China Automotive Techniques, Inc. (NASDAQ:CAAS) This autumn 2022 Earnings Convention Name March 30, 2023 8:00 AM ET
Firm Members
Kevin Theiss – Investor Relations
Jie Li – Chief Monetary Officer
Convention Name Members
William Gregozeski – Greenridge International
Operator
Good morning everybody and welcome to the China Automotive Techniques’ Fourth Quarter and Fiscal Yr 2022 Convention Name. Presently, all contributors are in a listen-only mode. A matter-and-answer session will observe the formal presentation. [Operator Instructions] Please be aware this convention is being recorded.
I’ll now flip the convention over to your host, Mr. Kevin Theiss, of Investor Relations. Kevin, chances are you’ll start.
Kevin Theiss
Thanks everybody for becoming a member of us at this time. Welcome to China Automotive Techniques’ 2022 fourth quarter and 12 months convention name. Becoming a member of us at this time are, Mr. Jie Li, Chief Monetary Officer of China Automotive Techniques. He can be accessible to reply questions later within the convention name with the help of translation.
Earlier than we start, I will remind all listeners that all through this name, we could make statements which will include forward-looking statements. Ahead-looking statements characterize the corporate’s estimates and assumptions solely as of the date of this name. Because of this, the corporate’s precise outcomes may differ materially from these contained in these forward-looking statements attributable to a lot of elements, together with these described underneath the heading Threat Components within the firm’s Kind 10-Okay annual report for the 12 months ended December 31, 2022, as filed with the Securities and Change Fee and in different paperwork filed by the corporate every so often with the Securities and Change Fee.
If the outbreak of COVID-19 will not be successfully and well timed managed, our enterprise operations and monetary situations could also be materially and adversely affected on account of a deteriorating market outlook for car gross sales, the slowdown in regional, nationwide financial progress, weakened liquidity and monetary situation of our prospects and different elements that we can’t foresee. Any of those elements and different elements past our management may have antagonistic impact on the general enterprise surroundings, trigger uncertainties within the areas the place we conduct enterprise, trigger our enterprise to undergo in methods that we can’t predict, and materially impression our enterprise, monetary situations and outcomes of operations.
A protracted disruption or any additional unexpected delay in our operations or the manufacturing, supply and meeting course of inside any of our manufacturing services may proceed to end in delays within the cargo of merchandise to our prospects, enhance prices and scale back revenues. The corporate expressly disclaims any obligation to offer updates to any forward-looking statements made on this name, whether or not on account of new data, future occasions or in any other case.
On this name, I’ll present a short overview and abstract of the fourth quarter and financial 12 months outcomes for the interval ended December 31, 2022. Administration will then conduct a Q&A session. The 2022 fourth quarter unaudited and the fiscal 12 months monetary outcomes are audited and all outcomes are reported utilizing U.S. GAAP accounting. For the needs of our name at this time, I will overview the monetary ends in U.S. {dollars}.
We’ll start with a overview of the latest dynamics of the Chinese language economic system, the auto trade and our market place. China’s GDP progress was 4.8% within the first quarter of 2022, marking a historic comfortable interval which declined additional to 0.4% progress within the second quarter of 2022 earlier than rebounding a 3.9% within the third quarter. Nevertheless, GDP progress then slowed to 2.9% within the fourth quarter of 2022.
Quarter-over-quarter financial progress through the third and fourth quarters from 2022 was primarily flat. For fiscal 12 months 2022 Chinese language financial progress was a low 3% down sharply from the 8.4% progress skilled in 2021. Whole retail gross sales in china declined by 0.2% partially as a result of results of COVID-19 lockdowns and funding in actual property growth declined by 10% in fiscal 2022.
The COVID-19 outbreak worsened in 2022 first quarter leading to lockdowns in a number of cities throughout China. The impression of COVID-19 affected the economic system all through the 2022 12 months, however lessened within the second half with the economic system’s higher progress. Provide chain interruptions elevated in early 2022 which hindered manufacturing particularly with essential pc chip shortages affecting car manufacturing. Overseas trade volatility and the financial outlook for key buying and selling companions had been issues all through 2022.
Turning to the info from the Chinese language Affiliation of Vehicle Producers, CAAM, car gross sales elevated by solely 0.2% year-over-year within the first quarter of 2022, decreased by 13.3% year-over-year within the second quarter of 2022 elevated by 29.4% year-over-year within the third quarter after which declined by 3.3% year-over-year within the fourth quarter of 2022. In 2022 whole car gross sales grew by solely 3.4% year-over-year. Passenger car gross sales rose by 11.2% year-over-year with sedans up 12.5%, MTVs [ph] down 11.3%, SUVs up 13.5%, and cross passenger automobiles 20.3% decrease.
