April 20, 2024

Weichai Power: The industry still has good growth

In 2009 and 2010, the heavy-duty truck industry still has good growth. In the past decade or so, a highly-prosperous macroeconomic environment, rapid urbanization and large-scale infrastructure construction have laid a solid market foundation for the growth of the heavy-duty truck industry; over the past six years, heavy trucks have The reason for the industry’s growing volatility is the disruption of related policies and regulations in the heavy-duty truck industry such as car loans, over-loading, weight-loading, and national III emission standards. It is expected that the policy of canceling the road-use fee will become a heavy-duty truck industry at the beginning of the year. Another very important disturbance factor of growth; China's exclusive use of the heavy-duty card products by downstream customers for the rapid updating of heavy-duty truck products is a very important driver for the growth of the heavy-duty truck industry. We believe that under the conditions of the recovery of the road freight industry, the elimination of the road maintenance fee and the rapid renewal of the two factors will drive the rapid growth in the demand for heavy truck trucks for road freight in 2009 and 10 years.

The loader industry has entered a period of maturity. The loader's features such as fast operation, high efficiency, good maneuverability, and easy operation, as well as the excavator's partial replacement of the loader function, determine that the market demand of the loader cannot be compared with the heavy truck product. After nearly five years of rapid growth, the market for loader products has reached a scale of 700,000 units, and the industry has entered a mature stage of steady growth.

Weichai Power Co., Ltd. will fully benefit from the continuous recovery of heavy truck product demand for road freight. Weichai Power is an independent manufacturer of high-power diesel engines and heavy-duty transmissions. It has an absolute leading market position in these two product areas. Its main source of profit is heavy-duty engine and transmission products. As Weichai Power's major downstream supporting vehicle manufacturers have a clear competitive advantage in the heavy truck market for road freight, the continuous growth of the heavy truck market for road freight will fully benefit Weichai Power.

In 2009 and 10 years, the gross profit of Weichai Power's engine and transmission products is expected to remain stable. In 2009 and 10 years, the relatively low price of materials will help increase the gross profit of engines and transmissions; however, product prices are expected to continue to show a downward trend and increase marginal levels; sales of new products with relatively high gross profit for engine and transmission products The continuous increase in the proportion is beneficial to improving the overall gross profit level of Weichai Power. Taken together, the comprehensive gross profit level of Weichai Power's products in 2009 and 10 is expected to remain stable.

Investment rating. It is expected that the net earnings per share for Weichai Power in FY09 and FY10 will be 2.62 yuan and 3.05 yuan, corresponding to 16.25-fold and 13.95-fold dynamic earnings ratio in 2009 and 2010 respectively. In view of the good growth of the heavy truck industry in the second half of 2009 and the ten years, as well as the market position of Weichai Power's leading companies in the relevant product areas, we continue to maintain our investment rating on the company's buying, with a target price of 65.50 yuan in 6 months, corresponding to 09. 25 times P/E.

Risk factors. 1) The process of macroeconomic recovery is slow, the prosperity of the road cargo industry is weak, the heavy demand for heavy trucks in the road freight industry cannot be sustained in the long term, 2) the price of raw materials rises faster than expected, and 3) the heavy truck industry experiences a price war again.

Our engineers design metal stamping tools and dies using advanced R&D software like Unigraphic, solidworks, Autodesk, Presscad, for automotive, Unigraphic is widely used on 3D model design, all tools are designed based on international standard, all machining and dies components will be listed clearly on drawings, sometimes, for complex design, 3D simulation will be conducted under different3D design for stamping dies production situation, to minimize the works of dies modification, to increase productivity drastically, and help us determine the most suitable size of press machine.

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