Strong engine margin expansion in 2024; 55% dividend payout ratio a record high

PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE MORE REPORTS FROM BLOOMBERG: RESP CMBR <GO> OR http://www.cmbi.com.hk 1 MN 28 Mar 2025 CMB International Global Markets | Equity Research | Company Update Weichai Power (2338 HK/000338 CH) Strong engine margin expansion in 2024; 55% dividend payout ratio a record high China Capital Goods 12-mth Price Performance Source: FactSet Related reports: Capital Goods - New subsidies on truck replacement cover NES IV and natural gas trucks; +ve to Weichai – 20 Mar 2025 (link) Capital Goods – Who are the potential beneficiaries of Germany’s mega infrastructure investment plan? 18 Mar 2025 (link) Weichai Power – Expect strong volume growth of engines for data centres – 25 Feb 2025 (link) Weichai’s net profit in 2024 grew 27% YoY to RMB11.4bn, which is in line with our expectation. Net profit in 4Q24 grew 19% YoY to RMB3bn, driven by 28%/13% YoY reduction of S&D / R&D expenses despite a flat (YoY) revenue. Weichai proposed a final dividend of RMB0.347/shr. This, together with the interim dividend, implies a payout ratio of 55% (up from 50% in 2023), which is a record high level. We revise up our 2025E/26E earnings forecast by 9%/11%, mainly due to higher margin assumptions for engine segment. We see several catalysts for Weichai: (1) HDT demand recovery driven by new subsidies; (2) strong growth of engines for data centres; (3) potential re-rating of KION Group (KGX GR, NR). Our SOTP-based TP for A/H is revised up to RMB18.7/HK$18.0. Maintain BUY. Key highlights in 2024 results:  Strong margin expansion for engine segment. Weichai delivered a total engine sales of 734k units (flat YoY). Exports, which grew 5%, accounted for 9% of total engines sales. The segment revenue was down 2% YoY to RMB59.4bn, due to a slight decrease in blended ASP (as a result of a 8% sales volume decline in HDT engines which carried a higher ASP, in our view). That said, the segment profit surged 35% YoY to RMB10.3bn, driven by a 4.8ppt YoY expansion of segment margin (to 17.5%). We forecast the segment margin to expand to 17.7%/17.8% in 2025E/26E, driven by the recovery of HDT engine demand and strong growth of engines for data centres.  HDT exports accounted for half of total HDT sales. Weichai delivered 118k units of HDTs (1.7% YoY). Exports grew 13% YoY to 59k units (50% of total HDT sales). The segment recorded RMB563mn in profit in 2024, with segment margin of 0.9%.  Forklifts & supply chain solution (KION Group) profit grew driven by margin. The segment profit grew 21% YoY to RMB6bn in 2024. While KION’s latest guidance for 2025E is conservative (adjusted EBIT is expected to be down 5%-21%), we are positive on the medium-term outlook thanks to Germany’s latest approval of the infrastructure investment plan.  Solid margin expansion for agricultural machinery. While the segment revenue growth slowed to 3% in 2H24 from 25% in 1H24, the segment margin continued to expan