Cost Efficiencies Support 1H18 Results, Reiterate "Buy" 成本效率支撑2018年上半年业绩，重申“买入”

股

票

研 [Table_Title] Toliver Ma 马守彰 Company Report: Sinotruk (03808 HK) 究 (852) 2509 5317 EquityResearch 公司报告：中国重汽 (03808 HK) [email protected]

4 September 2018 [Table_Summary] Cost Efficiencies Support 1H18 Results, Reiterate "Buy" 成本效率支撑2018年上半年业绩，重申“买入”

 Sinotruk’s 1H18 net profit increased 68.9% yoy to RMB 2,365 million, in Rating:[Table_Rank ] Buy 公 line with our expectation. Revenue was up by 26.3% yoy to RMB 33,624 Maintained million on strong HDT and LDT sales, up by 25.0% and 25.8% yoy, 司 respectively. Export sales amounted to 19,005 units, up by 25.8% yoy, a 评级：买入 (维持)

报 record high volume. Gross margin decreased 0.1 ppts to 18.1% on 告 accounting classification differences only. Meanwhile, strong cost control and lowered warranty expense reduced administrative and distribution expenses 6[Table_Price-18m TP 目标价] : HK$15.56 CompanyReport by 0.7 ppts and 1.1 ppts, respectively. Revised from 原目标价: HK$15.50

 We increased our 2018 to 2020 profit forecast by 2.4%/ 3.2%/ 2.3%, Share price 股价: HK$13.280

respectively. We keep our sales volume forecast unchanged for trucks.

Upward adjustments to profit are mainly due to the decrease in operating cost per revenue ratio after stronger-than-expected cost efficiency recorded in Stock performance 1H18. 股价表现 [Table_QuotePic]  We maintain our investment rating as "Buy" and revise up TP to 80.0 % of return HK$15.56, which represents 7.5x 2018 PER and 6.8x 2019 PER, 1.3x 2018 60.0

PBR and 1.2x 2019 PBR. Strong 1H18 results showed the Company’s

40.0 证 leading position in the China truck market; we believe that the growth outlook

告 of the Company will remain solid in the future. Our valuation is at the higher 券 20.0 end and we think it is justified given the Company’s strong performance.

研报 0.0

 中国重汽 2018 年上半年净利润同比增 68.9%至人民币 23.65 亿元，与我们的预期一致。

(20.0)

究究收入同比增 26.3%至人民币 336.24 亿元，主要受重卡和轻卡销售的推动，其销量分别同

报比增 25.0%和 25.8%。出口销量为 19,005 辆，同比增 25.8%，录得了出口量的新高。毛 (40.0) 研

利率同比降 0.1 个百分点至 18.1%，仅仅因会计分类差异而导致。同时，强劲的成本控制告 (60.0)

券和保修费用的减低使管理和销售费用率分别降低了 0.7 和 1.1 个百分点。 Aug-17 Nov-17 Feb-18 May-18 Aug-18

EquityResearch Report HSI index Sinotruk Hk Ltd 我们将至年的盈利预测分别上调。我们维持卡车的销量预

证 2018 2020 2.4%/ 3.2%/ 2.3% [Tab

测不变。盈利的上调主要来自于 2018 年上半年录得强于预期的成本控制，使经营成本对

le_I 成本比率得以降低。

Change[Table_PriceChange] in Share Price 1 M 3 M 1 Y

nfo1  我们维持投资评级为“买入”，并将目标价上调至 15.56 港元，分别对应 7.5 倍的 2018 年股价变动 1 个月 3 个月 1 年汽 Abs. % 市盈率和 6.8 倍的 2019 年市盈率，1.3 倍的 2018 年市净率和 1.2 倍的 2019 年市净率。强 36.5 22.3 47.6 车] 绝对变动 % 劲的 2018 年上半年业绩展现了其在中国卡车市场的领导地位，而我们相信公司的增长前 Rel. % to HS Index 36.4 31.4 48.4 及景将在未来维持稳定。我们的估值相对较高，而鉴于公司强劲的表现，我们认为该估值是相对恒指变动 % Avg. Share price(HK$) 10.7 11.5 9.9 零合理的。平均股价（港元）部 Source: Bloomberg, Guotai Junan International. 件行业

Automobiles & Components Sector AutomobilesComponents & Y[Table_ear End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE Profit] [Tab 年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 12/31 (RMB m) (RMB m) (RMB) (△ %) (x) (RMB) (x) (RMB) (%) (%) le_I 2016A 32,959 532 0.193 157.3 61.6 7.212 1.6 0.080 0.7 2.7 nfo2 2017A 55,458 3,023 1.095 467.4 10.1 8.242 1.3 0.700 6.3 14.2

