Over the weekend, Weichai pre-announced that net profit in 3Q23 is expected to surge 120-200% YoY to RMB2.03-2.77bn, which is better than our expectation. The impressive 3Q23 earnings boosted the net profit in 9M23 up by 80-100% YoY. We believe the strong growth in 3Q was driven by natural gas trucks and export. We maintain our positive stance on Weichai as the decline in LNG price will continue to boost sales of LNG trucks/engines, where Weichai has strong presence. We revise up our 2023E/24E/25E earnings forecasts by 17%/9%/8%, largely due to higher engines sales volume assumptions. We revise up our SOTP-based TPs for Weichai A/H to RMB14.7/HK$16.1. Reiterate BUY.
　　Weichai’s engine sales outpaced industry in 8M23. Weichai's multi- cylinder sales (including HDTs and other large-size engines) grew 25% YoY to ~460k units in 8M23, much better than the industry average of 6%, according to CICEIA. The market share reached ~17% in 8M23, up 2.6ppt YoY.
HDT industry sales volume +55% YoY in Sep. According to the preliminary data from Cvworld, China HDT industry sales volume in Sep (including export) grew 55% YoY to 80k units, driven by strong demand for natural gas trucks and export. In 9M23, China HDT sales volume (including export) grew 32% YoY to ~690k units.
Natural gas HDTs accounted for 31% of total HDT sales in Sep. The latest LNG price declined 40%+ from the peak in late 2022, while the diesel price dropped <20% during the period. Sales of natural gas HDT therefore has had a strong run since early this year, with the percentage of total HDT sales rising from 7% in Dec 2022 to 31% in Sep 2023. We believe the current price difference will continue to boost the sales of LNG trucks given the lower operating cost to truck owners. Weichai will continue to be a key beneficiary as we estimate Weichai has >50% market share in the HDT gas engine sector.
Risk factors: 1) weakness in engine export; 2) increase in component cost; and 3) weaker-than-expected new business growth.