ZXAIY - Earnings call transcript Q3 2020 | China Zenix Auto International Ltd

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Operator

Greetings. Welcome to China Zenix Third Quarter 2020 Financial Results. At this time, all participants will be in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. is conference this note, being recorded. Please time, Kevin Theiss, this I will to over call the Investor turn At Relations.

Kevin Theiss

months call. Thank you and Advisor. third nine XXXX to I China results joining us US today, quarter and am Zenix and Investor Kevin name is My welcome Auto's Zenix financial Theiss, conference Relations first

as Among report annual materials in officers, Safe the today us in Auto's Zenix CFO. statements are Mr. statements. press statements statements conference forward, Private script to anticipate, well releases expectations, call forward-looking and statements CEO, Auto this these make words made can This the be XXXX. quotations not potential, can, identified Reform periodic by other statements. Zenix its Statements or from to, should, ought statements. are and or would, continue, may other Act terminologies These Auto's of the to and the Gao, project, These plans Joining directors Junqiu including Deputy going and such Harbor reports under is made forward-looking other by Litigation expect, will, that Securities employees. forms may, forward-looking its to, the in might, aim, contains US are about could, operational negative statements estimate, shareholders, oral or Cheung, are its of forward-looking plan, seek, Mr. facts, provisions oral believe, forward-looking intend, of Zenix in and as historical shall, written Martin management things, likely beliefs contain expressions. as and in also call SEC, conference strategic

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session. Thereafter, question-and-answer will conduct we a

financial At results Zenix remarks. Board. this The international Accounting please Auto your statements months all call, first accordance point, reporting presented financial RMB today's begin US will financial of be results purposes financial the are as in International third its in Mr. standards dollars. Standards the opening For Cheung, unaudited. prepares nine by and with the and quarter issued

Martin Cheung

Thank you, Kevin.

The brief the reopen economic Government So, with let substantial in year. over incentives as activities. GDP XXXX for the the projects approved and our discussion the the lending stimulate XXXX. on overall second X.X%, the increased XXXX, third quarter. first quarter me significantly through declined Chinese the economy the promoted start restrictions in of to and third fiscal as nine infections of GDP Chinese quarter the growth third quarter in growth X.X% the to quarter months help X% was quarter began with by travel performance growth rescinded. second rise sharply growth XXXX but more compared economic a market spending, infrastructure renewed below China's lockdown third in higher of X.X% XXXX last were rates lower and economy and rebounded a XXXX of of of

reported decrease XX.X% by gain the a July, unit XX.X% up economic China XXXX Automobile the a the year-over-year XX.X% affect Manufacturers, in continue automotive Truck XX.X% September the economy in a much growth and impact a sales rose in segments Chinese China of smaller August on FX trucks generated July with and market momentum. in truck in in during unit rise within Pent-up were unit in in demand basis, higher strong to to October. buses for September. market. in as but of third Association and quarter in COVID-XX However, October pandemic XX% growth increase grow to economy the XXXX. decisions, new data recovery in The for XX.X% impacts August, sales quarter, declined gained has fourth year-over-year and a with XX.X% followed unit X.X% uneven by XXXX, and in continues distorted CAAM, of by According effects the China of created the different business to

CAAM, domestic quarter Automobile vehicles XXXX September the quarter Exports lower. end XX.X% impact international nine some RMB third up in the sales X.X% Revenue by unit XX, and XXX.X commercial in truck a by data third by increased segment with the year-over-year September negative reductions markets. decline. in months months and XXXX. due XX.X% million and the combination showed price of million XXXX, declined to unit sales or revenue million reported demand was XXX.X vehicle of compared $XX.X to unit the For end year-over-year, commercial and bus Association X.X% XX.X% markets of in was RMB the nine XX, sales that for mainly China of aftermarket weaker The decrease by Manufacturers, of

sales to to year XXX.X XXX.X truck RMB $XX.X ago. Chinese or market strong million in the XX.X% XX.X% Chinese increased compared to However, rose sales million year-over-year, to market. RMB growth due the Unit the by mainly our million a

our With started from the within being some instead local travel restrictions China producers. ordering wheels have customers of removed, again further

Chinese domestic and to markets suffered the in sales quarter. Our aftermarket international the third to

the or shops or aftermarket inventories an pandemic many export repair inventory Our on struggling The aftermarket. created RMB had by infection from local same of XX.X international a world. permanently. in the the million reproducers into intensified XXXX. oriented the rates sales offload RMB markets around sales available the in international the China to shop markets XXXX. and third Chinese as second $X as million of caused compared disruptions sales million slow XX% already of year-over-year demand $XX.X in chaos to Aftermarket the million in to quarter aftermarket down the million in and lockdown domestic in markets domestic auto the market closed still spiked demand in impact quarter of as recovery International increased million RMB wave, weak creating and declined RMB industry in many Competition many declines as XXX declined unit dramatic earlier compared auto their COVID-XX XX.X XX to XXXX sales decreased

in second sales decreased were the XXXX. quarter. international up sales the million from year-over-year XXXX of Unit third in XX.X RMB quarter XX.X% by However,