2018F 67,927 4,668 1.691 54.4 6.8 9.479 1.2 0.695 6.1 19.1 中] 2019F 72,739 5,136 1.860 10.0 6.1 10.644 1.1 0.769 6.7 18.5 中外 2020F 77,781 5,681 2.057 10.6 5.6 11.932 1.0 0.850 7.4 18.2 国运 [Table_BaseData] 重 Shares in issue (m) 总股数 (m) 2,761.0 Major shareholder 大股东 CNHTC 51.0% 输汽 Market cap. (HK$ m) 市值 (HK$ m) 36,666.1 Free float (%) 自由流通比率 (%) 49.0

3 month average vol. 3 个月平均成交股数 (‘000) 13,361.9 FY18 Net gearing (%) FY18 净负债/股东资金 (%) 6.0

52 Weeks high/low (HK$) 52 周高/低 (HK$) 14.920 / 7.700 FY18 Est. NAV (HK$) FY18 每股估值（港元） 16.4 SinotrukHK) (03808 Source: the Company, Guotai Junan International.

See the last page for disclaimer Page 1 of 8

[Table_PageHeader] Sinotruk (03808 HK)

1H18 Results Review

] 1 r a M t h g i R _ e l b a T [

Sinotruk (Hong Kong)’s ("Sinotruk" or the "Company") 1H18 net profit increased 68.9% yoy to RMB 2,365 million, in line with our expectation.

 The results were mainly driven by strong truck sales from both heavy-duty trucks ("HDT") and light-duty trucks ("LDT"),

up by 25.0% yoy and 25.8% yoy, respectively. Sales of both types of truck was higher than the market average of 15.1% September2018

for HDT and 16.2% for LDT. Moreover, the Company continues to expand its international footprint, recording a new high 4 in export volume of 19,005 units, up by 25.8% yoy. As a result, revenue was up 26.3% to RMB 33,624 million, in which revenue from HDT and LDT was up by 24.2% and 21.3%.

 Gross margin was slightly down 0.1 ppts to 18.1%, mainly due to a classification inconsistency in this period of RMB 155 million on changes in new accounting standards. Excluding such changes, gross margin would have shown improvement of 0.3 ppts.

 Despite distribution expenses increasing 3.4% yoy, per revenue ratio was down 1.1 ppts to 5.1%. The decrease in ratio was mainly due to strong cost control on warranty expense and transportation which recorded a much lower rate of

] 2 r a M t h g i R _ e l b a T [

increase than revenue. In particular, warranty expense per revenue ratio decreased 0.4 ppts due to improvement of product quality, which resulted in fewer warranty claims.

 Administration expenses increased by 9.9% yoy, also much less than revenue growth. As such, per revenue ratio decreased by 0.7 ppts to 4.5%. The main reason is due to the stringent controls on expenses.

 Therefore, net profit margin is able to expand 1.8 ppts to 7.0%.

 The management did not recommend interim dividend.

Table-1: Summary of 1H18 Financial Results of Sinotruk 1H18 1H17 yoy

RMB mn, except per share item (03808 HK) Turnover 33,624 26,626 26.3% Cost of sales (27,553) (21,770) 26.6% Gross profit 6,071 4,857 25.0% Distribution expenses (1,715) (1,659) 3.4% Administrative expenses (1,524) (1,386) 9.9% 中国重汽 Other gains - net 284 171 66.4% Operating profit 3,116 1,982 57.2% Finance Income 44 23 94.5% Finance costs (43) (135) -68.4% Sinotruk Share of profits/ losses of investments accounted for using the equity method 61 20 207.8% Profit before taxation 3,179 1,890 68.2% Income tax (619) (322) 92.4% Profit for the year/period 2,560 1,568 63.3% Non-controlling interests 195 168 16.2% Equity attributable to owners of the Company 2,365 1,400 68.9% Basic EPS 0.856 0.507 68.9% Diluted EPS 0.860 0.510 68.6% Source: the Company, Guotai Junan International.

