Summary of Conference Call Notes on China Machinery: Trucks & Engines Industry Overview - **Industry Focus**: Heavy-Duty Trucks (HDT) and Engines in China - **Key Companies Discussed**: Weichai Power, Sinotruk Jinan Truck, Sinotruk-H Core Insights Domestic HDT Cycle - **2025 Sales Outlook**: Industry participants expect domestic HDT sales volume to be between 700k-800k units, up from previous estimates of 600k-700k units, driven by a stronger-than-expected equipment upgrade program [4][6][7] - **2026 Uncertainty**: There is uncertainty regarding demand in 2026, with expectations of flat or declining sales due to the diminishing impact of the equipment upgrade program [7][8] Near-Term Trends - **Strong Order Momentum**: OEMs reported strong order momentum in 3Q25, with retail sales volume more than doubling year-over-year in early September [6][8] - **Sales Projections for September**: Expected retail sales volume of 75-80k units (up 80%+ YoY) and wholesale volume exceeding 100k units (up 70%+ YoY) [6][8] Export Performance - **3Q25 Export Volume**: Sinotruk reported stronger-than-expected export volumes, with a monthly run-rate of ~13k units, primarily driven by demand from Africa and Southeast Asia [8][10] - **Full-Year Export Expectations**: Industry participants expect full-year HDT export volume to be in the range of 300-310k units [10] Powertrain Dynamics - **Shift Towards LNG and Electrification**: There is a notable comeback of LNG HDTs, with sales volume up +110% YoY in early September. Electrification is accelerating, but concerns remain regarding technology and business models [9][11] - **Electrification Projections**: eHDT penetration could reach 25-26% for the full year, with expectations of continued growth into 4Q25 [11] Competitive Landscape - **Intensified Competition**: Despite better-than-expected demand, competition among truck and engine OEMs has intensified, leading to price reductions and market share shifts [12][13] - **Market Share Changes**: Foton and Dongfeng gained market share, while FAW and Sinotruk lost shares, particularly in the LNG segment [12][13] Regulatory Developments - **China VII Emission Standard**: The draft policy for the China VII emission standard is expected by end-2025 or 1H26, with potential implications for pre-buying and phasing out older models [14] - **GB 1589 Amendment**: Discussions are ongoing regarding increasing the weight limit for eHDTs, which could enhance their economic returns [14] Financial Outlook Weichai Power - **Investment Thesis**: Positive outlook on cyclical recovery for HDTs, with expectations of stronger profitability and robust free cash flow [50][53] - **Valuation**: Target price set at HK$21.00/share, reflecting improving engine earnings prospects [54] Sinotruk - **Investment Thesis**: Concerns over accelerating truck electrification and its impact on competitive landscape and margins [56][57] - **Valuation**: Target price set at HK$20.00/share, reflecting expected margin deterioration due to electrification [60] Key Risks - **Macro Activity**: Slower-than-expected macro activity, particularly in road freight and infrastructure [55][61] - **Electrification Impact**: Risks associated with the shift to higher electrification penetration and lower LNG usage [55][61] Additional Insights - **Channel Inventory**: Healthy channel inventory observed, with sell-in and sell-through trends moving in tandem [6][22] - **LNG Price Dynamics**: Favorable LNG/diesel price spread expected to support LNG HDT sales, despite seasonal price volatility [11]

Weichai Power (000338.SZ) Conference Call Summary Company Overview - **Company**: Weichai Power (000338.SZ) - **Market Cap**: Rmb143.2 billion / $19.7 billion - **Enterprise Value**: Rmb160.5 billion / $22.1 billion - **Current Price**: Rmb16.41 - **12-Month Price Target**: Rmb24.00 (Upside: 46.3%) [1] Key Industry Insights - **Heavy-Duty Truck (HDT) Engine Market**: The market is expected to contract due to truck electrification and reduced mid-cycle demand, but Weichai's earnings power is improving cycle-over-cycle, which is underappreciated by the market [35][39]. - **LNG HDT Penetration**: Expected to reach 36% by 2030, benefiting Weichai due to its dominant position in LNG engines [50]. - **European Capex Outlook**: KION, Weichai's subsidiary, is expected to benefit from Germany's €400 billion infrastructure investment, improving the medium-term outlook for Weichai [20]. Financial Performance and Projections - **Earnings Estimates**: EPS estimates for 2025E-2027E raised by 16-21%, now 6-18% ahead of consensus [1]. - **Revenue Growth**: Projected revenue growth from Rmb215.7 billion in 2024 to Rmb269.9 billion in 2027 [5]. - **Net Profit**: Expected to nearly double by 2030E compared to 2024, with peak engine earnings projected to be 1.4x higher than the previous cycle peak [19][46]. - **Unit Net Profit**: Expected to reach Rmb24,000 by 2030E, significantly higher than the long-term average [40][46]. Investment Thesis - **Undervalued Core Engine Business**: The market has focused on volume outlook rather than profitability, leading to an undervaluation of Weichai's core engine business [35]. - **Structural Profitability Improvements**: Weichai has managed to double its engine unit net profit during the current cycle, with a more profitable engine portfolio [18][39]. - **Strong Free Cash Flow**: Projected free cash flow yield of ~10-20% over 2025E-2027E, supported by a strong net cash position [1]. Risks and Considerations - **Market Perception**: The long-term overhang from truck electrification may continue to affect stock valuation despite improving earnings prospects [1]. - **KION's Near-Term Challenges**: One-off expenses related to headcount optimization may impact KION's near-term performance, although the consensus earnings downgrade cycle appears to have ended [20][31]. Conclusion - **Recommendation**: The stock is viewed as deeply undervalued with a reiteration of the Buy rating, supported by strong earnings potential and improving market conditions [1].