China National Heavy Duty Truck: Major beneficiaries of high-end heavy trucks

The high base results in a slightly lower sales growth of the company than in the industry. The semi-annual report shows that the company's revenue reached 16.7 billion yuan, an increase of 51% over the same period of last year. The revenue growth rate was lower than that of the heavy-duty truck industry. However, the profitability was improved. The gross profit margin was nearly two percentage points higher than that in 2009, and the net profit was 710 million yuan. Yuan, a year-on-year increase of 111%. In the first half of the year, the company's sales of heavy trucks reached 61,000 units, a year-on-year increase of 44%. The main reason for the lower sales growth was that the company recovered the leading heavy truck industry in the first half of last year, so the base was higher. In fact, the company’s first-half sales, capacity utilization, etc. have reached the highest levels in history. Product structure and profitability will continue to rise. In the first half of the year, the company’s revenue growth was faster than sales growth, mainly due to the upward movement of product structure driven by high-end models. In the first half of the year, the average price of the company's products reached 270,000 yuan, an increase of nearly 20,000 yuan over the whole year of 2008. The company's high-end model HOWOA7 is expected to reach an annual sales volume of more than 10,000 units, and its series of average price will reach 300,000 yuan, which is the most expensive among domestic brand heavy truck products. In the future, we believe that the company's product structure will continue to rise. At present, domestic heavy trucks have a certain gap in the range of around 500,000. The average price of foreign Volvo and Man brand products exceeds 800,000, and the domestic brand products are generally below 300,000. With the mature development of the domestic logistics and transportation industry, more and more users have greater demand for high-end products. In the case that foreign brand prices are difficult to reduce, the ratio of high-end domestic brands to heavy trucks will increase. As a leading company in domestic heavy truck technology, the company will benefit from this trend. In addition, the outsourcing ratio of the company’s core parts continued to decrease. After the group’s acquisition of Datong Gears (the same gear), the production capacity of the same tooth continued to grow. At present, the supply of Tongji and Qijiang Gear to the company has reached around 60%. On the whole, in the absence of major changes in the cost of steel products, the upward movement of product structure and the cost of outsourcing of core parts will keep the company's profitability upward. Heavy truck industry has returned to normal development. We believe that after undergoing abnormally high growth in the first half of the year, the entire heavy-duty truck industry will return to normal development in the second half of the year, and therefore the growth rate will fall down. However, we are optimistic about the absolute value of the industry's sales. We expect the industry's heavy truck sales to be able to maintain more than 250,000 units in the second half of the year, and it is likely to reach 800,000 units in sales throughout the year. From the point of view of the company, we expect the company to have more than 40,000 sales in the second half of the year. At the same time, we expect the industry's heavy truck sales will remain at 800-900,000 units in 11 years, but the proportion of high-end heavy trucks will increase from 15% this year to 20%. Therefore, from an industry perspective, although the industry has entered a short-term cycle, the company may still have growth beyond the industry.

We expect the company's revenue for 10 years and 11 years will increase 38% and 10% year-on-year, respectively. The corresponding EPS is: 2.2, 2.8 yuan. We believe that the market is overly concerned about the impact of the overall industry downturn on the company. The company is still leading the domestic market in heavy truck technology and will continue to benefit from the development of both the quantity and quality of heavy truck industry in China. Therefore, we continue to maintain the company’s Overweight rating.
View related topics: China heavy truck launches new heavy truck HOWO-A7

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