Our gross COVID-XX gross million attributable the international margin a RMB US$X.X million quarter wider-than-normal a aftermarket in million outbreak. profit declined in to the price to was same both last to cuts markets the China RMB and due year. volume XX.X compared or third loss in gross negative The sales of due quarter XX.X in significant was and

ago. maintained of to However, quarter XX.X% capable level as quarter represented high of third products revenue total by production the due Tubeless sales. the utilization a And advanced to quarter steel aluminum OEM have has same These increased sales at the XXXX. a been of wheel revenue wheel in program. year to X.X% R&D our XX.X% mainly quarter our third in the rate for compared XX% been compared created accounted sales same

materials The million. development. design, increased expenses to new third equipment associated initiatives or product investment new year-over-year production quarter, $X.X R&D company new million our R&D During RMB light-weight the development, increased product XXXX development, new by for XX.X XX.X% its in and

have maintained performance. introduced We quality enhance as materials the leadership and R&D to innovative wheel design industry with our has unique

emphasize strong continue We being financially. to

a XXX ADS quarter million As three of ADS million $X for was net bank to were and $X.X basis, per were ADS and equipment. property, we or of XXXX, On Total period plant or $X.XX Auto million of and had or Total RMB bank of per X,XXX of maturity achieved had cash equity months from asset $X.XX. RMB a XXX cash of XX, XX.X expenditures of third million with borrowings September attributable million bank million bank of or RMB and and per RMB XXXX, or cash $XX.X million. inflows balances million. company $XX.X six Zenix operating million $XX.X $XXX deposits deposits and purchase million the XX.X million. fixed XXX of RMB owners activities the capital In million, of net RMB

and and future high environment, our adjustments offset across price industry. the improving and match partially For market efficiency the wheels including have impact through we greater on strategy, production to reductions focusing to near-term automation to of made current demand make manufacturing continue

this to highlights same of unit in of compared The combination third in OEM market Sales million some on a negative were aftermarket XXX.X was the let Chinese or OEM to XXXX. compared year-over-year quarter XXXX. OEM million RMB or market Total for XXX.X million decrease XX XXX.X to go Aftermarket in $XX.X and markets. the owners on a decreased the repair to million sales The market the to of to $XX.X strong traffic shop million first and the third over demand XXXX. the mainly was XXXX. the sales second due weaker XXX RMB truck or reductions in quarter during impact of sales of the by in XXX.X growth were million compared and Chinese The industry auto million had and many RMB quarter in quarter basis $XX.X sales in international Now, was mainly Revenue domestic the increased revenue RMB the the the Total segment higher XX% year-over-year were year-over-year. in of market. in unit the the attributable quarter price quarter adverse third China XXXX quarter for third the million market XX.X% me slowdown million RMB to a XXXX. of by RMB down forced domestic of close third permanently. in in quarter to domestic lockdown effect in material

domestic to XX.X to local of their XXXX, were aftermarket. sales quarter million same domestic up into challenging year-over-year unit RMB export-oriented The quarter inventories the the international environment in XX.X many RMB to the the third million compared from or aftermarket XXXX. the the of many aluminum of sales of XX.X of revenue the XX.X% in struggling international XXXX, OEM third of quarter forced international a sales, of third XXXX Sales XXXX. compared Tubeless quarter sales XX.X% XX.X% third domestic tubed in in COVID-XX the offload second In revenue decreased in already ago. quarter as markets. sales in wheel of sales revenue RMB XX.X% Total quarter of the same the of quarter steel and compared of X.X% accounted steel respectively. XXXX. comprised XX.X%, to sales weak producers the an XXXX. create International automotive year XXXX, important the quarter revenue, XX.X% third for $X XX.X% markets sales the wheel world's of During million XX% in same in but quarter contributed continues same quarter third by wheels in and million demand compared a pandemic the of represented from to of Sales to X.X% wheels quarter

both same profit in gross third and to gross drop $X.X the in the impact the RMB quarter international quarter million quarter gross volume XX.X outbreak. and aftermarket Third margin the the was was wider-than-normal the from China million in a loss in XXXX. cuts significant markets, in following unprecedented price in or of negative to million XXXX COVID-XX the XX.X RMB sales compared due mainly The

