[ET Net News Agency, 27 September 2019] Morgan Stanley lowered its target price for
Sinotruk (Hong Kong)(03808) to HK$10 from HK$10.5 and maintained its "underweight" rating.
After a notable moderation in 2018 (sales volume rose only 3% in 2018 versus growth of
53% in 2017), China's heavy-duty truck (HDT) demand remained solid in 1H 2019 (a decline
of 2%), said the research house. Morgan attributed this mainly to stronger-than-expected
downstream infrastructure and property construction investment, as well as a surge in LNG
HDT sales.
However, looking at 2H 2019-2021, the research house anticipates weakness: down 8% in
2H, down 11% in 2020, and down 12% in 2021, driven by (1) China property investment
slowdown, after two years of strong growth; (2) already-high infrastructure investment,
which is unlikely to offset the weakness in property; (3) the impact of the country's push
from road to rail for freight transportation, which will be more pronounced from 2020; and
(4) replacement demand, which should peak in 2019 and decline in 2020-21, despite the
phaseout of China III HDT in multiple cities.
Morgan sees Sinotruk as one of the major victims of weak HDT demand, especially after
Weichai (02338) started to supply engines to Sinotruk, which is likely to lower its own
engine workshop utilization. (KL)