What’s new? According to the preliminary figures from CVworld, China HDT sales volume in Sep increased 7% YoY to 83k units, the highest growth since Mar and above expectations. We expect the improving infrastructure spending to drive a further sales improvement in 4Q19E, which should serve as share price catalyst. Maintain BUY on Weichai Power (2338 HK, TP: HK$16.2) and Sinotruk (3808 HK, TP: HK$19.4).
- Market share change likely a result of the anti-overloading policy. FAW and Dongfeng (489 HK, HOLD, covered by Jack Bai) HDT sales grew 13% YoY and 20% YoY respectively, contributing the overall sales growth in Sep. We believe one of the reasons for their market share gain since Jul was the weakness of SXQC (陕汽集团) and CNHTC (parent company of Sinotruk) as a result of the policy impact. That said, we believe the trend will gradually reverse going forward as the policy risk is reducing.
- HDT sales -1% YoY in 9M19; within our expectation. The decent sales growth in Sep took the sale volume up 3.5% YoY in 3Q19. This helped drive the sale in 9M19 to 888k units (down only 1% YoY), representing 79% of our full year estimates of 1.1mn units (Note: 9M18 accounted for 78% of the full year sales).
- Key reasons for the recovery in Sep. The 7% YoY increase in sales volume was driven by a couple of factors. First, the elimination of NES III continued to serve as a driving force for the replacement demand. Second, demand for coal logistic trucks and certain types of logistic trucks increased (Note: China coal mining FAI grew 26% YoY in 8M19). Third, fading risk regarding the anti-overloading policy (大吨小标) helped boost the overall sales volume.
- Staying positive on the HDT sector. We believe the HDT sales volume to continue to improve in 4Q19E, supported by a low base effect and improving infrastructure spending. We expect the HDT demand in 2020 to remain resilient, driven by the ongoing replacement of NES III trucks on the back of strong policy support.
