Greetings. And welcome to the China Automotive Systems Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Theiss, Investor Relations for China Automotive Systems. You may begin.

Thank you, everyone, for joining us today. Welcome to China Automotive Systems 2019 fourth quarter conference call. Joining us today are Mr. Qizhou Wu, Chief Executive Officer, and Mr. Jie Li, Chief Financial Officer of China Automotive Systems. They will be available to answer questions later in the conference call with the assistance of translation. Before we begin, I remind all listeners that throughout this call, we may make statements that may contain forward-looking statements. Forward-looking statements represent the company's estimates and assumptions only as of the date of this call. As a result, the company's actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those described under the heading Risk Factors in the company's Form 10-K annual report for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on March 28, 2019, and in other documents filed by the company from time to time with the Securities and Exchange Commission. The company expressly disclaims any duty to provide updates to any forward-looking statements made in this call whether as a result of new information, future events or otherwise. On this call, I will provide a brief overview and summary of financial results for the 2019 first quarter and 2019 fiscal year. Management will then conduct a question-and-answer session. The following 2019 fourth quarter financial results are unaudited and fiscal 2019 year financial results are audited and both periods are reported under US GAAP. For the purposes of today's call, I will review the financial results in US dollars. We will begin with a review of the recent dynamics of the automobile industry and China Automotive's market position. For the fourth quarter of 2019, China's GDP was 6%, unchanged from the growth rate in the third quarter of 2019. For the 2019 year, China's GDP was 6.1%, which was the slowest annual growth in the last 29 years. According to the China Association of Automobile Manufacturers, CAAM, passenger vehicle sales in China, the largest global automotive market, were down 9.6% in 2019 to $21.4 million compared with sales in 2018. This decline followed a 2.8% car sales decrease in the 2018 year. Including trucks and buses, total vehicle sales decreased by 8.2% to 25.8 million vehicles in the 2018 year. Sales of all car types, including sedans, SUVs and minivans, decreased in 2019 year. Crossover and SUV type vehicles registered the smallest decline at 6.7% compared to a decline of 10.4% for sedans and a decline of 18.1% for MPVs. The sharp decline in sales of sedans and MPVs led to crossover and SUV vehicles gaining market share, reaching a record 43.6% of the Chinese passenger vehicle market. Sedans are still the largest car segment with 49.7% market share, with MPVs having a 6.7% market share. Chinese domestic branded car sales declined by 15.2%, but lost only 2.9% of the market share in 2019. Within these different passenger vehicle segments, annual sales of electric vehicles, EVs and plug-in hybrids declined in the 2019 year for the first time. Sales of new energy vehicles which include electric and plug-in hybrids fell 4% to 1.2 million units in 2019 as the government cut subsidies in the second half of the year. Last year's EV subsidies were reduced by as much as 75%, with the exact level determined by the region and model. The reduced subsidies had a substantial impact on the sales of EV vehicles as the central government wants to reduce the large number of EV manufacturers in this emerging but overcrowded industry. In April 2020, new energy vehicle sales again declined for 10th consecutive month according to CAAM data. Automobile sales lagged due to a number of factors. Slower Chinese economic growth in 2019 created anxiety among consumers, which was intensified by the trade tensions between the US and China. The above-mentioned EV subsidy reduction substantially impacted consumers' purchase decisions as well. Additionally, the first phase of the more stringent national VI emission standards began on July 1, 2019 for gasoline engine powered vehicles, passenger vehicles. The cities and provinces in the first phase include Beijing, Tianjin, Shanghai, Shenzhen, Hangzhou, Chongqing, Guangdong, Shandong, Hebei, Anhui and Henan. With this industry climate, our net sales in the fourth quarter of 2019 were $115.9 million compared to $124.3 million in the same quarter of 2018, a 6.8% decrease. The decline was mainly due to a change in the product mix and in lower demand for Chinese domestic branded automobiles in the fourth quarter of 2019 compared with the fourth quarter of 2018. For the 2019 full year, our annual sales declined by 13.1% to $431.4 million in 2019 compared to $496.2 million in 2018, due mainly to lower sales of legacy hydraulic products and total EPS system sales. However, our Henglong KYB subsidiary, which primarily supplies passenger vehicle EPS products, had net sales of $71 million in 2019 compared with $23.4 million for the year ended December 31, 2018. EPS sales represented 19.1% of total revenue in 2019. Decline in our EPS sales also reflected the transfer of our EPS business into our Henglong KYB subsidy. Sales of hydraulic steering systems to our North American customers were only down slightly in 2019 compared with 2018 even though overall sales vehicle were soft in North America. Our Henglong KYB joint venture with Japan KYB Company Limited concentrates on providing advanced EPS systems. Our exclusive supply contract with Great Wall Motor Company's to supply EPS systems for their new ORA R150 all electric small vehicle demonstrates the performance and