Weichai Power & China heavy duty truck industry in 2007

China's automobile industry has been back on the fast track in the past year after a few years of struggle. This has also helped engine-maker Weichai Power's performance greatly, with the company posting 926 million yuan in profit attributable to shareholders in the first half (a whopping 1.9-fold increase year-on-year). The company's 9.308-billion yuan total turnover in those six months was 1.37 times over the same period in 2006.

The main reasons for the giant leap are the growing demand for Weichai"s products by heavy-duty trucks and construction machines manufacturers; and added productivity and sales networks from acquiring the Zhuzhou (Hunan)-based auto parts maker Torch Investment Co Ltd. It shows the company's price to earning ratio and profit margins are in a good shape.

Weichai's core business did well in the first half of last year. It sold 140,000 diesel engines, an increase of 68.7 percent year-on-year. It started the production and sales of heavy-duty trucks, gearboxes and engines after completing the acquisition and reorganization of the Torch Investment Ltd. Sales of engines and heavy-duty truck parts grew 110 percent to 758 million yuan.

The major business activities in the second half of 2007 were, for one, continuing to boost the proportion of 12-liter big engines in the total sales from the current 5 percent to 50 percent in three years and reaching 10 percent in 2008; secondly, increasing exports to 20 percent of the total turnover in three to five years; and finally, projected capital expenditure of 1 billion yuan to fund the expansion of Euro-III (emission standard) compliant engine production, the productivity of Shaanxi Automobile Group Ltd and the output of Act Shite 12-shift gearboxes.

Weichai management has said the central government's macro-economic policies won't affect its operations and neither will interest rate hikes.

Initial estimates have Weichai's 2007 profit attributable to shareholders reaching 1.955 billion yuan for an increase of 178 percent.

The earnings per share could be HK$5.9. If the dividend payout ratio is raised from 9.39 percent in 2006 to 20 percent, the dividend for 2007 would be around the HK$1.18 level.

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