China Yuchai International Limited (CYD) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to China Yuchai International Limited Second Half and Full Year 2024 Full Financial Results Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I'd like now to turn the conference over to 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 second half and fiscal year of 2024 ended on December 31, 2024. Joining us today are Mr. Weng Ming Hoh and Mr. Choon Sen Loo, President and Chief Financial Officer of CYI, respectively. In addition, we also have in attendance Mr. Kelvin Lai, General Manager of Operations of CYI, and Chairman of MTU Yuchai Power Company Limited, MTU Yuchai Power Company. Before we begin, I will remind all listeners that throughout this call, we may make statements that may contain forward-looking statements within the Private Securities Litigation Reform Act of 1995. The words believe, expect, anticipate, project, target, 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 on 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 during 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 second half and full year ended December 31, 2024. Thereafter, we will conduct a question-and-answer session. For purposes of today's call, the 2024 results are unaudited and the 2023 financial numbers are audited, and they will be presented in RMB and U.S. dollars. All financial information presented is reported using the International Financial Reporting Standards as issued by the International Accounting Standards Board. Mr. Hoh, please begin your prepared remarks.

Thank you, Kevin. We are pleased to report that our engine sales outperformed the Chinese truck and bus vehicle markets in the second half and for the full year 2024. According to data from China Association of Automobile Manufacturers, CAAM, compared with a 9.9% year-over-year decline in truck and bus vehicle sales in second half '24, our truck and bus engine sales were up by 1.6% year-on-year. For the full year 2024, our truck and bus engine sales rose by 17.2% year-on-year compared with a 2.6% year-over-year decline in truck and bus vehicle sales. Our off-road engine sales rose by 12.6% year-over-year in second half 2024 and by 9.1% year-over-year for 2024 full year. Agricultural engine sales were flat in 2024, while industrial engine sales were up by 11% year-over-year. Marine and genset engine sales increased by 25.5% year-over-year. Revenue in second half 2024 was flat compared with the same period last year. Revenue in 2024 rose by 6.6% year-over-year to RMB 19.1 billion or USD 2.7 billion. Gross profit increased faster than revenue rising by 14.3% year-on-year in second half 2024 and 10.8% year-over-year in full year 2024 to RMB 2.8 billion or USD 392.1 million compared with RMB 2.5 billion in FY 2023. Gross margin increased to 40.7% compared with 40.1% in FY 2023. The increase in gross margin was mainly attributable to higher revenue and continuing cost reduction initiatives. Although our operating profit decreased slightly in FY 2024, our investment in associated companies and ventures delivered higher profit, growing by 80.2% year-over-year in second half 2024 and by 63.6% year-over-year for full year 2024. Our 50-50 joint venture MTU Yuchai Power, which sells large power generator engines achieved higher profit than the previous year. Our Y&C engine and Purem Yuchai achieved profitability in FY 2024 compared to losses last year. Generator engine sales remained robust. Additionally, Yuchai Purem and genset power subsidiary and Rolls-Royce Power Systems division has entered into a second phase cooperation and development for MTU Yuchai Power venture. As part of this development, production and sales of MTU Series 4000 oil and gas engine is expected to begin shipments in late 2025. Manufacturing capabilities will be enhanced accordingly to cater to the expanded engine box product portfolio. In 2024, Yuchai Machinery Power System Thailand company or Yuchai Thailand commenced production operation. Yuchai Thailand will mainly produce a range of diesel engines and other products for on and off-road applications. We have -- additionally, we entered into a comprehensive strategic operation agreement with Kim Long Motor Hue of Kim Long Motor a subsidiary of Vietnam's Futa Group. This strategic cooperation consists of the grant and provision of technology licenses, component supply and related support, and services for the construction of a factory in Kim Long Motor's designated site in Vietnam. Kim Long Motor obtained technology licensing rights for certain Yuchai engine models to be manufactured primarily for trucks, buses and other commercial vehicles. Kim Long will have exclusive sales rights for the licensed engines in the Vietnam market, along with priority sales rights in other ASEAN countries and South Korea. These licenses are valid for 15 years with total licensing fee of USD 38 million. Operating in China was challenging in 2024. According to the National Bureau of Statistics, Chinese GDP increased by 5 percentage points year-over-year in 2024. The total value for spot rose to USD 3.6 trillion worth of goods and services, creating a trade surplus of almost USD 1 trillion last year for 2024. However, property investment continued to decline in 2024. In the second half of 2024, our R&D -- total R&D expenditure, including