Prepared remarks
Good day and thank you for standing by. Welcome to China Yuchai International Limited First Half 2026 Financial Results. The conference is being recorded. I would now like to turn the call over to your first speaker today, Kevin Theiss. Please go ahead, sir.
Thank you for joining us today, and welcome to China Yuchai International Limited's conference call and webcast for the 2026 first half year ended on June 30, 2026. Joining us today are Mr. Weng Ming Hoh and Mr. Choon Sen Loo, the President and Chief Financial Officer of China Yuchai International, respectively. In addition, we also have in attendance Mr. Kelvin Lai, General Manager of Operations of China Yuchai International. Before we begin, I would like to remind all listeners that throughout this call, we may make statements that 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 are not limited to, statements concerning the company's operations and 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 upon 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 headings Risk Factors, Results of Operations and Business Overview, and in other reports filed with the Securities and Exchange Commission from time to time. All forward-looking statements are applicable only as of the date they are made, and the company specifically disclaims any obligation to maintain or update the forward-looking information, whether of the nature contained in the press release made on today's call or otherwise in the future. Mr. Hoh will provide a brief overview and summary, then Mr. Loo will provide the financial results for the first half year ended June 30, 2026. Thereafter, we will conduct a question-and-answer session. For the purposes of today's call, the first half year numbers for 2026 and 2025 are unaudited. Financial results are presented in RMB and U.S. dollars. All the financial information presented is reported using IFRS accounting standards as issued by the International Accounting Standards Board. Mr. Hoh, please begin your prepared remarks.
Thank you, Kevin. We are pleased to report continuing growth in sales and profit in the first half of 2026. Revenue increased by 13.9% year-over-year with a 10.9% year-over-year gain in engine unit sales. Our gross profit rose by 36.5% year-over-year to RMB 2.5 billion or USD 368.7 million with gross profit margin increasing to 17.1%. Operating profit was 58.9% higher at RMB 988.2 million or USD 145.1 million. Profit attributable to our shareholders rose by 53.2% year-over-year to RMB 560.6 million or USD 82.3 million, with diluted earnings per share of RMB 14.81 or USD 2.17 in first half 2026. Higher sales of our larger engines enhanced both our average selling price and profitability compared with the same period last year. Total truck engine unit sales were up 20.4% year-over-year, led by a heavy-duty truck engine unit sales increase of 47.3% year-over-year. Engine unit sales to off-road markets increased by 7.7% year-over-year in first half 2026, primarily driven by strong demand in marine and power generation markets, where engine unit sales increased by 42% year-over-year. Our joint ventures and associates produced a 56.2% year-over-year growth in profits in first half 2026, propelled by higher sales and profit mainly from MTU Yuchai. Order demand for high horsepower engines continues to be strong. The combined production capacity for high horsepower engines across the MTU JV and Yuchai currently stands at approximately 5,000 units. Sales for AI data centers by MTU JV and Yuchai's own brand grew to approximately 1,800 units in first half 2026. With increased engine technology content, advancing performance and reduced environmental impact, we increased total R&D expenditures including capitalized costs by almost 13% to RMB 622.5 million or USD 91.4 million in first half 2026. In addition to enhancing the quality and performance of our current products, we have introduced new innovative products in first half 2026. Commercial minibuses equipped with Yuchai's YCY24-65kW Flywheel Range Extender System, or YC-FRS, were launched in the heavily congested Hong Kong vehicle market. This new technology reduces the need for fixed charging infrastructure. We also created a breakthrough in our alternative fuels program with our first high-pressure direct injection internal combustion engine capable of operating entirely on ammonia. We acquired 27.97% equity interest of Nanyue Fuel Injection Systems, or NYDK in short. It was previously known as Nanyue Diankong (Hengyang) Industrial Technology Company Limited. This transaction strengthens our technology capabilities, access to new powertrain products and supply chain resilience. Since April 1, 2026, NYDK's financial results have been consolidated following Yuchai's acquisition of control over NYDK on March 31, 2026. Our subsidiary, Guangxi Yuchai Machinery Genset Power Company Limited, continues to process its IPO application with the Hong Kong Stock Exchange. Upon completion, the listing is expected to provide the subsidiary with more resources to accelerate its growth while we will remain the controlling shareholder of this subsidiary. This will enable us to continue to benefit from the subsidiary's long-term development while focusing additional resources on our other operations. To further support our strategy of identifying and participating in emerging growth opportunities, we invested in and became a limited partner in Guangxi Yuchai Growth Fund, a private equity fund that invests in businesses focusing on innovative technologies. At the end of June 2026, our cash management and cash flow from operations provided higher cash and bank balances totaling approximately USD 1.2 billion with lower borrowings, reflecting our commitment to delivering value to shareholders. A cash dividend of USD 0.87 per ordinary share for 2025 was paid in July 2026, compared with USD 0.53 per ordinary share for 2024 paid in 2025. Our strong financial position empowers Yuchai's ongoing investment in product upgrades and new product development, which furthers establishment of our growing presence in selected international markets to support future growth. Our strategy remains to sell into multiple end markets with a growing and diverse product portfolio. With that, I would now like to turn the call over to Mr. Choon Sen Loo, our Chief Financial Officer, who will provide more details on the financial results. Choon Sen, you may begin your remarks.
