Weichai Power - H_A_ Reversing course_ 2025 outlook shines with large-bore engine advances, HDT recovery and KION's stronger performance. Wed Feb 05 2025

Summary of Weichai Power Conference Call Company Overview - Company: Weichai Power - Industry: Heavy-Duty Truck (HDT) and Engine Manufacturing Key Points and Arguments Stock Performance - Weichai's stock has shown a positive shift in 2025, with H-shares up 8% and A-shares up 2% year-to-date, reversing the negative trend of 2024 where H-shares fell by 9% and A-shares remained flat [2][4] Heavy-Duty Truck (HDT) Market Outlook - The outlook for HDT demand is optimistic, driven by China's trade-in initiatives, despite a 28% year-over-year decline in January 2025 HDT sales to 70,000 units due to early Lunar New Year effects [2][8] - Anticipation of improved sales in February 2025 is supported by a stable outlook for the year, aided by the newly announced China IV trade-in policy aimed at reducing emissions [2][4] Large-Bore Engine Expansion - Weichai is strategically expanding in large-bore engines, which is expected to enhance its presence in the data center sector, addressing the growing power demand [3][9] - The company sold 6,000 units of large-bore engines in the first nine months of 2024, with a 15% increase in average selling price, although volume growth fell short of the annual target [9] KION's Performance - Weichai's German subsidiary, KION, reported strong 4Q24 results, with a 15% increase in share price over the past month, driven by robust performance and new initiatives with Nvidia [4][8] - KION's restructuring plan aims for cost savings of €140-160 million by 2026, which is expected to positively impact Weichai [4][8] Valuation and Investment Thesis - Weichai is rated Overweight with a price target of HK$19.00 for H-shares and Rmb21.00 for A-shares, based on discounted cash flow (DCF) valuation [6][15] - The company has a dividend yield of approximately 6%, supported by ongoing initiatives to enhance shareholder returns [4][15] Risks to Outlook - Key risks include a slower-than-expected recovery in HDT sales, weaker market-share gains, and underperformance of KION [14][16] LNG Truck Market - LNG truck sales in January 2025 saw only a 4% year-over-year decrease, indicating a positive trend with a domestic penetration rate rising to 22% from 19% a year ago [8] Additional Important Insights - The early timing of the Lunar New Year has distorted sales data, and the decline in January HDT sales is not considered meaningful in isolation [8] - Weichai's strategic initiatives across hydrogen fuel cells, hydraulic components, and excavator engines are gaining traction, indicating a diversified growth strategy [13][15] This summary encapsulates the critical insights from the Weichai Power conference call, highlighting the company's performance, market outlook, strategic initiatives, and associated risks.