Automotive and Parts Industry: Heavy Trucks Meet Development Opportunities

We believe that the heavy-duty truck industry will have trading opportunities in the coming quarter. It is expected that the continued high sales volume in the second quarter and the strong growth of listed companies will become the upward catalyst for the company's share price. A-share key recommendation ranking: China National Heavy Duty Truck, Dongfeng Motor, Weichai Power and Foton Motor; Hong Kong stocks focus on the recommended classification for China's heavy truck and Weichai Power.

The market exaggerated the impact of the decline in fixed asset investment growth on heavy trucks. 1) The strong growth of logistics vehicles provides non-investment support for the heavy truck industry. At present, engineering-related heavy trucks account for only 40% of sales, while logistics vehicles account for 50% of sales. 2) The demand for product replacement during peak sales of heavy trucks in 2002-2003 started gradually from 2010 onwards. 3) There is more room for improvement in demand in the central and western provinces. With the development of economy, China's road transport and railway transportation in many inland provinces have much room for improvement in road freight demand and heavy truck inventory.

We believe that the heavy-duty truck industry will repeat the same mistakes as the 2008 “volume (sales) price deviation”: 1. The current economy is in a clear upward phase of recovery; 2. The current round of sales growth has demand support (such as Midwest, logistics, etc.) ) Compared with the one-time factor of the State III switch in 2008, it is more persistent;3.The pressure of the conduction cost of the enterprise is increasing.The current capacity utilization rate of the industry is as high as 132.9%, and will remain above 100% for the whole year.Static analysis, steel price For each 10% increase, the gross margin for heavy truck manufacturers is squeezed by 1 to 1.5 percentage points, but the company's price increase in the first quarter of 2010 was 1.5%, coupled with the economies of scale effect and product upgrade brought about by the increase in capacity utilization rate. Gross margin in 2010 will remain stable or even slightly increase.

Revise 2010 sales forecast to 838,000 units, a year-on-year growth rate of 31%, which is higher than the market expectation of 10% to 15%. In the first quarter of 2010, sales of heavy trucks increased by 166,000 units year-on-year, which contributed 82.2% of our annual growth forecast (202,000 units). Looking forward, April and May are still the traditional peak season for heavy trucks. Sales volume is still expected to remain high. Therefore, as long as there is no significant year-on-year decline in the second half of the year, heavy truck sales are more likely to exceed market expectations.

The macroeconomic risk response is sufficient. 1) The market expectation has already implied the hypothesis that sales volume dropped by 29% to 36.1% in the second half of the year. 2) In the first quarter of the heavy truck industry, the deviation of volume (sales) prices and the current historical low-end valuation levels have fully reflected the above expectations. On the contrary, the CICC macro group predicts that the investment growth this year may exceed expectations, mainly due to strong local government. The investment impulses, the recovery of private sector demand, and the upward flexibility of the central government's expenditure scale, etc. At the same time, the China Gold Strategy Group believes that there is no sign of overheating in the economy, and the risk of macroeconomic regulation and control is small. We believe there is an upward macroeconomic risk in the heavy truck industry.

The long-term drivers of heavy truck sales growth still exist. 1. Investment in fixed assets will maintain rapid growth; 2. Logistics demand is still rising; 3. Long-term growth of exports can be expected. It is expected that the growth rate of the industry in the next 3 to 5 years will remain at the level of 10% to 15%.

The upgrading of product structure will promote the stable improvement of profitability of leading enterprises. Emissions upgrading and transportation economy promote product structure improvement, barriers to entry have gradually increased, and industry concentration has steadily increased. The leading companies will continue to benefit from the increase in bargaining power brought about by the increase in industry concentration and the increase in profitability after the increase in product prices.