Thank you, Weng Ming. Now let me review our unaudited 2026 first six months results ended June 30, 2026. Revenue was RMB 14.7 billion or USD 2.2 billion compared with RMB 12.9 billion in first half 2025, a 13.9% year-over-year growth. Engine sales reached 277,684 units in first half 2026, an increase of 10.9% compared with 250,396 units in first half 2025. This growth was driven by stronger performance in the truck segment as well as in off-road applications, particularly construction machinery and marine and power generation. Total truck engine unit sales were up 20.4% year-over-year in the first half 2026, outperforming the 5.8% year-over-year growth in overall commercial truck, excluding gasoline and electric vehicle sales reported by the China Association of Automobile Manufacturers, CAAM, in the same period. Heavy-duty truck engine unit sales increased by 47.3% year-over-year compared with the 13.1% year-over-year growth in heavy-duty truck sales reported by CAAM. Light-duty truck engine unit sales rose by 23.6%, contrasted with a decline in light-duty truck sales according to CAAM. Medium-duty truck engine unit sales also grew 7.9% year-over-year. Engine unit sales to off-road markets increased by 7.7% year-over-year in the first half 2026. The growth was primarily driven by strong demand in the marine and power generation markets, where engine unit sales increased by 42% year-over-year. Sales for industrial applications rose by 15.8% year-over-year, while engine sales for agricultural machinery declined by 18.9% in the same period. Gross profit increased by 36.5% to RMB 2.5 billion or USD 368.7 million from RMB 1.8 billion in first half 2025. The increase was mainly due to higher sales volume, better sales mix and reduced warranty expenses. Overall, gross margin was 17.1% in first half 2026 compared with 14.3% in first half 2025. Increased sales of larger engines enhanced the gross profit margin in first half 2026 year-over-year. Other operating income, net, decreased by 32.2% to RMB 150.2 million or USD 22.1 million compared with RMB 221.4 million in first half 2025. The decrease was mainly attributable to lower government grants and the absence of technology licensing fees income in first half 2026 as compared with that of first half 2025. Research and development, R&D, expenses increased by 24.5% to RMB 593.4 million or USD 87.1 million compared with RMB 476.7 million in first half 2025, due to higher experimental and personnel costs and a lower level of capitalized project costs. Total R&D expenditures, including capitalized costs, were RMB 622.5 million or USD 91.4 million, representing 4.2% of revenue in first half 2026 compared to RMB 551.7 million and 4.3% of revenue in first half 2025. Selling, general and administrative, SG&A, expenses increased by 12.2% to RMB 1.1 billion or USD 158.5 million from RMB 962.5 million in first half 2025. This increase was driven by higher personnel expenses and legal, professional and consultancy fees compared with first half 2025. SG&A expenses represented 7.4% of revenue for first half 2026 compared with 7.5% of revenue in first half 2025. Operating profit increased by 58.9% to RMB 988.2 million or USD 145.1 million compared to RMB 621.7 million in first half 2025. The operating margin increased to 6.7% in contrast with 4.8% in first half 2025. Higher operating profit and operating margin were achieved by increased sales and gross margin, combined with controlled growth in operating expenses. Finance costs decreased by 16% to RMB 27 million or USD 4 million compared with RMB 32.2 million in first half 2025, primarily due to reduced term loans during the period. The share of financial results of the associates and joint ventures grew by 56.2% to a profit of RMB 95.9 million or USD 14.1 million compared with RMB 61.4 million in first half 2025. The increase was mainly driven by higher profits at MTU Yuchai Power Company Limited. Income tax expense increased by 85.3% to RMB 215.3 million or USD 31.6 million compared with RMB 116.2 million in first half 2025 primarily due to higher profits and the utilization of deferred tax assets. The effective income tax rate increased to 20.4% compared with 17.8% in first half 2025. Net profit attributable to equity holders of the company increased by 53.2% to RMB 560.6 million or USD 82.3 million compared with RMB 365.8 million in first half 2025. Basic earnings per share were RMB 14.94, USD 2.19 compared with RMB 9.75 in first half 