As learned by the Intelligent Finance & Economics app, CICC released a research report stating that it maintains its "outperform" rating on China National Heavy Duty Truck Group (03808), taking into account further marginal profits from scale effects under the growth of company sales, maintains basic unchanged profit forecast for 2024, and raises profit forecast for 2025 by 8.2% to RMB 7.08 billion. Considering the company's property of both offense and defense, the target price was raised by 9.2% to HKD 24.31. On June 6, the company announced that it had granted a total of 27.17 million incentive shares (accounting for 0.984% of the total issued shares) to 188 selected participants in accordance with the terms of the restricted stock incentive plan, with a grant price of RMB 6.896 per share.

CICC's main points are as follows:

The company completed the grant of incentive shares and is expected to fully mobilize the enthusiasm of core employees.

In January, the company released a stock-based incentive plan and completed the grant of incentive shares in June, covering 188 core employees engaged in research and development, technology, marketing, and management. The company stated that the purpose of this incentive plan is to retain and attract talents by adjusting salary structures, while closely linking the interests of senior management, employees, and shareholders, effectively motivating the group's management team and key employees, promoting the long-term development of the group, and maximizing shareholder interests. The bank believes that the business performance assessment target guidance of the stock-based incentive plan is positive, demonstrating the company's confidence in the medium-to-long-term operation, and it is expected to fully mobilize the work enthusiasm of the core employee team and help release business performance.

Since the beginning of this year, the company's heavy truck market share has reached a new high again, and the optimization of product structure is expected to support profits.

According to the China Association of Automobile Manufacturers, from January to April 2024, the wholesale sales volume of heavy trucks in the industry increased by 9% year-on-year to 355,000 vehicles, continuing the steady upward cycle; Wholesale sales of the Heavy Duty Truck Group increased by 13% year-on-year to 100,000 vehicles, and market share increased by 0.8% year-on-year to 28.2%, reaching a new historical high. Referring to compulsory traffic insurance, the natural gas heavy truck license registration volume of the Heavy Duty Truck Group increased by 439% year-on-year to 18,000 vehicles from January to April 2024, and market share increased by 14.1% year-on-year to 26%; Referring to the China Association of Automobile Manufacturers, from January to April 2024, the export volume of the Heavy Duty Truck Group increased by 5.6% year-on-year to 44,000 vehicles, and the market share was 44%, continuing to be the industry leader. The bank believes that scale effects and the increase in the proportion of high value-added natural gas heavy trucks and export heavy trucks will further increase the company's profits.

The company has a strong ability and willingness to pay dividends, and its defensive properties are outstanding.

According to the China Association of Automobile Manufacturers, the company has ranked first in the heavy truck market share since 2022, with a strong bargaining power in the industry chain, and the turnover days of accounts payable in the past five years have been higher than those of accounts receivable and inventory turnover days, showing strong operational capabilities. Thanks to its strong position in the industrial chain, high operational efficiency, and cash cow business, the company's cash is relatively strong. In the long run, cash and transactional financial assets have been higher than interest-bearing liabilities. At the end of 2023, the balance of cash and transactional financial assets was RMB 30.7 billion and the interest-bearing debts were RMB 5 billion, becoming a "security cushion" for high dividends. In addition, as a state-owned enterprise of Shandong Province, the company is subject to performance evaluation targets such as ROE and dividend ratio, and has a high willingness to pay dividends. The company's cash dividend ratio from 2021 to 2023 is 37%/47%/50%. The bank believes that the company is expected to maintain a high level of dividends to shareholders.

Risk

The industry's production and sales have not met expectations, heavy truck exports have fluctuated, natural gas heavy truck sales have fallen short of expectations, and competition has intensified.