Morgan Stanley anticipates Weichai Power (02338, 000338.SZ) will report subdued second-quarter performance, pressured by weak liquefied natural gas heavy-duty truck sales, though a gradual recovery is expected in the latter half of 2025. Large-bore engine demand has demonstrated resilience year-to-date, supporting unchanged full-year guidance.
The investment bank slashed its Hong Kong-listed shares target price by 8% to HK$17.5, derived from a 12-times 2025 price-to-earnings multiple. This valuation approximates the stock's eight-year historical average forward P/E of 11 times. With projected recurring net profit growth exceeding 10% for 2025 and dividend yields surpassing 5%, Morgan Stanley views the valuation as compelling, maintaining its Overweight recommendation.
Heavy-duty truck engine revenue is forecast to contract year-on-year in Q2 2025 due to unfavorable product mix, dragging related segment revenue down by approximately ten percentage points. First-half revenue could decline about 10% annually. Management expects non-heavy-truck engine operations to maintain steady year-on-year revenue and margins during the quarter, leading to an estimated 1% overall engine revenue dip for H1 2025.
Large-bore engine operations show robust performance with second-quarter monthly sales mirroring Q1's 800-unit average, implying roughly 5,000 units for the first half. AIDC generator shipments constituted 10% of total volume, reflecting substantial annual growth. Weichai management projects global AIDC generator demand to expand 10-20% annually over the coming two years, with company sales potentially reaching 2,000-2,500 units.
For the new energy segment, management considers doubling revenue to RMB3 billion achievable this year, though below the initial RMB5 billion target. The 2024 net profit margin of approximately 4% should remain relatively stable through 2025. Morgan Stanley models a 4% year-on-year Q2 revenue decline and 8% net profit contraction, with gross margins holding firm as large-bore engine expansion and cost efficiencies counterbalance heavy-truck segment headwinds.
Profit forecasts for 2025-2027 were revised downward by 6%, 10%, and 10% respectively, reflecting these operational dynamics.