capitalized costs, increased by 21.2% to RMB 726 million or USD 101 million, representing 8.2% of revenue in the second half 2024 as compared to RMB 599.2 million, representing 6.8% of revenue in second half 2023. For FY 2024 total R&D expenditures, including capitalized costs were RMB 1.2 billion or USD 165.4 million, representing 6.2% of revenue compared with RMB 1.1 billion, representing 5.9% of revenue in FY 2023. We continue to improve the efficiency and performance of our National VI and Tier 4 engines and initiated the development of the next-generation emission standard engines for the on-road and off-road engine market. We continue the development of new energy products, including products using alternative fuels such as hydrogen technologies. Our innovative new energy power trains include 2 hydrogen-powered combustion engine and off-gas power generation system and a production plant which utilizes off-gas discharges to generate power and eliminate greenhouse gas emissions. The motor YCA07N hybrid engine, which was chosen for 10-meter gas-electric hybrid buses in Nanjing. The first 50 Suzhou King Long buses using our hydrogen fuel cells has commenced commercial operations in Beijing. And most recently, a new foray into enhancing wind power with the launch of the high-strength QT 700-10 turbine fan main shaft to improve wind turbine performance. In recognition of our innovative achievements with -- while -- which utilizes hydrogen, Guangxi Chai Machinery Company Limited, our main operating subsidiary in China was appointed as a committee member of the new Hydrogen Combustion Engine Innovation Consortium Division of China Internal Combustion Engine Society. To encourage improved performance directed senior leaders and key employees of Yuchai and its subsidiary have participated in equity incentive plans beginning in 2024. The plans are both a reward and incentive to motivate senior leaders with key talent for their continued contributions and dedication and loyalty to enhance long-term growth of the company. In early June, we adopted our first share buyback plan, whereby we repurchased a total of 3.3 million shares amounting to a total cost of USD 39.8 million. In addition, the company paid a cash dividend of USD 0.38 per ordinary share on August 28, 2024. These share repurchases and dividend distribution demonstrate the company's confidence in our future revenue, profit and cash flow generation and to show our commitment to building shareholder value. Despite the share repurchase and cash dividend, our cash and bank balances were RMB 6.4 billion or USD 895 million as of 31st December 2024. 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 6 months results ended December 31, 2024. Revenue was RMB 8.8 billion or USD 1.2 billion compared with RMB 8.9 billion in second half 2023. The total number of engines sold in second half 2024 increased by 10.9% to 163,843 units compared with 147,700 units in second half 2023. The increase was mainly due to higher sales in truck, bus, industrial and marine and power generation markets. The better performance in truck and bus engine sales was achieved despite a decline by 9.9% in sales of commercial vehicles, excluding gasoline and electric powered vehicles compared to second half 2023 as reported by the China Association of Automobile Manufacturers, CAAM. Gross profit increased by 14.3% to RMB 1.4 billion or USD 195.7 million from RMB 1.2 billion in second half 2023. The increase was mainly due to higher unit sales volume, combined with lower material costs. Overall, gross margin was 15.9% in second half 2024 compared with 13.9% in second half 2023. Other operating income increased by 31.2% to RMB 401.5 million or USD 55.9 million compared with RMB 306.2 million in second half 2023. The increase was mainly due to higher government grants, higher rebate on value-added taxes and recognition of technology licensing fees. Research and development R&D expenses increased by 25.6% to RMB 591.1 million or USD 82.2 million compared with RMB 470.5 million in second half 2023 due to higher mold costs and impairment of a discontinued R&D project. Total R&D expenditures, including capitalized costs, were RMB 726 million or USD 101 million, representing 8.2% of revenue in second half 2024 as compared to RMB 599.2 million, representing 6.8% of revenue in second half 2023. Selling, general and administrative, SG&A expenses increased by 25.1% to RMB 1.1 billion or USD 147 million from RMB 844.6 million in second half 2023. This increase was mainly due to higher trade receivables provision and higher traveling, personnel and selling expenses compared with the same period last year. SG&A expenses represented 12% of revenue for second half 2024 compared with 9.5% for second half 2023. Operating profit declined to RMB 160.1 million or USD 22.3 million from RMB 221.8 million in second half 2023. The operating margin was 1.8% compared with 2.5% in second half 2023. Finance costs decreased by 20.4% to RMB 37.1 million or USD 5.2 million from RMB 46.5 million in second half 2023, primarily due to lower bills discounting. The share of financial results of the associates and joint ventures grew by 80.2% to a profit of RMB 58.5 million or USD 8.1 million compared with RMB 32.5 million in second half 2023. The improvement was mainly driven by higher profits at MTU Yuchai Power Company