Compared to the feedback we gathered in 1Q (see our Feb trip takeaways) and 2Q (see our Jun trip takeaways), we are of the view that industry participants continue to raise their 2025 full-year volume outlook, now expecting HDT domestic sales volume to be within the range of 700k-800k units (vs. GSe: 757k units, see our latest industry forecasts) as the positive impact from the equipment upgrade program turned out to be stronger than expected. That said, no one seems to have a strong view on the demand in 2 ...

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].