It's Time To Take A Fresh Look At China Yuchai In 2013

| About: China Yuchai (CYD)

A new year is here, and I continue to be bullish on the prospects for China Yuchai International (NYSE:CYD). When I wrote about China Yuchai on October 5th, the company's shares closed at $13.42. When I last wrote about China Yuchai on October 26th, the company's shares closed at $15.30. Since then, the company's shares reached a high of $17.59, and closed Tuesday at $17.12. The company's current P/E is 5.59.

To me, China Yuchai is a basic industry investment opportunity in China, one tied directly to the country's continuing economic growth. I also believe that China Yuchai is also a direct beneficiary of the infrastructure stimulus program announced in September 2012 by Beijing. That stimulus program, which totaled $158 billion, focused on China's domestic economy. While it's premature to see the direct impact from that stimulus program on China's economy, it should be positive for consumer spending, the country's important manufacturing sector, and specifically, companies in China's auto sector, including China Yuchai.

Last week's announcement by China Yuchai led to me take a fresh look at the company for 2013. The company announced on January 4th that it would be introducing 12 new engine models this year. Seven will be natural gas engines, and the other 5 will be diesel engines. On November 26th, here at Seeking Alpha, I stated,

"I believe that China Yuchai will be the primary beneficiary of a huge and growing market for diesel and natural gas engines in China."

The company's January 4th announcement confirms my comments.

China Yuchai's third quarter results, which I also discussed here at Seeking Alpha, indicated to me that the company was likely to be entering the beginning of an upward trend in revenues and net income. We'll have to wait until the company's full year financial results are announced, but I believe that China Yuchai's results for the fourth quarter of 2012 will also confirm my conclusion.

A Quick Look At China Yuchai's Business

China Yuchai's business consists of the manufacture of light-duty, medium-sized and heavy duty engines, including natural gas and diesel engines. Previously, my primary interest in China Yuchai was based on the company's diesel engines, and the company manufactured over 500,000 diesel engines in 2011. But, it's likely that natural gas engines will be increasingly important for the company.

A key market for China Yuchai is China's growing market for buses. The company is a leading supplier of engines for buses, and the company will be a direct beneficiary of the likely continued growth of China's bus market. The company manufactures diesel engines for buses of all sizes, including long-distance coaches.

China Yuchai's joint ventures are also significant for the company's future. One of these joint venture relationships is with China's seventh largest automobile manufacturer, the state-owned Chery Automobile Co. One of the company's joint ventures with Chery, "Chery Yuchai," is producing diesel engines for passenger cars -- a market that I believe could be huge and lucrative for both China Yuchai and Chery Automobile.

China Yuchai also has an engine remanufacturing joint venture with Caterpillar (NYSE:CAT). This joint venture provides an additional service to the company's engine customers, and helps the company achieve government environmental mandates.


A focus for me, here at Seeking Alpha, has been on companies tied to China's automobile industry, now the world's largest, China Yuchai, is on my list of companies that are key participants in this growing industry, who are performing well, and who are showing good growth prospects.

With the strong growth of China's economy during the fourth quarter of 2012, which rebounded to an estimated 7.8%, as well as what is expected for the country's economy this year, I expect the country's auto, truck and bus industry to continue to grow. China Yuchai will be a definite beneficiary of this growth, especially with the additional of additional models of both diesel and natural gas engines.

Two other companies that I've discussed here at Seeking Alpha that are also tied to China's auto industry are China Automotive Systems (NASDAQ:CAAS) and Asia Carbon Industries (OTCPK:ACRB).

When I discussed China Automotive Systems on October 3rd, the company's shares closed at $4.26. Tuesday, the company's shares closed at $5.42. The company's P/E is 7.59.

When I last discussed Asia Carbon Industries here at Seeking Alpha on December 11th, the company's shares closed at $0.14. Tuesday, the company's shares closed at $0.16, with a P/E of 1.22.

China Automotive Systems, Asia Carbon Industries,and China Yuchai will all likely benefit from the continuing expansion of China's economy, the growth of the country's auto industry and future government economic stimulus programs.

I'm optimistic that China's seven-member Politburo Standing Committee, which was chosen in November, and its new senior leadership, will push ahead with critical private sector and consumer growth policies essential to the future of the world's second largest economy. With these leadership changes, I expect additional measures will be taken to stimulate China's economy sometime in the late second quarter or third quarter of this year.

China's auto industry will be a beneficiary of the September 2012 announced economic stimulus program, as well as any future stimulus programs, including the companies I've been discussing here at Seeking Alpha.


Investing in smaller-capitalization companies, as well as investing in companies in emerging markets, is not suitable for all investors, and can be risky. It's important that investors thoroughly perform their own due diligence and analyze the potential risk.

Companies mentioned in this article include those whose operations are based in China. But all the China-based companies are U.S. reporting issuers, and subject to the reporting requirements of the U.S. Securities and Exchange Commission, so U.S. transparency and disclosure is available to investors.

Disclosure: I am long OTCPK:ACRB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.