Limited MTU Yuchai”. Additionally, Y&C Engine Company Limited, Y&C Engine and Guangxi Purem Yuchai Automotive Energy Company Limited, Purem Yuchai achieved profitability in second half 2024 compared to a loss in the same period last year. Income tax was RMB 26.4 million or USD 3.7 million compared with RMB 37.9 million in second half 2023. Net profit attributable to equity holders of the company was RMB 82.7 million or USD 11.5 million compared with RMB 107.1 million in second half 2023. Basic and diluted earnings per share were RMB 2.19 or USD 0.30 compared with RMB 2.62 in second half 2023. Basic and diluted earnings per share for second half 2024 and second half 2023 were based on a weighted average of 37,809,894 shares and 40,858,290 shares, respectively. Now we will review the unaudited financial results for the fiscal year ended December 31, 2024. Revenue was RMB 19.1 billion or USD 2.7 billion compared with RMB 18 billion in financial year 2023. The total number of engines sold in financial year increased by 13.7% to 356,586 units compared with 313,493 units in FY 2024. The increase was mainly due to higher sales in the truck, bus, industrial and marine and power generation markets. The stronger performance in truck and bus engine sales was achieved despite a 2.6% year-on-year decrease in sales of commercial vehicles, excluding gasoline and electric power vehicles in financial year 2024 as reported by CAAM. Gross profit increased by 10.8% to RMB 2.8 billion or USD 392.1 million compared with RMB 2.5 billion in FY 2023. Gross margin increased to 14.4% compared with 14.1% in financial year 2023. The increase in gross margin was mainly attributable to higher revenue from increased unit volume and continuing cost reduction initiatives, partially offset by greater labor and overhead expenses. Other operating income increased by 30.1% to RMB 575.7 million or USD 80.1 million compared with RMB 442.4 million in financial year 2023. The increase was mainly due to higher government grants, higher rebate on value-added taxes and recognition of technology licensing fees. R&D expenses increased by 12.3% to RMB 984.7 million or US 137 million compared with RMB 876.6 million in financial year 2023, mainly attributable to higher mold costs and impairment of discontinued R&D project. Yuchai has continued with its initiatives to enhance the energy efficiency and performance of its National VI and Tier 4 emission standard compliant engines, marine power generation applications while advancing new energy solutions. Total R&D expenditures, including capitalized costs, were RMB 1.2 billion or USD 165.4 million, representing 6.2% of revenue for financial year 2024 compared with RMB 1.1 billion, representing 5.9 billion -- sorry, representing 5.9% of revenue for financial year 2023. SG&A expenses were RMB 1.8 billion or USD 252.1 million, representing 9.5% of revenue in FY 2024 compared with RMB 1.5 billion, representing 8.3% of revenue in FY 2023. This increase was mainly due to higher trade receivables provision and higher traveling, personnel and selling expenses compared with financial year 2023. Operating profit was RMB 597 million or USD 83 million compared with RMB 609.4 million in financial year 2023. The operating margin was 3.1% compared with 3.4% in financial year 2023. Finance costs decreased by 22.2% to RMB 78 million or USD 10.8 million from RMB 100.2 million in financial year 2023, primarily due to lower bills discounting. The share of financial results of the associates and joint ventures increased by 63.6% to income of RMB 101.5 million or USD 14.1 million compared with income of RMB 62.1 million in financial year 2023. The improvement was mainly driven by higher profits in MTU Yuchai. Additionally, Y&C Engine and Purem Yuchai achieved profitability in financial year 2024 compared to a loss last year. Income tax expense declined by 13.3% to RMB 128.8 million or USD 17.9 million as compared with RMB 148.5 million in financial year 2023. Net profit attributable to China Yuchai’'s shareholders was RMB 323.1 million or USD 44.9 million compared with RMB 285.5 million in financial year 2023. Basic and diluted earnings per share were RMB 8.21 or USD 1.14 compared with RMB 6.99 in financial year 2023. Basic and diluted earnings per share for FY 2024 and FY 2023 were based on a weighted average of 39,325,763 shares and 40,858,290 shares, respectively. As of December 31, 2024, the company's outstanding shares were following a share buyback plan reduced to 37,518,322 from 40,858,290 shares as of December 31, 2023. Now we will go through our balance sheet highlights as of December 31, 2024. Cash and bank balances were RMB 6.4 billion or USD 895 million compared with RMB 6 billion at the end of financial year 2023. Trade and bills receivables were RMB 8.8 billion or USD 1.2 billion compared with RMB 7.8 billion at the end of financial year 2023. Inventories were RMB 4.7 billion or USD 647.5 million compared with RMB 4.6 billion at the end of financial year 2023. Trade and bills receivable were RMB 8.5 billion or USD 1.2 billion compared with RMB 7.6 billion at the end of financial year 2023. Short-term and long-term loans and borrowings were RMB 2.5 billion or USD 349.1 million compared with RMB 2.5 billion at the end of financial year 2023. I will now turn the call over to Kevin for a comment for Q&A section.

