Summary of Weichai Power (000338.SZ) Conference Call Company Overview - **Weichai Power** is the largest manufacturer of internal combustion engines in China, holding approximately **18%** market share in the diesel engine segment. The company operates in several key verticals including commercial vehicles (mainly heavy-duty trucks), construction machinery, agricultural equipment, marine, and power generation [6][7]. Financial Performance - Following the **3Q25 results**, Weichai Power's **2025E-27E EPS estimates** have been raised by **4-5%** due to better-than-expected profitability [1][5]. - The updated **12-month target price** is set at **HK$21.00/Rmb20.3** for Weichai's H/A shares, reflecting a potential upside of **35.7%** for A-shares and **30.8%** for H-shares [11][8]. Revenue and Profit Estimates - The revenue estimates for 2025E, 2026E, and 2027E are **Rmb227,748 million**, **Rmb248,893 million**, and **Rmb266,214 million**, respectively [5]. - Net profit estimates for the same years are **Rmb12,047 million**, **Rmb14,453 million**, and **Rmb16,430 million** [5]. Investment Thesis - The investment thesis is based on a positive cyclical outlook for heavy-duty trucks as supply and demand rebalance, alongside stronger profitability from a more profitable engine portfolio [7]. - Weichai's exposure to European capital expenditure through KION is expected to shift from headwinds to tailwinds, enhancing long-term earnings prospects [7]. - The company is projected to have a robust free cash flow profile, which, combined with a strong net cash position, should improve shareholder returns [7]. Risks - Key risks include: 1. Slower-than-expected macroeconomic activity, particularly in road freight, infrastructure, and property [9]. 2. Weaker-than-expected global economic growth [10]. 3. Shift towards higher electrification in powertrains, impacting internal combustion engine market size [10]. 4. Weaker performance in the heavy-duty truck engine market share [10]. 5. Slower development in the large-bore engine business [10]. Valuation Methodology - Weichai's H-share is valued at **11.5x 2026E EPS**, aligning with its long-term mid-cycle average of **11x**. This reflects improving earnings prospects and a promising outlook for KION, balanced against the long-term impact of truck electrification [8]. Conclusion - Weichai Power is positioned for growth with a strong market presence and diversified business portfolio. The raised earnings estimates and target price indicate a favorable investment opportunity, despite the outlined risks. The company is rated as a **Buy** for both A- and H-shares [1][7].

Investment Rating - The report rates both Weichai Power's A- and H-shares as Buy [16]. Core Insights - Weichai Power is on track with sales of large-bore engines, maintaining its full-year target and showing positive development in blended average selling price (ASP) [1]. - The company anticipates that the impact of the replacement policy will become more visible by June, as local government implementations vary [1][10]. - Weichai is committed to developing a strong new energy powertrain business and may consider acquisitions to support this growth [1][15]. - Shareholder return enhancement is a focus, with plans for increased cash dividends and share buybacks [1][15]. Sales and Market Performance - Sales volume for large-bore engines reached 2,400 units in Q1, with April achieving 800 units, reflecting a 50% year-over-year increase [10]. - The domestic market's contribution to sales has risen to 40%, up from 30% in 2024 [10]. - The blended ASP for large-bore engines increased to RMB 450,000 from RMB 430,000 in 2024 [10]. - The full-year sales volume target is set at 120,000 units, with expectations for data-center application engines to stabilize at 2,500 to 2,600 units over the next two years [10]. Strategic Focus and Future Outlook - Weichai's long-term strategy includes focusing on new energy powertrains, off-highway machinery engines, overseas expansion, and aftermarket services [15]. - The company is exploring acquisition targets in new energy powertrains and humanoid robots [15]. - Management expects total industry sales of 950,000 units, with potential upward revisions depending on the implementation of the replacement policy [10]. Financial Projections - Revenue for 2024 is projected to be RMB 1.5 billion, with expectations to increase to RMB 4-5 billion in the current year [11]. - The expected net profit for the current year is RMB 100 million [11]. - The company anticipates a robust free cash flow profile, yielding approximately 10-20% from 2025 to 2027 [14].