Investment Rating - The report maintains an "Overweight" (OW) rating for Weichai Power with a price target of HK$22.00 for the H shares and Rmb24.00 for the A shares, both with a target date of December 31, 2026 [4][13]. Core Insights - Weichai Power is positioned as a growth stock within the heavy-duty truck (HDT) and engine markets, anticipating double-digit year-on-year monthly sales growth due to the China IV HDT trade-in program starting in June/July 2025 [2][3]. - The company is making significant advancements in large-bore engines and AI Data Center (AIDC) engines, targeting sales of 10,000-12,000 units in 2025, with a goal of capturing a 10% market share in China and 5% globally for AIDC engines [7][8]. - Weichai is enhancing its new energy capabilities through collaboration with BYD, focusing on electric HDT solutions and leveraging technology and customer resources to drive growth [2][7]. Summary by Sections Heavy-Duty Truck Market - China's domestic HDT sales are expected to increase significantly due to the trade-in program, with management projecting full-year sales to reach approximately 1 million units, implying a 15-20% year-on-year growth for the remaining months of 2025 [3][4]. - Weichai holds a dominant market share of around 60% in the domestic LNG HDT engine market, positioning itself to benefit from the increased demand for LNG trucks [3][4]. Engine Development - Weichai aims to sell 1,000-1,200 AIDC units in 2025, significantly increasing from 400 units in 2024, with a production capacity expansion to 4,000 units planned for the long term [7][8]. - The company produced nearly 200 AIDC power engines in Q1 2025, with 55% of these engines destined for overseas markets, indicating strong international demand [7]. New Energy Initiatives - Weichai anticipates that EV penetration in China will reach around 30% in the medium term, up from 20% year-to-date, while addressing challenges related to long-distance EVs [7][8]. - The Yantai New Energy Industrial Park Phase I is set to produce electric solutions for various vehicle types, marking a significant step in Weichai's strategic transition towards new energy [7][8]. Valuation - The price target of HK$22.00 for Weichai Power's H shares and Rmb24.00 for A shares is based on a discounted cash flow (DCF) valuation, with a weighted average cost of capital (WACC) of 9.4% [9][14].

Financial Performance - First quarter revenue reached $8174 million[8], a decrease of 3% compared to $8403 million in 2024[11] - EBITDA for the first quarter was $1460 million[8], resulting in an EBITDA margin of 179%[11] - Net income for the first quarter was $824 million[8], with earnings per share (EPS) at $596[8] - Adjusted Return on Invested Capital (ROIC) was 18% compared to 17% in the previous year[10] Segment Performance - Engine segment revenue decreased by 5% to $2771 million[11], with an EBITDA margin of 165%[11] - Components segment revenue decreased by 20% to $2670 million[11], with an EBITDA margin of 143%[11] - Distribution segment revenue increased by 15% to $2907 million[11], with an EBITDA margin of 129%[11] - Power Systems segment revenue increased by 19% to $1649 million[11], with an EBITDA margin of 236%[11] - Accelera segment revenue increased to $103 million[11], but experienced an EBITDA loss of $86 million[11] Joint Venture Income - Total joint venture income was $131 million, compared to $123 million in the first quarter of 2024[34]

Core Viewpoint - The market anticipates a year-over-year decline in Cummins' earnings due to lower revenues, with a focus on how actual results compare to estimates impacting stock price [1][2]. Earnings Expectations - Cummins is expected to report quarterly earnings of $4.82 per share, reflecting a year-over-year decrease of 5.5% [3]. - Revenue projections stand at $8.07 billion, which is a 4% decline from the same quarter last year [3]. Estimate Revisions - The consensus EPS estimate has been revised down by 7.13% over the last 30 days, indicating a bearish sentiment among analysts regarding the company's earnings prospects [4][10]. - The Most Accurate Estimate is lower than the Zacks Consensus Estimate, resulting in an Earnings ESP of -1.79% [10][11]. Earnings Surprise Prediction - The Zacks Earnings ESP model suggests that a positive or negative reading indicates the likely deviation of actual earnings from consensus estimates, with positive readings being more predictive of earnings beats [5][7]. - Stocks with a positive Earnings ESP and a Zacks Rank of 1, 2, or 3 have historically shown a nearly 70% chance of delivering a positive surprise [8]. Historical Performance - In the last reported quarter, Cummins exceeded the expected earnings of $4.68 per share by delivering $5.16, resulting in a surprise of +10.26% [12]. - Over the past four quarters, Cummins has beaten consensus EPS estimates three times [13]. Conclusion - Despite the potential for an earnings beat, various factors can influence stock movement, making it essential to consider other elements beyond just earnings results [14][16].