2025, both based on a weighted average of 37,518,322 shares. Diluted earnings per share were RMB 14.81 or USD 2.17 based on a weighted average of 37,845,508 shares compared with RMB 9.75 based on a weighted average of 37,518,322 shares in first half 2025. The company adopted the China Yuchai International Limited 2025 Equity Incentive Plan with a duration of 10 years, and granted share options in August 2025 and December 2025 respectively, with a total of 820,000 share options granted as of December 31, 2025. No comparable share options were granted in first half 2025 and first half 2026. Now we will go through some balance sheet highlights as of June 30, 2026. Cash and bank balances were RMB 8.1 billion or USD 1.2 billion compared with RMB 7.9 billion at the end of 2025. Trade and bills receivables were RMB 14.1 billion or USD 2.1 billion compared with RMB 11 billion at the end of 2025. Inventories were RMB 5.8 billion or USD 844.5 million compared with RMB 5.6 billion at the end of 2025. Trade and bill payables were RMB 13.2 billion or USD 1.9 billion compared with RMB 11.6 billion at the end of 2025. Short-term and long-term loans and borrowings were RMB 1.4 billion or USD 210.1 million compared with RMB 2 billion at the end of 2025. I will now turn the call over to Kevin for a comment for the Q&A session. Kevin, please.
Okay. All right. So please note some officers of China Yuchai are remotely calling into the conference. This may result in a slight delay in providing answers to some questions. We apologize for any inconvenience and thank you for your patience. We are now ready for questions.
Questions and answers
Our first question comes from the line of Wei Shen from UBS.
Congratulations on strong results. My question is about the AIDC volume guidance. We achieved about 1,800 units, and at the beginning of the year we were targeting about 2,600. Do you have any color for the second half of this year? This is my first question. My second question is about the dividend. I noticed that the company announced the 2025 dividend, but the payout ratio seems to be lower than 2024. Any color on this?
Okay. I'll take the questions on dividend, and I'll let Kelvin take the question on the AIDC. There is no particular reason for the payout ratio change. If you look at our payout ratios over the past 10 years, it ranges from about 30% to 40%, sometimes a little higher, sometimes a little lower. So it's still within that range. There is nothing untoward there.
This is Kelvin Lai regarding the volume of the AIDC. In the first half, the total volume of AIDC from both Yuchai and the MTU joint venture was 1,800 units. For the second half, we expect the full year total to be around 3,500 units or more. We have adjusted production and the sales volume plan for the year 2026. This implies quite significant growth compared to 2025.
The next question comes from the line of Fuyin Liang of Bank of America.
Management, this is Fuyin from Bank of America. I have a question about our gross margin profile. In the first half, we saw that the blended gross margin improved significantly. Could you explain more about the factors behind that improvement — is it due to product mix change or improving cost efficiency? I also want to ask about the gross margin or the net margin at MTU Yuchai. For the first half, our share of profit from associate and JV improved a lot. What is the margin profile for MTU Yuchai currently?
I will take the first question regarding the gross margin improvement from 14.3% to 17.1%. First, product mix drove the margin up, particularly sales of larger or high-power engines, which gave us a nice uptick in margin. Second, our heavy-duty engine unit sales increased significantly, which also contributed to favorable margin improvement. Third, we continued to enhance our operational efficiency, which helped cost rationalization in the first half. That said, we were affected by some unfavorable precious metal price increases, which partially offset the cost improvements.
I'll take the MTU question. For 2026, MTU joint venture gross profit saw a slight reduction in percentage mainly because of engine cost increases and some pricing pressure; we had to offer further discounts to OEMs and partners. While revenue and net profit increased by over 40% in the first half, net profit percentage did not grow as strongly as revenue. However, we are still maintaining about over 30% gross profit for the joint venture overall, which remains promising.
