Negative Points

• Other operating income decreased by 32.2% due to lower government grants and absence of technology licensing fees.

• R&D expenses increased by 24.5%, with higher experimental and personnel costs and lower capitalized project costs.

• Effective income tax rate rose to 20.4% from 17.8%, due to higher profits and utilization of deferred tax assets.

• Agricultural machinery engine sales declined by 18.9% year-over-year.

• Pricing pressure in the high-horsepower engine market, with no real price increases despite cost increases.

• Gross margin at MTU-JV was slightly reduced due to cost increases and pricing discounts offered to OEMs and partners.

• Fuel cell business is still in progress with no short-term plans for power generation applications.

Q & A Highlights

Q: What is the company's guidance for AI data center (AIDC) engine sales in 2026, and how does this compare to the first half performance? A: Weng Ming Hoh (President) stated that AIDC engine sales from both E-Chai and the MTU joint venture reached 1,800 units in the first half of 2026. The company expects total AIDC sales for the full year to be around 3,500 units or more, representing a significant growth compared to 2025.

Q: Can you explain the factors behind the significant gross margin improvement in the first half of 2026? A: Choon Sen Loo (CFO) attributed the gross margin expansion from 14.3% to 17.1% to three main factors: a favorable product mix driven by higher sales of larger, high-horsepower engines; increased heavy-duty truck engine unit sales; and continued improvements in operational efficiency and cost rationalization. These gains were partially offset by some unfavorable price increases.

Q: What is the current production capacity for high-horsepower engines, and how was it increased? A: Choon Sen Loo (CFO) confirmed that the combined production capacity for high-horsepower engines across the MTU-JV and E-Chai is currently approximately 5,000 units. This represents an increase from the previous capacity of around 4,000 units, achieved by subcontracting some machining processes to external suppliers, which freed up internal capacity to build more engines.

Q: What is the margin profile for the MTU joint venture, and how is it performing? A: Choon Sen Loo (CFO) noted that while the gross profit margin for the MTU joint venture has slightly decreased due to higher engine costs and pricing pressure requiring discounts to OEMs and partners, the overall sales increased by over 40% in the first half. The JV is still maintaining a gross profit margin of over 30%, which remains promising for net profit.

Q: What is the progress on the company's gas engine products, and are they being targeted for the North American data center market? A: Weng Ming Hoh (President) explained that gas engines are a traditional, readily available product in China. However, for the North American market, the engines are still undergoing the certification process. Until testing is fully completed, the company is using its existing VC engines, which can provide up to 1.5 megawatts for diesel and about 3 megawatts for other applications.

Q: What is the status of the company's fuel cell business, and could it be used for data center power generation in the future? A: Choon Sen Loo (CFO) stated that the fuel cell unit is still in progress. While some products have been installed in the past, particularly in Beijing, the company has not started working on the power generation side for fuel cells. It is a possibility in the future, but definitely not in the short-term.

Q: Why was the dividend payout ratio for 2025 lower than the previous year? A: Choon Sen Loo (CFO) clarified that there was no particular reason for the change. He noted that the company's payout ratio over the past 10 years has ranged from about 30% to 40%, sometimes a little higher or lower, and the 2025 dividend remains within that historical range.

Q: How is increased competition from other manufacturers ramping up capacity affecting the company's ability to maintain or increase average selling prices for high-horsepower/AIDC engines? A: Choon Sen Loo (CFO) acknowledged that the market is very competitive, as all major manufacturers have been expanding capacity since 2024. He stated that the company has not seen real pricing increases compared to last year. While there have been cost increases from suppliers, these have been passed on to end users, keeping the engine pricing itself relatively stable.

Q: What are the plans to further increase capacity for high-horsepower engines next year? A: Choon Sen Loo (CFO) explained that the company will pursue a two-pronged approach. First, it will further outsource some machining processes to external suppliers. However, since fine machining must be done in-house, the company will also need to invest in new equipment to increase internal capacity. A final decision on the capacity increase for next year has not yet been made.

Q: Can you provide more detail on the performance of the truck engine segment in the first half of 2026? A: Choon Sen Loo (CFO) reported that total truck engine unit sales were up 20.4% year-over-year, significantly outperforming the 25.8% growth in overall commercial truck sales reported by CAAM (excluding gasoline and electric vehicles). Heavy-duty truck engine unit sales increased by 47.3% year-over-year, compared to the 13.1% growth in heavy-duty truck sales reported by CAAM. Light-duty truck engine unit sales rose by 23.6%, contrasting with a decline in the overall light-duty truck market.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .