Weichai Power (Weichai) pre-announced last night (23 Jan) that net profit in 2023E is expected to surge 75-90% YoY to RMB8.58-9.32bn, which is better than expectations as both our and consensus estimates are only close to the low end of the profit range. The profit alert implies that Weichai delivered net profit of RMB2.08-2.82bn in 4Q23E (up 31-77% YoY), with a midpoint of RMB2.45bn (+54% YoY). As we highlighted in our note on 15 Jan (link), Weichai’s multi-cylinder diesel engine sales volume surged 51% YoY in 4Q23 (surpassing the industry average of 26%), driven by strong HDT engine demand. We maintain our bullish view on Weichai (sector top pick) as a replacement cycle will offer certainty on HDT industry sales growth in 2024E.
Maintain BUY with unchanged SOTP-based TP of HK19.4 (H) / RMB17.8 (A).
LNG/Diesel price spread expanded again. The price ratio reached a recent peak of 0.9 in late Dec 2023, which made LNG truck less attractive to buyers. That said, with the latest LNG price declining 29% since late Dec, the price ratio dropped to 0.69 at present. We believe the current price difference will boost the sales of LNG trucks again given the lower operating costs to truck owners. We see this as a near-term driver for Weichai given its 60% market share in the HDT gas engine segment.
Key catalysts: 1) Further expansion of LNG/Diesel price spread; 2) strong- than-expected HDT sales figures in 1Q24E.
Risk factors: 1) weakness in engine export; 2) increase in component costs; and 3) weaker-than-expected new business growth.