According to the Zhitong Finance APP, Soochow has released a Research Report stating that the current sales of heavy trucks in the industry are difficult to increase but easy to decrease, and the stock price has a safety margin. The industry is waiting for a turning point, with exports expected to continue mild growth in 2025. Looking ahead to 2026, with the clearing of the transport capacity market and the arrival of the phase-out period for National V vehicles, domestic sales of heavy trucks are expected to return to over 0.7 million units. In the bus Sector, both domestic and foreign demand resonate, with leading companies concentrated, and bullish on the industry's continued expansion in 2025. It is expected that domestic recovery and sustained high demand overseas will drive the bus industry’s prosperity to a new level in 2025, with key leading companies likely to influence a new round of performance and valuation resonance investment opportunities.

The main viewpoints of soochow securities are as follows:

Core conclusion for heavy trucks: difficult to increase but easy to decrease, waiting for a turning point.

Heavy trucks: current sales in the industry are difficult to increase but easy to decrease, the stock price has a safety margin, and the industry is waiting for a turning point.

Review: In 2024, domestic sales of heavy trucks are high first then low.

Henry Hub Natural Gas heavy trucks supported sales performance in Q1 2024, but domestic sales continued to weaken from Q2 onwards. The pace of the phase-out and replacement policy for National III vehicles is relatively slow, and annual domestic sales fell below market expectations; exports to non-Russian regions increased to fill the decline in Russia, with annual exports meeting market expectations. Under strong performance in H1 2024, SINOTRUK A/H + Weichai Power's annual performance met expectations; the excess returns of truck stocks peaked in mid-to-late April, with overall performance being weak, among which SINOTRUK A/H performed relatively well.

Outlook: In 2025, domestic sales of heavy trucks will be difficult to increase, while exports will continue to grow modestly.

From a total dimension perspective, the renewal demand provides a bottom support for sales volume; it will be difficult to increase domestic sales in 2025. The current domestic capacity demand contains a renewal center of at least 0.73 million vehicles. Currently, the domestic sales deviate from the reasonable center, and the freight market remains sluggish. Capacity may be cleared faster in 2025-2026, promoting the industry's return to healthy development.

From a policy dimension, the current effective holding capacity of National IV is 0.8-0.9 million. If the National IV trade-in policy is introduced, it is expected to drive an unexpected growth in domestic demand in 2025.

From a structural perspective, in 2025, both oil prices and gas prices are expected to be weak, natural gas heavy trucks may remain stable, and the economic feasibility of electric heavy trucks may be viable, likely accelerating penetration in 2025.

Regarding exports, the inventory in Russia still needs to be cleared, and the expansion of markets in Asia, Africa, and the Middle East, along with the potential increase of Chinese brand shares, are expected to lead to a moderate growth in exports.

Under a neutral expectation, wholesale of heavy trucks in 2025 is projected to be 0.94 million units, +3.8% year-on-year, with domestic sales/export expected at 0.63/0.31 million units, +4.0%/+6.9% year-on-year, respectively. Looking ahead to 2026, as the capacity market clears and the phase-out period for National V arrives, domestic sales of heavy trucks are expected to return to above the 0.7 million units center.

Investment suggestion: Sufficient margin of safety; focus on domestic rebound and export growth symbols at the bottom.

Currently, there is little room for decline in domestic sales of heavy trucks, while there is ample elasticity for growth; exports provide performance growth; ample cash flow and high dividends offer defensive attributes. The current stock price of heavy truck companies has a sufficient margin of safety, which might be a good time for left-side layout. For domestic demand, it is recommended to focus on leading automakers with good profit elasticity; for exports, focus on symbols with small exposure to Russia, preferably including SINOTRUK (03808,000951.SZ), Weichai Power (02338,000338.SZ), FAW Jiefang Group (000800.SZ), Beiqi Foton Motor (600166.SH), and CIMC VEHICLES (301039.SZ).

Core conclusion for buses: A dual resonance of internal and external demand, with a concentration on leading companies.

Review and outlook for the bus sector:

Review:

1) Stock price review: In 2024, the bus Index and leading stocks both saw price increases, with sales performance and earnings acting as core catalysts for Yutong's stock price.

2) Economic performance review: In 2024, the overall internal and external demand for buses met expectations, with the ratio of oil vehicle exports > domestic passenger buses > electric vehicle exports > domestic public buses. In terms of economic rhythm, internal and external sales in Q1, Q2, and Q4 of 2024 achieved significant year-on-year improvements.

3) Performance review: In the first three quarters of 2024, the performance fulfillment of key companies ranks Yutong > Zhongtong > Xiamen King Long Motor Group, with Yutong consistently exceeding expected performance, and performance recovery spreading to the second-tier company Xiamen King Long and the third-tier Zhongtong.

Outlook: The resonance between exports and domestic sales is promising, with a bullish view on the industry's continued expansion in 2025.

Internal demand: The recovery of buses is expected to experience a strong rebound driven by policy and demand, with passenger buses further returning to pre-pandemic levels; attention is needed on whether the trade-in policy will continue.

Exports: The oil vehicle exports are accelerating to seize market share, while the proportion of new energy exports in the high-end segment in Europe has significantly increased. China's bus industry is steadily expanding overseas. It is expected that by 2025, domestic/export/new energy export sales are likely to achieve year-on-year growth of +23%/+20%/+40%. Key leading companies in the bus industry are expected to influence new investment opportunities through performance and valuation resonance.

Investment advice: The right timing, location, and favorable conditions initiate a large cycle of technology export. Looking ahead to 2025, a domestic recovery combined with sustained high demand overseas is expected. A dual-driven approach is likely to further elevate the bus industry's prosperity. Key investment opportunities in leading sectors should focus on selecting Yutong Bus Co.,Ltd. (600066.SH) and Xiamen King Long Motor Group (600686.SH).

Risk warning: Domestic economic recovery may fall short of expectations; there are risks related to geopolitical uncertainties in overseas exports.