Earnings call transcript: China Automotive Systems beats Q4 2024 earnings

China Automotive Systems Inc. reported a robust financial performance for the fourth quarter of 2024, significantly surpassing earnings expectations. The company achieved an earnings per share (EPS) of $0.30, exceeding the forecasted $0.16 by 87.5%. Revenue also outperformed expectations, reaching $188.7 million compared to a forecast of $147.52 million. According to InvestingPro data, the company maintains strong financial health with an overall score of 3.34/5, labeled as "GREAT." Despite the positive earnings surprise, the stock saw a slight decline of 0.2% in premarket trading, reflecting cautious investor sentiment.

Key Takeaways

• China Automotive Systems achieved a significant EPS beat, with actual EPS at $0.30 versus a forecast of $0.16.
• Revenue for the quarter reached $188.7 million, surpassing expectations.
• The company is strategically positioned for transitions to electric and autonomous vehicle technologies.
• Despite strong earnings, the stock experienced a minor premarket decline of 0.2%.
• Challenges include decreased net income and gross margin, alongside increased selling expenses.

Company Performance

China Automotive Systems demonstrated strong financial performance in Q4 2024, with significant growth in electric power steering (EPS) sales, which represented 38.9% of total revenue. The company is leveraging its global presence and tier-one partnerships to drive growth, despite facing challenges such as decreased net income and gross margin from the previous year.

Financial Highlights

• Revenue: $188.7 million (exceeding forecast of $147.52 million)
• Earnings per share: $0.30 (forecast was $0.16)
• Full Year 2024 Net Sales: $650.9 million (12.9% increase from 2023)
• Net Income: $30 million (down from $37.7 million in 2023)
• Gross Margin: 16.8% (down from 18% in 2023)

Earnings vs. Forecast

China Automotive Systems reported an EPS of $0.30, significantly above the forecasted $0.16, marking an 87.5% surprise. Revenue also exceeded expectations, reaching $188.7 million against a forecast of $147.52 million.

Market Reaction

Despite the earnings beat, the stock saw a slight decrease of 0.2% in premarket trading, closing previously at $5.26. The stock remains near its 52-week high of $5.28, indicating strong recent performance but tempered investor sentiment.

Outlook & Guidance

Looking forward, China Automotive Systems projects 2025 revenue to reach $700 million, driven by a 30% year-over-year increase in EPS product volume. The company anticipates an additional 400,000 units in 2025, underscoring its strategic focus on electric power steering systems.

Executive Commentary

Executives highlighted the company’s strategic positioning amid technological transitions. "We have positioned our company to benefit from two ongoing technology transitions," said a company executive, emphasizing the shift to electric and autonomous driving.

Risks and Challenges

• Decreased net income and gross margin could impact future profitability.
• Increased selling expenses may pressure margins.
• Sales reduction from North American customers poses a potential growth challenge.
• Macroeconomic factors, such as supply chain disruptions, could affect operations.

Q&A

During the earnings call, Jonathan Mieves, a private investor, inquired about 2025 sales growth. The company confirmed that EPS products would drive the majority of the projected $50 million growth, highlighting new product lines such as CEPS, TP EPS, and REPS.

Full transcript - China Automotive Systems Inc (CAAS) Q4 2024:

Company Executive/CFO: Dollars or $1.25 per share for 2023. Net cash provided by operating activities was $9,800,000 for 2024. Cash paid to acquire property, plant, equipment and land use was $43,700,000 partly offset by $20,500,000 cash received from property, plant and equipment sales. Total cash and equivalents, plant cash and short term investments were $129,400,000 or approximately $4.29 per share at year end 2024. A special cash dividend of $0.8 per common share or approximately $22,400,000 was paid in late August twenty twenty four to reward our shareholders.

This cash dividend was paid from internal funds and cash flow. This reflects our unwavering confidence for sustainable sales growth and our ability to generate positive cash flow. We’ve also implemented the share buyback program of up to $5,000,000 of our outstanding common shares in the open market at market prices not to exceed $5.5 per share through 11/15/2025. We celebrated our twentieth anniversary of our Nasdaq listing in 2024. From a small domestic manufacturer, we have established a global presence, especially with Tier one companies in North America, South America, Europe, India and Asia.