In 2022 industrial car gross sales fell 31.9% and bus gross sales had been 19.9% decrease and the a lot bigger marketplace for truck gross sales declined by 33.4%. Gross sales of New Power Automobiles elevated by 93.4% and new power passenger car gross sales rose by 94.3% and the a lot smaller new power industrial car gross sales had been 78.9% greater.
We launched a proprietary EPS product in 2021 to additional develop our personal Superior Driver Help Techniques, ADAS. This EPS product communicates with the car’s fundamental information to create lane preserving help, automated parking help, lane centering, and site visitors jam help capabilities. A variety of auto producers have already adopted our proprietary EPS primarily for his or her passenger automobiles.
In January 2022 we additionally signed with Scania AB to develop an eRCB steering system for Scania’s vehicles and busses to higher penetrate the industrial car market in China. With our superior reside help methods L4 platform, named AP04, our proprietary EPS system permits automobiles to execute Degree 4 autonomous driving. This eRCB steering system has turn into the world’s first mass produced, absolutely electrical clever energy steering system for industrial automobiles.
The expertise is from our subsidiary in Sweden, Sentient AB promise to additional improve our EPS steering expertise particularly for car movement management for autonomous driving merchandise focusing on each passenger and industrial automobiles. Sentient has already gained the set up contracts with world truck OEMs with their applied sciences.
We have now produced, shipped, and put in greater than 3 million energy steering units, together with EPS models to BYD Auto over a 20 12 months partnership. In late 2022 we expanded our strategic partnership with BYD the most important Chinese language EV producer for future autonomous driving merchandise. We gained design contracts from BYD for C-EPS, DP-EPS and R-EPS from BYD for all its collection of merchandise. We have now launched a brand new collection of EPS merchandise for BYD.
Along with BYD engineers CAAS’s R&D engineers use pc aided design and synthetic intelligence to shorten the design cycle to 5 months for our DP-EPS merchandise. We accomplished the DP-EPS integration into the chassis normal meeting for by BYD’s Mannequin Tang in late 2022.
Now, we develop new merchandise and develop world market share we’re sustaining our monetary power as our free money circulation elevated to $27.7 million in contrast with $19 million in 2021. For 2022, we repurchased 666,074 frequent shares underneath our repurchase buyback program. Because the Chinese language car market is recovering, our North American and Brazilian operations proceed to develop.
Our EPS merchandise are gaining better market acceptance and our NEV applied sciences are buying extra capabilities. Our altering gross sales product combine is bettering our margins. New COVID-19 insurance policies have had a dramatic and constructive impression on the Chinese language economic system, revitalizing social and enterprise actions and restoring provide chains. We count on restoration of the economic system who will strengthen extra time resulting in better car gross sales.
Now, let me overview the monetary ends in the fourth quarter of 2022. Internet gross sales decreased by 7.2% to $128.8 million in comparison with $138.8 million in the identical quarter of 2021. The web gross sales lower was primarily attributable to a change within the product combine and decrease demand for passenger vehicles and industrial automobiles within the fourth quarter of 2022 in comparison with the fourth quarter of 2021.
Gross revenue elevated by 26.9% to $25 million within the fourth quarter of 2022 in comparison with $19.7 million within the fourth quarter of 2021. Gross margin within the fourth quarter of 2022 was 19.4% in comparison with 14.2% within the fourth quarter of 2021, primarily attributable to a change in product combine.
Promoting bills had been $4.6 million within the fourth quarter of 2022 in comparison with $3.4 million within the fourth quarter of 2021. Promoting bills represented 3.6% of internet gross sales within the fourth quarter of 2022 in comparison with 2.4% within the fourth quarter of 2021.
Normal and administrative bills had been $10.8 million within the fourth quarter of 2022 in comparison with $7.6 million in the identical interval in 2021. G&A bills represented 8.4% of internet gross sales within the fourth quarter 2022 in comparison with 5.5% of internet gross sales within the fourth quarter of 2021, which was primarily as a result of enhance in provision of allowance for uncertain accounts.
Analysis and growth bills or R&D had been $10.6 million within the fourth quarter of 2022 in comparison with $9.9 million within the fourth quarter of 2021. R&D bills represented 8.2% of internet gross sales within the fourth quarter of 2022 in comparison with 7.1% within the fourth quarter of 2021, primarily attributable to a rise in salaries and wages on account of the elevated R&D exercise for brand new initiatives.
