Weichai Power Betrayer's Betrayal Hidden Troubles

[Abstract] This article dissociates from China National Heavy Duty Truck Co., Ltd. Weichai takes advantage of the opportunity to integrate the Hunan Torch Machine industry, but whether the story of "betrayal" will be re-staged is a major hidden danger for Weichai.

After the merger of the Hunan Torch, the new Weichai Power will have a completed heavy-duty truck industry chain. This industrial background has greatly enhanced the valuation of Weichai Power.

“The average dynamic price-earnings ratio of domestic commercial vehicle stocks in 2006 and 2007 were 14 times and 12 times respectively. We should give a valuation premium of at least 20% to new Weichai Power.” Hu Song, auto industry analyst at Haitong Securities, said that he It is believed that once the implementation of the Hunan Torch Shares Reform Program is implemented, the new Weichai Power that incorporates the Hunan Torch will have the most complete heavy truck industry chain in the country, and will have the most scarce core powertrain and other resources in the commercial vehicle industry. It can be believed that in the turbulent heavy truck market in the future, the new Weichai Power has the strongest ability to resist risks and the growth of its performance is the most solid and should enjoy a considerable valuation premium.

This view is quite common among industry analysts and the new Weichai power is widely expected. The good reason is that the Hunan Torch and Weichai Power have their respective industry status, but this may also be precisely the new dilemma that Weichai Power will soon face.

Abrupt change of industrial status

"To build China's largest auto parts group and strive to become the world's largest general-purpose power company." Tan Xuguang firmly believes that the "A share + H share + absorption and merger" program introduced by the Hunan Torch Stocks can bring huge profits to the company. Synergy effects achieve 1+1>2 effects.

Tan Xuguang's vision of this largest domestic auto parts group is actually a vehicle (especially heavy truck) powertrain (engine + transmission) system solution provider.

At the beginning of listing in 1993, the main business of the Hunan Torch was an engine spark plug and the business scope was relatively simple. Since the arrival of Delong in 1997, the Hunan Torch has expanded rapidly and collected a series of representative companies in the industry through continuous asset mergers and acquisitions. As a result, the Hunan Torch has become an investment-controlled enterprise that focuses on the automotive industry. The business area extends from automotive components to the entire automotive industry chain and gradually evolves into a company that covers automotive vehicles, parts and components, large-scale export of electromechanical products, and financial services. Group-controlled listed companies.

At present, the Hunan Torch has a domestic heavy truck industry, especially many important resources for heavy trucks. Among them, Fast, which contributed the most to its profits, produced heavy-duty vehicle transmissions that accounted for 90% of the domestic market for heavy-duty vehicles with a capacity of over 15 tons, and the market share for trucks under 8 tons was 60%. In 2004, the profitability of Fast Gear even surpassed Weichai Power. The 97.06%-owned Shaanxi Hande Axle Co., Ltd. (hereinafter referred to as the “Hande Axle”) is the core manufacturer of the Steyr-series heavy truck bridges; Zhuzhou Gear Co., Ltd., which holds a 51% stake, is the Called "Zhuzhou Gear", it occupies 49% of the market share of Steyr Bridge Gear.

Weichai Power is itself the largest supplier of high-powered engines in the country and the world's largest single-brand 10-litre engine manufacturing base, occupying 80% and 78% of the market share of domestic heavy-duty vehicles and construction machinery and other power supporting industries. Hu Song said that at this stage China's heavy-duty truck industry has a low level of technology and generally lacks the ability to integrate locomotives. The key components of the vehicle's powertrain are in the hands of a few supporting manufacturers, and powertrain resources are scarce. The supporting components of the heavy tonnage heavy truck powertrain are still the main components manufacturers of the original Steyr platform. Even manufacturers that are new to heavy trucks on other platforms must rely on support from the Steyr Platform Components Factory.

At present, domestic heavy-duty truck manufacturers, from the perspective of powertrain self-provisioning, only the new Weichai Power and CNHTC can achieve the self-provisioning of engines, transmissions, and axles. The rest of the manufacturers need some or all external support. . Once Weichai Power absorbs the merger of the Hunan Torch, the engine and transmission business owned by Xin Weichai Power will achieve 80% and 90% market share in the heavy tonnage heavy truck market, basically controlling the core powertrain resources of the domestic heavy truck industry. .

The industry status of Weichai Power will also undergo abrupt changes, and once the transmission gearbox of Fast and the spark plug of the Torch Torch enter the various supporting fields such as heavy trucks, construction machinery and luxury passenger cars with Weichai Power, the market space facing Weichai Power is also facing Will further develop.