Table-2: Operating Data of Sinotruk 1H18 1H17 yoy Operational data Vehicle Sales (unit) 162,375 129,531 25.4% Heavy trucks (unit) 93,527 74,792 25.0% Light trucks and buses(unit) 68,848 54,739 25.8% ASP Heavy truck ASP(RMB) 287,546 289,523 -0.7% Light truck and buses ASP (RMB) 85,101 81,532 4.4% Financial ratio ppts

Gross profit margin(%) 18.1% 18.2% -0.2 Report EBIT (%) 9.3% 7.4% 1.8 Distribution expenses to turnover 5.1% 6.2% -1.1 Admin expenses to turnover 4.5% 5.2% -0.7

Net profit margin (%) 7.0% 5.3% 1.8

Effective tax rate(%) 19.5% 17.0% 2.4 Company Source: the Company, Guotai Junan International.

See the last page for disclaimer Page 2 of 8 [Table_PageHeader] Sinotruk (03808 HK)

Sales outlook

] 1 r a M t h g i R _ e l b a T [ Industry sales of HDT was strong during 1-7M18. YTD sales growth of 10.8% yoy is relatively strong overall. However, Jul.

2018 sales declined 17.2% yoy, which spread concerns over the market, and highlighted the uncertainty that the HDT market should face in the second half. We believe that HDT sales should recover starting in September, with sales to be about 1.1 million units for the whole industry. Supportive factors are as follows:

(1) Environmental push: Environmental concerns remain as the largest supportive factor overall, with national emission

September2018

standards constantly acting as a push factor and the "Blue Sky Action Plan" (打赢蓝天保卫战) announced in July by the 4 State Council reaffirms the government’s determination in fighting air pollution in China. In regard to this, many provinces and cities announced plans of eliminating "yellow plate trucks" or trucks with National III standards. Consolidating the targets of different regions, it is expected that there will be around 2.3 million trucks to be eliminated over the next few years, creating large replacement demand.

Table-3: Elimination of National III Vehicles by Key Regions Vehicles to be eliminated Disposal or trade-in Region Deadline (Units) subsidies (RMB) Xi'an 277,000 n.a. by 2018 (20% of elimination) Nanjing 67,000 4,000-40,000 by 2020 Hangzhou 110,000 26,000-40,000 by 2019 Shanghai 11,000 n.a. since 2015

] 2 r a M t h g i R _ e l b a T [ Shenzhen 158,000 12,000-95,000 by 31 Oct 2020 Shandong 800,000 n.a. by 1 Jan 2019 - Jinan 34,000 7,000-40,000 by July 2020 Beijing-Tianjin-Hebei and surrounding areas 1,000,000 n.a. by 2020 - Beijing 100,000 10,000-100,000 by 20 Sep 2019 Source: Respective Local Government Announcements, Guotai Junan International.

(2) Faster infrastructure investment in the 2nd Half: At the end of July, the Political Bureau of the CPC Central Committee requested steady investment in the second half, especially in the field of infrastructure investment. The State Council executive meeting also called for fiscal policy to be more aggressive, in which one measure is to accelerate the issuance and the use of local government special bonds amounting to RMB 1.35 trillion this year. According to our infrastructure team, it is expected that urban FAI will speed up in the second half and the estimated full-year growth rate falls in a range

of 6.5% to 7.0%, as encouraged by the supportive tone set by the government and the revised railway investment target by China Railway Corporation.

(03808 HK) Figure-1: China HDT Sales Figure-2: China HDT Sales by Type

2016 2017 Units

2018 2017 yoy Logistic Tractor 中国重汽 160,000 2018 yoy 160% 300.0%

140,000 140% 250.0%

120% Sinotruk 120,000 200.0% 100% 100,000 80% 150.0% 80,000 60% 100.0% 60,000 40% 20% 50.0% 40,000 0% 0.0% 20,000 -20%

0 -40% -50.0%

Apr 16 Apr 17 Apr 18 Apr

Oct15 Oct17 Oct16

Jun 16 Jun 17 Jun 18 Jun Jun 15 Jun

Feb16 Feb17 Feb18

Aug 15 Aug 17 Aug Aug 16 Aug

Dec15 Dec16 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Dec17 -100.0% Source: CAAM, Guotai Junan International. Source: CAAM, Guotai Junan International.

LDT sales momentum continued in July 2018, up by 11.8% yoy. In YTD terms, sales increased by 15.6% yoy, the fastest growing truck segment. Policies continue to help LDT sectors, in which the national V emission standards for diesel LDT was

fully enforced in 2018. Moreover, other supportive measures include abolishing approval on driving permits on trucks that

weight below 4.5 tons, prohibiting the production and sales of "low speed" special trucks and removal of driving limitations on Report second-hand trucks. Although Sinotruk might not benefit from all of these policies, sales performance is still very solid. In 1-7M18, Sinotruk’s LDT sales increased by 24.3% yoy. Robust LDT sales drove its segment revenue up by 31.3% yoy in 1H18.