Thank you, Choon Sen. Please note, some officers of China Yuchai are remotely calling into the conference call. This may result in a slight delay in providing answers to some questions. We apologize for any inconvenience, and thank you for your patience. With that, operator, we are ready to begin the Q&A.

[Operator Instructions] We will now take our first question from the line of Yiming Liu from Haitong Securities.

This is Yiming from Haitong Securities. So I have 2 questions. Number one is about your data center generator business. So it looks like your JV with the MTU got a very good result in '24. But I'm just wondering how many units did you sell from both sides? I mean, from both GYMCL, your controlling interest and from the MTU JV. This is my question number one.

Okay. Kevin, I'll take the question, please? Regarding on the genset sells -- genset engine sales and then for 2024, our -- the MTU joint venture sales is about more than 700 units. But this is including not only -- not all for data centers, including the other applications. And for the GYMCL, the high horsepower we saw last year is about 800, yes, altogether, yes. But that is again, then it will be including other application.

Okay. All right. So just a continuation of this question. So it looks like MTU JV was very profitable. And -- so I wonder what is the profitability of your -- of this type of generators in the GMYCL either in terms of like gross margin or net margin or something like that?

I'm sorry that we cannot call the margin of the 2 different type of engine because then in terms of the output or in terms of the performance and then both engines and then can meet with the requirement of the data center requirement, and they have very similar power range and suitable for the major streamline of the data center construction. And so I would take it this way. And then the MTU is because of international branding and then there will be some premium that the end user would like to buy them. And -- but for price-wise, and then I cannot make any comment.

Okay. Okay. Understood. So my question number two is what is expected growth rate on the data center generator business in '25? If possible, could you describe separately for GMYCL and the JV business, I wonder if there is any difference on what is the expected growth rate in '25.

I would say it this way, no matter the GYMCL or the MTU joint venture and our order book for 2025 is already full and then we are actually -- we are refusing further order because we cannot take any due to the capacity constraint or due to the component supply. But I would say then in the 2025 it's very significant growth compared to last year, it's at least 30%.

