One is China's largest internal-combustion engine manufacturing company, and the other is the world's largest auto parts manufacturer; the two giants once again join hands in the year when China implements the third phase emission standard.
On July 9, Weichai Power reported that it had received 37.16 yuan per share, clinching the contract with Germany's Bosch on the same day with a 3.22% increase.
According to the agreement, both parties cooperate on the fuel injection system project. Weichai's Euro II and Euro III engines use Bosch's fuel injection system, which is the core component purchased by Weichai Power. As a result, Bosch has become one of the largest suppliers of Weichai power.
The day on which the two parties signed was also the day when Weichai Power Lanqing Electric Controlled State III Engine realized production and sales of 120,000 units. According to sources from Weichai Power, after forming a sales scale of 120,000 units, Lanqing Electronically Controlled China III engine is expected to complete its initial cost, resulting in economies of scale.
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Weichai Power is a leading company with a complete industrial chain in China's heavy truck industry. Its product line covers heavy truck powertrains, complete vehicles, spare parts, etc. It is also China's largest heavy truck engine, engineering machinery engine, and the largest heavy truck transmission manufacturer.
The number of possessions of the Weichai Blue Engine has reached 120,000, and the high pressure common rail system has contributed to this. This gave a footnote to the agreement signed that day.
The agreement requires that Bosch will use its own technical advantages and experience (High Pressure Common Rail System) to support Weichai products to meet emission regulations and enhance the market competitiveness of Weichai products. Weichai will use its market influence to support Bosch in expanding its influence and market share in the Chinese market.
It has been learned that since the implementation of the China III standard in China, what type of fuel injection system has been used has been buzzing in the industry. With the use of high-pressure common rail technology, the Weichai Blue-Rock Engine has a 20% reduction in emission indicators compared with similar products and a 10%-15% reduction in fuel consumption, but the price is also high.
A Weichai customer told reporters that the engine is 10%-20% higher than the average engine price, about 100,000 yuan per station. However, "The performance and cost-effectiveness of the engine are very good," said the customer.
The cooperation between the two giants also gave the industry a new look. "The introduction of an engine that is suitable for the Chinese market and has the dual advantages of price and technology will facilitate the establishment of an international, rapid and flexible market R&D production mechanism; it will help complement each other and build a Chinese-style engine manufacturer with strong technical capabilities." Chairman of the Power Tan Xuguang said.
Weichai Power sources revealed that although sales last year were slightly affected by the financial crisis, sales declined slightly; but sales were clearly better than expected at the beginning of this year. In the first half of the year, it has sold 150,000 engines and plans to sell 25,000 units in July.
"The sales plan for the whole year is 300,000 units," said the person. "The sales of the Lanqing engine accounted for less than half, 120,000 units were calculated monthly, and since July last year, the average monthly sales were 10,000 units."
In 2008, Weichai Power sold 197,300 heavy truck engines. This estimate, in 2009, Weichai Power heavy truck engine sales growth will reach 53%.
The Lanqing engine with the concept of environmental protection in the future will become the new profit growth point for Weichai Power. "Although the previous period is still at a loss, it is also normal, but every new product launch class will have a break-even point; just as 120,000 units will have economies of scale," said the Weichai Power source said.
Target price 52.6 yuan
This growth is not a blinding stimulant in the eyes of securities analysts. With the recovery of the heavy truck market in the second half of the year, it also means that the entire industry is recovering from manufacturers. It is estimated that the heavy truck market will increase by more than 100% at the end of the year.
Xu Caihua, a researcher at Guodu Securities, said that the price difference between Lanqing engine and EGR engine is about RMB 10,000. At present, the high-pressure common rail technology route is about 10% higher than EGR, but Bosch still has price reduction space; The price difference will become smaller and smaller.
Xu Caihua said that Weichai Power is the most direct beneficiary of this round of economic recovery. With the support of government investment and the support of loose monetary policies, the growth rate of China's fixed asset investment continued to remain high.
In the second half of the year, with the further recovery of the real estate industry and the scale of investment in fixed assets remained at a high level, the construction machinery industry will continue to pick up, driving demand for engines.
Xu Caihua predicted that EPS of Weichai Power in 2009-11 was 2.63, 2.76, and 3.07 yuan, respectively. The current estimated dynamic P/E ratio is 14.0, 13.4, and 12.0 times, respectively. The valuation is low and has a high margin of safety. According to the 20x PE valuation, the company's target price is 52.6 yuan, giving the company a "short-term - strongly recommended, long-term -A" investment rating.
The same day we participated in the signing activities of Weichai Power and Bosch, not only Shaanxi Heavy Duty Truck, Foton Motor, Hongyan Auto, North Benz, Hualing Auto, Jianghuai Auto, Qingdao FAW, Dongfeng Liuzhou, Chongqing Iron Horse, Shanghai Huizhong, Nanjing Representatives of nearly 30 commercial vehicle manufacturers, including XCMG and Zoomlion, as well as suppliers from Bosch and Bogwana who entered the Fortune 500, hinted that the layout of Weichai Power's industrial chain has gained some publicity on this day.
Referring to the total amount of potential Weichai Power may purchase for Bosch each year, one Weichai Power source said that it is still unknown, depending on the market demand of Lanqing Engine.
GF Securities researcher Li Weiqing believes that the heavy-duty truck market will be depressed first. From January to May this year, the nation’s heavy-duty trucks sold 221,000 units, a year-on-year decline of 31%. However, as the economy improves, the investment in animal transport will increase, and investment projects will advance. It is expected that the heavy truck market will be in a better position in the second half of the year.
However, "the risk of Weichai Power still comes from the economic uncertainty, and raw material costs have risen more than expected." Li Weiqing said.
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