We believe the transfer of equity interest in CNHTC (parent company of Sinotruk) from Ji’nan SASAC to SHIG (parent company of Weichai Power [2338 HK, BUY]) has been largely expected since the appointment of TAN Xuguang as the Chairman of CNHTC a year ago. We believe the equity transfer will further strengthen the cooperation between Weichai Power and Sinotruk going forward. The synergies include the launch of new products and further reduction on procurement cost. Maintain BUY.
- What’s new? Sinotruk announced yesterday that Ji’nan SASAC will transfer 45% of equity interest in CNHTC to SHIG for nil consideration. In addition, Shandong State-owned Assets Investment will delegate to SHIG the equity holders’ rights (including voting rights but excluding the asset and income rights) for its 20% interest in CNHTC for nil consideration. The equity transfer is subject to the grant of the approval by the State Administration for Market Regulation of China.
- CNHTC will be officially under the control of SHIG. Before the change in shareholding, Ji’nan SASAC owned 80% of equity interest in CNHTC (Figure 1). After the equity transfer of 45% in CNHTC, Ji’nan SASAC’s interest will be reduced to 35% (Figure 2). This, together with the transfer of the 20% voting rights from Shandong State-owned Assets Investment, SHIG’s voting rights in CNHTC will become 65%, effectively replacing Ji’nan SASAC as the controlling shareholder of CNHTC. SHIG is not required to make mandatory offer for Sinotruk, according to SFC’s ruling.
- The equity transfer is largely expected. The change in shareholding structure has been expected after TAN Xuguang was appointed as the Chairman of CNHTC a year ago (see “China HDT sector – Integration of CNHTC into Shandong Heavy Industry Group is likely” published on 3 Sep 2018). We believe this will allow SHIG to strengthen the control of CNHTC and we expect further cooperation between Weichai Power and Sinotruk. That said, we do not expect changes in Sinotruk’s shareholding structure at this stage, given that it will involve the interest of MAN SE (second largest shareholder) and the public shareholding.
- Major risk factors: (1) Weakness of HDT and LDT demand, (2) longer-than-expected impact of anti-loading policy, (3) technology risk.