As at 30 June 2018, the Group had a total of 1,777 LDT dealerships (including 37 4S centers and 366 Sinotruk-branded Company dealerships), 2,012 service centers providing high quality after-sales services, and 40 refitting companies providing truck refitting services to LDTs in the PRC. See the last page for disclaimer Page 3 of 8 [Table_PageHeader] Sinotruk (03808 HK)

Figure-3: China LDT Sales Growth Figure-4: Sales Comparison by Company

] 1 r a M t h g i R _ e l b a T [

LDT yoy Units 1-7M18 1-7M17 yoy 250,000 50% 81.6% 200,000 90.0% 40% 180,000 80.0% 200,000 30% 160,000 55.7% 70.0% 20% 140,000 60.0% 150,000 120,000 10% 38.2% 50.0% 100,000 0% 40.0% 100,000 80,000 24.3% -10% 60,000 16.2%12.9% 12.7% 30.0% 10.7% September2018 5.6% 7.5% 20.0%

40,000 4 50,000 -20% 20,000 10.0% -30% - 0.0%

0 -40%

07 10 04 07 04 07 01 04 07 01 04 01 04 01 10 01 10 10 07

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GWM Jinbei

DFCV

Sinotruk

2014 2014 2015 2015 2016 2016 2017 2017 2017 2018 2018 2014 2014 2015 2015 2016 2016 2017 2018 Chang'an

JACMotor

FAWGroup

BAICFoton Jiangling MotorJiangling Qingling Motors Source: CAAM, Guotai Junan International. Source: CAAM, Guotai Junan International.

State-owned enterprise reform in Shandong province. There are a number of key events happening in Shandong over Aug. – Sep. 2018. These events are mainly to consolidate resources within the automobile industry in Shandong province,

promoting structural reform as a way to improve efficiency, as well as aiming to be the largest commercial] 2 r a M vehiclet h g corporationi R _ e l inb a T [

China. In mid-August, Shandong Heavy Industry Group ("SDHIG"), a state-owned enterprise with subsidiaries such as Weichai Holding (02338 HK) and Yaxing Motor (600213 CH) acquired all shares of Shandong Communications Industry Group Holding ("SDCIG"), also a state-owned enterprise which owns one of the largest bus companies in China, Zhongtong Bus (000957 CH). Moreover, the Company’s parent company, CNHTC, appointed the Chairman of SDHIG (Mr. Tan Xu Guang) as Chairman of CNHTC on 1 September 2018; we expect more strategic cooperation between the parent company and SDHIG going forward, which should benefit the Company eventually.

Earnings Revisions and Financials

We increased our 2018 to 2020 profit forecasts by 2.4%/ 3.2%/ 2.3%, respectively. Below are the major assumptions:

Sales volume: We leave our sales volume unchanged, as 1H18 sales volume represents 53% of our sales forecast for both (03808 HK) HDT and LDT.

GP margin: We have recognized the changes in classification due to adoption of new accounting standards and slightly lower 中国重汽 gross margin in this regard. Excluding such changes, 1H18’s margin is consistent with our original expectation.

Sinotruk Operating cost: We have also lowered both distribution and administrative expenses per revenue ratio due to the expectations of warranty ratio to maintain in the second half and the better cost control initiatives to extend to our forecasted period.

Table-4: Major Changes in Assumptions New Old Changes 2018F 2019F 2020F 2018F 2019F 2020F 2018F 2019F 2020F Vehicle sales (Units) 307,167 324,286 342,436 307,167 324,286 342,436 0.0% 0.0% 0.0% Sales Volume (HDT+LDT) - HDT 177,167 187,786 199,111 177,167 187,786 199,111 0.0% 0.0% 0.0%

- LDT 130,000 136,500 143,325 130,000 136,500 143,325 0.0% 0.0% 0.0%

Financials (RMB mn)

67,927 72,739 77,781 67,927 72,739 77,781 0.0% 0.0% 0.0% Revenue 18.3% 18.5% 18.8% 18.5% 18.6% 19.0% (0.2)ppt (0.1)ppt (0.2)ppt Gross Profit Margin 4,668 5,136 5,681 4,558 4,976 5,552 2.4% 3.2% 2.3% Net Income (Loss) 1.691 1.860 2.057 1.651 1.802 2.011 2.4% 3.2% 2.3% Basics EPS (RMB) Source: the Company, Guotai Junan International.

