Weichai Power - A_Risk-reward attractive, upgrade to Buy

Weichai Power - Key Points Summary Company Overview - Company: Weichai Power - Industry: Heavy-duty trucks and engine manufacturing - Ticker: 000338.SZ - Market Cap: Rmb120 billion / US$16.4 billion [5] Core Insights and Arguments 1. 2025 Outlook: The company has improved its outlook for 2025, raising EPS estimates by 12-15% due to expected demand rebound for LNG trucks and expansion into the EV market through a joint venture with BYD [1][12][42]. 2. LNG Truck Demand: Anticipated rebound in LNG truck demand in Q1 2025 after a decline in costs from Q4 2024, with expectations of flat year-over-year demand for LNG heavy-duty trucks in 2025 [1][2][18]. 3. EV Transition: Weichai is transitioning to an EV supplier, with the first phase of battery capacity completed by the end of 2024, aiming for operations to start in 2025 [1][15]. 4. Market Share Projections: Forecasted market share for Weichai in the China HDT segment is 40% in 2024, decreasing to 37% by 2026, which is an improvement from previous estimates [13][14]. 5. Valuation Increase: Price target raised by 23% to Rmb16.70, reflecting a valuation of 11.9x 2025E PE, which is slightly above historical averages [4][46]. Financial Metrics 1. Earnings Estimates: Revised earnings estimates indicate a 10% growth in 2025E net profit compared to previous flat forecasts [2][34]. 2. Revenue Projections: Expected revenues for 2025E are Rmb220.3 billion, with net profit projected at Rmb12.3 billion [33]. 3. Dividend Yield: The new price target implies a 2025E dividend yield of 5.9%, which is considered attractive [4][34]. Additional Important Insights 1. Investor Sentiment: Recent investor feedback indicates renewed interest in Weichai due to improved truck demand in China and favorable LNG prices, despite concerns over e-truck competition [3][12]. 2. LBE Growth Potential: Large bore engines (LBEs) are expected to become a significant growth driver, with projected sales of 13,000 units in 2025E and a 13% global market share [8][14]. 3. Comparative Valuation: Weichai's current valuation is lower than peers in the domestic HDT sector, suggesting it may be undervalued given the anticipated growth and market conditions [35][41]. Conclusion - Investment Recommendation: The company is upgraded to a Buy rating based on attractive valuation, expected demand recovery for LNG trucks, and strategic expansion into the EV market [1][12].