capabilities of our EPS systems. The stricter National VI emission standards were implemented on July 1 to improve air quality. Due to the added technology, National VI compliant vehicles typically are sold at a higher retail price. This standard is progressively being implemented nationwide during the 2020 years, with even stricter National VI-b to become a new standard in a few years. We are pleased to report that our 51% owned joint venture with Hyoseong (Wuhan) Motion Mechatronics System Co. Ltd. successfully completed its phase one development plan for small powerpack brushless motors for its i-RCB, C-EPS and P/DP-EPS products. In June 2020, our Hyoseong joint venture will commence mass production of these proprietary brushless electric motors. In addition to the improved performance of our own products, these small electric motors provide another sales channel for the future. In 2019, SAIC Maxus, an SUV and commercial vehicle subsidiary of SAIC Motor, also upgraded us to become a Type A preferred supplier due to the excellent quality and performance of our products. Other new products include the development of steering for the Daily van for IVECO SpA in Europe, which significantly increases our presence in the European auto market. The Daily van is one of the most iconic large light duty commercial vans in the world as more than 3 million units have been sold in over 110 geographic markets. Also, we began shipments in 2019 into Europe for the Italian made Fiat 520 all-wheel drive plug-in hybrid electric vehicle model. In the Americas, a global tier 1 customer headquartered in North America made us the lead developer for a new recirculating-ball, RCB, steering system, i-RCB program, to be used in their future autonomous vehicles. CAS further penetrated the South American market by winning contracts with the region's largest OEM, Fiat Chrysler Automobiles and the FCA South America. In addition, in 2019, the sale of our J436 series products approached 10,000 units per month and we've been selected to supply a new product to FCA jeep models starting in the late third quarter of 2020. Thanks to our product's superior performance, our Henglong Brazil subsidiary was nominated as one of three chassis finalists – for South America's 2018 Best Supplier by FCA South America as well as being nominated for the Chassis Supplier of the Year. For the 2019 year, our operating income was $6.2 million versus an operating loss of $2.9 million in 2018. We streamlined our selling and research and development expenses to become more efficient in 2019. Diluted net income per share was $0.32 in 2019 compared to diluted income per share of $0.08 in 2018. As of December 31, 2019, total cash, cash equivalents, pledged cash and short-term investments were $112.2 million. Net cash flow from operating activities was $30.3 million in the 2019 fiscal year. For the 2019 year, a total of 452,559 shares were repurchased for a consideration of $1.3 million under a repurchase program approved on December 5, 2018. In the first quarter of 2020, the COVID-19 panic struck China. And being headquartered in Wuhan, we were affected. Since the beginning of the Chinese New Year in late January until mid-March, our operations were interrupted. We are pleased to report that our production center in the Wuhu Henglong (Wuhu, Anhui Province), Brilliance Henglong (Shenyang, Liaoning Province) and Chongqing Henglong in Chongqing City resumed full operations in mid-March after lockdown restrictions were lifted by the respective local governments. We are presently operating with full capacity at all facilities, including the Wuhan and we reopened our Wuhan headquarters after temporary relocation to Jingzhou City in March. The coronavirus has had an impact on the Chinese economy and auto production in first quarter of 2020. While the outlook for 2020 is clouded and challenging, we have taken action to position the company to take advantage of new growth opportunities across diversified vehicle markets in both passenger and commercial vehicle markets. As the Chinese economy and auto production recovers, we believe the coronavirus impact is gradually weakening in the second quarter and we may regain sales growth in the following quarters of 2020. Going forward, there are several promising policies for the Chinese economy and the auto industry. The central government initiated a tax cut, improved regulations and loosened monetary policies. New incentives have been implemented to stimulate the purchase of autos in rural areas, including the subsidy to purchase new cars with engines of 1.6 liters or smaller. Subsidies for electric vehicles are now further extended. The US Chinese trade agreement should help business confidence. In fact, China's automobile sales in April 2020 reached 2.1 million units, up 4.4% in the same month a year ago, the first monthly sales increase since June 2018. Now, let me review the financial results for the fourth quarter of 2019. Net sales were $115.9 million in the fourth quarter of 2019 compared to $124.3 million in the same quarter of 2018. The net sales decrease was mainly due to a change in the product mix and lower demand for Chinese domestic branded automobiles in the fourth quarter of 2019 compared with the fourth quarter of 2018. Gross profit was $16.8 million compared to $11.4 million in the fourth quarter of 2018. Gross margin in the fourth quarter of 2019 14.5% compared to 9.2% in the fourth quarter of 2018. The increase in gross profit and gross margin was primarily due to a change in the product mix and reduced costs compared with the fourth quarter of 2018. Gain on other sales was $0.2 million compared to $1 million in the fourth quarter of 2018. Selling expenses were $3.8 million in the fourth quarter of 2019 