EQUITY RESEARCH Sinotruk (3808 HK) Improving sales structure 9 January 2015 Hong Kong | Automobile | Update Report Sales of heavy trucks achieving yoy growth of 23% in November Jinan Heavy Truck, an affiliated company of SINOTRUK, recently released the latest sales data, a total of 8597 heavy trucks have been sold in November, with 23.2% annual growth. In the first 11 months of the year, 81534 heavy trucks have been sold cumulatively, with 7.1% annual growth. Accumulate (Upgrade) Product structure optimization trend is evident In recent years, the company has committed to improving product technology, and marked progresses have been made. T7H and T5G heavy trucks launched by the company employ the key components such as the engine and vehicle axle that are produced after the localization of German MAN Company. Among them, T5G is applicable to the logistics of moderate distance, while T7H is applicable to the logistics of long distance. Among the heavy truck sales in the company, the proportion of the Euro IV types got increased, so the company's profitability got improved, and the company's growth rate of revenue in 2014H1 significantly outperformed the sales growth rate. In 2015, the Euro IV models that the company is going to launch into the market will mainly adopt German MAN technology and intelligent technology, so as to increase the attraction to clients. MARKET CAP (HKD MN) : Recently, focus on the implementation strength for eliminating yellow label vehicles, and in medium term pay attention to the "One Belt and One Road" strategy and the SOE reform. First, recently, the Ministry of Environmental Protection has reported the progress of eliminating yellow label vehicles, and has worked together with other five ministries and commissions to issue document for the actual implementation plan and goal of eliminating yellow label vehicles, which reflects the country's strong resolve and strength in eliminating yellow label vehicles and continuing to advance the upgrading of the national stage IV emission standard. Second, large numbers of infrastructure projects that the government approved at the end of the year will be implemented and advanced one by one in 2015, and this will serve as a strong simulation to the replacement and renewal demand of heavy trucks, which will thus boost the sales growth of the company. In the medium term, according to the national "One Belt and One Road" strategy, heavy trucks will serve as the first capital goods of infrastructure construction, and therefore the heavy truck industry will be the first to benefit. While in 2014, the company's controlling shareholder was changed from SASAC of Shandong Province to SASAC of Jinan City, which meant the company's autonomy in management was further expanded. As a state owned enterprise, SINOTRUK's subsequent reform topics are expected to become the focus of the capital market. CMP TARGET 4.56 HKD 4.96 HKD 8.8% COMPANY DATA O/S SHARES (MN) : 2761 12,590 52 - WK HI/LO (HKD) : 3.75 - 4.8 Raw Beta (Past 2yrs weekly data) 0.67 SHARE HOLDING PATTERN, % Sinotruk (BVI) Limited 51.00% MAN Finance and Holding S.A. 25.00% PRICE PERFORMANCE, % Sinotruk 1MTH 3MTH -0.88 2.46 6.54 HSI Index 8.31 3.65 PRICE VS. HSI 10.00 8.00 6.00 4.00 2.00 0.00 Jan/14 Apr/14 Jul/14 3808 hk equity Oct/14 Jan/15 HSI Source: Phillip Securities Hong Kong Research KEY FINANCIALS FY12 FY13 FY14E Revenue 27888 30410 33006 36178 Net Profit 