Okay. Great. So just one more additional question. So it looks like the profit attributed to the minorities in the second half of '24 was pretty high. I just calculated, it looks like it was like 47% of the total profit. So would that be a constant value in the future? Because in the past, it looks like it was like 30% or so.

Okay. Let me answer that question. Compared to the past, I think the performance of our associate companies has been significantly better, in particular, MTU because as you alluded to earlier, where there's a big growth in demand for the data centers, which fits right into our product offering. And at the same time, our other associate companies, joint ventures, there are a couple of them most significant ones that have turned from losses to profitability. So that's why this year, you're seeing a largest what I call number for our associate companies. Does that answer your question?

Okay. All right. I'm sorry, just one more question. So look, there's an item called other operational profit or something which is pretty big. It was like RMB 500 million in '24. So I wonder how to expect that in the future. So is that going to be like proportional to your revenue or something like that?

Sorry, can you repeat the question, I missed that.

We have lost line of Yiming. So we'll take our next question from [indiscernible] from PinPOINT Asset Management.

Right. Actually, I have a question is, are we going to raise our price since the demand for, I think, 2 megawatts generators in China, AIDC is very strong. And as we know, the supply is fixed. So in the future, both regarding 2025 and also '26, are we going to raise our price for the generator, that's my first question.

Well, I mean, in terms of raising price, I think we will -- of course, there will be some improvement in the pricing. But as it stands now, we haven't had any significant plan to increase in any big way, but we believe there will be some improvement in pricing.

Okay. Okay. Got you. So as I understand, we are going to increase our price, but it's not right now, maybe in the future. Okay. My next question is, are we going to produce the generator set for the module by ourselves since we only produce generator right now. So are we going to do the set in the future if the demand is strong.

There's no plan for that. We are actually engine manufacturer. So we only -- we produce the engines mostly for our OEM customers. If there is any customer specifically wants us to produce a genset, we can work on that, but that will not be our main business.

Okay. Okay. Got you. So my last question is, as I just heard that we already produced anyway 700 or 800 generators in the last year. So what is our capacity plan for 2025 and also for '26? Are we going to increase it by a very strong number, for example, above 100%? Can you actually give us some color in this question?

Kelvin, you want to take that question? Kelvin Lai?

So are we going to expand our capacity for a very large number in the future, in this year and also the next year.

Kelvin, please?

Actually, then we had the planning and then to increasing our -- to expand our capacity since last year. And the -- but the -- I mean, there's 2 different major categories and then we have to consider. First is regarding how can we be increasing our supply of the casting for the big engine on the -- like the engine block and engine heads,[indiscernible] of the machining center and then will be arrival by Yuchai and then by mid this year. So likely and then by end of this year and then we can increasing our capacity. And we will be gradually ramping up. And so the next year and then will be about 35% to 40% increase and then will be another further up on the 2027. So this is our current planning on try to meet up with the market demand.

Okay. Okay. Got you. So -- you just mentioned that the growth rate is about 30% to 40%. So at least for this year, we are going to have more than 1,000 2 megawatts generators capacity in this year right? It's more than 1,000.

Yes, yes.

[Operator Instructions] We will now take our third question from the line of [ Andy Lee from Daiwa. ]

This is Andy Lee from Daiwa. Yes, I just want to quickly clarify. I think I heard another 30% capacity up in 2027, right?

Yes, by 2026, yes. Hello?

I mean, we start building capacity, now the capacity will come onstream by 2026. Can you hear us Andy Lee? We lost it. Can you hear?

No, I can't hear anything, yes.

Yes. We have lost in there.

We have lost the line of Andy. If you have further questions, please request to rejoin the queue. I'll be turning back to the presenters in the room for webcast questions.

Okay. There are a few questions from the webcast. The first one will read out now is the surge in demand for diesel engines driven by AI data centers will have -- will that have impact on the revenue growth? Could you give us some color on both revenue and net profit impact from AI? Now yes, there's a big demand now for data centers segment of our business. We expect to see growth in it as we discussed earlier. So yes, that will have an impact on our -- definitely have an impact on our revenue growth, in particular for that particular segment. Now how is that going to impact our overall business revenue or our whole group revenue that I don't think we are ready to release that part of the information. And we can't -- unfortunately, I can't tell you exactly how much revenue it is for this segment, nor the profit -- net profit impact for this segment. So the next question is from[indiscernible]. Congratulations of your great performance, currently an explosive growth in the CapEx of major Chinese Internet companies leads to significant shortage of power generators. Have you entered domestic data center market with major clients, is there room for price increase? What's your future expansion plan? Can you share your overall outlook for data generator business of IDC sector this year? Kelvin, do you want to take that, Kelvin?

Sorry.

Do you want to answer these questions?

Can you repeat the question?

Okay, let me answer that. Okay.

I can't see it.

Okay. Okay. All right. So sorry, Kelvin is calling from China, so he probably can't see the question. Okay. Let me answer some of it, right? So have you entered domestic data center market with major clients? Yes, we have entered China domestic market, and we have orders from some of the big data center operators in China. We also -- not only that, we also expanded to the Southeast Asian market as well. So yes. Is there room for price increase? We think there will be improvement. But again, a lot of these data centers, as you recall sales are achieved through tenders. So in the case of tender, the price is actually quite transparent, right? So we do also expect to see some improvement, but I don't think it's going to be a huge improvement unless everybody also increase the price accordingly. So it's still a very, very competitive industry out there for data Centers. What is your future expansion plan? We are building capacity to cater to the huge demand that we saw this year. So we expect the capacity to come on stream next year in 2026 for both GYMCL as well as the MTU. And can you share your overall outlook for diesel engine -- diesel generator business of IDC sector this year? We believe this year is going to be significant growth. There's a lot of demand out there still. So -- and this demand has not been satisfied as of this year. As Kelvin has mentioned earlier, our order book is full for the year. So we will expect to see more demand next year, I would think. But by then, the capacity for most of the diesel engine manufacturers and the genset manufacturers, OEMs would have also increased accordingly. So we believe that a lot of the demand will be satisfied next year or in the next 2 years. R&D. The next question is from[indiscernible]. Your R&D expenses grew meaningfully in 2024 in excess of revenue. What sort of R&D expenses expense growth should we expect in 2025, will it moderate? Okay. Loo will answer this question.

[indiscernible], thank you for your questions. Yes, we expect the 2025 will remain pretty much the same or a slight increase, we are balancing the market demand, right? So we have commercial vehicle and then we have off-road, marine power generation and industrial and so forth. So we are balancing the spend. But overall, R&D spend will continue. We'll continue to maintain that to improve our engine efficiency and performance. That we will not slow down. We'll continue to do that. And -- but overall expense perspective, we will still maintain and we will have a moderate increase in that sense.

Okay. So next question, again from the same person. Does management expect a growth acceleration in 2025 on the back of National for Trust trading policy? Yes, we do hope to see some acceleration, but it's very hard to determine how much there will be for now. Yes, the answer is yes. The last question on the website page is your SG&A expense increased a lot in second half '24. Could you please give us some guidance on the trend going forward?

Okay. I will take this question.[indiscernible] thank you for the question. Yes, in fact, our second half 2024, our SG&A expenses are mainly -- the increase mainly caused by the trade receivables provision, right? So that we have accounted for that in 2024. Of course, the market is still challenging, but we expect that will be better in 2025 in terms of our trade receivable provisions. So other than that, the spending -- the SG&A spending will pretty much remain the same as the 2024 level. But of course, when we continue to expand our trade and overseas market, that we expect a slight increase from that perspective.

We will now take our next phone question from the line of Andy Lee from Daiwa.

This is Andy. My line was cut off, hope my phone works probably this time. Yes, thanks for the clarification before. So my question is on associates and JV profit. This accounted for over 30% of your second half profit. So just wondering, could you please break down how much is from MTU Yuchai. And I also know you have different lines of production lines for MTU. So can you walk us through which lines are for the large power generators applicable for data centers, please?

Kelvin, you want to take that question?

