Weichai’s delivered a solid set of results in 2Q21 with net profit growth of 18% YoY to RMB3.1bn, boosted by 10% increase in revenue and satisfactory gross margin of 18.5%. Weichai achieved market share gain of 3.2ppt (to 32.4%) in HDT engine in 1H21 which is respectable in our view. Going forward, we believe weakness of HDT demand starting Jul as a result of the implementation of NES VI is well expected, and we believe Weichai is set to benefit from further market share gain given the strict emission standard. We slightly revise up our SOTP- based TP to HK$24.8. Key catalysts: (1) breakthrough in the sales volume of hydrogen fuel cell vehicles; (2) recovery of HDT demand in 4Q21E. Maintain BUY.
1H21 financial highlights. Revenue grew 34% YoY to RMB126bn in 1H21.
Gross margin slightly dropped 0.7ppt YoY to 18.8%. In terms of segment profit, forklift trucks & supply chain solution (operated by KION Group [KGX GR]) saw 4.3x YoY increase to RMB2.8bn, due to low base effect arising from COVID-19 in the overseas. With expense ratios largely under control, together with a 54% reduction of impairment and increase in finance income, net profit grew 37% YoY to RMB6.4bn. Operating cash inflow grew 77% YoY to RMB7.2bn. In 2Q21, net profit grew 18% YoY to RMB3.1bn. Gross margin expanded 0.9ppt to 18.5%. Weichai proposed interim dividend of RMB0.185 per share, up 23% YoY.
Market share gain on HDT engine segment. Weichai’s total engine sales volume grew 43% YoY to 671k units in 1H21. HDT engine sales volume reached 339k units in 1H21, with market share increasing 3.2ppt YoY to 32.4%. On the other hand, Shaanxi Heavy achieved HDT sales volume of growth 32% to 117k units.
Large bore engine and hydraulic components. Revenue from large-bore engine moderately increased 24% YoY to RMB520mn in 1H21. On the other hand, revenue from hydraulic products grew 27% YoY to RMB290mn. Both segments are largely in line with expectations.
Risk factors: (1) Weaker-than-expected demand of HDT and engine in 2H21E; (2) further increase in component cost; (3) risk of new business.