Loss from operations was $2.6 million within the fourth quarter of 2022 in comparison with earnings from operations of $0.6 million within the fourth quarter of 2021. Curiosity expense was $0.3 million within the fourth quarter of 2022 in comparison with $0.5 million within the fourth quarter of 2021. Monetary earnings was $1.4 million within the fourth quarter of 2022 attributable to trade fluctuations of the U.S. greenback to the Chinese language RMB and the Brazilian actual in comparison with monetary expense of $1.5 million within the fourth quarter of 2021.
Value earlier than earnings taxes and fairness within the earnings of affiliated firms was $2.7 million within the fourth quarter of 2022, in comparison with a lack of $0.4 million within the fourth quarter of 2021. Earnings tax profit was $1.9 million within the fourth quarter of 2022 in comparison with an earnings tax expense of $0.7 million within the fourth quarter of 2021, primarily as a result of loss earlier than earnings tax bills and fairness and earnings of affiliated firms within the fourth quarter of 2022.
Internet earnings attributable to mother or father firm’s frequent shareholders was $4.3 million within the fourth quarter of 2022 in comparison with internet earnings attributed to the mother or father firm’s frequent shareholders of $5 million within the fourth quarter of 2021. Diluted earnings per share was $0.14 within the fourth quarter of 2022 in comparison with diluted earnings per share of $0.16 within the fourth quarter of 2021. The weighted common variety of diluted frequent shares excellent was 30,229,987 within the fourth quarter of 2022 in comparison with 30,853,822 within the fourth quarter of 2021.
Now we’ll overview the complete 12 months 2022 highlights. Internet gross sales enhance by 6.3% year-over-year to $529.6 million in 2022 in comparison with $498 million in 2021. This enhance was primarily attributable to greater gross sales of passenger automobiles in China with gross sales to Chery Vehicle up 54.5% year-over-year. In whole gross sales of electrical energy steering EPS methods elevated by 35.6% year-over-year. EPS gross sales represented 29.5% of whole income in 2022 in comparison with 23.2% in 2021. Internet gross sales of car steering system to the corporate’s North American prospects was roughly the identical in 2022, however Brazil Henglong’s internet gross sales grew by 54.1% year-over-year to $39.3 million.
Gross revenue in 2022 elevated by 15.7% year-over-year to $83.4 million in comparison with $72.1 million in 2021. The gross margin elevated to fifteen.7% from 14.5% in 2021, primarily attributable to adjustments within the product combine. Achieve on different gross sales in 2022, lower to $3.7 million in comparison with $4.4 million in 2021.
Promoting bills declined by 7.7% year-over-year to $16.9 million in 2022 in comparison with $18.3 million in 2021 primarily attributable to decrease transportation bills. Promoting bills represented 3.2% of internet gross sales in 2022 in comparison with 3.7% in 2021. G&A bills elevated by 7% year-over-year to $26.1 million in 2022 in comparison with $24.4 million in 2021. G&A bills represented 4.9% of internet gross sales in 2022 in comparison with 4.9% of internet gross sales in 2021.
R&D bills had been $36.1 million in 2022 in comparison with $28.2 million in 2021. The rise was primarily attributable to greater funding in EPS merchandise and different new merchandise. R&D bills had been 6.8% of internet gross sales in 2022 in comparison with 5.7% of internet gross sales in 2021.
Working earnings elevated by 45.5% year-over-year to $8 million in 2022 in comparison with $5.5 million in 2021. The rise in working earnings was primarily attributable to greater gross revenue. Curiosity expense was $1.5 million in 2022 in line with the $1.4 million in 2021. Internet monetary earnings was $10.8 million in 2022 in comparison with internet monetary expense of $2.4 million in 2021, primarily attributable to a rise in international trade beneficial properties as U.S. greenback fluctuated towards the Chinese language RMB and Brazilian actual.
Earnings earlier than earnings tax bills and fairness earnings of affiliated firms was $23 million in comparison with $8.4 million in fiscal 12 months 2021. Excuse me. The change is primarily attributable to greater working earnings and internet monetary earnings in 2022. Earnings tax expense was $3.1 million in 2022 in comparison with $4 million in 2021. Internet earnings attributable to mother or father firm’s frequent shareholders was $21.2 million in 2022 in comparison with internet earnings attributable to mother or father firm’s frequent shareholders of $11.1 million in 2021.
Diluted internet earnings per share elevated by 91.7% year-over-year to $0.69 in 2022 in comparison with $0.36 in 2021. The weighted common variety of diluted frequent shares excellent was 30,641,274 in 2022 in comparison with 30,855,431 frequent shares in 2021.
Subsequent, we’ll go over a number of stability sheet gadgets. As of December 31, 2022, whole money and equivalents, pledged money in short-term investments had been $171.8 million. Whole accounts receivable, together with notes receivable had been $224.3 million.
