Xuchang Yuandong Drive Shaft Co., Ltd. Business Report FY ended Dec. 2016

Financial Overiew

(in million CNY)

	FY ended Dec. 31, 2016	FY ended Dec. 31, 2015	Rate of change	Factors
Sales	1,024.27	926.49	10.55%	-In 2016, the Company's sales increased by the recover of commercial vehicle industry, thus, the Company's heavy duty products sales increased.
Operating profit	113.91	97.64	16.66%	-
Gross profit	137.67	110.33	24.78%
Net profit	117.05	92.58	26.43%

-In 2016, due to decline of American heavy-duty market, regular orders for 6 kinds of key shafts were reduced by nearly 20% and the total export amount was 9.3 million US dollars.

Acquisition

-The Company announced that it has signed an agreement with Chongqing Machinery & Electronics Holding Group Co., Ltd. to acquire the remaining 50% stake in Chongqing Heavy Automobile Yuandong Drive Shaft Co., Ltd. from Chongqing Machinery & Electronics. Xuchang Yuandong Drive Shaft will pay CNY 19 million for this deal, and will convert Chongqing Heavy Automobile Yuandong Drive Shaft into its wholly owned subsidiary. Chongqing Heavy Automobile Yuandong Drive Shaft generated CNY 19.76 million in sales and posted CNY 1.37 million in net loss in the first half of 2016. (From an announcement by the company on September 1, 2016)

R&D Facilities

- The company has "State Enterprise Technology Center", "National Postdoctoral Research Station", "Henan automotive transmission engineering and technology R&D center", "Henan post-doctoral R&D base", "Henan provincial-level high-performence lightweight shaft enginnering lab" and "Henan automotive parts intelligent heat treatment technology academician workstation".

R&D Expense

Year	FY ended Dec. 31, 2016 (million CNY)	FY ended Dec. 31, 2015 (million CNY)	FY ended Dec. 31, 2014 (million CNY)
R&D expense	61.21	54.11	63.90
Ratio of R&D expenses to operating income	5.98%	5.84%	5.38%

R&D Project Expense

(in million CNY)

Project	R&D Expense (in million CNY)
Research and development of heat treatment technology for key components of transmission shaft assembly of high safety and energy-saving passenger car	1.03
Research and development of key technologies for intelligent manufacturing of high end commercial vehicle transmission parts	2.91
Research on intelligent manufacturing key technologies of commercial vehicle transmission shaft	13.62
Integrated application research on blanking device of intelligent manufacturing line of heavy truck drive shaft	2.19
Application and development of intelligent manufacturing technology for automobile transmission shaft	5.64
Lip oil seal structure with heavy-duty Steyr series supporting development	0.39
Development of maintenance-free structure for heavy-duty series universal joint assembly	0.57
Improvement of intermediate support shell structure of heavy truck transmission shaft (68 universal joint)	0.47
Volvo intermediate flange development	0.60
Automotive transmission shaft intelligent manufacturing integrated technology application development-sliding fork	4.14
Research on drive shaft assembly of constant velocity universal joint	8.94
Research and development of key technologies for intelligent manufacturing of energy-saving transmission shaft parts which meet State V emission standards	0.63

Patent

-By the end of 2016, the Company has 232 patents, including 20 invention patents and 178 utility model patents.

Investment

(in million CNY)

Project	Budget	Investment in 2016 (in million CNY)	Project status
200 mu light electric screw pressure production workshop	3.55	0.32	95%
Project of annual output of 600 thousand sets for commercial vehicle transmission shaft assembly at Changsha plant	69.30	3.64	100%
Project of an annual output of 1.8 million sets of high-end lightweight commercial vehicles and construction machinery transmission shaft at Liuzhou Yuanteng plant	66.52	14.87	35%
Project of annual output of 1 million sets of high-end lightweight commercial vehicles and transmission shafts of construction machinery at Weifang Yuandong plant	215.66	1.02	100%