I mean regarding on the product-wise, the MTU product at the moment and then we had different cylinder configuration. So we have the 12V, 12 cylinder and 16V, 16 cylinder and also the 20V, that's the 20 cylinder. So I think I would say this way, the bigger the engine and then the better the return because of the limited -- I mean, the competition because of the high horsepower engine. And the -- I mean -- but it will always -- and that depends on the customer requirement. So at our joint venture, we were manufacturing then the -- according to the customer spec. But of course, if we can have the product mix and then can have a more higher power engine, and there will be more benefit to the operation.

Yes. And see, for example, any number or percentage did MTU Yuchai contributed to our profit.

I cannot give you the figure.

Okay. So do you start to negotiate with the data center clients? And what does the competition look like? Did you encounter any Chinese peers in the bidding or kind of the competition?

I mean the genset market is very, very competitive because in China and then the -- it's always an open tender and then from the telecommunication operator or from the AI and then, for example, from the ByteDance and so it's transparent. I mean the -- everyone at the end will understand what the price they are at the end of the day. So I would like to say, it's very fierce competition, and that's why and then the -- I mean, there's -- very difficult raise the bar of the pricing at this stage, even though the very high demand because -- and then we had to make sure and that we can win the bid of the major projects and then from those key players because in one single tender, it could be up to 200, 300 or 500 engines. So that is very careful and then regarding on the pricing. So competition is too fierceful, yes.

Got it. Maybe lastly, on your capacity expansion, what keeps you up at night, any bottleneck you spend most of your time addressing on like maybe super alloy, Yuchai has to be buy. Yes, I appreciate if you can share any color on this.

Is it a little bit different between the GMYCL and the MTU joint venture. MTU joint venture, actually, we had a problem of the supply chain because there's still some component we are -- I mean we are importing from Germany. And there's -- I mean, there's a shortage of some of the key components from our partners. And this is a handicap at the overall assembly of the engine. So -- I mean, our partner, MTU and then they are also doing some more investment and then they also work with their supplier and try to ease up the supply chain issue. Hopefully, by next year and then we can have more available resource and then we can take more engine orders.

Any chance you can use the Chinese domestic supplier in replace of those imports?

We actually -- we have what we call the localization program. And so we will localize and then the majority of the -- majority of the engine component in China -- but there is -- some of the very key components and then the -- our partner reserves right and then to -- not to localize and then we had to buy from them anyway. So this is some of the bottleneck some time, yes.

Our next question comes from the line of Yiming Liu from Haitong Securities.

I was cut off, so I'm trying to continue with my question. So from your income statement, there's a big item called other operating income, which is RMB 576 million in the fiscal year '24. So I wonder if this value is proportional to your revenue or if there's other factors that is impacting that. So how do we expect that in '25 or in the future?

Yiming, thank you for your questions. Yes, in that line, we have this government grant income, right, as I mentioned earlier on, right? So that's based on the revenue that we -- the income that we recognized according to the projects that we earned during the period. So that is by the timing. So the second part is the VAT rebate, right? So there's a tax policy that for us, we are in this advanced technology zone that we are qualified or we are eligible for that incentive. So basically, we get the rebate for the VAT tax, right? So that's another big part contributed the income for 2024. So that from our understanding, that will be subject to the applications each time. So once we are successful, that will continue in 2025 if we are successfully applied. So another part is the licensing fee, right, for that loan, right? So we have recognized half of that USD 28 million, right, in 2024. So that is the big increase in our other income.

So can we treat the majority of this value as recurring or I mean, what is the percentage of this value, which is not recurring in the future?

Okay. The income is subjective that how much we can recognize based on what we earn from the project. So that probably remains pretty much flat, right? But VAT, are subject to the applications and also subject to the VAT input output offset, right? That is still yet to be determined, yes. Of course, the fee income, as I mentioned, we recognized that half of it from what we have awarded, right, $28 million. So that we shall see some in 2025.

I'll now turn to the room for webcast questions.

