Sealand: The heavy truck market is expected to have a turning point in 2025, and heavy truck companies may welcome a double-click from Davie.

Sealand released a research report stating that the heavy truck industry has emerged from the downturn that began in the second half of 2021. Looking back over the past 5 years, the industry has endured negative impacts from the COVID-19 pandemic, rising supply chain costs, and the digestion of National V inventories, with fluctuations in sales volume and corporate profitability. However, compared to 5 years ago, progress in exploring new markets, industry standardization, the development of various technological routes, and the competitiveness of enterprise products have all significantly improved. Currently, the industry has been operating at low levels for about 3 and a half years, with the average value of the domestic market returning upwards and continued stable growth in export markets. Heavy truck sales will continue to recover. Investors should pay attention to seizing the opportunity of the Davis Double-Click at the turning point. Sealand's main points are as follows: The current period is the early stage of high-quality development of the heavy truck industry, and the beginning of a new upward cycle. The industry has emerged from the downturn that began in the second half of 2021. With the strong resilience of new domestic market demand, the upward convergence of renewal demand, and stable growth in export markets, the industry is expected to have wholesale sales of heavy trucks for the full year 2024 that are basically equivalent to 2023. The compound annual growth rate of the heavy truck industry from 2024 to 2026 is expected to be around 10%. In terms of the domestic market, new demand has strong resilience, and renewal demand is driving upward convergence. From a reasonable holding perspective, the reasonable central sales volume of heavy trucks in China is 720,000 to 810,000 units. With the industry operating at low levels for 3 and a half years, the upward convergence is an important support for the growth of the domestic market. After the end of winter, the penetration rate of natural gas heavy trucks may continue to grow modestly. After the end of winter, the gas-diesel ratio is expected to return to below the baseline, so the performance of natural gas heavy trucks in the whole year 2025 may still be good. In the long term, natural gas as a clean energy source is expected to continue to receive a friendly policy environment and stable supply. Demand for natural gas heavy trucks is expected to steadily increase. Regarding export markets, the nearly 300,000 units in 2023 may be the starting point for the growth of Chinese heavy truck exports. In addition to the high cost-effectiveness of Chinese products, the large-scale export to the Russian market in 2023 is also due to external factors such as overall growth in the Russian heavy truck market and the Russian government not following local protection policies. Currently, Chinese brand heavy trucks have a considerable market share in Russia, and the market share of Russian domestic brands is expected to rise after the increase in scrapping tax. Considering that the market size in Russia may decline from its peak, it is expected that China will export about 50,000-60,000 heavy trucks to Russia in 2025, still a considerable scale. Excluding the Russian market, Chinese heavy truck exports grew by 31.5% year-on-year in the first 11 months of 2024. Markets in Africa, Southeast Asia, and Latin America are expected to continue to grow steadily. Overall, the nearly 300,000 units in 2023 may be the starting point for the future growth of Chinese heavy truck exports. Industry rating and investment strategy First coverage, Sealand gives the heavy truck industry a "recommended" rating, recommending Sinotruk Jinan Truck, Weichai Power, and CIMC Vehicles. Risk warning: Heavy truck industry demand is lower than expected; overseas demand growth is lower than expected; risks of changes in import policies of target export markets; increased competition in export markets; key attention to company performance falling below expectations; domestic and international truck markets cannot be simply compared, and the relevant data information is for reference only.