Our next question comes from the line of Yiming Liu of Haitong Securities.
Congratulations on your strong H1. I have two questions. First, could you describe any progress on your gas engine product? Is there any chance that they could be used in the data center business for prime power, especially in North America? Second, on fuel cells: could you describe any progress on your fuel cell business? Is there any chance they could be used in data center power generation in the future?
Let me take the first part regarding the gas engine. The gas engine is a traditional product and has been available from Yuchai for many years. When we develop diesel engines, the gas engine variants are also available. It is a market-ready product. Regarding the North American market, our engines are still under the certification process there. We are waiting for all testing to be completed before we can release the engine in that region. At this stage, we still use our existing VC platform, which goes up to 2.5 megawatt for diesel and about 3 megawatt for rail applications. We don't have an exact timing for entry into the U.S. market, but we are doing everything we can on that front.
Can you repeat your second question on fuel cells?
Yes. Could you give us some introduction to your fuel cell business, and is there any chance they could be used in data center power generation in the future?
Our fuel cell program is still in progress. We have been developing products for some time and have had installations in the past, especially in Beijing. We have not started working on the power generation side for fuel cells. It is a possibility in the future, but it is not in the short term. We do not have a product for power generation fuel cell systems in the short term.
We have a new question from the line of Natalie Ong from CGSI.
Congratulations on this good set of results. I have some questions regarding your AIDC capacity. I'm not sure if I heard this wrongly earlier. At the start of the call, you mentioned that your current capacity for high horsepower engines/AIDC engines is currently 5,000 for 2026. Is that correct?
Yes, that's correct.
Let me take this question. Last year, our combined capacity for high horsepower engines — Yuchai local brand plus the MTU JV — was about 3,000 units. We completed a capacity expansion program at the end of 2024, increasing capacity by about 700 units. At the beginning of this year, we modified our internal process and subcontracted some machining to external contractors. Through that practice we increased machining capacity by about 1,000 units. Adding these together, total capacity is about 5,000 units now. This capacity covers high horsepower engines including those for AIDC and non-AIDC applications. We are planning to further increase capacity for next year but have not made a final decision on volume yet.
Okay. So my understanding is that capacity has increased due to outsourcing of certain machining requirements. Is that correct?
Yes. We subcontract some machining processes; in the past we did all machining in-house, but now we use external contractors for part of the machining so we can scale capacity more quickly.
Okay. So you are still guiding for 3,500 AIDC units only, excluding those sold to non-AI customers?
Yes. That 3,500 figure is AI only.
So that means we expect to sell all the capacity that we have, which is going to be 5,000 for the year?
Yes, exactly. It is 5,000 for the year across all applications.
And to be clear, the ASPs for high horsepower engines, whether sold to AIDC customers or non-AIDC, are similar?
Yes, correct. High horsepower engines are used in many power generation applications beyond AI data centers — factories, commercial buildings, etc. The ASPs are similar across those applications.
Can I also check — some competitors have been ramping up manufacturing capacity. How has that affected your ability to maintain or increase average selling prices for these high horsepower/AIDC engines?
Because of the surge in demand for AIDC and high horsepower engines, many engine manufacturers, including Yuchai and MTU, have undertaken capacity expansion programs in 2024, 2025 and this year. The market is still very competitive and engine suppliers must do whatever they can to win orders. So pricing has not seen a real increase compared to last year; our pricing has remained relatively stable, though we have absorbed cost increases from suppliers. Overall, pricing is quite stable.
One last question. You mentioned you have not finalized capacity plans for next year. When you say that, do you mean you could outsource more machining to increase capacity, or would you require expansion of lines and more CapEx spending?
We will take a dual approach. One, we will further outsource some processes, but we cannot outsource every process. The fine machining needs to be done in-house, so we will still need to increase some internal machining equipment. Therefore we will both subcontract some processing and invest in additional equipment for internal processes. We have reasonable planning for next year's capacity but need to finalize before putting actions in place.
At this time, we do not have any further questions from the phone or webcast. Allow me to hand the call back to Mr. Hoh for closing.
All right. Thank you all for participating in our conference call. We wish all of you good health and look forward to speaking with you again. Thank you. Goodbye.
This conference call is concluded. Thank you for your participation. You may now disconnect your lines.