In addition to the above-mentioned scarce powertrain resources, the Hunan Torch has two non-negligible vehicle resources. The first is Shaanxi Zhongqi, which holds 51% of its shares. It is the Steyr Department's core vehicle manufacturer and occupies 90% of domestic military vehicles. Secondly, the Dongfeng Dirt Bike Co., Ltd. (hereinafter referred to as “Dongfeng SUV”), a joint venture between Hunan Torch and Dongfeng Motor Co., Ltd. in 2003, is the largest military SUV production base in China. It produces 1.5 tons of “Dongfeng Armored” military SUVs. Military market. The product will enter the output period in 2007, and analysts are generally very optimistic about its future growth. The "Dongfeng Khanma" targeted at the civilian market is mainly aimed at high-end SUV consumers and semi-militarized uses such as public security fire fighting. The prospects are good.

With the integration of the Hunan Torch, Weichai Power integrates the engine and transmission business to provide vehicle customers with integrated services in the automotive powertrain (engine + transmission). It will help Tan Xuguang to establish Weichai Power as the "world's largest general-purpose power company" in the scale of the industry, and it will also be able to enter the vehicle industry and provide sales support for the powertrain business.

“Without the middle layer of Hunan Torch, Weichai Power directly holds shares in companies such as Shaanxi Heavy Duty Truck, Fast Gear, Hande Axle, and Hunan Torch Spark Plug, and can save 150 million yuan in management costs each year.” Tan Xuguang Pride in this change. In fact, Weichai Power has already begun to integrate the Hunan Torch.

Analysts believe that from the financial statements retained by Fast, it can be seen that Weichai Power has started to lay off staff and divert the management personnel from the Hunan Torch Headquarters. After Weichai Power entered the company, Shaanxi Heavy Duty Truck has also initially shared the after-sales service network with Weichai.

“The Weichai plant eventually became an investment holding group and was mainly responsible for the operation of the capital market and the integration of group resources. In addition, based on the two A-share listed companies currently controlled by Weichai, two industrial chains will be formed. One is to absorb the torch of the merger. After that, Weichai Power formed a complete industrial chain that included high-speed engines and powertrains, extending from the auto parts industry to the downstream heavy trucks; the other was the medium-speed machine part of Shandong Juli (000880), until the time was ripe. Duplicate Weichai power model and build an industrial chain."

The integration of the Hunan Torch Torch is only a part of Tan Xuguang's magnificent capital layout, but it is a key link.

Hidden worry

However, even if the merger was successfully approved by the shareholders' meeting and the regulatory authorities, and the integration was smoothly implemented, there was still potential concern for Weichai Power, which was whether it could truly control its assets. After all, many of the quality assets of the Hunan Torch Group have a high status in the industry. Just as the growing Weichai has to find ways to get rid of China Heavy Duty Trucks, the same as the FAW or the Shaanxi Automobile Group, which has an unrivalled status in the industry, Not necessarily willing to squat under the control of Weichai Power.

China National Heavy Duty Truck and Weichai Power, both located in Shandong, are leading companies in the field of domestic heavy trucks and engines. China National Heavy Duty Trucks, which entered the A-share market in backdoor ST ducklings in 2003, has created excellent performance with an average annual growth rate of over 60% in its main business indicators in recent years, and has become the fastest growing company in the world heavy truck industry. At present, it occupies a place among the top 15 tons of heavy trucks in China.

The Weichai plant was originally an associated company of China National Heavy Duty Truck and was later allocated by state-owned assets as a wholly-owned subsidiary of Sinotruk. The Weichai plant is first of all an internal auxiliary plant of China National Heavy Duty Truck, followed by an engine plant that develops external business. As the core component of CNHTC, Weichai Power maintained a growth rate of 100% in recent years. The company was listed in Hong Kong in March 2004, and its sales revenue exceeded RMB 10 billion.

In 2002, Weichai Power Co., Ltd. was established. The nine executives headed by Tan Xuguang held 4.6% of the shares. Tan personally held more than 1% of the shares. This is foreshadowed by a series of contradictions that broke out later. . Since 2003, Weichai Power has publicly sought to get rid of CNHTC.

In 2005, China National Heavy Duty Truck planned to achieve an overall listing in Hong Kong. Weichai Power is one of the most valuable assets and contributes approximately 60% of its profits to China National Heavy Duty Truck. The overall listing plan of Sinotruk makes the dream of “independent engine factory” of Weichai Power become unattainable. Weichai Power began to openly boycott China National Heavy Duty Truck and stopped supplying it to the latter at the end of the year. Sino Heavy was also stopped buying engines from Weichai earlier this year.

