中国重汽(3808.HK)：Deeper cooperation with its strategic shareholder，Rating Hold，TP HK$11.25

机构：德意志银行

评级：持有

目标价：11.25港元

Setting up a new MAN JV besides other technology cooperation 

On 18 September, Traton Group, the commercial vehicle arm of Volkswagen Group (VOWG.DE, EUR142.2, Buy) announced that its MAN brand, which owns 25% plus one share of Sinotruk, will have further cooperation with Sinotruk. The core of the increased cooperation is a new JV between MAN and Sinotruk to localize the former's heavy-duty truck (HDT) product in China. Apart from that, the two parties will evaluate addition cooperation in technologies, e.g. powertrain, electrification, autonomous driving and buses. In the announcement, there is no further details about the additional tie-up, such as the JV structure, investment amount, and timing.

Deutsche Bank view - likely to be a positive move 

At the moment, Sinotruk has been selling the Sitrak series trucks incorporating MAN technologies. These products have been successful and helped Sinotruk to improve its HDT sales mix. Besides, Sinotruk also sells engines with MAN technologies to third-party OEMs. While the details on further cooperation have not been disclosed and we cannot quantify the financial implications, the extra tie-up should be considered positive, in our view, given additional advanced products and technologies. This is not to mention the possible extra synergies with Weichai Power (2338.HK, HKD9.05, Hold), whose Chairman Mr. Tan now also leads Sinotruk's parent. One long-term risk, however, is the cannibalization of Sinotruk's own sales by the new JV, of which Sinotruk will not have full ownership.

We have a Hold rating on Sinotruk. Although we think that the enlarged light-duty truck business could help the company to mitigate the downside from an HDT downcycle, and that the potential Weichai tie-up would help to support market sentiment, we think the company's share price is fairly valued. Key upside risks for Sinotruk are stronger-than-expected HDT sales and business consolidation; key downside risks include: 1) weaker-than-expected demand for trucks; 2) a slower-than-expected contribution from HDTs using MAN's technology; and 3) an inability to recover margins.