Key points of investment

Performance summary: The company released its 2024 mid-year report. 24H1 achieved revenue of 48.82 billion yuan, +18.0%/+10.7% year-on-month; net profit to mother of 3.29 billion yuan, +38.8%/+11.9%, respectively, slightly higher than the median performance forecast, which is in line with our expectations.

The fee rate declined year on year, and the net interest rate increased year on year. 24H1 warranty expenses were adjusted from sales expenses to operating costs. The 24H1 gross profit margin was 14.7%, -1.1 pct year on year, and 3.1%/4.8% sales/management expenses, respectively, -0.4/-0.3 pct year on year, net profit rate 7.4%, and +1.1 pct year on year.

The volume and price of the heavy truck business rose sharply, and profit margins declined year on year. 24H1's heavy truck revenue (including internal sales) was 42.51 billion yuan, +16.3%/+9.8% year-on-month, respectively. In terms of volume, 24H1's heavy truck sales volume was 0.125 million, +14.8%/+5.8%, respectively; the 2024H1 heavy truck industry sold 0.504 million vehicles, +3.3%/+19.3%, respectively. The company's year-on-year sales performance was superior to that of the industry. In terms of price, 24H1 heavy truck ASP 0.34 million, +1.3%/+3.7%, respectively; in the profit dimension, 24H1 operating profit margin was 6.0%, and -0.6/+0.9pct, respectively. The year-on-year decline in profit margins was mainly due to an increase in the share of low-profit products.

Light truck sales revenue increased, and losses narrowed year over year. 24H1 light truck revenue (including internal sales) was 6.77 billion yuan, +33.9%/+28.9% YoY; 24H1 achieved sales volume 0.057 million, +14.5% YoY; 24H1 operating margin -1.9%, improving YoY (23H1/23H2 -3.4%/-8.5%, respectively).

The increase in light truck sales and optimization of the product structure led to a narrowing of losses.

Engine sales revenue declined, and profits improved year over year. 24H1 engine revenue of 7.04 billion yuan (including internal sales), -2.0%/-4.4% YoY; 24H1 engine sales volume 0.053 million units, -28.0% YoY; 24H1 operating margin 17.7%, +9.2/-2.1pct YoY, respectively. Profit margins increased year-on-year due to increased revenue from major heavy truck assemblies and parts plus cost control.

Outlook: With strong product strength as a starting point, the company continues to optimize and enhance its competitiveness in domestic and overseas markets.

Driven by factors such as the overall improvement in macroeconomic performance and the recovery in demand for heavy logistics trucks, compounded by the strong momentum maintained by exports, the recovery situation in the heavy truck industry is obvious. The company will seize international market opportunities, increase its share in high-end markets such as the Middle East and Latin America, and establish competitive advantage in high-end market segments dominated by European and American brands; accelerate the development of key products to ensure that typical models lead the industry in various aspects such as dynamics, economy, wind resistance coefficient, and fatigue life; focus on market segments such as gas vehicles and high horsepower to ensure continuous growth in market segments, accelerate product optimization, upgrading and structural adjustment, and accurately implement marketing strategies to drive continuous growth in production and sales and further increase profitability.

Profit forecast and investment rating: In view of the company's good export profit performance and continuous optimization of the product structure, we maintain the company's forecast net profit of 6.813/7.813 billion yuan from 2024 to 2025, and the net profit to mother is estimated to be 7.882 billion yuan, corresponding to the 2024-2026 EPS of 2.47/2.83/2.85 yuan, respectively, corresponding to the PE valuation 7.65/6.61 times, maintaining the “buy” rating.

Risk warning: The macroeconomic fluctuations at home and abroad exceeded expectations; the price increase of upstream raw materials exceeded expectations.