On March 20, 2006, the Shandong State-owned Assets Supervision and Administration Commission promulgated a document to transfer the shares of Weichai Plant held by China National Heavy Duty Truck directly to the State-owned Assets Supervision and Administration Commission of Shandong Province. Weichai Power and CNHTC have diverged completely.

“Before the Weichai plant and China National Heavy Duty Truck were separated, on the one hand, Weichai Power was the largest source of profits for CNHTC, and on the other hand, China National Heavy Duty Truck was also the largest customer of Weichai Power. Divorced is the son of growing up and betrayal of 'intimate.' Now Weichai Power has made Laozi and his son is not bad. The same story may repeat itself.” An analyst who declined to be named said that Shaanxi Both Gas and Fast have such strength.

Separation and competition

Shaanxi Heavy Duty Truck Co., Ltd.'s contribution to the new Weichai Power's earnings contribution is not very large. Some analysts estimate that this proportion will not exceed 20% in 2006. However, Shaanxi Heavy Duty Truck is one of the three Steyr heavy-duty truck companies and has certain advantages in the R&D and manufacturing of large tonnage heavy-duty trucks of more than 15 tons. At the same time, it is also the sole designated production base for heavy military off-road vehicles equipped with our military. It supplies about 2,000 vehicles each year for the military.

The weak link of Shaanxi Zhongqi is mainly in marketing, product lines, etc., but this can be gradually improved through the after-sales network shared with Weichai. After its strategic cooperation with MAN, it introduced product technologies such as MAN, F2000, and TG-A, and thus introduced the updated product DeLong 2000, which is in line with the upgrading trend of domestic heavy truck products. In the first half of 2006, the rapid growth of sales of Shaanxi Heavy Duty Trucks was an inevitable manifestation of the growth of market competitiveness.

The larger independent threat comes from Fast. The company is a leading enterprise in the national gear industry, and its heavy-duty transmission single plant output has already ranked first in the world. Moreover, Fast has a larger industrial vision and is planning to enter the field of car gearboxes. Its leader, Li Dakai, has a high degree of recognition both inside and outside the industry.

In 2004, Fast's profitability even surpassed Weichai Power. "The relationship between Fast and Weichai Power is similar to that of Weichai's relationship with China National Heavy Duty Truck." Analysts believe that such a similar profit relationship may cause Fast to produce centrifugal force. Weichai, who was the culprit of that year, may eventually Defeated by others.

“The Weichai plant is the third section and the Weichai power is six, while the Hunan Torch is nine,” said Zhang Baoding, deputy director of Weichai Factory, who had frankly revealed this concern. The merger and acquisition of this time, reducing the level of management, Weichai Power directly control the various assets of the Hunan Torch, and the intention is to strengthen the control.

However, in addition to possible internal separation factors, Weichai Power must beware of revenge brought about by previous betrayal and respond to the impact that the external supply of CNHTC Engine may have on the business of this division.

After the separation of Weichai Power and China National Heavy Duty Truck, China National Heavy Duty Truck reclaimed the Hangzhou Automobile Engine Plant (hereinafter referred to as “Hangfa Factory”) previously entrusted with the operation and management of the Weichai Plant, and strived to create its own core quality assets. Until March of this year, Hangfa Factory's monthly production exceeded 5,000 units, while the monthly output last year was only about 1800 units. At the same time, Sinotruk established a new engine plant in Zhangqiu, Jinan, and the technical support came from Hangfa.

According to China National Heavy Duty Truck's plan, the Hangfa plant will provide 30,000 engines in 2006, and the Zhangqiu plant will supplement it, providing 20,000 units of production capacity. The sales volume of China National Heavy Duty Truck in 2005 was around 40,000 units. The output of Hangfa and Zhangqiu plants are still basically in the stage of satisfying their own needs.

Hu Song introduced that at present, domestic large-tonnage truck powertrain supporting capacity is still the main parts and components manufacturer of original Steyr platforms such as Weichai Power and Hangfa Plant. Even if it is a new heavy truck manufacturer on other platforms, it must With the support of Steyr Platform Parts Factory.

It can be seen that once the capacity of the Hang Fat Factory and the Zhangqiu Plant are further expanded, they will directly compete with Weichai Power.
View related topics: Weichai Power: Expanding Auto Parts Gold Industry Chain

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