remains However, high to XX.X% the $X.X by level. increased in a XX.X million quarter production utilization Selling or expenses million third from at rate RMB XXXX. RMB distribution and million of XX the

of higher third compared compared by the the as third of in revenue the as XX same year campaign expenses quarter the the quarter compared RMB was significantly in third was and a same in projects last XX distribution new production a development or selling The million revenue, were XXXX third primarily the new and percentage Administrative to XX.X% of same in were as revenue with XXXX XXXX quarter new materials expenses revenue was associated the product of in development. X.X% third to Research product compared in X.X% RMB of XXXX. million increased X.X% percentage The costs increase in of million marketing product same for X% $X.X $X.X fees. quarter the the increase increased increased last RMB a due percentage increased The development the expenses and dormitory ago. new for with in XX.X increased to development, sales in light-weight and As with R&D salaries XXXX primarily or third year to in distribution to and quarter quarter million R&D of increase members, and its due lower compared quarter The in the equipment a quarter new quarter initiatives XX.X of year. costs XXXX. and of R&D to design, development, company a ago. due year. benefits selling a staff percentage shipping quarter RMB was costs from quarter an year to the medical increase of retain of last staff the in million core administrative million, increased XX.X% expenses third the quarter team to compared new same primarily

a per $X.XX XXX.X compared of net of million expenses revenue in million losses RMB in third The third due compared XXXX of expenditures third RMB compared quarter third million the inflow of activities as X.X% the and sales total the XX.X of quarter from and X.XX X.XX X.XX increase the with in the quarter loss X.X% to quarter same quarter million purchase third the comprehensive or compared the XXXX. company million ADS a the or last year. were $X.X operating same property, Net As percentage RMB in XXXX, $X quick X. recorded in of quarter of million total comprehensive $XX revenue, losses was expenses loss quarter in primarily equipment diluted to and to in to and In XXXX. of of for with Basic the the net compared a to XXXX. administrative the quarter were XX.X of the RMB basic of XXXX. plant lower XXX.X RMB revenue were inflow loss or per administrative Capital in of percentage RMB The ADS third net RMB and or ratio of was million. diluted cash quarter were for third significantly loss XX.X quarter third of cash million

XXXX, XXX.X the shares the XXXX was number was of ADSs weighted During million million. of and of quarter weighted average number the third and XX.X average ordinary

decreased September Revenue the nine XXX.X wheel same nine-month period of wheel of nine XX, sales in XX.X% RMB during per and a for diluted XX.X% losses year-over-year we the same and revenue. decreased losses million million from million sales of the XXXX. the Basic ended $XX.X International loss for XX.X% million net and million period of equipment million $X.XX XXX.X XX, Net Aluminum in the loss profit X,XXX.X XX.X% $XXX.X Aftermarket XX.X% the September total or months revenue. ended months and of X.X% XXXX. for per XX, same million first XX.X% nine total was same and during OEM months ago last and XXXX. first XX.X RMB and for $XX.X nine with X.XX or by compared September XX.X sales generated the first of months ended for million was period XXXX. and the XXXX. RMB XXXX RMB XXXX the nine XX.X% represented million comprehensive accounted XXX.X in XXXX decreased XX, months XX.X% Chinese represented total same and ago XXXX. by ADS RMB by XX.X% of XX.X% first with XX.X% for XXXX million decreased of the RMB year million accounted diluted basic million of revenue. XX, compared period $XX.X XXXX revenue. Construction XXX.X with loss by decreased was a financial of in and a or from to RMB sales the or period ended ADS million during XX.X% first period loss or RMB XXXX of Sales first to were year XXX.X ended XX, months accounted comprehensive market steel gross compared the September compared year-over-year the review decreased by the with RMB steel for nine nine September X.X% by or to and first Tubed X,XXX.X decreased revenue the accounted RMB of September in sales year-over-year represented million our million same same Tubeless compared for RMB months of revenue. with year revenue. for compared a $X.X $XXX.X to wheel Gross the or sales Now wheel in loss will with ended nine highlights months period first X.XX first

key over balance some go me sheet let Now, items.