Okay. We'll answer some of the questions from the webcast. The next question now is from [indiscernible]. For data center generator, is there any particular part sourced from third party that could face a bottleneck? I think Kelvin Lai answered that for MTU. So there are some parts that we buy from Germany, which will cause a bottleneck. So I think it's a repeat question. The next one, I'll go down to, what is your capacity CapEx plan this year and next year given the strong demand, would there be new share repurchase. Our CapEx plan this year and next year will be probably still remains about the same. There will be more, of course, the resources that will be channeled towards data centers since there's a big demand for it. But that has already started, right? So we have to see what the demand is going forward and how much capacity there are in the whole industry before we think we decide on more capacity expansion or more CapEx on that area. Will there be a new share repurchase plan? I can't assure you that we haven't discussed this since the last plan that was implemented. So yes, for now, this has not been discussed. Can you share your revenue breakdown by domestic sales and export sales? Can you help us to understand how product mix will shift in 2025 and the impact on ASP profit gross margin? I will answer the top half, but not probably the second half probably too sensitive for us, right? So in terms of domestic sales and export sales, about close to more than 20% -- 20%, 25% of our engines in terms of unit sales are exported. So it's grown quite bit in the last few years. In the case of how the product mix will shift, it will -- the hope for the entire group, it will shift slightly more towards the marine and power generation, which is the genset because of the big demand that we are facing now from the data centers. So that will have an impact on the ASP for sure and also the gross profit margin. Do you consider more share buyback program? And what's your dividend policy? Okay. I've addressed the share buyback program. The dividend policy, we do not have a formal dividend policy. But if you look at the dividend payout in the past, you get an idea as to how we decide on the dividend payout, but we do not have a formal dividend policy.

Thank you. We will now take our next phone question from the line of William Gregozeski from Greenridge Global.

On the Kim Long, when is the expected start date that you'll ship the engine kits? And do you have like a number of units you expect to sell and a rough margin profile for those?

Sorry, Will, I didn't quite catch that, can you repeat that again.

Yes. On the Kim Long, when do you expect to start shipping the engine kits? And then do you have an estimate on the number of kits and margin profile for those?

Kelvin, can you address the question.

So we need to help them to build up the whole plant. And also, we need to assist them and then to purchasing all the equipment for the factory. So I would expect -- and then after all and then all this -- I mean, the installation, commissioning, and then it is done, and then also they carry on further testing of the whole line and then it will take at least about 9 to 10 months. So by the end of this year, if everything is smooth and then we may start shipping the parts, this is my estimation.

Okay. Do you have an idea of how big this plant is going to be or how many units they expect to do a year?

In fact, the market is quite a good design market. I mean, because from GYMCL, our export to Vietnam is about 20,000, 25,000 per annum. And then -- so I mean if they take out most of those and then they order, we previously and then we ship from China and then that will be around this number. But of course, and then it will be depends on how is the competitiveness of the Kim Long Motor in the Vietnam market. So I mean, we didn't have any concrete sales number because our agreement with them is only a licensing agreement. And so that we will help them and then to build up the whole plant, then we will provide the component according to the actual demand.

Okay. All right. And then my last question is, do you have expectations for this year for the in-vehicle engines just in general?

Can you repeat this again, Bill, did not quite catch that.

Yes. I was looking for -- if you can provide any expectations for in-vehicle engines for this year?

You mean the total engine sales for the year?

Yes.

EV, you're talking about EV, are you -- are you talking about electric vehicles?

I mean if you can break out the new energy versus the traditional, that would be even better.

I see. No, I think this year, we sold about 356,000 engines, right? So again, segment by segment, we expect the vehicle engines to move within minus 5% to 5%, maybe even 10%. So it's pretty for the domestic market. So as for the marine and power generation, we expect it to perhaps increase by about 10% this year. For the -- as far as the industrial and agricultural machinery, the agriculture machining, we expect it to have a slight growth and the industrial machinery, I think for the market, it will be quite flat, but we expect to see some growth in there. But sorry, I can't give you a number, but generally, that's how the market is.

We have now reached the end of our question-and-answer session. And now I'll turn the call back to Kevin Theiss.

Thank you very much all for participating in our conference call. We wish each of you good health, and we look forward to speaking with you again next time. Thank you.

Well, thank you for your participation in today's conference. This does conclude the program. You may now disconnect.