Summary of Weichai Power Conference Call Company Overview - **Company**: Weichai Power (000338.SZ) - **Industry**: Heavy-duty truck (HDT) engines and machinery Key Points and Arguments 1. **Earnings Performance**: Weichai has renewed its peak engine earnings despite a 35% decline in HDT industry sales volume compared to the previous cycle peak [3][4][11] 2. **Sales Volume Trends**: The sales volume of Weichai's HDT engines is projected to be lower, yet the company is expected to achieve higher earnings due to improved unit profitability and a more profitable engine portfolio [6][8][11] 3. **Market Share Expansion**: Weichai is expanding its overall market share, which is expected to offset the reduced total addressable market (TAM) outlook for HDT engines [7][11] 4. **Growth Drivers**: The company anticipates new growth drivers, including HDT electrification, large-bore engine applications, and off-highway machinery, to support future earnings [6][7][11] 5. **Profitability Outlook**: Weichai's engine portfolio is considered structurally more profitable, which has been overlooked by the market [8][11] 6. **Cycle-over-Cycle Earnings**: The earnings prospects for Weichai are described as stronger on a cycle-over-cycle basis, which is rare within the China machinery coverage [11] Important but Overlooked Content 1. **Valuation Metrics**: Weichai's H-share is valued at a 13x 2025E P/E, with a target price of HK$22.00/share, reflecting an earnings upgrade and improving earnings prospects [15] 2. **Risks**: Key risks include slower-than-expected macro activity, weaker global economic growth, a shift towards higher electrification penetration, and unfavorable changes in Sinotruk's engine sourcing arrangement [14] 3. **Market Dynamics**: The report highlights the competitive landscape, including the performance of other companies in the sector, which may impact Weichai's market position [23] This summary encapsulates the essential insights from the Weichai Power conference call, focusing on the company's performance, market dynamics, and future outlook.

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].

Financial Data and Key Metrics Changes - EBIT sales outperformed the Chinese truck and bus vehicle markets, with truck and bus engine sales up by 1.6% year-on-year in the second half of 2024, and a 17.2% increase for the full year 2024, compared to a 9.9% decline in vehicle sales [8] - Revenue for the full year 2024 rose by 6.6% year-on-year to RMB 19.1 billion or USD 2.7 billion, while gross profit increased by 14.3% year-on-year in the second half of 2024 [9][10] - Gross margin improved to 40.7% compared to 40.1% in FY 2023, attributed to higher revenue and cost reduction initiatives [10] Business Line Data and Key Metrics Changes - Agricultural engine sales were flat in 2024, while industrial engine sales increased by 11% year-on-year, and marine and genset engine sales rose by 25.5% year-on-year [9] - Total number of engines sold in FY 2024 increased by 13.7% to 356,586 units, driven by higher sales in truck, bus, industrial, and marine markets [31] Market Data and Key Metrics Changes - The operating environment in China was challenging, with a GDP increase of 5% year-on-year in 2024, but property investment continued to decline [15] - The total value of goods and services in ASEAN rose to $3.6 trillion, creating a trade surplus of almost $1 trillion in 2024 [15] Company Strategy and Development Direction - The company is focusing on enhancing engine efficiency and performance, developing next-generation emission standard engines, and advancing new energy solutions, including hydrogen technologies [17][18] - A strategic cooperation agreement was entered into for technology licensing and component supply, with a total licensing fee of $38 million [14] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about significant growth in the data center generator business, with an expected growth rate of at least 30% in 2025 [50] - The company anticipates a challenging but improving operating environment, with expectations for better performance in 2025 due to increased demand and capacity expansion plans [96] Other Important Information - R&D expenditures increased by 21.2% in the second half of 2024, representing 0.2% of revenue, with total R&D expenditures for FY 2024 at RMB 1.2 billion [16] - The company initiated a share buyback plan, repurchasing 3.3 million shares for a total cost of $39.8 million, demonstrating confidence in future revenue and profit generation [19][20] Q&A Session Summary Question: What were the sales figures for the data center generator business? - The MTU joint venture sold about 700 units in 2024, including various applications [45] Question: What is the expected growth rate for the data center generator business in 2025? - The order book for 2025 is already full, with expected growth of at least 30% [50] Question: What is the profitability of the generator business? - Specific margin details could not be disclosed, but the MTU joint venture is expected to have a premium due to international branding [47] Question: Will there be a price increase for generators? - There may be some improvement in pricing, but no significant plans for immediate increases [59] Question: What is the capacity expansion plan for 2025 and 2026? - The company plans a 35% to 40% increase in capacity by 2026 [68] Question: What are the challenges in the supply chain? - There are supply chain issues due to shortages of key components imported from Germany [112]

