Weichai Power released its report for the third quarter of 2024. 2024Q1-3 achieved revenue of 161.95 billion yuan, +1% year over year; net profit to mother of 8.4 billion yuan, +29% year over year. Among them, 2024Q3 achieved revenue of 49.46 billion yuan, -9% year-on-year, and -12% month-on-month; realized net profit of 2.5 billion yuan to mother, -4% year-on-year and -24% month-on-month. The company's 24Q3 gross margin was 22.1%, +0.4pct year on year, +0.7pct month-on-month, net margin 6.0%, +0.1pct yoy, and -1.2pct month-on-month.

We believe that the decline in Weichai's 24Q3 performance is greatly related to the boom in domestic heavy trucks and natural gas tractors. According to the China Automobile Association and WIND, the sales volume of domestic heavy trucks in 24Q3 was 0.178 million units, -18% year-on-year, and -23% month-on-month; of these, sales of natural gas tractors were only 0.03 million units, -36% year-on-year and -40% month-on-month. Therefore, we speculate that fluctuations in the heavy truck industry will have a big impact on the company's engine business. In addition, 24Q3 financial expenses in a single quarter reached 0.357 billion, the second highest in nearly 10 years, which also had a certain impact on profits.

KION's profitability increased sequentially in 24Q3. KION, which is controlled by the company, was relatively stable in 24Q3, such as revenue, gross profit, and net profit. EBIT increased 20% month-on-month, and profitability increased.

We believe that there is currently an upward trend in the domestic logistics industry, domestic heavy truck sales have some potential to recover, and Weichai's growth logic is still there. According to the official website of the China Logistics Information Center, from October 21 to October 25, 2024, the China Highway Logistics Freight Index, which was jointly surveyed by the China Federation of Logistics and Purchasing and Lin'an Logistics Group, was 1058.95 points, up 1.28% from the previous week. We believe that the recovery in freight rates, combined with trade-in, the clearance of transportation equipment is a long-term force driving the growth of heavy truck sales.

We expect the company's 2024/25/26 revenue to reach 222.9/238.9/256.3 billion yuan, net profit to mother 11.2/12.5/14.3 billion yuan, and corresponding EPS of 1.29/1.43/1.64 yuan. The company's closing stock price on October 30, 2024 corresponds to 10/9/8x PE. Considering the company's leading edge, the company was given 13-15x PE in 2024, with a corresponding reasonable value range of 16.71-19.28 yuan. Maintain an “better than market” rating.

Risk warning: Economic growth falls short of expectations, and raw material prices have risen sharply.