Table-5: Sinotruk Major Financial Data and Forecasts

2016 2017 2018F 2019F 2020F Sales volume (units)

Truck 172,316 263,903 307,167 324,286 342,436 Report yoy 24.1% 53.2% 16.4% 5.6% 5.6% Engine (3rd party) 8,615 13,841 19,377 22,380 23,499 yoy -16.4% 60.7% 40.0% 15.5% 5.0%

Blended ASP - RMB/unit

Truck 185,780 203,453 213,592 216,079 218,616 Company yoy -5.4% 9.5% 5.0% 1.2% 1.2% Engine (3rd party) 76,420 80,241 84,253 86,360 88,950 yoy 5.0% 5.0% 5.0% 2.5% 3.0% See the last page for disclaimer Page 4 of 8 [Table_PageHeader] Sinotruk (03808 HK)

Sales revenue (RMB mn) 32,959 55,458 67,927 72,739 77,781 yoy 16.4% 68.3% 22.5% 7.1% 6.9%

Gross profit 5,818 10,028 12,441 ] 1 r a M 13,438t h g i R _ e 14,640l b a T [ yoy 15.7% 72.4% 24.1% 8.0% 8.9% Operating profit 1,113 4,272 7,069 7,691 8,464 yoy 44.2% 283.8% 65.5% 8.8% 10.1% Shareholders' profit 532 3,023 4,668 5,136 5,681 yoy 158.4% 468.1% 54.4% 10.0% 10.6% Gross profit margin 17.7% 18.1% 18.3% 18.5% 18.8% Operating margin 3.4% 7.7% 10.4% 10.6% 10.9% Net profit margin 1.6% 5.5% 6.9% 7.1% 7.3%

EPS 3-year CAGR 25.2% 94.9% 183.0% 112.9% 23.4% September2018

Source: the Company, Guotai Junan International. 4

Figure-5: Sinotruk Sales Volume and Growth Figure-6: Sinotruk Gross Margin and Shareholders’ Profit Growth

Units Truck Engine (3rd party) Gross profit margin Shareholders' profit yoy (RHS) 400,000 Truck yoy Engine yoy 80% 19.0% 18.8% 500.0% 350,000 60% 18.8% 18.5% 400.0% 300,000 18.6% 40% 18.3% 250,000 18.4% 18.1% 300.0% 18.2% 200,000 20%

18.0% ] 2 r a M t h g i R 200.0%_ e l b a T [ 17.8% 150,000 17.7% 0% 17.8% 100.0% 100,000 17.6% -20% 17.4% 50,000 0.0% 17.2% - -40% 17.0% -100.0% 2015 2016 2017 2018F 2019F 2020F 2015 2016 2017 2018F 2019F 2020F

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Valuation

We maintain our investment rating as "Buy" and slightly revise up TP to HK$15.56, which represents 7.5x 2018 PER and 6.8x 2019 PER, 1.3x 2018 PBR and 1.2x 2019 PBR. 1H18 results show that Sinotruk is very robust, with sales growth above its

peers and solid fundamentals. The Company’s early planning in the export market also put Sinotruk in a strong position during (03808 HK) the recovery of the export market. The industry is still supportive for growth, with encouraging environmental and fiscal policies. The industry is currently in a strong phase and as one of the top HDT manufacturers, it is noticeable as seen from its strong sales. Moreover, the consolidation of Shandong State resources indicates further efficiencies expected in the next few years, 中国重汽 setting a strong tone for further growth. Therefore, our TP represents the higher end of their PBR valuation. Given the

Company’s strength and ability, we believe that it is justified. Sinotruk

Figure-7: PER of Sinotruk Figure-8: PBR Range of Sinotruk

Forward P/B Avg +1 S.D. 1.6 (x) (x) Sinotruck 1.60 1.45 1.4 -1 S.D. +2 S.D. -2 S.D. 1.29 1.31 1.40 1.2 1.20 1.0 0.89 1.00 0.96 0.8 0.96 0.75 0.68 0.67 0.82 0.6 0.80 0.64 0.62 0.50 0.4 0.60 0.75 0.68 0.49 0.47 0.45 0.2 0.40 0.44 0.45 0.55 0.43 0.38 0.40 0.0 0.42

0.20 0.30 0.27

11 13 14 16 18 12 15 17

10 11 12 13 14 14 15 15 16 16 17 10 11 12 13 17 18

11 12 13 14 16 18 15 17

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0.00

Jun Jun Jun Jun Jun Jun Jun Jun

Mar Mar Mar Mar Mar Mar Mar Mar

Sep Sep Sep Sep Sep Sep Sep Sep Sep

Dec Dec Dec Dec Dec Dec Dec

Dec 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Report

Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International.