123 271 536 714 EPS, (yuan) 0.04 0.10 0.19 CNY mn P/E (X), 82.5 36.5 18.5 FY15E 0.26 13.9 BVPS (yuan) 6.75 6.83 7.05 P/B (X) 0.5 0.5 0.5 0.5 DPS (yuan) 0.01 0.04 0.06 0.08 0.3% 1.1% 1.7% 2.2% Div. Yield (%) Source: Bloomberg, PSR est. *All multiples & yields based on current market price Zhang Jing +86 63512937 [email protected] Page | 1 | PHILLIPCAPITAL HONGKONG RESEARCH 1YR 10.14 7.26 Sinotruk Investment Thesis As analyzed above, we revised EPS expectation of the Company to RMB 0.19 and 0.26 of 2014/2015. And we accordingly revised the target price to 4.96, respectively 20.1/15.1x P/E and 0.6/0.5x P/B for 2014/2015. "Accumulate" rating. Sales of heavy trucks achieving yoy growth of 23% in November Jinan Heavy Truck, an affiliated company of SINOTRUK, recently released the latest sales data, a total of 8597 heavy trucks have been sold in November, with 23.2% annual growth. In the first 11 months of the year, 81534 heavy trucks have been sold cumulatively, with 7.1% annual growth. Better than the industry average This year, the domestic heavy truck market was affected by the macroscopic downturn of the economy; the cumulative sales of the heavy truck in the first 11 months were 687.6 thousand, with the yoy decline of 1%. The mom growth ratio shows the trend from high to low. On a closer look, the semi-trailer towing vehicles benefit from the stable demand for the logistics industry, its performance is better than that of the whole vehicles and the chassis. In this background, bucking the trend, sales of heavy trucks of the company as well as in the parent group achieved good performance, whose domestic market share rising for 5 consecutive months. The cumulative income of the heavy trucks in the first 11 months of the company as well as the parent group grew 10% yoy, which was up to 60.83 billion. In addition, there were more than 21 thousand units cumulatively in its export orders; continues to rank the first among domestic heavy truck enterprises. Product structure optimization trend is evident In recent years, the company has committed to improving product technology, and marked progresses have been made. T7H and T5G heavy trucks launched by the company employ the key components such as the engine and vehicle axle that are produced after the localization of German MAN Company. Among them, T5G is applicable to the logistics of moderate distance, while T7H is applicable to the logistics of long distance. Among the heavy truck sales in the company, the proportion of the Euro IV types got increased, so the company's profitability got improved, and the company's growth rate of revenue in 2014H1 significantly outperformed the sales growth rate. In 2015, the Euro IV models that the company is going to launch into the market will mainly adopt German MAN technology and intelligent technology, so as to increase the attraction to clients. Gross margin trend 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 2006A 2007A 2008A 2009A 2010A Source: Company, Phillip Securities Hong Kong Research Page | 2 | PHILLIPCAPITAL HONGKONG RESEARCH 2011A 2012A 2013A 2014F 2015F UPDATE REPORT Sinotruk Recently, focus on the implementation strength for eliminating yellow label vehicles, and in medium term pay attention to the "One Belt and One Road" strategy and the SOE reform. First, recently, the Ministry of Environmental Protection has reported the progress of eliminating yellow label vehicles, and