Weichai Power - H_A_ Breaking news on China IV trade-in policy and breakthroughs in battery and AI-powered robotics innovation. Wed Jan 08 2025

Summary of Weichai Power Conference Call Company Overview - Company: Weichai Power - Industry: Heavy-Duty Truck (HDT) and New Energy Vehicles Key Developments 1. China IV Trade-In Policy: - The early announcement of the China IV trade-in policy is expected to significantly boost domestic demand for heavy-duty trucks from 2025 to 2027, driving a replacement cycle for approximately 1.5-1.8 million HDTs sold between January 2015 and July 2017 [2][4][9] - Anticipated industry sales for 2025 are projected to reach 1.0 million units, reflecting a 10% year-over-year increase [4][9] 2. Battery Technology Breakthrough: - Weichai has shifted focus from hydrogen fuel cells to battery technology, collaborating with BYD to develop new battery solutions for commercial vehicles [3][10] - The flagship product includes a 100 kWh battery pack for HDTs with fast-charging capabilities, and a 140 kWh battery pack for light-duty trucks [10] 3. Market Response: - Kion's share price increased by 10% following these announcements, while Weichai's share price rose by approximately 9% [4] - The company's attractive valuation is highlighted by FY25 P/E ratios of 8.2x for H shares and 9.9x for A shares, both below historical averages [4][18] Strategic Initiatives 1. Joint Ventures and Collaborations: - The Weichai-BYD joint venture aims to enhance production capabilities for batteries, with a factory set to open in the first half of 2025 [10][11] - Kion is advancing warehouse technology through partnerships with Accenture and Nvidia, focusing on AI-powered solutions [11][12] 2. LNG Truck Inclusion: - The potential inclusion of LNG trucks in the China IV trade-in policy marks a significant shift, reflecting the growing recognition of LNG's role in reducing emissions [9] Market Trends and Challenges 1. Sales Patterns: - The conclusion of the China III trade-in policy led to a surge in HDT sales in late 2024, creating temporary market distortions [8] - A normalization of sales patterns is expected in 2025, supported by the new trade-in policy [8] 2. Electric HDT Limitations: - Despite a surge in new energy truck sales, electric HDTs face limitations due to technology constraints, primarily being used for short-distance transport [11] Financial Outlook 1. Valuation and Price Targets: - Price targets are set at HK$19.00 for H shares and Rmb21.00 for A shares, based on DCF valuation [6][20] - The company is expected to improve profitability and free cash flow generation amid the HDT cycle [18][20] 2. Risks: - Key risks include slower-than-expected recovery in HDT sales, weaker market-share gains, and underperformance of Kion [19][24] Conclusion - Weichai Power is well-positioned to capitalize on the upcoming changes in the heavy-duty truck market, driven by the new trade-in policy and advancements in battery technology. The strategic partnerships and innovations in AI and warehouse technology further enhance its competitive edge in the evolving landscape of new energy vehicles.