Company

See the last page for disclaimer Page 5 of 8 [Table_PageHeader] Sinotruk (03808 HK)

Table-6: Peers Comparison PE PB ROE(%) D/Y(%) EV/EBITDA

Company Stock Code Currency Last price 17A 18F 19F 20F 17A 18F 19F] 1 r 20Fa M 18Ft h g i R 18F_ e l 18Fb a T [ Qingling Motor-H 1122 HK HKD 2.13 9.2 8.1 7.8 7.1 0.6 0.6 0.5 0.5 7.0 9.7 n.a.

Weichai Power-H 2338 HK HKD 8.69 8.9 8.2 8.5 8.6 1.6 1.5 1.4 1.2 16.4 5.1 3.6

Sinotruk Hk Ltd 3808 HK HKD 13.28 10.6 8.7 9.0 9.0 1.3 1.3 1.2 1.1 14.0 5.4 3.5

Simple Average 9.5 8.4 8.4 8.2 1.2 1.1 1.0 1.0 12.5 6.7 3.6

Weighted Average 9.4 8.4 8.6 8.6 1.5 1.4 1.3 1.2 15.2 5.4 3.4

Dongfeng Auto-A 600006 CH CNY 3.85 38.3 13.5 11.2 10.1 1.1 1.1 1.0 1.0 8.8 2.4 n.a.

Chongqing Chan-A 000625 CH CNY 6.98 4.7 6.5 5.6 5.6 0.7 0.7 0.6 0.6 11.8 5.6 3.6

Weichai Power-A 000338 CH CNY 8.10 9.5 8.7 8.5 8.1 1.8 1.6 1.4 1.2 15.9 4.8 3.4

September2018 Beiqi Foton-A 600166 CH CNY 1.85 92.5 37.0 30.8 n.a. 0.7 n.a. n.a. n.a. n.a. n.a. n.a.

4 Anhui Jianghua-A 600418 CH CNY 4.94 21.5 18.0 14.0 10.8 0.7 0.7 0.6 0.6 3.7 1.9 4.5

Cnhtc Jinan T-A 000951 CH CNY 12.18 9.1 8.6 8.1 6.7 1.5 1.3 1.2 1.1 15.1 4.8 n.a.

Zhengzhou Yut-A 600066 CH CNY 15.13 10.7 10.0 9.2 8.6 2.3 2.0 1.8 1.6 18.9 5.2 6.1

Xiamen King Lo-A 600686 CH CNY 10.59 13.4 15.1 13.8 12.8 1.8 1.5 1.4 1.3 7.9 n.a. n.a.

Jiangling Moto-A 000550 CH CNY 11.38 14.2 16.1 16.2 25.3 0.8 0.8 0.8 0.9 4.2 2.4 n.a.

Yangzhou Yax-A 600213 CH CNY 7.00 36.8 n.a. n.a. n.a. 8.8 n.a. n.a. n.a. n.a. n.a. n.a.

Simple Average 25.1 14.8 13.0 11.0 2.0 1.2 1.1 1.0 10.8 3.9 4.4

Weighted Average 16.8 11.6 10.5 8.3 1.5 1.3 1.1 1.0 12.7 4.1 3.2

Mazda Motor 7261 JP JPY 1,271.50 8.1 7.0 9.2 7.8 0.7 0.7 0.6 0.6 7.2 2.8 3.6

Mitsubishi Heavy 7011 JT JPY 4,104.00 15.7 19.6 16.7 12.8 0.8 0.8 0.8 0.7 4.4 3.2 6.6

Suzuki Motor 7269 JP JPY 7,253.00 20.0 14.8 13.3 12.4 2.9 2.5 2.1 1.9 17.1 1.1 6.0

Hino Motors Ltd 7205 JP JPY 1,161.00 13.5 13.0 11.3 9.8 1.4 1.3 1.2 1.1 11.8 2.7 5.8

Ford Motor Co F US USD 9.48 5.0 7.0 6.8 6.1 1.1 1.0 0.9 0.8 14.8 6.3 2.4

Navistar Intl NAV US USD 43.57 136.2 19.3 12.9 12.6 n.a. n.a. n.a. n.a. (7.4) 0.0 8.7