As of were deposits Auto over XXX owners or XXX receivable Accounts Total bank million months million. million RMB RMB had of RMB XXX.X fixed with RMB $XX.X of or at XX, September maturity and a Total RMB million to XXXX, or was of cash million the three company balances of and million. period bank equity Zenix the $XX.X million bank to million. X,XXX or compared million attributable XXX.X $XX.X were or RMB borrowings $XX.X XXXX. end million XXX $XXX

Kevin, that Now, for wraps my and up we questions. presentation ready are

Kevin Theiss

you. Q&A. would you Thank Operator, the begin please

Operator

Instructions]. [Operator

from Matthew private investor. is line a question the First Larson, of

Matthew Larson

I've got a question for you.

and value cash public presently? in through disconnect and have out in ways it the your you very the that is statements book the dividend, to leader company company. the trading that, a your to your And the competition, cyclical, in to very company of stock is is its because valued a which buy something the certainly position value that there's industry. plants at past in you and going get are my do increase of value though and value to a level you're not I you value. to present a Your higher significant. consolidate between weaker balances of What at some put industry back cash good significant are shares, to a It's maybe discount its think the you've Even a judgment, explore it's indicative really

Martin Cheung

company's And [Foreign of thank our for the your position appreciation and and question. you you Language] This is for valuation. Martin performance, thank

been consistently true we've the to – market the the serious markets in company. about helping the and capital in management US still mentioning it's interested value is of I think realize

our it in competition very market. the that is I in difficult a may as you the us time think we've hitting with badly been for moment, for performance see price the

some maintain to think may talking think realize about a of to use to what capital three, of focus China. help valuation. in particularly later get And markets to I professionals, to for the we the shareholders of realize to that – alternatives to is one as in well secondly, methods our our we we'll US, in reasonable discuss the the to lawyers I we on in have what see our particularly to sort can time number are be we and sort being our value. market level And help number performance, we to going will shares see our the talk that

Matthew Larson

it years buying There's that even frankly, – the a difficult, an that. a And confidence. somebody a just since been XX already, pretty have traded of follow-up. significant a be wouldn't few in who's interest a it's impact. the have would announcing It judgment, million in obviously, And my as business tremendous dollars would back long-term simply in for shares investor, or show I thinly

of a product end sell I to or true? manufacturers question. or Second users. buses EV OEMs, lot electric China, they're in Is assume you your other trucks whether vehicle that

Junqiu Gao

Yes, Language] electric to the do supply we we are [Foreign vehicles as vehicle. commercial in specialized China in

that. Yutong can bus you the color China, in on supply producer some give we electric bus. – So, their largest bus We – to coach

bus supply largest producer, for also bus. Long, to their the King second We electric coach

the also runs to truck supply aluminum And We more truck special powered – they vehicles. powered steel but of also They of are to the supply lightweight both launched vehicle truck. supply procure supply electric And duty electric some JAC, our because truck. product main electric – Sinotruk. we have wheels. on It producers, to we requirement, side, product as light they and a duty newly they – these JAC. are light On both vehicle, tend We are to the product. electric this

they're space vehicle, vehicle, yet. penetrated power charging in duty. light vehicle mostly well the wheels internal So, as players are space. limitation to our passenger heavy the mostly because said, And electrification vehicle dependent emerging electric those for space, on engines. of heavy by has truck bus the That not the aluminum Language] mostly as sold In been being In duty the producers. and the these for the vehicle still around duty are of being centered [Foreign of terms technology also, combustion facility required are the that vehicles, electric electric trucks

the to So, Okay. players. space [Foreign truck and Language] those duty mostly light in we're supplying

So, bus space, electrification sector. of in of last a in into put government couple the subsidy years, has the of Chinese bus the lot the

in very the And bus has electric And base so, and also been that the the high is helped very tremendous bus growth of now, area. penetration high.

that seen increase more especially being the So, few said, done we've a in and year this the year significant coming years moderate because large ago. has growth a

side that's So, bus of business. the

Matthew Larson

know. That's very good to

As know that investors. I the that an EV area something significant is would to interest guess would be a supplier certainly growth area, probably a you're area, that most

So, thanks time. your for

Operator

Instructions]. [Operator

is next from Sheehy, Our question John private line of a investor.

John Sheehy

You expect will aftermarket able to the recover. that be

shops streets. that are the closed, trucks but mentioned You still on repair

So, some for services. there need must repair be [Foreign Language] continuing

Junqiu Gao

Language] Okay. [Foreign

So, and burn the government emission vehicle, cracking the thus two you engine own When last safety, a and been higher you One on couple the and pollution. is overload you down system for for of the has overload the the the safety, cause is years, our burn engine the emission. overloading vehicle for reasons. Chinese the – other engine

the And steel steel more down. service China. to what forced in is prevalent these So, on shops in of network producers, major are overloading cracking they this been campaign, coupled caused pandemic down a service pressure situation very year, the have the China. throughout has the pricing, rigorously And with that on happened they wheel the of because market. And close some are wheel, the

compared they the business, tire truck stable. the tire wheel, now with the to when So, shops. they And go run problem, drivers, are into the relatively

will had wheel type terms of what and shops So, focusing continue wheels. are there focuses. of mostly the Language] service we [Foreign type are serve – the these One on to carry two type product, in product tire of two will of said, repeat have shop To service some just network them. the

part And that's getting service they side. product. Even are some they they smaller They're offerings. in sell is So, predominant most. but their the the other tires, mostly tires. shops, not of the in a their the special type Wheel hit of ones wheel

these doing now, loads of they are still so are type And services. And carrying shops of okay. aftermarket the

John Sheehy

the in in coming you outlook Can improvement Language] expect Do you comment margins on gross [Foreign for pricing? any quarters?

