We believe the US’s newly proposed tariff on China will place Dingli into a challenging situation, given that the US has long been the most important market for Dingli (close to 30% of total revenue in 2024E, based on our estimates). We see several downside risks: (1) the policy uncertainties will likely affect the capex plan of AWP operators in the US, thereby affecting the procurement for AWPs; (2) the proposed 34% incremental tariff on China’s exports exceeds the 19% reduction of anti-dumping (AD) duties approved by the US last year. While we understand that Dingli will potentially expand the manufacturing capacity in the US, we believe it will take time to see the actual impact. We revise down our 2024E/25E/26E earnings forecast by 3%/12%/18%, due to lower sales assumptions in the US and lower gross margin due to tariffs. We now expect only 5% earnings growth in 2025E. Downgrade to HOLD from Buy with new TP of RMB51 (previously RMB75), based on 12x 2025E P/E.

New tariff to more than offset the decline in AD duties in the US. Dingli’s AD duty in the US was finalized at 12.39% in 2024, down substantially from the 31.54% set in 2022. However, the newly proposed tariff on Chinese goods (34%) exceeds the 19ppt reduction on AD duties. This, together with the countervailing duties (CVDs) of 11.95% and the existing tariff on Chinese goods (20%), adds up to a total of >78% tariffs and duties.

Accelerated shipment to the US to avoid tariff impact. We understand that Dingli has been accelerating the AWP shipment to the US since early this year to mitigate the impact of upcoming tariffs on China. Given the full consolidation of CMEC in 3Q24, we expect these AWPs (already in Dingli’s warehouse in the US) will gradually translate into actual sales and revenue in 2Q and 3Q25E.

New target multiple to reflect the uncertainties. Our previous TP of RMB75 was based on 18x 2024E P/E (1SD below the historical average of 31x). Our new TP of RMB51 is based on 12x 2025E, based on 1SD below the three-year average P/E (13.5x), as we expect earnings growth to slow substantially from previous years.

Upside risks: (1) Substantial reduction of proposed tariffs on China; (2) stronger-than-expected demand in other countries that offsets the weakness in the US.

Downside risks: (1) Further increase in tariffs in the US; (2) further intensified competition in China’s AWP market; (3) continuous weakness of overseas demand.