H1:23 Outperforms On Product Mix Skewing Towards Heavy Duty. CYD reported first half results with Revenue of RMB 9.2 billion, an improvement from the year ago period despite unit sales falling from 180,911 to 165,793. The increase in Revenue was tied to heavy duty trucks making up a greater portion of the product mix, which also positively impacted Gross Margins, which improved to 16.9%. The Company saw significant increases in demand from buses and new energy vehicles, the latter of which accounted for 1,319 units in the period. SG&A increased RMB 144.9 million, to RMB 894.5 million, while R&D expenses were flat at RMB 406.0 million. Operating Income for the period was RMB 387.7 million, just above our estimate. The biggest surprise from the release was the Share of Associates and Joint Ventures line item, which posted a multi-year high of RMB 29.6 million, on a return to profitability at MTU Yuchai and Y&C Engine Co. due to the higher heavy duty sales and sales in the power generation markets. Net Profit for the first half was RMB 178.3 million, or 4.37 per share, in line with our estimate.
AGM Vote. On August 7, all items put to vote at its AGM were passed, with nothing on the slate that was out of the ordinary.
Model Update. As noted in our last update, we remain cautious on commercial vehicle sales and the economy in general in China for the second half of the year and into 2024. As such, we are making no changes to our unit sales assumptions. We did make minor tweaks to line items below Gross Profit, but the net result was a small change to our earnings estimates.
Maintaining Rating & Target. With no significant changes to our model and uncertainty regarding the Chinese economy, we are maintaining our Buy rating and $15.00 target price on China Yuchai. Our target price is based on the average of a P/E multiple of roughly 10 times our forward twelve month diluted EPS estimate of RMB 8.48 and an EV/EBITDA multiple of roughly 5 times our forward twelve month EBITDA estimate of RMB 1,258.9 million.