Investment summary

The company is the leading heavy truck company under the Sinotruk Group. Heavy truck sales account for 56% of the group's heavy truck sales. According to First Commercial Vehicle Network, in Q1-Q3 of 2024, Sinotruk Group sold 0.1874 million vehicles, with a market share of 27.5%, ranking first. The sales volume of the 24Q3 industry declined significantly, and the profit margin increased significantly to 8.30%. The company achieved net profit of 0.315 billion yuan in a single quarter, +97.88% over the same period last year.

The product matrix layout is perfect, the brand strategy is appropriate, excellent product strength promotes market share increase, and the product structure is accurately adjusted to keep up with market demand, and the product matrix layout is comprehensive. Tractors account for half of the heavy truck market. Sinotruk adjusted the product structure in a timely manner to enhance the competitiveness of tractor products and achieve an increase in market share. 24Q1-Q3 tractors sold 0.0499 million units, with a market share of 21.43%.

The MAN+ Weichai dual power chain provides more choices, and heavy gas trucks rely on Weichai's supporting advantages to seize the market. Sinotruk built the MAN+ Weichai dual power chain to provide customers with more choices. Weichai has a significant advantage in heavy gas truck engines. We believe that installing the Weichai power chain will help Sinotruk seize the gas market. Sales of heavy duty gas trucks increased from 0.0075 million units in 23H1 to 0.0278 million vehicles in 24H1, and the market share increased from 14.02% to 25.60%.

Domestic sales fluctuate in the short term, and 24Q4 is expected to rebound from trade-in subsidies, and natural replacement demand is expected to be released in large quantities starting in 2025. Sales in the heavy truck industry declined year-on-year in 24Q1-Q3. We believe that benefiting from trade-in subsidies, 24Q4 may usher in a rebound in sales. Demand for scrapping and renewal will be released in large quantities starting in 2025, and medium- to long-term heavy truck sales will be strongly supported. Affected by policies such as overhaul and emission upgrades in 2017-2021, China's heavy truck sales grew unusually, overdrafted a large amount of sales. By 2025, the longest vehicle age will be 8 years, and the replacement cycle will begin in 2025, which will release a large amount of replacement demand.

Deeply cultivate the overseas first-mover advantage and fully benefit from the high growth in the export market

Sinotruk seized the high growth opportunities in the export market and achieved high export growth with a first-mover advantage. In 2023, exports exceeded 0.13 million vehicles, accounting for more than 50% of the group's sales volume. Years of deep cultivation have helped the Group build a first-mover advantage in terms of word of mouth and brand recognition, and will fully benefit from the rapid growth of the current export market through the period of brand introduction, growth, and maturity.

The basic market actively expands market share, and high-end products have breakthroughs and are cost-effective. The rise of emerging markets and developing economies will bring stable demand to overseas markets, and Sinotruk will actively expand its market share in traditional dominant markets.

The share of high-end products in exports continues to rise, leading to an increase in the average export price. The average price of bicycles exported by the Group increased from 0.2668 million yuan in 2020 to 0.3053 million yuan in 24H1. High-end brands have broken through the traditional dominant markets of European and American brands such as Australia, Mexico, and Saudi Arabia, and are expected to continue to expand in related markets with their cost performance advantages.

Sinotruk's A-shares are exported through international companies, and the subsidiary Axle Supply Group has strong support for sales and performance. The main export regions for the company's products are markets such as Africa, Southeast Asia, Central Asia, and the Middle East. These markets are also regions with a high share of China's heavy truck exports, and heavy truck exports still have great potential. The company enjoys the group's export dividends through the axle company, which contributes more than 30% to the axle company's net profit.

Investment advice

We expect the company to achieve revenue of 46.287, 52.73, and 62.189 billion yuan in 2024-2026, respectively, +10.02%, +13.92%, and +17.94% year over year; net profit to mother of 1.298, 1.573, and 1.886 billion yuan, respectively, and +20.14%, +21.18%, and +19.88% year-on-year respectively. The corresponding price-earnings ratios for December 3, 2024 were 15.64X, 12.91X, and 10.77X, respectively. First coverage, giving a “buy” rating.

Risk warning

Risk of sales volume and market share falling short of expectations; risk of large fluctuations in raw material costs; risk of macroeconomic fluctuations and industry policies falling short of expectations; risk of export sales falling short of expectations.