Weichai Power: Building a Steady Position for Truck Industry Group

The engine business is the core. It is the company's long-term strategy to expand the entire vehicle to promote the development of the engine business. Weichai Power is a large industrial group covering 2-33L diesel engines, heavy-duty transmissions, axles and trucks. The engine business is the core of the company, where the profit contributed by the heavy-duty diesel engine business has exceeded 80% of the company's profit. Weichai established the heavy-duty gold industrial chain (engine + transmission + axle + vehicle) by reorganizing the Hunan Torch, holding Shaanxi Heavy-duty Trucks, Fast and Hande axles, and acquiring Chongqing Jiachuan Automobile to enter the light commercial vehicle market. At present, Shaanxi Heavy Duty Truck has become the company's largest heavy-duty engine customer. The development of Jiachuan light commercial vehicles will also contribute to the development of the company's light diesel engine business. The entire vehicle business is the cornerstone of the healthy and stable development of the company's engine business.

Weichai has a strong position in the heavy engine market. The company has large scale advantages and technological advantages, and can provide engines with high performance ratio to the entire vehicle company. The construction machinery of the construction machinery enterprises and small and medium-sized heavy-duty truck enterprises have great technical difficulties, while the scale is small and the production cost is high. Small and medium-duty heavy truck companies and joint ventures with foreign companies produce heavy-duty engines. Although they can solve technical problems, they still have high costs. It is difficult for downstream customers to produce engines by self-made or joint ventures to replace company products.

The implementation of the National IV emission standards will help the company increase its market share. Before the implementation of State III, the company actively researched and developed the State III engine equipped with a high-pressure common rail system, and the relevant technology reserves are abundant. At present, the proportion of the company's State III engine configuration high pressure common rail system is significantly higher than the industry level. After the implementation of State IV, most heavy-duty truck engines are required to install high pressure common rail system. Thanks to years of experience accumulated in high pressure common rail engines, the company has fully prepared the Chinese IV models and has strong market competitiveness.

Earnings forecast and investment rating. Affected by such factors as slowing economic growth and falling investment, heavy-duty truck industry sales in 2011 decreased by 13.4% year-on-year. The downturn in the downstream industry will drag down the company's performance in the short term. We lower the company's earnings forecast. We expect earnings per share for 2011-2013 to be 3.48, 3.63, and 4.60 yuan, respectively. However, the company has strong technical strength and firm market position. Short-term fluctuations do not change the strong long-term profitability trend and maintain a “recommended” investment rating.

Risk Warning: The price of raw materials has risen sharply; the company's downstream customers have changed the engine supporting system; the industry recovery is lower than expected.