China Yuchai: Turning Bullish On Buyback Plan And Improved Outlook (Rating Upgrade)

Core Viewpoint - China Yuchai International Limited's investment rating has been upgraded from Hold to Buy due to a new share buyback plan and positive industry outlook [2] Group 1: Share Buyback Program - China Yuchai announced a new share buyback plan allowing repurchase of up to $40 million or 4 million shares, whichever occurs first, with no specific expiry date [3] - The initiation of the buyback program enhances the company's shareholder capital return outlook, making it a more attractive investment [3] - The potential forward buyback yield could reach 11% if the full $40 million is utilized within a year, or 5.5% if it takes two years, leading to a possible total shareholder yield of 9.5% to 15% when combined with dividends [4] Group 2: Industry Outlook - The business outlook for China Yuchai has improved based on updated guidance from peers and recent sales data for LNG heavy-duty trucks (HDTs) in China [5] - Weichai Power revised its HDT industry sales outlook for China from flat to +10% year-over-year, influenced by government policies for equipment renewal [5] - LNG HDT sales in Mainland China reportedly grew by 85%-90% in May 2024, indicating strong demand that could benefit China Yuchai's revenue [5] Group 3: Valuation Metrics - China Yuchai is currently trading at an EV/EBITDA multiple of 1.9 and a normalized P/E multiple of 7.8, which are significantly lower than its peer Weichai Power, trading at 4.5 times EV/EBITDA and 10.2 times normalized P/E [7]