compared to $4.9 million in the fourth quarter of 2018. The decline was primarily due to better cost controls with lower personnel costs and reduced transportation expenses related to decreased volume. Selling expenses represented 3.3% of the net sales in the fourth quarter of 2019 compared to 3.9% in the fourth quarter of 2018. General and administrative expenses, G&A, decreased by 9.7% to $6.5 million from $7.2 million in the fourth quarter of 2018. G&A expenses represented 5.6% of net sales in the fourth quarter of 2019 compared to 5.8% of net sales in the fourth quarter of 2018. The decrease in G&A expenses in the fourth quarter of 2019 was mainly due to improved cost controls. Research and development expenses, R&D expenses, were $8.6 million in the fourth quarter of 2018 (sic) [2019] compared to $10.2 million in the fourth quarter of 2018. R&D expenses represent 7.4% of net sales in the fourth quarter of 2019 compared to 8.2% in the fourth quarter of 2018. Loss from operations was $1.9 million in the fourth quarter of 2019 compared to a loss from operations of $9.9 million in the fourth quarter of 2018. The much-reduced loss was mainly due to higher gross profit and lower operating expenses compared to the fourth quarter of 2018. Interest expense was $0.9 million in the fourth quarter of 2019 compared to $1.3 million in the fourth quarter of 2018. Net income attributable to parent company's common shareholders was $1.7 million in the fourth quarter of 2019 compared to a net loss attributable to parent company's common shareholders of $3.2 million in the fourth quarter of 2018. Diluted income per share was $0.06 in the fourth quarter of 2019 compared to diluted loss per share of $0.10 in the fourth quarter of 2018. Weighted average number of diluted common shares outstanding was 31,333,740 in the fourth quarter 2019 compared to 31,645,510 in the fourth quarter of 2018. Now, I'll go over the 12-month financials. Annual net sales was $431.4 million in 2019 compared to $496.2 million in 2018. The decrease was due to lower sales of legacy hydraulic products and total EPS systems. EPS system sales represented 19.1% of total revenue in 2019 compared with 21.7% in 2018. Net sales of vehicle steering systems to the company's North American customers were down slightly in 2019 compared with 2018. Gross profit in 2019 was $63.4 million compared to $65.4 million in 2018. The gross margin increased to 14.7% from 13.2% in 2018, mainly due to increased sales of higher margin products. Gain on other sales mainly consisted of net amount retained from rental income, gain of disposal of intangible assets, and the sales of property, plant and equipment and technical service revenue. For the year ended December 31, 2019, gain on other sales amounted to $5.1 million compared to $3.9 million in 2018. This increase was primarily due to the increase in gain on disposal of property, plant and equipment. Selling expenses were $14.3 million in 2019 compared to $18.9 million in 2018, mainly due to lower net sales resulting in decreased personnel expenses and marketing expenditures. Selling expenses represented 3.3% of net sales in 2019 compared to 3.8% in 2018. G&A expenses were $20 million, generally consistent with the $19.8 million in 2018. G&A expenses represented 4.6% of net sales in 2019 compared to 4% of net sales in 2018. R&D expenses were $28 million in 2019 compared to $33.6 million in 2018. R&D expenses represented 6.5% of net sales in 2019 compared to 6.8% of net sales in 2018. Operating income was $6.2 million in 2019 compared to an operating loss of $2.9 million in 2018. The change is primarily due to lower selling and research and development expenses in 2019. Interest expense was $3 million in 2019, generally consistent with $2.9 million in 2018. Net financial income was $2.5 million in 2019 compared with $2.2 million in 2018 due to increase in interest income. Income before tax expenses and equity and earnings of affiliated companies was $7.6 million compared to a loss before income tax expenses and equity and loss from affiliated companies of $2.5 million for 2018. This increase was mainly due to the higher operating profit. Net income attributable to parent company's common shareholders was $10 million in 2019 compared to net income attributable to parent company's common shareholders of $2.4 million in 2018. Diluted net income per share was $0.32 in 2019 compared to diluted income per share of $0.08 in 2018. The weighted average number of diluted common shares outstanding was 31,458,926 in 2019 compared to 31,645,594 in 2018. Now, we'll go over some balance sheet and cash flow items. As of December 31, 2019, total cash and cash equivalents, pledged cash and short-term investments were $112.2 million. Total accounts receivable including notes receivable were $233 million. Accounts payable including notes payable were $186.7 million. And short-term bank and government loans were $46.6 million. Total parent company stockholders' equity was $289.2 million as of December 31, 2019 compared to $285.9 million as of December 31, 2018. Net cash flow from operating activities was $30.3 million in 2019. During 2019, a total of 452,559 shares were repurchased, aggregate consideration of $1 million under repurchase program approved on December 5, 2018. We also paid cash of $34.4 million to acquire property, plant and equipment and land use rights during the year. For the business outlook, management provided revenue guidance for the full-year 2020 of $360 million. This target is based on the company's current view of operating and market conditions, which are subject to change, especially in light of the coronavirus' impact on the economies of China and the US. With that, operator, we are ready to begin the Q&A.