Financial Data and Key Metrics Changes - The company reported a revenue increase of 6% year over year to RMB 19.1 billion or $2.7 billion for the fiscal year 2024, compared to RMB 18 billion in 2023 [21] - Gross profit rose by 10.8% to RMB 2.8 billion or $392.1 million, with a gross margin increase to 14.4% from 14.1% in the previous year [22] - Net profit attributable to shareholders increased to RMB 323.1 million or $44.9 million, compared to RMB 285.5 million in FY2023 [25] Business Line Data and Key Metrics Changes - Truck and bus engine sales increased by 17.2% year over year for FY2024, while agricultural engine sales remained flat and industrial engine sales rose by 11% [5][7] - Marine and genset engine sales saw a significant increase of 25.5% year over year [7] - The total number of engines sold in FY2024 increased by 13.7% to 356,586 units compared to 313,493 units in FY2023 [21] Market Data and Key Metrics Changes - The Chinese truck and bus vehicle market experienced a 9.9% year-over-year decline in sales, while the company’s truck and bus engine sales outperformed this trend [5] - The overall operating environment in China was challenging, with GDP growth of 5% year over year in 2024 [11] Company Strategy and Development Direction - The company is focusing on enhancing manufacturing capabilities in Thailand for diesel engines and has entered a strategic cooperation agreement with Kimlong Motor in Vietnam for technology licensing [10] - Investment in research and development (R&D) increased by 12.3% to RMB 984.7 million or $137 million, representing 6.2% of revenue, as the company continues to develop new energy products and improve engine efficiency [23][12] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth in the data center generator business, expecting at least a 30% growth in 2025 due to a full order book [35] - The company anticipates a significant increase in demand for its products, particularly in the data center segment, which is expected to impact revenue positively [55] Other Important Information - The company initiated its first share buyback plan, repurchasing 3.3 million shares for a total cost of $39.8 million, and paid a cash dividend of $0.38 per share [15] - R&D expenditures, including capitalized costs, were RMB 1.2 billion or $165.4 million for FY2024, reflecting a commitment to innovation and development [12] Q&A Session Summary Question: What were the sales figures for the data center generator business? - The MTU joint venture sold over 700 units, including various applications, while the GYN sold about 800 units [31] Question: What is the expected growth rate for the data center generator business in 2025? - The company expects a significant growth rate of at least 30% for both GYMCO and the MTU joint venture in 2025 [35] Question: Will the profit attributed to minorities remain high in the future? - Management noted that the performance of associate companies has improved significantly, contributing to higher profits attributed to minorities [37] Question: How will other operating income be treated in the future? - Other operating income is influenced by government grants and VAT rebates, and while some components may be recurring, it is subject to various factors [80][82] Question: Will there be a price increase for generators due to strong demand? - Management indicated that while there may be some improvement in pricing, there are no significant plans for immediate price increases [42] Question: What is the capacity expansion plan for 2025 and 2026? - The company plans to increase capacity by 35% to 40% in 2025, with further increases planned for 2026 [46]