Weichai Power(SZ:000338)2025-05-09 04:00Summary of Weichai Power Conference Call Company Overview - Weichai Power Co., Ltd. is a leading manufacturer of internal combustion engines in China, listed in Hong Kong. The company has a market share of over 30% in the heavy-duty truck engine sector and is the fourth largest heavy-duty truck manufacturer in China through its subsidiary, Shaanxi Heavy Duty Automobile Group. Weichai has also expanded into the European logistics market through the acquisition of KION Group in 2014 and has entered the warehouse automation sector via KION's subsidiary Dematic [10][11]. Key Points from the Conference Call Industry Performance - The heavy-duty truck business remained stable in Q1, with significant growth in the large-bore engine segment. The company reported a core profit growth of over 20% year-on-year, excluding KION restructuring costs [1]. - Heavy-duty truck engine sales were flat year-on-year, with natural gas engine sales declining by approximately 5% due to a high base from the previous year. In contrast, large-bore engine sales reached 2,500 units, marking a 40% increase, with profits doubling and accounting for over 10% of the company's net profit [1][2]. North America Trade Impact - The North American market contributes only 1% to the revenue and costs of the heavy-duty truck engine business, resulting in minimal direct impact from tariffs. The company indicated that the decline in North American trade has not significantly affected domestic heavy-duty truck demand. Production guidance for May remained stable compared to April, which is better than the usual seasonal decline [2]. - The company maintains its sales target for large-bore engines at 10,000 to 12,000 units by 2025, representing a 25-50% increase from 2024, primarily due to opportunities for domestic substitution in the Chinese market following increased tariffs [2]. Q2 Outlook - The outlook for Q2 is optimistic, with expectations for accelerated heavy-duty truck demand due to lower base effects and the implementation of a vehicle replacement policy in China. The growth rate for large-bore engines in April remained consistent at around 40% compared to Q1 [3]. - The company highlighted that its data center engines have been included in the supplier lists of major domestic internet companies such as Baidu, Alibaba, and ByteDance, indicating successful customer expansion [3]. Valuation and Investment Rating - The target price is maintained at RMB 20.60, based on a sum-of-the-parts (SOTP) valuation method. The traditional heavy-duty truck business is valued at RMB 106 billion (based on a 10x 2025E PE), KION at RMB 24.2 billion, and innovative businesses at RMB 49.3 billion, with RMB 40.3 billion attributed to large-bore engines (based on a 25x 2025E PE) [4]. - The implied valuation corresponds to a 12.8x 2025E PE, slightly above historical averages, with a projected 6% dividend yield for 2025, which is also above historical levels. The investment rating is maintained as "Buy" [4]. Financial Projections - Revenue projections for the upcoming years are as follows (in RMB million): - 2025E: 225,057 - 2026E: 239,134 - 2027E: 253,607 - 2028E: 268,051 - 2029E: 281,974 [7]. - Net profit projections are as follows (in RMB million): - 2025E: 14,085 - 2026E: 15,791 - 2027E: 16,374 - 2028E: 17,047 - 2029E: 17,775 [7]. Risks and Challenges - The heavy-duty truck industry is cyclical, with risks including macroeconomic deviations, changes in construction cycles, and policy changes such as environmental standards and restrictions on heavy-duty trucks. Downside risks include lower-than-expected sales in the heavy-duty truck sector and potential market share loss due to increased self-sourcing by competitors [11]. Additional Insights - The company is actively expanding its customer base and product offerings, particularly in the large-bore engine segment, which is expected to drive future growth. The successful inclusion in major tech companies' supplier lists is a positive indicator of market acceptance and demand for its products [3].