GF Securities: The heavy truck industry is still in an upward cycle, and profits are expected to reach a new high along with sales.

GF SEC released a research report stating that the heavy truck industry is still in an upward cycle, and with the continuation of the 26-year policy of replacing old trucks with new ones, the domestic heavy truck industry remains stable, with growth in heavy truck exports continuing to drive the industry upwards. Considering that current valuations of truck stocks are generally low, future profits are expected to follow record sales, indicating that the investment value of truck stocks has not been fully realized. GF SEC's main points are as follows: Sales: In May, wholesale, retail, and export sales of heavy trucks increased by 23.3%, 19.4%, and 20.8% year-on-year, respectively. According to the China Association of Automobile Manufacturers, in May, wholesale sales of heavy trucks reached 109,000 units, an increase of 23.3% year-on-year but a decrease of 6.4% month-on-month. Cumulative wholesale sales of heavy trucks from January to May of this year reached 544,000 units, up 23.3% year-on-year. According to the compulsory insurance data, retail sales of heavy trucks in May reached 75,000 units, up 19.4% year-on-year but down 18.5% month-on-month. Cumulative retail sales of heavy trucks from January to May of this year reached 332,000 units, up 16.3% year-on-year. According to the General Administration of Customs, exports of heavy trucks in May reached 41,000 units, up 20.8% year-on-year but down 4.3% month-on-month. Cumulative exports of heavy trucks from January to May of this year reached 201,000 units, up 42.3% year-on-year. Among them, exports to areas outside of Russia reached 41,000 units in May, up 20.9% year-on-year but down 4.6% month-on-month. Cumulative exports to areas outside of Russia from January to May reached 199,000 units, up 43.4% year-on-year. Exports to Russia reached 711 units in May, up 11.6% year-on-year and 14.9% month-on-month. Cumulative exports to Russia from January to May reached 2355 units, down 12.2% year-on-year. Inventory: Inventory is currently at a healthy level Inventory replenishment shows clear seasonality, with peak inventory replenishment periods typically occurring in Q1/Q4. At the end of Q4 in 25, total inventory of the heavy truck industry increased by 6,000 units, marking the first time in 21 years that inventory increased in Q4. Similarly, there was a significant increase in inventory at the beginning of 26, with total inventory at the end of Q1 increasing by 40,000 units. According to the data from the Chamber of Commerce, as of the end of May 26, the total inventory of the heavy truck industry was 185,000 units, showing a monthly increase of 47,000 units year-on-year and 10,000 units month-on-month. The dynamic inventory-to-sales ratio (total inventory of the month/rolling average of terminal sales in the past 3 months) is 2.7, which is within a reasonable range. Demand: Since the beginning of 26, there has been a recovery in logistics demand According to the National Bureau of Statistics, in May 26, the year-on-year growth rate of road freight turnover volume was 2.4%. Cumulatively from January to May of 26, the year-on-year growth rate of road freight turnover volume was 3.1%. Since the beginning of 26, logistics demand has remained stable and is gradually increasing. Market share: According to the China Association of Automobile Manufacturers, from January to May of 26, the cumulative wholesale sales market share of FAW Group and BAIC Foton Motor's heavy trucks increased by 0.3 percentage points and 1.4 percentage points to 28.4% and 13.9%, respectively. According to the compulsory insurance data, from January to May of 26, the cumulative retail sales market share of FAW Group, FAW Jiefang, and BAIC Foton Motor's heavy trucks increased by 1.6 percentage points, 2.3 percentage points, and 1.8 percentage points to 19.4%, 11.0%, and 13.1%, respectively. According to the China Association of Automobile Manufacturers, from January to May of 26, the cumulative export market share of FAW Group, Dongfeng Motor, and BAIC Foton Motor's heavy trucks increased by 1.0 percentage points, 2.6 percentage points, and 1.4 percentage points to 46.7%, 10.1%, and 10.4%, respectively. Risk warning: Decline in industry prosperity; Rise in raw material prices; Intensified industry competition, etc.