has worked together with other five ministries and commissions to issue document for the actual implementation plan and goal of eliminating yellow label vehicles, which reflects the country's strong resolve and strength in eliminating yellow label vehicles and continuing to advance the upgrading of the national stage IV emission standard. Second, large numbers of infrastructure projects that the government approved at the end of the year will be implemented and advanced one by one in 2015, and this will serve as a strong simulation to the replacement and renewal demand of heavy trucks, which will thus boost the sales growth of the company. In the medium term, according to the national "One Belt and One Road" strategy, heavy trucks will serve as the first capital goods of infrastructure construction, and therefore the heavy truck industry will be the first to benefit. While in 2014, the company's controlling shareholder was changed from SASAC of Shandong Province to SASAC of Jinan City, which meant the company's autonomy in management was further expanded. As a state owned enterprise, SINOTRUK's subsequent reform topics are expected to become the focus of the capital market. Peer Comparison BEst Curr BEst EV/BEst P/E:2FY EBITDA P/B Mkt Cap BEst (HKD mil) P/B BEst BEst P/B:2FY P/E 20112 72043 10801 6900 7165 3649 1.9 1.8 2.0 N/A 1.8 N/A 1.7 1.6 1.7 N/A 1.7 N/A 21.6 11.3 14.6 26.6 33.7 N/A 17.0 12.5 12.0 20.8 22.6 N/A 14.9 9.1 12.1 N/A 23.5 N/A 2.5 1.9 2.0 2.6 1.8 4.4 2.7 5.1 2.9 5.2 2.5 -2.4 7.2 18.1 11.7 9.0 5.2 -8.3 124305 124305 2.8 2.8 2.9 2.9 112.7 112.7 50.7 50.7 20.1 20.1 2.4 2.4 1.0 1.0 3.6 3.6 Average KION GROUP AG 28455 28455 1.8 1.8 1.6 1.6 14.2 14.2 12.3 12.3 6.3 6.3 1.9 1.9 2.9 2.9 11.0 11.0 Average SINOTRUK ZOOMLION SANY HEAVY CHANGCHAI-B 22100 12839 63997 6265 5299 0.8 0.5 0.9 0.8 N/A 0.7 0.5 0.9 0.8 N/A 18.6 19.9 23.7 12.0 N/A 15.1 14.8 18.0 12.5 N/A 11.9 5.1 20.8 9.7 N/A 0.9 0.5 0.9 0.8 1.2 2.0 0.8 2.0 3.0 2.3 3.7 2.1 4.4 4.5 3.8 Average KUBOTA HINO HITACHI CONST 76439 134940 60557 33819 1.8 2.0 2.2 1.3 1.7 1.8 2.1 1.2 14.5 15.2 12.5 15.6 12.5 13.6 10.8 13.3 8.8 10.9 6.9 8.4 2.0 2.1 2.5 1.3 5.8 6.3 8.4 2.7 15.4 13.9 24.6 7.6 Average DAEWOO HYUNDAI MIPO 16458 23233 9683 0.6 0.6 0.6 0.6 0.6 0.6 25.2 14.6 35.8 9.9 8.2 11.6 9.9 15.1 4.7 0.7 0.7 0.7 -3.1 1.1 -7.3 -12.1 4.2 -28.3 Average VOLVO AB-B SHS 176623 176623 2.3 2.3 2.1 2.1 23.8 23.8 14.8 14.8 12.2 12.2 2.2 2.2 1.6 1.6 7.0 7.0 Average CATERPILLAR INC CUMMINS INC 140698 405939 201523 3.3 2.8 3.3 3.0 2.7 2.9 13.4 13.3 15.6 12.2 12.5 13.0 8.6 6.7 9.0 3.4 2.8 3.3 10.7 4.6 10.9 28.3 21.3 22.1 45889 44658 5482 5.6 4.3 0.7 5.1 3.8 0.6 18.3 12.8 7.0 15.9 11.8 7.6 12.1 11.3 3.8 5.8 4.3 0.7 29.7 4.6 3.7 70.6 16.2 11.3 Ticker CNY (5 securities) Average 000338 CH Equity 000951 CH Equity 002434 CH Equity 000903 CH Equity 000617 CH Equity EDM (1 security) Average MAN GR Equity EUR (1 security) Average KGX GR Equity HKD (4 securities) Average 3808 HK Equity 1157 HK Equity 631 HK Equity 200570 CH Equity JPY (3 securities) Average 6326 JP Equity 7205 JP Equity 6305 JP Equity KRW (2 securities) Average 042660 KS Equity 010620 KS Equity SEK (1 security) Average VOLVB SS Equity USD (5 securities) Average CAT US Equity CMI US Equity Name WBC US Equity ALSN US Equity CYD US Equity WABCO ALLISON CHINA YUCHAI Average WEICHAI -A CNHTC JINAN TRUCK-A WANLIYANG -A YUNNEI POWER-A JINAN ENGINE CO-A Average MAN SE Source: Company, Phillip