Still positive, but wait for a better entry point after 3Q24E results

PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE MORE REPORTS FROM BLOOMBERG: RESP CMBR <GO> OR http://www.cmbi.com.hk 1 MN 14 Oct 2024 CMB International Global Markets | Equity Research | Company Update Weichai Power (000338 CH) Still positive, but wait for a better entry point after 3Q24E results We trim our HDT engine sales volume forecast by 7%/7%2% in 2024E/25E/26E, after incorporating our new industry HDT sales forecast (for details, please refer to our sector report “China Heavy-duty Truck – Headwinds in 4Q24 in both China & export; Eyes on policy-driven recovery in 2025”). In the near term, we believe the narrowed LNG/diesel price spread will be unfavourable to Weichai’s gas engine segment. While our earnings forecast in 2024E-26E is only revised down by 1-3% due to a relatively solid margin outlook, our new forecasts suggest profit growth to decelerate from 51% in 1H24 to 7%/2% in 2H24E/2025E. Our SOTP-based TP for A/H (rolled over to 2025E) is revised down to RMB17.9/HK$17.7 (from RMB18.0/HK$19.5). We still maintain BUY rating as valuation (10.7x 2025E P/E) is not excessive even under our new earnings forecast, but we see a better entry point after the upcoming announcement of 3Q24E results (30 Oct).  Risk factors: 1) weakness in engine exports; 2) lower-than-expected replacement demand in China; (3) further contraction of diesel/gas price ratio. Target Price RMB17.90 (Previous TP RMB18.00) Up/Downside 25.1% Current Price RMB14.31 China Capital Goods Wayne FUNG, CFA (852) 3900 0826 waynefung@cmbi.com.hk Stock Data Mkt Cap (RMB mn) 124,877.0 Avg 3 mths t/o (RMB mn) 1,039.9 52w High/Low (RMB) 18.49/11.72 Total Issued Shares (mn) 8726.6 Source: FactSet Shareholding Structure Weichai Holdings Group 16.3% Weifang Investment Group 3.4% Source: HKEx Share Performance Absolute Relative 1-mth 20.1% -1.6% 3-mth 0.2% -10.6% 6-mth -20.1% -27.9% Source: FactSet 12-mth Price Performance Source: FactSet Earnings Summary (YE 31 Dec) FY22A FY23A FY24E FY25E FY26E Revenue (RMB mn) 175,158 213,958 223,162 232,896 241,260 YoY growth (%) (13.9) 22.2 4.3 4.4 3.6 Adjusted net profit (RMB mn) 4,905.5 9,013.9 11,390.7 11,666.8 12,304.8 EPS (Reported) (RMB) 0.56 1.03 1.31 1.34 1.41 YoY growth (%) (47.0) 83.8 26.4 2.4 5.5 Consensus EPS (RMB) na na 1.34 1.57 1.75 P/E (x) 25.5 13.9 11.0 10.7 10.1 P/B (x) 1.7 1.6 1.4 1.4 1.3 Yield (%) 1.8 3.6 4.6 4.7 4.9 Net gearing (%) (35.8) (62.0) (70.2) (76.9) (86.1) Source: Company data, Bloomberg, CMBIGM estimates 14 Oct 2024 PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE 2 Figure 1: Change in key assumptions for Weichai Source: Company data, CMBIGM estimates Figure 2: China multi-cylinder engine market share Source: CICEIA, CMBIGM Figure 3: Weichai’s multi-cylinder engine monthly sales volume Source: CICEIA, CMBIGM 2024E2025E2026ESales volume (unit)OldNewChangeOldNewChangeOldNewChange Engine total851,