Weichai Power (000338.SZ) Conference Call Summary Company Overview - Weichai Power is China's largest manufacturer of internal combustion engines, holding approximately 18% market share in the diesel engine segment. The company operates across various sectors including commercial vehicles, construction machinery, agricultural equipment, marine, and power generation [10][12]. Key Financial Results (3Q25) - **Net Profit (NP)**: Rmb3.23 billion, representing a 29% year-over-year (yoy) increase and a 10% quarter-over-quarter (qoq) increase, exceeding expectations by 27% [1][7]. - **Topline Revenue**: Rmb57.42 billion, up 16% yoy and 3% qoq, surpassing estimates by 4% [6]. - **Gross Profit Margin (GPM)**: 21.4%, a decrease of 0.7 percentage points yoy and 0.8 percentage points qoq, but 0.4 percentage points above estimates [6]. - **Operating Expenses**: Rmb7.68 billion, which was 9% lower than expected, contributing to an EBIT margin of 8.0%, up 1.2 percentage points yoy and 1.9 percentage points qoq [6][7]. - **Free Cash Flow (FCF)**: Rmb6.66 billion, significantly improved from -Rmb1.18 billion in 3Q24 and Rmb9.43 billion in 2Q25 [1][11]. Segment Performance - **Heavy-Duty Trucks (HDT)**: Sales volume for HDT assembly and engines grew by 34% and 20% yoy, respectively, indicating strong demand recovery [6]. - **KION (Subsidiary)**: Achieved a 58% yoy increase in NP with a solid order intake growth of 10% yoy, contributing approximately 10% to Weichai's normalized NP [1][11]. Operational Insights - The company is expected to discuss operational trends by segment, engine wallet share dynamics, updates on the large-bore engine business, and guidance for 4Q25 and 2026 during the upcoming management conference call [8]. Investment Thesis - The investment thesis is based on a positive cyclical outlook for heavy-duty trucks, improved profitability from a more profitable engine portfolio, and potential tailwinds from KION's European capex exposure. The long-term earnings prospects are expected to be underappreciated by the market, with a robust FCF profile and a strong net cash position [12][14]. Risks - Key risks include slower-than-expected macroeconomic activity, weaker global economic growth, shifts towards electrification, and potential underperformance in HDT engine market share [14]. Valuation - The target price for Weichai's H-share is set at HK$20.00, reflecting an 11.5x 2026E EPS, while the A-share target price is Rmb19.60, applying a 6% premium to the H-share value [13][15]. Conclusion - Weichai Power's strong financial performance in 3Q25, coupled with a positive outlook for the heavy-duty truck market and robust cash flow generation, supports a "Buy" rating for both A- and H-shares [1][12].

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].