Securities Hong Kong Research Page | 3 | PHILLIPCAPITAL HONGKONG RESEARCH ROA LF ROE UPDATE REPORT Sinotruk UPDATE REPORT Financials FYE DEC Valuation Ratios P/E (X), adj. P/B (X) Dividend Yield (%) Per share data (RMB) EPS, (Basic) EPS, (Diluted) DPS BVPS Grow th & Margins (%) Grow th Revenue EBIT Net Income, adj. Margins Gross margin EBIT margin Net Profit Margin Key Ratios ROE Incom e Statem ent (RMB m n) Revenue Gross profit EBIT Profit before tax Tax Profit for the period Minority interests Total capital share Net profit Source: PSR Page | 4 | PHILLIPCAPITAL HONGKONG RESEARCH FY11 FY12 FY13 FY14F FY15F 10.4 0.6 2.1% 84.2 0.6 0.3% 37.2 0.5 1.1% 18.9 0.5 1.6% 14.2 0.5 2.2% 0.36 0.36 0.08 6.79 0.04 0.04 0.01 6.75 0.10 0.10 0.04 6.83 0.19 0.19 0.06 7.05 0.26 0.26 0.08 7.26 -7.7% -10.9% -22.9% -23.8% -59.0% -87.7% 9.0% 17.9% 120.7% 8.5% 31.8% 97.6% 9.6% 22.2% 33.1% 15.6% 5.6% 2.7% 14.9% 3.0% 0.4% 16.7% 3.2% 0.9% 16.7% 3.9% 1.6% 17.0% 4.4% 2.0% 5.4% 0.7% 1.4% 2.8% 3.6% 36604 5706 2043 1466 -298 1168 -166 2761 1002 27888 4151 838 320 -149 171 -49 2761 123 30410 5091 988 592 -153 440 -168 2761 271 33006 5495 1302 915 -210 705 -168 2761 536 36178 6150 1591 1201 -270 931 -217 2761 714 Sinotruk Ratings History Market Price Target Price 12 Source: Bloomberg, PSR 10 8 6 4 2 Sep-14 Mar-14 Sep-13 Mar-13 Sep-12 Mar-12 Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 1 2 3 4 5 PSR Rating System Total Returns Recom m endation Rating > +20% Buy 1 +5% to +20% Accumulate 2 -5% to +5% Neutral 3 -5% to -20% Reduce 4 <-20% Sell 5 Rem arks We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation Page | 5 | PHILLIPCAPITAL HONGKONG RESEARCH UPDATE REPORT Sinotruk Total Return >+20% +5% to +20% -5% to +5% -5% to -20% <-20% UPDATE REPORT PHILLIP RESEARCH STOCK SELECTION SYSTEMS Recommendation Buy Accumulate Neutral Reduce Sell Rating 1 2 3 4 5 Remarks >20% upside from the current price +5% to +20%upside from the current price Trade within ± 5% from the current price -5% to -20% downside from the current price >20%downside from the current price We do not base our recommendations entirely on the above quantitative return bands. 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For details of different product's risks, please visit the Risk Disclosures Statement on http://www.phillip.com.hk. © 2015 Phillip Securities (Hong Kong) Limited Page | 6 | PHILLIPCAPITAL HONGKONG RESEARCH Sinotruk UPDATE REPORT Contact Information (Regional Member Companies) SINGAPORE Phillip Securities Pte Ltd 250 North Bridge Road, #06-00 Raffles City Tower, Singapore 179101 Tel : (65) 6533 6001 Fax: (65) 6535 3834 www.phillip.com.sg MALAYSIA Phillip Capital Management Sdn Bhd B-3-6 Block B Level 3, Megan Avenue II, No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099 www.poems.com.my JAPAN Phillip Securities Japan, Ltd 4-2 Nihonbashi Kabutocho, Chuo-ku Tokyo 103-0026 Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141 www.phillip.co.jp INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809 www.phillip.co.id CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. No 436 Heng Feng Road, Green Tech Tower Unit 604 Shanghai 200 070 Tel (86) 21 5169 9400 Fax: (86) 21 6091 1155 www.phillip.com.cn INDIA PhillipCapital (India) Private Limited No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in THAILAND Phillip Securities (Thailand) Public Co. 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