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Since April of this year, Weichai Power's stock price has rebounded due to multiple factors, and did not follow the market recovery until the end of September. Risks were gradually released after a continuous decline, and there is little point in emphasizing that the economy and heavy truck demand are sluggish. Since stock price fluctuations are mainly feedback on future changes, this report will explore short-term hot issues and medium- to long-term ceilings that the market is concerned about, including: 1. How do you view short-term and medium-term heavy truck demand? What do you think of the declining tide and electrification of gas vehicles? 2. Drawing on Cummins, how do you view Weichai's medium- to long-term space?

1. Sales have reached an inflection point in the short term, and mid-term replacement drives the upward cycle

1. Total investment logistic regression beta. Short-term domestic demand is weak, exports are increasing, and wholesale distribution is stable. The increase driven by the trade-in policy will be reflected starting in October, reversing the decline in domestic demand in the first half of the year. In the medium term, stimulated by the government's package of monetary and fiscal policies, the car exchange cycle corresponding to the 2017-2021 sales peak is approaching. Starting in 2025, domestic sales of heavy trucks are expected to break away from the bottom region and return to the center, and sector beta is expected to begin an upward cycle.

2. Judging from the fuel structure, the market is already fascinated by gas vehicles; the short-haul scenario of electric heavy trucks penetrates rapidly, and there is a gap between short distance and long distance, so there is no need to worry too much.

2. Compared with Cummins, how do you view Weichai's long-term space?

1. If the truck market did not grow, Cummins, whose stock price increased more than 10 times, did the right thing? 1) The main engine industry relied on emission upgrades to boost profitability; 2) diversification hedged cycle fluctuations in the heavy truck industry; 3) relied on technical advantages to defeat competitors at critical times, bind downstream customers through Changxie, and establish a stable three-party dominance; 4) Globalization: Cummins' global layout strengthens the moat and disperses the risk of fluctuations in the North American market.

2. Comparing Cummins, how do you view Weichai's medium- to long-term space? 1) Regulatory switching boosts engine ASP and has an incremental effect of rushing to install. 2) Diversification: In addition to expanding the golden power chain of engine+transmission+axle, Weichai has also explored a “complete vehicle” vehicle collaboration route. Among them, Revo, Kaiao, and large bore have broad business space, which will move from diversification of revenue composition to diversification of profit contributions. 3) Increase share: Seize the share of suppliers from the three parties and increase the share along with the vehicle pattern. 4) Globalization: Relying on “complete vehicles” to achieve globalization, vertical integration drives leapfrog development of engines and components.

Investment advice and valuation

The month-on-month inflection point of the fundamentals of the heavy truck industry appeared in the fourth quarter. As an industry leader, the company will directly benefit, while new business formats, diversification, and globalization will open up further profit margins. We forecast that the company's net profit for 24-26 will be 11.53/12.7/14.3 billion yuan, corresponding PE of 10.44/9.48/8.42X, giving the 2025 13XPE with a target price of 18.92 yuan, maintaining a “buy” rating.

Risk warning

The recovery of the heavy truck industry fell short of expectations, heavy trucks falling short of expectations when going overseas, the progress of electric heavy trucks exceeded expectations, and the development of new business formats fell short of expectations.