Yuchai International(US:CYD)2025-04-25 11:22Part I Key Information The company faces principal risks from its dependence on the Chinese economy, evolving NEV policies, supply chain reliance, and potential U.S. delisting - The company's business heavily relies on the Chinese economy and government policies, especially regarding emissions standards and New Energy Vehicles (NEVs)323637 - Sales to the top five customers constituted 39.1% of total revenue in 2024, with the largest customer group contributing 16.2%42 - China's transition to NEVs poses a significant competitive threat, with 12.9 million NEV units sold in 2024, representing 40.9% of total vehicle sales51 - The company faces risks from PRC regulations on overseas listings and stringent cybersecurity laws (CSL, DSL, PIPL) impacting data handling92140 - The Holding Foreign Companies Accountable Act (HFCAA) poses a delisting risk if PCAOB inspections are hindered, though 2022 inspections vacated prior negative determinations147150 Information on the Company CYI is a Bermuda-based holding company primarily owning a 76.4% stake in Yuchai, a leading Chinese powertrain manufacturer expanding into new energy products and international markets - The company's primary operating asset is its 76.4% ownership in Guangxi Yuchai Machinery Company Limited (Yuchai)153156 - Yuchai is expanding its new energy product portfolio, including hydrogen combustion engines, range extenders, and full electric power systems, via its subsidiary Yuchai Simlan173183190 Yuchai Engine Sales Breakdown (2022-2024) | Product Category | 2022 Units Sold | 2023 Units Sold | 2024 Units Sold | % Change (2024 vs 2023) | | :--- | :--- | :--- | :--- | :--- | | Light-duty engines | 94,340 | 72,875 | 101,676 | +39.5% | | Medium-duty engines | 162,018 | 169,498 | 164,986 | -2.7% | | Heavy-duty engines | 58,336 | 62,611 | 76,002 | +21.4% | | Total Engines Sold | 321,256 | 313,493 | 356,586 | +13.7% | - Yuchai possesses a total production capacity of approximately 633,000 units per year, with an additional 30,000 units for new energy products, and commenced operations at a new Thailand factory in 2024203205 - In 2024, Yuchai signed a 15-year technology licensing agreement with Vietnam's Kim Long Motor for US$28 million in total fees222 Operating and Financial Review and Prospects In FY2024, revenue grew 6.0% to RMB 19.1 billion, driven by a 13.7% increase in engine sales, leading to improved gross margin and a 13.1% rise in net profit Key Financial Performance (2023 vs. 2024) | Metric | 2023 (RMB'000) | 2024 (RMB'000) | % Change | | :--- | :--- | :--- | :--- | | Revenue | 18,046,349 | 19,133,575 | +6.0% | | Gross Profit | 2,543,473 | 2,818,501 | +10.8% | | Operating Profit | 609,449 | 596,974 | -2.0% | | Profit for the year | 422,856 | 491,742 | +16.3% | | Profit Attributable to Equity Holders | 285,518 | 323,055 | +13.1% | | Basic EPS (RMB) | 6.99 | 8.21 | +17.5% | Cash Flow Summary (2024) | Cash Flow Item | Amount (RMB'000) | | :--- | :--- | | Net cash from operating activities | 779,416 | | Net cash from investing activities | 113,101 | | Net cash used in financing activities | (526,635) | - Capital expenditures in 2024 totaled RMB 537.9 million, primarily for expanding and upgrading Yuchai's production capacity and technology development308 - The company has significant off-balance sheet arrangements, including RMB 1.0 billion in discounted bills receivable with recourse and RMB 1.4 billion in endorsed bills to suppliers with recourse as of December 31, 2024311312 Directors, Senior Management and Employees The company's Board comprises nine members, with majority designation by Hong Leong Asia, and its 2014 Equity Incentive Plan expired, while new equity schemes diluted subsidiary interests - The Board of Directors consists of nine members, with the controlling shareholder, Hong Leong Asia, having the right to elect a majority via a special share315 - The company's 2014 Equity Incentive Plan expired in May 2024, with all 270,000 outstanding options expiring unexercised in July 2024359364 - In 2024, new equity schemes at Yuchai and MGP diluted Yuchai's interest in MGP from 100% to 93.46%, and the company's effective interest in MGP from 76.4% to 71.4%9697 Employee Count by Location | As of December 31, | Singapore | PRC | Others | Total | | :--- | :--- | :--- | :--- | :--- | | 2022 | 15 | 8,583 | 122 | 8,720 | | 2023 | 15 | 8,036 | 126 | 8,177 | | 2024 | 15 | 8,802 | 113 | 8,930 | Major Shareholders and Related Party Transactions Hong Leong Asia is the controlling shareholder with 48.70% ownership and a special share, while significant related party transactions occur with the GY Group and its affiliates Major Shareholders (as of Dec 31, 2024) | Identity of Person or Group | Number of Shares | Percentage | | :--- | :--- | :--- | | Hong Leong Asia Ltd | 18,270,965 | 48.70 % | | Coomber Investments Limited | 7,537,160 | 20.10 % | | Shah Capital Management | 4,345,471 | 11.58 % | - A special share held by a Hong Leong Asia affiliate grants the right to elect a majority of directors and provides veto power over shareholder resolutions379 - Significant related party transactions with the GY Group and its affiliates included RMB 2.1 billion in engine and parts sales and RMB 1.9 billion