Weichai’s net profit grew at 20% YoY to RMB5.3bn, representing 54% of our full year estimates, which is in line with our expectation. Despite the overall weakness of HDT industry in 2Q19, Weichai was managed to achieve 9% YoY net profit growth. We maintain our positive stance on Weichai as we expect the HDT and engine sales to recover in 4Q19 on the back of infrastructure spending growth. Maintain BUY.
- Highlight on 1H19 results. Revenue grew 10% YoY to RMB90bn in 1H19. Gross margin was stable at 10% while S&D expense ratio reduced 0.7ppt YoY to 5.9%, a key driver to boost the 20% YoY growth of net profit. In 2Q19, revenue / net profit grew 6% / 9% YoY to RMB45.6bn / RMB2.7bn. Operating cash inflow in 1H19 dropped 36% YoY to RMB5.4bn. As at Jun 2019, Weichai maintained a net cash position. Weichai proposed interim dividend of RMB0.15 per share.
- Engine and HDT sales volume were resilient in 1H19. Revenue from diesel engine grew 15% YoY in 1H19, driven by 11% increase in volume and 4% increase in blended ASP based on our calculation. Sales volume of engine was 394k units, including 218k units of HDT engine. The market share of HDT engine increased to 33.2% in 1H19 from 31.6% in 2018, which we believe was due to more sales of gas engine. HDT sales increased 4% YoY to 87k units, outperforming the 2% decline for the industry as whole. Gearbox sales volume grew 11% YoY to 583k units.
- Investor conference call at 11:30am (HK time). We expect Weichai to discuss the outlook in 2H19, HDT policy, non-HDT business development and the latest co-operation with Sinotruk.