Paccar Inc PCAR US USD 68.42 14.4 11.3 11.2 12.3 3.0 2.5 2.2 2.0 21.8 3.6 9.6

] 2 r a M t h g i R _ e l b a T [

Fiat Chrysler Au FCAU US USD 17.11 6.7 4.7 4.4 4.0 1.3 0.9 0.7 0.6 18.5 2.6 1.3

Volkswagen Ag VOW GR EUR 136.70 6.0 5.5 4.8 4.6 0.7 0.6 0.5 0.5 11.6 4.8 2.0

Bayer Motoren Wk BMW GR EUR 82.64 6.3 7.3 7.0 6.9 1.0 0.9 0.9 0.8 12.4 5.0 3.5

Daimler Ag DAI GR EUR 55.08 5.6 6.4 6.1 6.0 0.9 0.8 0.8 0.7 14.9 6.6 2.1

Man Se MAN GR EUR 93.45 44.2 26.3 27.7 19.7 2.3 n.a. n.a. n.a. n.a. 1.1 14.1

Renault Sa RNO FP EUR 73.51 3.9 4.8 4.6 4.4 0.7 0.6 0.6 0.5 12.9 5.4 2.5

Volvo Ab-B VOLVB SS SEK 157.55 15.3 11.7 11.5 11.6 3.0 2.5 2.3 2.1 21.6 3.4 5.6

Simple Average 21.5 11.3 10.5 9.3 1.5 1.3 1.1 1.0 12.4 3.5 5.3

Weighted Average 11.1 8.9 8.4 7.8 1.4 1.1 1.0 0.9 13.9 4.4 4.0 Global Simple Average 18.7 11.5 10.7 9.5 1.6 1.2 1.1 1.0 11.9 4.7 4.4

Global Weighted Average 11.4 9.0 8.5 7.8 1.4 1.1 1.0 0.9 13.9 4.4 3.9 Source: Bloomberg, Guotai Junan International.

(03808 HK)

中国重汽 Sinotruk

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Company

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Financial Statements and Ratios

[Table_IncomeStatement] [Table_BalanceSheet] ] 1 r a M t h g i R _ e l b a T [

Income Statement Balance Sheet

Year end 31 Dec (RMB m) 2016A 2017A 2018F 2019F 2020F Year end 31 Dec (RMB m) 2016A 2017A 2018F 2019F 2020F Total Revenue 32,959 55,458 67,927 72,739 77,781 Property, plant & equipment 10,165 9,938 9,545 9,271 9,117 Revenue from truck and engine 32,674 54,789 67,225 71,986 76,932 Intangible assets 350 357 325 300 276 Others revenue 285 669 701 753 849 Land use rights 1,652 1,650 1,612 1,576 1,540 Cost of sales (27,141) (45,430) (55,485) (59,301) (63,141) Others 3,510 4,949 5,488 6,860 8,981 Gross profit 5,818 10,028 12,441 13,438 14,640 Total Non-current Assets 15,678 16,894 16,971 18,007 19,913

September2018

Other revenue and net income 275 424 535 568 557 Inventories 8,372 13,246 14,040 14,976 15,961 Distribution expenses (2,395) (3,229) (2,339) (2,504) (2,677) Trade and other receivables 14,030 15,151 29,811 30,410 33,327 4 Administrative expenses (2,586) (2,952) (3,569) (3,811) (4,056) Other current assets 1,802 3,122 3,513 4,100 4,979 Operating Profit 1,113 4,272 7,069 7,691 8,464 Amounts due from related 415 353 431 460 490 Finance income 65 81 153 223 246 Restrictedparties cash & Fixed Deposit 2,017 0 1,408 1,233 1,356 Finance costs (316) (343) (275) (286) (277) Cash & Cash Equivalents 7,171 12,417 17,443 24,498 21,435 Profit Before Tax 922 4,055 6,947 7,628 8,433 Total Current Assets 33,808 44,289 66,646 75,677 77,548

Income Tax (259) (720) (1,796) (1,960) (2,164) Total Assets 49,485 61,183 83,616 93,683 97,462 profit After Tax 663 3,336 5,151 5,667 6,269 Trade and other payables 20,811 28,546 44,064 49,531 51,442 Non-controlling Interest (131) (313) (483) (532) (588) Provision 589 978 1,198 1,283 1,372 Shareholders' Profit / Loss 532 3,023 4,668 5,136 5,681 Amounts due to related parties 727 1,416 1,735 1,858 1,987 Interest-bearing borrowings 4,512 3,990 4,254 3,724 4,095 Basic EPS 0.193 1.095 1.691 1.860 2.057 Income tax payables 133 395 1,739 2,978 11 Diluted EPS 0.193 1.095 1.691 1.860 2.057 Total Current Liabilities 26,771 35,325 52,990 59,374 58,907 Dividend per share (RMB) 0.080 0.700 0.695 0.769 0.850

