20180928-中国银河国际证券-中国重汽-03808.HK-Share_price_upside_clouded_by_growth_uncertainties__waiting_for_more_clarity_on_government_policy_and_corporate_strategy_5页_656kb

Sinotruk (3808.HK) Summary

Core Content Overview

Sinotruk, a leading Chinese heavy-duty truck (HDT) manufacturer, has experienced a significant share price rally following the announcement of a top management change. However, the upside potential remains clouded by uncertainties in the company's earnings growth and the impact of government policy on the HDT market.

Key Financial Highlights

• Market Cap: US$5,801m
• Free Float: 24.0%
• Share Price Performance:
  • Rose over 80% in September 2018 after the management change.
  • Overall CYTD (Year-to-Date) increase of >70% compared to a 9.2% decline in the HSI Index.
• Earnings Growth Estimates:
  • 2018E: 26.6% YoY
  • 2019E: 6.2% YoY
• Valuation Metrics:
  • 2018E PER: 10.4x
  • 2019E PER: 9.8x
  • Valuation is considered fair relative to the projected 6.2% EPS growth in 2019E.
• 1H18 Results:
  • Total revenue increased 26.3% YoY.
  • Core truck business revenue rose 25.4% YoY, despite a high base.
  • Operating profit margin improved from 7.4% to 9.3% due to cost control.
  • Net profit surged 68.9% YoY.

Market and Policy Outlook

• HDT Sales Growth:
  • HDT sales growth in 8M18 slowed to 3.2% YoY from 10.2% YoY in 1H18.
  • The government's preference for rail over road for freight transportation is likely to reduce HDT demand.
• Emission Standards:
  • Accelerated emission standards could lead to a pre-buy effect, boosting HDT sales in Q4 2018 and 1H19.
• Market Share Gains:
  • Sinotruk is expected to gain further market share due to superior product offerings and R&D capabilities.
  • The company should face less downside risk compared to its peers.

Strategic Developments

• Top Management Change:
  • The new chairman of Sinotruk's parent company, Weichai Power, is expected to drive business restructuring and acquisitions.
  • The management change is seen as a catalyst for improved performance.
• Joint Venture with MAN:
  • Sinotruk has formed a joint venture with VW's MAN unit to develop and produce HDTs.
  • The JV is anticipated to enhance product offerings in terms of fuel efficiency, lifetime cost savings, and vehicle connectivity.
• Strong Cash Position:
  • Sinotruk has a robust cash position of RMB10.3bn at the end of 1H18, representing >20% of its market cap.
  • This provides the company with sufficient funds for future acquisitions.

Peer Comparison

| Company | Ticker | 2017 Mkt Cap (US$ m) | 2018E Mkt Cap (US$ m) | 2019E Mkt Cap (US$ m) | 2018E PER | 2019E PER | 2018E EPS Growth | 2019E EPS Growth | 2018E PEG | 2019E PEG | 2018E PBR | 2019E PBR | 2018E Dividend Yield | 2019E Dividend Yield | 2018E ROE | 2019E ROE |
|-----------------|----------|----------------------|-----------------------|-----------------------|--------------|------------|------------------|------------------|-----------|-----------|-----------|-----------|-----------|----------------------|----------------------|-----------|-----------|
| Weichai Power | 2338 HK | 9,859 | 9.8 | 9.1 | 9.8 | 9.1 | 174.2% | 8.0% | -3.6% | 1.1 | 1.9 | 1.7 | 1.5 | 4.8% | 19.3% | 18.3% |
| Sinotruk | 3808 HK | 5,801 | 13.2 | 10.4 | 9.8 | 6.2% | 1.1 | 1.9 | 1.6 | 1.5 | 6.2% | 5.0% | 15.6% | 15.5% |
| Qingling Motor | 1122 HK | 692 | 9.6 | 9.1 | 8.7 | 5.3% | 5.0% | 4.8% | 1.8 | 0.6 | 0.6 | 0.6 | 8.3% | 8.9% | 6.4% | 6.8% |
| Foton | 600166 CH | 1,775 | 91.5 | 36.6 | 30.5 | -75.0% | 150.0% | 20.0% | 0.2 | 0.6 | na | na | 0.3% | na |
| JAC Motors | 600418 CH | 1,393 | 22.0 | 16.3 | 12.9 | -68.1% | 35.2% | 25.7% | 0.5 | 0.7 | 0.7 | 0.7 | 1.4% | 1.4% |
| Jiangling Motors | 000550 CH | 1,221 | 14.1 | 16.2 | 16.2 | -47.7% | -12.8% | -0.1% | 5.5 | 5.1 | 5.1 | 5.1 | 2.8% | 2.6% |
| Zhengzhou Yutong | 600066 CH | 4,588 | 10.1 | 9.5 | 8.7 | -23.0% | 6.2% | 9.2% | 1.5 | 2.2 | 1.8 | 1.7 | 3.5% | 4.9% |
| Isuzu | 7202 JP | 13,518 | 13.4 | 11.6 | 10.6 | 12.6% | 15.5% | 9.6% | 0.7 | 1.5 | 1.4 | 1.3 | 1.8% | 2.1% |
| Hino | 7205 JP | 6,234 | 13.7 | 11.9 | 10.3 | 3.9% | 14.5% | 15.8% | 0.8 | 1.4 | 1.3 | 1.2 | 2.3% | 2.5% |
| Ashok Leyland | AL IN | 4,889 | 20.1 | na | na | 9.3% | na | na | na | 4.8 | na | na | 2.0% | 2.0% |
| Eicher Motors | EIM IN | 9,296 | 34.4 | 25.2 | 20.8 | 17.4% | 36.6% | 20.9% | 0.7 | 9.6 | 7.5 | 5.8 | 0.4% | 0.6% |

Key Viewpoints

• The share price rally in September 2018 was driven by market speculation about the new chairman's potential to drive business restructuring and acquisitions.
• Despite the rally, the stock has faced a correction in recent days due to uncertainty in earnings growth and government policy on HDT demand.
• The company is expected to benefit from emission standard upgrades, which could lead to a pre-buy effect in Q4 2018 and 1H19.
• Sinotruk's superior product offerings and R&D capabilities position it well to gain market share and reduce downside risk compared to peers.
• The new chairman is likely to enhance Sinotruk's financial performance through strategic initiatives, but results may take a few quarters to materialize.
• The current valuation (10.4x 2018E and 9.8x 2019E PER) is considered fair relative to the projected 6.2% EPS growth in 2019E.
• Short selling rates have declined significantly, reducing the likelihood of a further short squeeze.

Conclusion

Sinotruk's share price has shown strong performance following the top management change, but the long-term upside is contingent on the clarity of government policy and the success of corporate restructuring and acquisitions. The company is expected to maintain positive earnings growth in 2018-2019E, with the potential to gain market share and mitigate the impact of the government's preference for rail over road. While the current valuation is fair, the stock's future performance will depend on the effectiveness of the new chairman's strategy and the timing of emission standard upgrades.