You need and to regularly. communicate directly

qualified Board represents… to have have a and that's You

Operator

Thank you.

Unidentified Company Representative

[Foreign Language]

Jie Li

Okay. [Interpreted]

earnings So actually flight Chairman was the before to I CFO. the called delayed. conference mean, His call,

So at in he up the the time of the was air. conference he's call actually -

has tried call. So attend the to he

XXXX of he's one but to way customer of discussing order. the meet on a largest - that's CAS, his So

those of in CAS of lot there been difficulties. a have efforts, especially think will some I shareholders year appreciate those

Operator

to at no Thank back for time. closing I'd further There are like you. to over comments. the floor this management questions turn

Kevin Theiss

look Well, today. us future. joining And speaking forward for you in to with we everybody we the thank

Operator

teleconference. today's concludes This

day. and a disconnect may have your time. for your wonderful participation You this lines you at Thank

China Automotive Systems (CAAS) 9 Nov 182018 Q3 Earnings call transcript