Accounts payable, together with notes payable had been $235.1 million and short-term financial institution loans had been $45.7 million. Whole mother or father firm stockholders fairness was $311.7 million as of December 31, 2022 in comparison with $321 million as of December 31, 2021. Money circulation from working actions was $48 million in 2022 in comparison with $28.3 million in 2021. Money paid to accumulate property, plant and tools and land use rights was $20.3 million in 2022 in comparison with $9.3 million in 2021.
The enterprise outlook. Administration has offered income steering for the 12 months 2023 to $560 million. This goal is predicated on the corporate’s present use of working and advertising and marketing situations. That is topic to alter.
With that operator, we are actually prepared to start the Q&A session.
Query-and-Reply Session
Operator
Thanks, Kevin. [Operator Instructions] Your first query is coming from Phil Gregozeski of Greenridge International. Phil, your line is reside.
William Gregozeski
Hello, thanks. I’ve 4 questions for you at this time. First off gross margins within the fourth quarter had been a lot greater than anticipated. That is sustainable long-term margin determine based mostly on the upper EPS contribution?
Jie Li
Oh, so EPS okay. So absolutely 12 months 2022 gross margin is 16%. However our fourth quarter, as you noticed, our fourth quarter gross margin is nineteen%. It’s primarily it attributable to the electrical energy steering quantity enhance. And we additionally foresee 2023 our EPS, Electrical Energy Steering product quantity will proceed to extend. And that mentioned, that can additional propel the gross margin growth. As , the EPS product previously, the gross margin was considerably within the 15% vary and now we’re, with the upper quantity, we consider the higher economic system scale will give us a greater margin for EPS going ahead. Because of this, the deliberate gross margin will even proceed to climb in 2023.
William Gregozeski
Okay. Thanks. After which what are your expectations for hydraulic and EPS builds for 2023 and 2024?
Jie Li
Expectation for quantity?
William Gregozeski
Sure.
Jie Li
Okay 2024. Okay let us take a look at 2023 first. We anticipate EPS gross sales quantity will proceed to climb one other 30% enhance in 2023. Because of this, EPS gross sales will account for about 36% of whole gross sales in 2023.
Okay. So in 2024, we see our EPS gross sales quantity will attain or surpass 40% of whole quantity.
William Gregozeski
Okay, superior. However then R&D expense has elevated $8 million in 2022 in comparison with 2021. How a lot R&D spending will there be in 2023, and what’s going to be the main target of that spending?
Jie Li
Okay. Our EPS analysis, our R&D analysis is especially centered on the EPS product and that together with the DP-EPS and R-EPS. We even have some R&D into the spend going to the i-RCB and the eRCB product. And final piece, we’re placing all the hassle is in R&D is steering by wire, so what we name SBW product. And so all these collectively, we’re 2023 R&D bills accounts for about 6% to six.5% whole income.
William Gregozeski
Okay. After which final query right here. Are you able to present an replace on how the BYD order goes and whether or not there are any updates associated to Sentient within the energy order?
Jie Li
Okay. So sure, BYD has been a long-term buyer and, and now more and more turn into our considered one of our prime priorities. And in 2022 we grew with BYD considerably, and we count on the expansion will proceed in 2023. We — final 12 months in the direction of finish of final 12 months, in the event you recall, we inked a long-term strategic partnership with them. By means of that complete partnership we are actually getting into into all collection of fashions of BYD product. And so in 2022 we bought about 400,000 to 500,000 models, and we’re seeking to double in 2023.
William Gregozeski
Okay. After which had been there any updates associated to the Sentient energy order?
Jie Li
Okay. Sure, our subsidiary in Sweden the autonomous driving arm are doing fairly properly. We booked some income, a average income in 2022, and we need to enhance the income. They need to enhance the income within the second half of 2023. There’s a big batch order can be anticipated, within the meantime, that is what the European buyer. Within the meantime we’re deepening our partnership with BYD. Particularly we’re wanting into some, they’re wanting into among the autonomous driving options we will present. So wanting ahead to work with BYD to materialize these autonomous capabilities, capabilities into their new fashions.
William Gregozeski
Okay. Thanks. That is it from me.
Operator
Thanks a lot. [Operator Instructions] Okay. It seems we now have no additional questions within the queue. I will hand again over to Kevin for any closing remarks.
Kevin Theiss
We need to thank everybody for becoming a member of us at this time in our convention name. We want you to be protected and we stay up for talking with you sooner or later. Thanks.
Operator
Thanks everyone. This does conclude at this time’s convention name. You might disconnect your telephone strains at the moment, and have a beautiful day. Thanks to your participation.