in parts and supplies purchases in 2024390869 - The company charges Yuchai an annual management and consulting fee, which was US$1.0 million plus a supplemental fee of RMB 6 million for fiscal year 2023354388 Financial Information This section covers legal proceedings, particularly historical disputes with Yuchai's minority shareholder, and details the company's dividend distributions, primarily sourced from Yuchai - The company has engaged in past legal proceedings with Yuchai and the GY Group over corporate governance, now intended to be managed via Reorganization and Cooperation Agreements395396 Dividend History (2020-2024) | Fiscal Year | Dividend paid by Company (per share) | Dividend paid/payable by Yuchai to Company (RMB'000) | | :--- | :--- | :--- | | 2020 | US$ 1.70 | 151,796 | | 2021 | US$ 0.40 | 115,654 | | 2022 | US$ 0.28 | 155,411 | | 2023 | US$ 0.38 | 191,553 | | 2024 | - | (Approved for payment) | - Dividends from Yuchai are subject to PRC regulations, requiring tax liabilities and statutory reserve contributions, and are subject to a 10% withholding tax for the company as a non-resident enterprise398466 Additional Information As a foreign private issuer, the company's corporate governance differs from NYSE standards, and it is subject to exchange controls in Bermuda and China, with specific tax implications across Bermuda, Singapore, PRC, and U.S. jurisdictions - As a foreign private issuer, the company is exempt from certain NYSE corporate governance rules, including requirements for a majority of independent directors or fully independent committees407423 - The company is non-resident for Bermuda exchange control, allowing free fund transfers, but its Chinese subsidiary Yuchai is subject to PRC foreign exchange controls on currency conversion and remittance445448 - Under PRC tax law, dividends from Yuchai are subject to a 10% withholding tax, while Yuchai benefits from a reduced 15% Enterprise Income Tax rate under the High Technology Incentive Scheme466476 - For U.S. federal income tax purposes, the company believes it was not a Passive Foreign Investment Company (PFIC) for 2024, though this status is subject to annual re-evaluation495 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk from variable-rate borrowings and foreign currency risk from various currencies, managing these through debt mix and derivative instruments - A 50 basis point change in interest rates would impact the company's profit before tax by approximately RMB 12.5 million (US$1.7 million) for 2024509 Foreign Currency Exposure (Net Assets/Liabilities) as of Dec 31, 2024 | Currency | Net Exposure (RMB'000) | | :--- | :--- | | Singapore Dollar | 126,011 | | Euro | 7,687 | | US Dollar | 69,047 | | Others | (3,438) | Foreign Currency Sensitivity (Impact on Profit Before Tax from 10% Strengthening) | Currency | 2024 Impact (RMB'000) | | :--- | :--- | | Singapore Dollar | 12,601 | | Euro | 769 | | US Dollar | 6,905 | Part II Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2024 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024521 - Based on the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2024525 - The independent registered public accounting firm provided an unqualified attestation report on the effectiveness of the company's internal control over financial reporting as of December 31, 2024526 Corporate Governance and Other Matters This section details corporate governance, including the audit committee financial expert, Code of Conduct, a terminated share buyback plan, and cybersecurity risk management oversight Principal Accountant Fees (2023-2024) | Fee Type | 2023 (RMB'000) | 2024 (RMB'000) | | :--- | :--- | :--- | | Audit fees | 8,426 | 10,613 | | Audit-related fees | 352 | 216 | | Tax fees | 173 | 10 | | All other fees | 224 | 432 | | Total | 9,174 | 11,271 | - The company adopted and terminated a share buyback plan in 2024, repurchasing 3.34 million shares for approximately US$39.8 million538539 - The company maintains a cybersecurity risk management program, with the Audit Committee providing oversight and management responsible for assessment and implementation guided by PRC laws545546551 Part III Financial Statements This section presents the audited consolidated financial statements for 2022-2024, with an unqualified auditor opinion, noting a critical audit matter regarding development cost capitalization and a reclassification of warranty expenses - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting as of December 31, 2024565572 - A critical audit matter was identified concerning the capitalization of development costs, totaling RMB 204.3 million in 2024, due to complex management judgment in qualifying activities and expenses569571 Consolidated Statement of Financial Position (Abridged) | Metric (RMB'000) | Dec 31, 2023 | Dec 31, 2024 | | :--- | :--- | :--- | | Total Assets | 25,757,618 | 27,048,094 | | Total Liabilities | 13,581,993 | 14,748,529 | | Total Equity | 12,175,625 | 12,299,565 | | - Equity attributable to equity holders | 9,226,528 | 9,164,625 | - Assurance-type warranty expenses were reclassified from selling, general and administrative expenses to cost of sales for 2024, with comparative figures adjusted accordingly and no impact on operating profit270912