This month I released updated reports of Weichai (2338.HK), and Sinotruk (3808.HK). According to Weichai's FY2025 third-quarter report: In the first nine months of 2025, the company reported a revenue of RMB170.57 billion, representing a year-on-year (YoY) growth of 5.3%. Net profit attributable to the parent company amounted to RMB8.88 billion, marking a YoY increase of 5.7%, reflecting steady progress in overall performance. Looking at the results by quarter, the first two quarters saw more moderate growth in net profit, while the third quarter showed a sharp increase, mainly due to fluctuations in oil and gas price differentials and policy subsidies. The domestic natural gas heavy truck industry in 2025 saw a weak first half and a rapid recovery in the second half, driving fluctuations in the company's natural gas engine sales. In detail, the gross margin for the first three quarters was 22.2%, 22.1%, and 21.4%, with YoY changes of +0.12 ppts, +0.74 ppts, and -0.74 ppts, respectively. The net profit margin attributable to the parent company was 4.72%, 5.27%, and 5.63%, with YoY changes of +0.11 ppts, -0.62 ppts, and +0.58 ppts, respectively. Profitability remains resilient. In January 2025, the government introduced a subsidy policy to promote vehicle replacements, expanding the subsidy coverage to vehicles meeting the National IV emission standard and below. In March, the policy was further extended to natural gas heavy trucks, driving a gradual increase in demand for heavy trucks. The penetration rate of natural gas and new energy heavy trucks has rapidly increased under the dual influence of policy and technology. According to data from the China Association of Automobile Manufacturers (CAAM), the cumulative sales of heavy trucks in the Chinese market reached 1,145 thousand units in 2025, a YoY growth of 27%. Of this, 341 thousand units were exported, showing a YoY growth of 17.4%. The market now features a three-way division among diesel, natural gas, and new energy vehicles, with market shares of 46%, 25%, and 29%, respectively.

To align with industry trends, Weichai has developed multiple technological routes, including pure electric, fuel cell, and hybrid solutions. In the first three quarters, the company sold a total of 536 thousand engines, including 188 thousand heavy truck engines. By fuel type, the sales of diesel heavy truck engines were approximately 117 thousand units, while natural gas heavy truck engines accounted for around 71 thousand units. According to the First Commercial Vehicle Network, Weichai's new energy power system business achieved a revenue of RMB1.97 billion (RMB, the same below) in the first three quarters of 2025, marking an 84% YoY growth. Its subsidiary, Shaanxi Heavy Duty Truck, sold 109 thousand heavy trucks in the first three quarters, a YoY growth of 18%. Sales of new energy heavy trucks reached about 16 thousand units, a YoY growth of approximately 2.5 times, maintaining a leading position in the industry.

Looking ahead, the expected balanced supply-demand structure is likely to support natural gas prices at a stable and reasonable range, and the application of natural gas heavy trucks will become more widespread, with the penetration rate continuing to rise. With continued policy support, technological upgrades, and improvements in infrastructure, the market penetration of new energy heavy trucks is also expected to keep increasing. In the medium term, the positive effects of fiscal and monetary stimulus policies, along with the next phase of emission standard upgrades in the industry, will have a positive impact on heavy truck sales. Weichai leads the market share in heavy truck engines, particularly in the natural gas heavy truck engine market, with shares of 23% and 52%, respectively, and is expected to benefit first.

With the rapid iteration of AI technology in recent years driving the acceleration of computing infrastructure, the power generation industry has experienced rapid growth. The demand for backup power engines has surged, and the company has deeply invested in multiple product forms, including diesel, natural gas, and solid oxide fuel cells (SOFC), to meet market needs. The company's large-bore engine (diesel) business has reached a certain scale and is entering a phase of rapid growth. In the first three quarters of 2025, sales exceeded 7,700 units, marking a YoY increase of over 30%. Among these, sales of products related to data centers surpassed 900 units, growing more than threefold YoY.

Regarding solid oxide fuel cells, in November, Weichai signed a manufacturing license agreement with its affiliate, Ceres, to establish production lines for batteries and stacks to be used in the stationary power generation market. Some key components will be supplied by Ceres, and the products will provide power for applications such as AI data centers, commercial buildings, and industrial parks. This means the company will have full control over the core technologies of batteries, stacks, systems, and power stations, and will be authorized to enter the global market for sales. Currently, the company has now a good order backlog in the SOFC field, with promising profit prospects.

We expect that with the rapid development of the global computing power market, the domestic supply chain will gradually mature and production capacity will steadily be released, leading to an accelerated expansion of the power generation equipment business order scale. The second growth curve is becoming increasingly clear.

We forecast the EPS of the Company to be RMB 1.42/1.54/1.82 yuan in 2025/2026/2027. We will also revise target price to 34.6 HKD (22/20/17x P/E and 2.9/2.6/2.4x P/B for 2025/2026/2027) and BUY rating. (Closing price as at 5 February)

As a leading enterprise in China's heavy truck industry, SINOTRUK has continued to consolidate its competitive advantages across three key dimensions: sales growth, exports, and new energy transformation. In 2025, the HOWO and SITRAK dual-brand strategy delivered coordinated growth, supporting the Company's sustained improvement in sales growth. The total vehicle sales volume for the year exceeded 440 thousand units, up 25% yoy, of which heavy truck sales surpassed 300 thousand units. The Company's market share has ranked first in the domestic market for four consecutive years and, for the first time, topped the global heavy truck sales ranking.