Since 2024 net sales have grown from $58,200,000 to $650,900,000 in 2024. We look forward to the further growth of our company’s sales and operations of our traditional steering products continue to contribute to our sales and profits even as we further expand our EPS portfolio and we build our advanced driver systems technologies with our Sensia AB operations. We have positioned our company to benefit from two ongoing technology transitions, from internal combustion engines to electric powertrain and from human driving to autonomous driving. Now let me review the financial results in the fourth quarter of twenty twenty four. In the fourth quarter of twenty twenty four, net sales increased by 18.6% to $188,700,000 compared to $159,200,000 in the same quarter of twenty twenty three.

The net sales increase is mainly due to a change in the product mix and a higher demand for passenger automobile and commercial vehicles in the fourth quarter of twenty twenty four compared to the fourth quarter of twenty twenty three. Gross profit was $29,500,000 in the fourth quarter of twenty twenty four compared to $34,700,000 in the fourth quarter of twenty twenty three. Gross margin in the fourth quarter of twenty twenty four was 15.6% compared to 21.8% in the fourth quarter of twenty twenty three, primarily due to a change in product mix. Selling expenses were $4,800,000 in the fourth quarter of twenty twenty four compared with $4,600,000 in the fourth quarter of twenty twenty three. Selling expenses represented 2.5% of net sales in the fourth quarter of twenty twenty four compared to 2.9% in the fourth quarter of twenty twenty three.

General and administrative expenses, G and A, were $9,700,000 in the fourth quarter of twenty twenty four compared to $9,400,000 in the same period in 2023. The G and A expenses represented 5.1% of net sales in the fourth quarter of twenty twenty four compared to 5.9% of net sales in the fourth quarter of twenty twenty three. Research and development expenses, R and D, were $7,800,000 compared with $9,300,000 in the fourth quarter of twenty twenty three. R and D expenses represented 4.1% of net sales in the fourth quarter of twenty twenty four compared to 5.9 in the fourth quarter of twenty twenty three, mainly due to a decrease in miscellaneous development expenses. Operating income was $8,700,000 in the fourth quarter of twenty twenty four compared to $13,600,000 in the fourth quarter of twenty twenty three.

Lower gross profit in twenty twenty four fourth quarter compared with the same period last year was the main cause of this decline. Interest expense was $1,100,000 in the fourth quarter of twenty twenty four compared with $300,000 in the fourth quarter of twenty twenty three. Financial income was $800,000 in the fourth quarter of twenty twenty four compared with $1,000,000 in the fourth quarter of twenty twenty three. Income before income tax expenses and equity and earnings of a consolidated company was $8,800,000 in the fourth quarter of twenty twenty four compared to $15,000,000 in the fourth quarter of twenty twenty three. Net income benefit was $2,000,000 in the fourth quarter of twenty twenty four compared to income tax expense of $2,100,000 in the fourth quarter of twenty twenty three.

Net income attributable to parent company’s common shareholders was $9,100,000 in the fourth quarter of twenty twenty four compared to net income attributable to parent company’s common shareholders of $10,900,000 in the fourth quarter of twenty twenty three. Diluted income per share was $0.3 in the fourth quarter of ’twenty four compared to diluted income per share of $0.36 in the fourth quarter of twenty twenty three. The average weighted number of diluted common shares outstanding was 30,180,947 compared to 732,185,000 in the fourth quarter of twenty twenty three. Now, let me review the results for fiscal year 2024. Net sales increased by 12.9% to $650,900,000 in 2024 compared to $576,400,000 in 2023.

This increase was mainly due to higher sales of passenger leaf holes in China as total sales of the company’s EPS systems increased by 29.9% year over year and sales of the headlong subsidiary Skibri Systems to the Chinese passenger vehicle market increased by 20% year over year. Brazil had long debt sales due by 5.7% year over year to $51,000,000 This growth partially offset the sales reduction by North American customers in 2024. EPS sales represented 38.9% of total revenue in 2024 compared to 33.8% in 2023. Gross profit in 2024 increased by 5.2% year over year to $109,200,000 compared to $103,800,000 in 2023. The gross margin was 16.8% compared with 18% in 2023, mainly due to a change in our product mix and lower average selling prices for the year ended 12/31/2024.

