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The Company manufactures, assembles and sells diesel engines for light- duty, medium- duty and heavy- duty trucks and buses in China.
The US recession didn’t slow down China Yuchai’s (CYD) growth. This Bermuda holding company is a subsidiary of Hong Leong Asia Ltd (HLA), which retains 28% of the shares. CYD owns 76% of the diesel engine manufacturer, Guangxi Yuchai Machinery Company Limited (GYMCL). CYD also owns 47% of the hotel company, HL Global Enterprises Limited (HLGE) and 12% of the consumer electronics distributor/ real estate investment company Thakral Corporation Ltd (TCL). They were selling out of Thakral, but I don’t see any more recent information on their website. The diesel engines are the main business.In Q3, there was a year-over-year shift to heavier-duty engines, which resulted in lower revenues and higher net profit. Q3 profits were $0.87/sh compared to $0.64 in 2009. This is a company-planned strategy as they seek to reposition themselves in the Chinese market. Their commercial vehicle hybrid diesel engine, YCHPT, which was introduced in 2009, has attained an industry leading position, with its approximately 20% energy savings compared with standard diesel engines. They are attempting to break into the higher-barrier heavy-duty truck market, with their heavy-duty YC6K product line.They have started a new venture, a 45% ownership in Y & C Engine, in partnership with a CIMC-Chery partnership company and Shenzhen City Jiusi Investment Management Co, to produce engines for CIMC-Chery. I don’t really know if these complicated webs of cross ownerships between companies will end badly for them or whether the mutual cooperation and support will help them prosper. I recall back when Japan was an investable country, that they also had these same types of interlocking relationships between companies.Up over 700% from the 2009 lows, the stock is perhaps no longer the great bargain, but they still seem relatively cheap, with a P/E under 9 and good growth prospects.
The ownership structure used to be even more complicated. However after a successful shareholder battle in 2006-2007, new management began to simplify it. It seems like they are now committed to better corporate governance, particularly since they are one of the few US-listed Chinese companies to pay a dividend.
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