Borrowings ] 02 r a M 0 t h 793g i R _ 694e l b 763a T [

Deferred income tax liabilities 11 14 12 13 13 Other long-term payable 364 413 494 525 558 Total Non-current Liabilities 375 427 1,299 1,233 1,334

Total Liabilities 27,146 35,752 54,289 60,607 60,241

[Table_CashFlowStatement] Cash Flow Statement Total Shareholders' Equity 19,912 22,757 26,171 29,389 32,945 Minority Interest 2,427 2,673 3,156 3,688 4,276

Total Equity 22,339 25,431 29,327 33,077 37,221 Year end 31 Dec (RMB m) 2016A 2017A 2018F 2019F 2020F BPS(RMB) 7.212 8.242 9.479 10.644 11.932 EBT 922 4,055 6,947 7,628 8,433

Depreciation for PPE 1,385 1,248 1,200 1,167 1,147

Other adjustments 403 319 236 264 247 [Table_FinancialRatio] Change in WC 3,065 1,140 (75) 1,994 (5,604) Financial Ratios Interest paid (349) (378) (303) (315) (305) 2016A 2017A 2018F 2019F 2020F

Income tax paid (188) (693) (304) (587) (5,011) Profitability Cash from Operating Activities 5,238 5,692 7,702 10,150 (1,094) Gross margin (%) 17.7 18.1 18.3 18.5 18.8 Operating margin (%) 3.4 7.7 10.4 10.6 10.9 Capital expenditure (468) (516) (571) (635) (709) Net margin (%) 1.6 5.5 6.9 7.1 7.3 Others (1,260) 1,872 318 406 452 ROE (%) 2.7 14.2 19.1 18.5 18.2

ROA (%) 1.2 5.5 6.4 5.8 5.9 (03808 HK)

Cash from Investing Activities (1,728) 1,356 (253) (229) (257) Growth Net change in bank loans and (1,167) (1,283) (898) (629) 440 Vehicle sales growth (%) 24.1 53.2 16.4 5.6 5.6 Revenue growth (%) 16.4 68.3 22.5 7.1 6.9 Dividendother loans paid (70) (221) (1,255) (1,918) (2,124) EPS growth(%) 158.4 468.1 54.4 10.0 10.6 Others (79) (312) (289) (341) (46) BPS growth(%) 3.0 14.3 15.0 12.3 12.1 中国重汽 Cash from Financing Activities (1,316) (1,816) (2,442) (2,887) (1,730) Liquidity and solvency Gearing ratio(%) 9.1 6.5 6.0 4.7 5.0 Net Changes in Cash 2,194 5,232 5,006 7,034 (3,082) Current ratio(x) 1.3 1.3 1.3 1.3 1.3 Other adjustment 31 14 19 22 18 Interest Coverage(x) 3.9 12.8 26.3 27.7 31.4 Sinotruk Cash at Beg of Year 4,946 7,171 12,417 17,443 24,498 Efficiency Cash at End of Year 7,171 12,417 17,443 24,498 21,435 Inventory turnover days 92.7 92.0 92.4 92.2 92.3 Trade receivable days 155.4 155.0 160.2 152.6 156.4 Trade payable days 279.9 279.9 289.9 304.9 297.4

Source: the Company, Guotai Junan International.

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Company

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Company[Table_CompanyRatingDefinition] Rating Definition

The Benchmark: Hong Kong Hang Seng Index ] 1 r a M t h g i R _ e l b a T [

Time Horizon: 6 to 18 months

Rating Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%;

or the fundamental outlook of the company or sector is favorable. September2018 Neutral Relative Performance is -5% to 5%; 中性 4 or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector[Table_ RatingIndustry DefinitionRatingDefinition] The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%;

] 2 r a M t h g i R _ e l b a T [ or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[DISCLOSURETable_DISCLOSUREOFINTERESTS OF INTERESTS ] (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),BINHAI INVESTMENT (02886 HK),GFI MSCI A I (03156 HK),CAM SCSMALLCAP (03157 HK),ZHENRO PPT (06158 HK),MR CSI300 ETF-R (CNY) (83127 HK),GFI MSCI A I-R (CNY) (83156 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months.

(5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research (03808 HK) Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

中国重汽

Sinotruk DISCLAIMER

This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily).

Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan.

Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision.

This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in

any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject

Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.

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