Net gain on other sales in 2024 was $4,300,000 compared to $5,800,000 in 2023, mainly due to lower material sales in 2024. Selling expenses rose by 14.4% year over year to $17,900,000 in 2024 from $15,600,000 in 2023, mainly due to an increase in marketing and office expenses. Selling expenses represented 2.7% of net sales in 2024 and 2023. G and A expenses increased by $8,700,000 year over year to $27,700,000 in 2024 compared to twenty five point five million dollars by year in 2023. G and A expenses represented 4.3% of net sales in 2024 compared to 4.4% of net sales in 2023.

This expense increase was mainly due to higher office property and other taxes and maintenance and repair expenses. R and D expenses were $27,600,000 in 2024 compared to $29,200,000 in 2023. Lower R and D expenses reflect less investment in traditional product upgrades and the full annuities research expenses. R and D expenses were 4.2% of net sales in 2024 compared to 5.1% of net sales in 2023. Operating income increased by 2.6% to $40,300,000 in 2024 compared to thirty nine point two million dollars in 2023.

The increase in operating income was mainly due to a 5.2% increase in gross profit combined with the change in R and D expenses. Interest expense was $1,800,000 in 2024 compared to $1,000,000 in 2023, primarily due to an increase in bank loans in 2024 compared with 2023. Net financial expense was $90,000 in 2024 compared to financial income of $4,700,000 for 2023. The decrease in financial income of $4,800,000 was primarily due to higher foreign exchange gains in 2023. Income before income tax expenses and equity and earnings of affiliated companies was $44,100,000 in 2024 compared with $48,200,000 in 2023.

The change is primarily due to lower operating income in 2024. Income tax expense was $5,900,000 in 2024 compared to $5,100,000 in 2023. This increase is mainly due to a valuation allowance reversal and a one time income tax expense settlement for subsidiaries in The PRP and The U. S. This year.

Net income attributable to Parrot common shareholders was $30,000,000 in 2024 compared to 37,700,000.0 in 2023. Diluted net income per share was $0.99 in 2024 compared to $1.25 in 2023. The weighted average number of diluted common shares up in was 30,184,513 in 2024 compared with 30,189,421 in 2023. Now, we’ll provide some balance sheet and other financial highlights. As of 12/31/2024, total cash, cash equivalents, pledged class and short term investments were $129,400,000 Total accounts receivable including notes receivable were $343,500,000 Accounts payable including notes payable were $292,800,000 and short term bank loans were $72,600,000 Total parent company stockholders’ equity was $349,600,000 as of 12/31/2024 compared to $344,500,000 as of 12/31/2023.

Net cash flow from operating activities was $9,800,000 in 2024. Cash paid to acquire property plant and equipment and land use price was $43,700,000 in 2024 and cash received from the sale of property plant and equipment was $20,500,000 The business outlook. Management provided revenue guidance for the full year 2025 of $700,000,000 This target is based on the company’s current views on operating market conditions, which are subject to change. With that operator, we’ll be ready to begin the Q and A.

Call Moderator/Operator: Thank you very much. At this time, we’ll be opening the floor for questions. Thank you. Your first question is coming from Jonathan Mieves, who is a private investor. Jonathan, your line is live.

Jonathan, can you hear us?

Company Executive/CFO: Yes, I can hear you. I can hear you. Sorry. Can you guys hear me? Yes.

We can hear you. Okay. My question is for the 2025 year, the projection is for sales to grow by $50,000,000 What areas will generate this growth? 2025, right? Yes.

Okay. So majority of our sales increase in our production will be contributed from the EPS sales, our electric power steering products. That breaks down to a number of new products, CEPS, TP EPS and REPS product. And on the volume, we’re expecting 30% year over year increase in 2025. In terms of total volume, we’re looking at in terms of volume unit volume increase, we’re looking at another 400,000 units increase in 2025.

That we’re looking at, that will contribute to significant revenue growth we are reporting right now.

Call Moderator/Operator: Okay. Jonathan, do you have any more questions?

Company Executive/CFO: No. That was it. Thank you.

Call Moderator/Operator: Okay. Thank you very much. Just a reminder that if there are any remaining questions, you can jump into the queue by pressing star one on your phone keypad. Just wait a moment to see if anyone jumps into the queue. I’m not seeing any further questions.

Okay. We don’t appear to have anyone else in the queue.

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