[Operator Instructions]. Our first question comes from the line of William Gregozeski with Greenridge Global. Please proceed with your question.

Hi. Can you talk about the revenue guidance, how you arrived at that number and what you're expecting from international sales and EPS sales for the year?

[Foreign Language] Okay. So, our revenue guidance for 2020 is based on the current visibility for our business in 2020. As we all know, we were negatively affected by the COVID-19 pandemic during the first quarter, in particular. We saw the overall revenue was down about 50% in the first quarter. In the first quarter of 2019 [Technical Difficulty] revenue is about $110 million, but that is negatively affected during the first three months of 2020 due to the outbreak. Also, international sales, the US and Europe also were affected during the first quarter by the COVID-19. So, we saw the sales in these two regions are down about 20%. Domestically, on a commercial vehicle segment, we are very pleased to see a year-over-year increase for our business. The passenger vehicle sales, we see it remain very soft. So, those are the general picture we're seeing in 2020. Because the passenger vehicle is soft in domestic Chinese market, our EPS electric power steering product sales probably will be soft as well. The commercial vehicle business are going to hold up a lot better in 2020 and international business will have some impact and will continue to digest and adjust. And also, the domestic China business will come back in the following few quarters. But first quarter, the damage is quite significant.

Okay. All right. And the other question I had was, can you talk about the supply chain? Is everything back to normal? Or are you having any issues with getting parts or anything like that?

[Foreign Language] Okay. During the first quarter, especially in the months of February and March, the disruption to the supply chains is quite evident. Starting from month of April, everything back to normal. So, we are having – auto components are coming into our production.

Okay. All right. Thank you, guys.

Thank you.

Thank you. [Operator instructions]. Thank you. Our next question comes from line Robert Pavlovich, Private Investor. Please proceed with your question.

Yes, good morning.

Good morning.

I was wondering about the Hyoseong brushless motors. What percentage – or I guess, the question should be how do you see margins improving from this joint venture. And how do you see the applications throughout the lineup of steering systems that you produce? Will these motors be used for just about all applications, including not just EPS, but driver assist steering systems? I just want to get a little insight on this.

[Foreign Language] Okay. Hi. To your question on the EPS Hyoseong joint venture, this particular joint venture, we initially planned to commence production in the month of April. However, due to the disruption of COVID-19 and our Korean technician advisors are [Technical Difficulty] month of June. And so, we're doing -- they're helping us during the remote tune up of our system and production line, but we'll have to wait for a couple more months to begin the production. So, the month of June, we'll start production. To the application, this particular joint venture will produce the brushless motors for C-EPS product and we're looking to ship 30,000 units in the year 2020 and that will be about RMB 6 million for this particular brushless motor. It carries a higher gross margin and also we're looking to expand and use all of this motor through all of our EPS product. So, this particular joint venture is a key component [Technical Difficulty] EPS systems.

Okay. Thank you. Another question. Fiat, Chrysler and Peugeot look like they're going to still merge. How do you feel that that merger will affect [Technical Difficulty] China Automotive?

[Foreign Language] Looking forward to such merger will help us expand our penetration into Peugeot's global sourcing network. Over the years, we have won our place in Fiat Chrysler through our impeccable track record. And also, throughout the years, we are consistently winning supplier award from Fiat Chrysler. And so, we are very optimistic and very confident if that merger takes place between Fiat Chrysler and Peugeot, we will be able to expand into Peugeot's production. So, we're looking forward to that.

Okay. I guess this is a unique question during difficult times. Is there any possibility that they would – China Automotive do another moderate share buyback this year?

[Foreign Language] So, the current share buyback plan is still valid until the end of 2020. In 2019, we completed the purchase of around 450,000 shares from open market. We will continue to buy back shares in 2020 as long as we're meeting compliance requirement, such as –you have to be in a window to repurchase the share. There are certain blackout period, we're not able to do that. And also, in terms of the amount we can buy, had to meet the requirement of less than 20% of average volume. And also, there are price restrictions as well according to the regulation. So, we are strictly following the guidance – the regulatory guidance in terms of how to continue to buy back shares. And it's ongoing. It's active.

Okay. Thank you.

Thank you.

Thank you. [Operator Instructions]. Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Theiss for any final comments.

We thank you for your participation in today's our conference call. Please be safe. And we look forward to speaking with you again in the future.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.