In 2025, the Company's cumulative sales volume of new energy heavy truck reached 27 thousand units, up 249% yoy, ranking first in the industry, with a growth rate significantly exceeding the industry average of 189%. The highest monthly sales volume exceeded 6 thousand units, ranking first in monthly sales of new energy heavy truck. Sales volume of new energy light truck reached 10,300 units, up 196% yoy, ranking third in the industry, achieving rapid penetration in the light commercial vehicle market.

The Company has comprehensively deployed three major technology routes, namely EV, HEV and hydrogen fuel cell, with products covering all application scenarios including tractor units, dump trucks and mixer trucks. Meanwhile, the Company has simultaneously advanced fast-charging and battery swap models, building differentiated competitive advantages.

In the field of intelligent driving, the Company has launched an L2+ level advanced driver assistance system, equipped with intelligent response capabilities for complex road conditions. The system enables a range of functions including intelligent ramp merging and automatic obstacle avoidance in tunnels, and supports the "dual-driver to single-driver" mode. At the end of 2025, the Company globally launched the "Xiaozhong 1.0" intelligent service system, capable of processing complex customer demands in driving operations, maintenance enquiries, fault warnings and behavioural analysis at millisecond level, achieving deep integration of vehicle connectivity and AI large models. This marks a new stage in the Company's intelligent service system.

In respect of export business, the Company leverages SINOTRUK International, with products covering more than 150 countries and regions across Africa, Southeast Asia, Central Asia and the Middle East. In 2025, the Company's annual export sales volume of heavy truck exceeded 150 thousand units, up 14% yoy, ranking first in China's heavy truck exports for 21 consecutive years. The Company has continued to expand into high-end markets, achieving breakthrough growth in strategic regions such as Saudi Arabia and Morocco, demonstrating strong demand for the Company's highly cost-effective products. The Company has advanced its localisation strategy by establishing 37 KD assembly plants in 27 countries worldwide, significantly enhancing market penetration and service response efficiency. In addition, the Company has actively broadened its export product portfolio. Revenue from export of after-market parts increased by 53% yoy for the year, forming a dual-engine overseas expansion model of "complete vehicles + parts".

The Company's dividend payout ratio has continued to increase over the past five years. In the interim period of 2025, a cash dividend payout ratio of 55% has been implemented. Going forward, the Company will dynamically enhance the cash dividend payout ratio based on operating performance and funding requirements. Management has set a target to achieve total vehicle sales of over 800 thousand units by 2030, equivalent to a CAGR of 12.5% over the next five years, effectively rebuilding another "SINOTRUK".

We expected the Company's EPS in 2025/2026/2027 to be 2.39/2.86/3.01 yuan, respectively, and adjust the target price to HKD 49.3, corresponding to 18.5/15.2/14.4x P/E and 2.8/2.5/2.4x P/B in 2025/2026/2027, with 'Accumulate' rating. (Closing price as at 25 February)

Utilities, Commodity, Shipping (Margaret Li)

This month I released 1 reports of XIMEI RESOURCES (9936.HK)

The company is a manufacturer of tantalum and niobium metallurgical products in China. These products are essential for downstream manufacturing used in various high-tech industries such as specialty alloys, chemicals, electronic ceramics, aerospace, high-end electronic consumer goods, national defense, and cemented carbide. The company's main products are tantalum oxide and niobium oxide. The company also produces and sells potassium flutantalate. The company processes its products to different purities and specifications to meet the demands of various end products. Additionally, the company sells processed products such as tantalum bars, carbon oxide, niobium bars, and niobium powder by either commissioning third-party metallurgical companies to process its pentoxide products and potassium fluotantalate, or by purchasing these processed goods from third-party metallurgical companies. Furthermore, the company provides processing services to convert tantalum and niobium ores provided by customers into pentoxide products and potassium fluotantalate.

Ganfeng Lithium currently holds a 15.79% stake in XIMEI RESOURCES, making it the second-largest shareholder. As a global leader in the lithium industry, Ganfeng Lithium has long focused on the new energy metals industry chain. Tantalum and niobium, as critical materials for high-end fields such as semiconductors and aerospace, fall within the same strategic metals category as lithium resources. Through its stake in XIMEI RESOURCES, Ganfeng Lithium likely aims to expand its footprint in strategic metals, forming a diversified resource portfolio of "lithium + tantalum/niobium," while leveraging XIMEI RESOURCES' technological expertise in tantalum and niobium metallurgy to enhance industrial chain synergies in the advanced materials sector. Furthermore, Ganfeng Lithium's shareholding endorsement helps boost market confidence.

As a core producer of tantalum and niobium metallurgical products in China, Framework Resources is poised to benefit from the growth in high-end downstream demand for tantalum and niobium (semiconductors, aerospace), enabling it to embark on a long-term growth trajectory and achieve performance increases. We forecast the company's revenue for 2025-2027 to be RMB 1.943 billion, RMB 2.159 billion, and RMB 2.340 billion, respectively, with EPS of RMB 0.54, RMB 0.57, and RMB 0.62. We assign a 24x P/E ratio for 2026, resulting in a target price of HKD 14.25. Initiate coverage with an "Accumulate" rating.

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Source: Phillip Securities Research