2023-05-02 15:55:03 和讯  招银国际Wayne FUNG/Katherine
  Weichai’s 1Q23 net profit growth of 68% YoY is above our expectation. We believe the impressive earnings growth was driven by the strong operating leverage of the HDT engine segment. We are turning more positive on Weichai’s recovery story, with new catalysts coming from: (1) the recent sharp decline in LNG price (down ~40% since Dec) that will boost the sales of LNG trucks/engines, where Weichai has strong presence on; (2) the easing supply chain pressure that will help KION achieve strong-than-expected margin recovery. All these, together with the continuous growth of engines for agricultural machinery and HDT through rising penetration in LOVOL and Sinotruk (3808 HK), prompted us to revise up our earnings forecast in 2023E/24E by 30%/28%. Our SOTP-based TPs for Weichai A/H are revised up to RMB13.8/HK$15.8. Given that the H/A discount (currently 11%) has been narrowed and is close to the historical average of 12%, we upgrade Weichai- A to BUY from Hold and maintain BUY on Weichai-H.
  1Q23 results highlights. Weichai’s revenue of RMB53.4bn in 1Q23 represented 30%/18% YoY growth, respectively, before/after restatement of 1Q22 figures (Note: LOVOL was a JV in 1Q22 as the consolidation took place in Jun 2022)。 We believe the revenue growth in 1Q23 was driven by the strong HDT engine sales volume and operating leverage. Gross margin was largely stable at 18.7% in 1Q23. With both SG&A and R&D expense ratio reduced in 1Q23, net profit surged 77%/68% YoY (before/after restatement) to RMB1.86bn. Based on our calculation, the pretax profit (excluding KION) surged ~1.6x YoY in 1Q23. Operating cash flow in 1Q23 substantially improved to -RMB471mn (1Q22: -RMB3.2bn)。
  Weichai’s engine sales outpaced industry in 1Q23. According to CICEIA, Weichai's multi-cylinder sales grew ~6% YoY to 183k units in 1Q23 (vs the industry average of a decline of ~3%), with a market share of ~16%.
  Decline in LNG price positive to Weichai. LNG price in late Apr has declined 40%+ from the peak in Dec 2022. We believe it will potentially boost the sales of LNG trucks given the lower operating cost to truck owners. We expect Weichai to be a key beneficiary as we estimate Weichai has >40% market share in HDT gas engine.
  Higher earnings guidance for KION Group. KION (45.2% owned by Weichai) reported net income of EUR73.5mn in 1Q23 (-8% YoY), largely due to higher net finance expense. In the 1Q23 report, KION revised up the full year adjusted EBIT target to EUR615mn from EUR500mn due to improving supply chains.
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