According to the preliminary figures released by CVworld yesterday, China HDT sales volume in Nov increased 5% YoY to 94k units, in line with our expectation. We are incrementally positive on HDT sector outlook in 2020E. Reiterate BUY on Weichai-H (2338 HK, TP: HK$17.9) / Weichai-A (000338 CH, TP: RMB15.9) on rising contribution of natural gas engine and market share gain.
- Reasons for the growth in Nov: (1) Deadlines for the phase-out of NES III trucks are approaching across different regions, which drove higher demand; (2) Stringent anti-overloading policies following the bridge accident in Wuxi has continued to boost new demand; (3) Higher demand is seen due to the early CNY in 2020 (Jan).
- Dongfeng continued to gain market share. Dongfeng (489 HK, HOLD, covered by Jack Bai) reported 27% HDT sales growth in Nov, replaced FAW and ranked number one in terms of sales volume. On the other hand, CNHTC (parent company of Sinotruk) saw slight sales decline of 3%. Total HDT sales volume in 11M19 reached ~1.07mn units (+0.8% YoY), representing ~92% of our full year estimates of 1.16mn units.
- We are positive on HDT sector in 2020E. Last week, we revised up China HDT sales forecast by 4%/3% in 2019E/20E to 1.16mn/1.17mn units, as we expect the demand will be much stronger than expectation, on the back of continuous elimination of NES III trucks and anti-overloading policies. On the HDT engine side, industry consolidation will likely continue, as higher technological know-how is required to meet the upcoming NES VI (See our sector report: China Construction Machinery Sector – Four Structural Drivers to Extend The Upcycle to 2020-21E).
