Asset replacement has entered the capital market, and the leading position in the industry is stable: the company has been deeply involved in the commercial vehicle sector for decades, and maintained the number one heavy truck market share for 6 consecutive years from 2016 to 2021. The company carried out a major asset exchange with FAW Sedan in 2020 and successfully restructured and listed. After completing the replacement, the listed company was fully engaged in R&D, production and sales of commercial vehicles. The company effectively integrates upstream and downstream industries, leading the market in terms of product, technology and channel layout. 1) Product side: The company's product line covers a comprehensive range of models with various power types and various segmented scenarios, and is less affected by industry product restructuring. 2) Technology side: Companies in the traditional field master world-class vehicle and powertrain core technology, and in the field of new energy, grasp three-electric system technology, and launch products that fully meet market needs. 3) Channel side: The company ensures the full cycle operation of products while focusing on high regional coverage. We believe that the company has had a favorable market position in the commercial vehicle sector for a long time. 2025E is the first year of the company's strategic transformation. It is necessary not only to achieve phased breakthroughs in intelligent electrification, but also to drive rapid growth in sales volume and performance through exports.

Overseas markets have become an important growth pole for sales and performance: developing overseas markets has become an important development strategy for the company, and its Jiefang J7, J6P, JH6, and Tiger V models have been successively exported to more than 80 countries and regions in Southeast Asia, the Middle East, Latin America, and Africa. 1) Assuming a relatively stable trade pattern, we estimate the overseas market space for our own brands to be about 0.35-0.4 million vehicles. It is not ruled out that after independent brands have taken a steady share of the market, developing countries' economies have developed rapidly and infrastructure needs have increased, and independent brands will continue to benefit from market expansion. 2) The company has adopted a territorialization strategy on the channel, R&D, and production capacity side. We expect 2025-2026E's overseas sales volume to increase to 0.073 and 0.085 million vehicles. 3) Also, considering that subsequent exports are carried out through wholly-owned subsidiaries, the ASP and profit premiums of exported models are incorporated into the listed company's statements, which is expected to become a key profit growth point.

The development of intelligent and electrified commercial vehicles is imminent, and the company is taking the lead in laying out intelligent scenarios: new energy heavy trucks are one of the important directions of product restructuring in the industry. Benefiting from subsidies and concessions, new energy sales are expected to rise rapidly. The company is actively exploring transformation under the trend of commercial vehicle electrification. In 2024/10, the company refunded for the first time after asset restructuring, and raised 0.56 billion yuan to develop intelligent electrification products. We judge that 1) The company's advantages in the field of electrification are based on the product+channel layout experience and self-developed technology accumulated in the traditional heavy truck industry. 2) In terms of intelligence, the company actively cooperates with foreign countries to develop L4 intelligent driving products. The relevant cooperation model is expected to push the company to take the lead in large-scale commercial implementation of intelligent commercial vehicles, so as to form a leading first-mover advantage.

Giving a “plus” rating: We expect FAW Jiefang 2024-2026E's net profit to be 0.86/1.16/1.42 billion yuan (year-on-year growth rate +13.2%/+33.9%/+23.1%), and EPS of 0.18/0.24/0.29 yuan, respectively. The company currently enjoys a valuation premium due to continued improvements in fundamentals. In the short term, we are optimistic about the company's ability to deliver on performance, and in the medium to long term, we are optimistic that the company will take the lead in achieving higher valuation flexibility driven by the intelligent electrification transformation of commercial vehicles. Covered for the first time, a “gain” rating was given.

Risk warning: macroeconomic recovery falls short of expectations; downstream demand falls short of expectations; overseas expansion falls short of expectations; price competition continues to be intense.