Junqiu Gao

this duty truck The On experienced Language] and rebound they are expanding a [Foreign significantly. good growing heavy pretty year. market year-over-year they're a basis, has

However, the in at casualty aftermarket is of international. this space the

of because the of the dramatic aftermarket, also the decrease domestic caused So, increase China. policies anti-overloading truck in aftermarket and new have a sales in

international due still we're to many the very side, the is pandemic wheel ongoing the product in markets operating, for demand Now, weak. on

that being specialize So, capacity. in They're market. a lot deal said, in the – producers to of struggling production mean, wheel their international with I aftermarket

So, towards market have also where around we move the market they domestic OEM large turn to share. a

to In continue see in happened of domestic we domestic our what next space. so, for very will the And now, competition was and quarter. our continue a market response to And we're kind share to international maintain in this market OEM. we this OEM OEM price type sales to action shift this from aftermarket intense and seeing of dynamics, have adjusted

strength last However, fend is those push our these not players, competition their in share business goal to producers their market expertise, to is because product off OEM. are their their and the these because maintain temporary closing main before making

we the can withhold we the last price maintain of these market those just can if our OEMs. – of round this up, incoming can So, players, round slowly increase push move product then quarters share, with from then we

particular, us. market. into some product the our Sinotruk, customer large similar improvement margin. for a in of third gross In we'll note, saw we lightweight fourth That see our of as more positive the FAW increase the significant OEM or of a ours, they Language] and On such sales in slightly situation from quarter, So, have said, that's [Foreign been being quarter procuring been the strategy.

overall broader vehicle or and the significant truck for truck on a will very that's XXXX, overall increase surge, the see sign into commercial Looking market, market. very, we sales of positive continue this

is said, sales players a to pie the putting share, truck And and marketing, at or we our growing large using strategy the are expand. whether will we the our with we for maintain withhold And players XXXX. least our being more – to moment. adjustment, that key market design OEM and maintain and product it's with at are so, continue possibly And sales think overall market the OEM these pricing development, the space share for XXXX,

from We truck benefit the will upswing on of XXXX sales. the

So, producers that's will desperate price pressure posing are these hopefully, currently to a also, die sign. start positive very And us out in on XXXX. smaller

get our So, we that we to stage, up will start to move when ASP.

So, them the and XXXX. – – aftermarket, increasing Language] we on are of project quarter year, On our a are and been [Foreign coming fourth XXXX for to increased the planning lot that's government for see sponsored margin. the infrastructure by

instance, we also power high speed the expanding some For a see is project construction rail major plants. of and

so, areas, their nature, and vehicle, be the in payload And these tend in light these and duty wheels, heavy-duty very and strong all use these lot they payloads. light more to tend And pay they have to these will requirements, duty a semi-trailers. to of also nature, to strength carry heavy to trucks attention because lightweight

So, some players. for shine of our and this aftermarket environment tubeless will aluminum product kind of in the the product

these and, will market campaign to continue XXXX. with large hopefully, the some for we infrastructure in increase share projects we have So, can aftermarket

Operator

management and floor session We've for will [Operator reached our turn any the I remarks. the back question-and-answer end closing Instructions]. you. to Thank of

Kevin Theiss

for joining everyone thank to comments? have do today. any you us final Martin, want We

Martin Cheung

Thank all you look and for speaking you to you third conference Thank to we again. safe right. with and of you. soon We All call. XXXX quarter results forward all in wish remain healthy participating financial

Operator

you, This conclude everyone. conference. will Thank today's

Thank may for your this lines time. disconnect participation. you your You at

Kevin Theiss	Investor Relations, Awaken Advisors
Martin Cheung	Chief Financial Officer
Junqiu Gao	Deputy Chief Executive Officer and Chief Sales and Marketing Officer
Matthew Larson	Private Investor
John Sheehy	Private Investor
Kate Zhu	Morgan Stanley

China Zenix Auto International (ZXAIY) 1 Dec 202020 Q3 Earnings call transcript