Initial purchase rating, target price HK$25.06. We believe that Sinotruk, as a leading enterprise and high-quality target in the heavy truck industry, is the main beneficiary of the recovery and high export growth of China's heavy truck industry. With a steady balance sheet and superior profitability than its peers, Sinotruk showed strong resilience through export business during the downturn of the industry, and was also able to quickly seize the opportunities of the mainland's recovery cycle and continue to expand its market share. We believe that the valuation of Sinotruk should be at least the market average. Based on the market average price-earnings ratio of 10 times 2024 (11.5 times lower than the average long-term price-earnings ratio of Sinotruk in the past 10 years), we set a target price of HK$25.06, with room for growth of 28.6%, and give it a buying rating. The 2023-25 dividend forecast is RMB 0.71/0.85/1.01 yuan, and the dividend ratio can reach 4.0-5.6%, which is quite attractive.

Heavy truck leaders ranked first in the industry's exports for 18 consecutive years, and their overall market share has steadily increased. Sinotruk was one of the first heavy truck companies to set up overseas. The overseas marketing layout is relatively mature, and export sales have always led its peers. After 2020, Sinotruk's export business entered a high growth cycle. Heavy truck export sales recorded year-on-year increases of 74.6%/63.8%/36.2% in 2021/2022/2023, respectively. In 2023, Sinotruk seized the development opportunities of China's heavy natural gas truck market and sold about 27,000 heavy natural gas trucks, an increase of 287% over the previous year, with a market share of 17.7% in China, ranking second. Driven by the dual engine of export+domestic demand, the company's share of total sales in the heavy truck industry increased steadily, from 17% in 2018 to 26% in 2023. From 2022 to 2023, Sinotruk's total heavy truck sales volume became the highest in the industry; at the same time, it was superior to its peers in terms of revenue scale, profit level, and debt situation.

The heavy truck industry's exports and domestic demand both grew and entered an upward cycle. After experiencing a downward cycle of 2020-2022, China's heavy truck industry reached an inflection point in 2023 and achieved impressive results of 35.6% year-on-year sales growth. We believe that in the next two years, the sales volume of the heavy truck industry will be in an upward cycle, and domestic sales and exports will grow. The total sales volume for 2024/25 is expected to be 110/1.15 million units, an increase of about 20.8%/4.5% year on year, including domestic sales of 800/ 820,000 units (up 26.0%/2.5% year on year) and export sales volume of 30/ 330,000 units (up 8.7%/10% year on year). Domestic demand for heavy trucks is mainly driven by increased express delivery business and road freight volume, trade-in demand compounded by new energy transformation and accelerated replacement of national standards; while heavy truck exports are driven by steady growth in global truck demand and the continued increase in the share of Chinese brands in overseas markets. Looking at export regions, the main increase is expected to come from Southeast Asia and South America.