中国重汽：Earnings risk not yet priced in

Investment Rating - The report maintains a HOLD rating for the company, indicating a potential return of +15% to -10% over the next 12 months [2]. Core Viewpoints - The earnings forecast for 2024E and 2025E has been revised down by 5% and 2% respectively, reflecting a projected ~20% year-on-year earnings decline in the second half of 2024, with recovery expected in 2025 [2]. - The target price has been adjusted to HK$21.4 from HK$19.5, based on a valuation of 4.5x EV/EBITDA, which aligns with the historical average [2]. - The report suggests that the current share price does not yet reflect the downside risks to earnings, particularly following a recent rally [2]. Financial Summary - Revenue is projected to grow from RMB 85,041 million in FY23A to RMB 91,906 million in FY24E, representing an 8.1% year-on-year growth [3]. - Net profit is expected to increase from RMB 5,318.1 million in FY23A to RMB 5,685.1 million in FY24E, reflecting a 6.9% growth [3]. - The P/E ratio is forecasted to decrease from 10.9x in FY23A to 10.2x in FY24E, indicating a more attractive valuation [3]. Sales Volume and Revenue Projections - The sales volume for heavy-duty trucks (HDT) is expected to decline by 3.7% in 2024E, with a slight recovery projected in 2025E [6]. - The revenue from the truck segment is forecasted to remain stable, with a slight increase from RMB 92,273 million in 2024E to RMB 92,517 million in 2025E [6]. - The report highlights a significant drop in engine sales volume, projected to decrease by 25.5% in 2024E [6]. Profitability Metrics - The gross profit margin is expected to decline from 16.2% in FY23A to 15.0% in FY24E, indicating pressure on profitability [10]. - Operating profit is projected to increase from RMB 6,487 million in FY23A to RMB 7,034 million in FY24E, reflecting an 8.4% growth [8]. - The return on equity (ROE) is expected to remain stable around 13.6% in FY24E [10]. Gearing and Liquidity - The net gearing ratio is projected to worsen from (44.3%) in FY22A to (47.3%) in FY24E, indicating increased leverage [3]. - The current ratio is expected to remain stable at around 1.2 over the forecast period, suggesting adequate liquidity [12].