CLSA lowered its target price for Weichai Power (02338) to HK$29 from HK$40.8, and downgraded the stock to "outperform" from "buy".
The research house said Weichai recorded a 43% YoY earnings decline in 1Q with engine sales volume down by 55% YoY. The weak engine sales have not improved in 2Q and CLSA expects the company to issue a profit warning for 1H results.
It thinks the organic net profit (excluding the non-recurring investment gain in 1H14) could decline by 40% YoY in 1H.
CLSA lowered its 2015 earnings by 46% as the recovery in HDT industry demand is slower than expected. Gross margin in 2015 should expand, driven by a higher revenue contribution from high-margin NS4 engines and consolidation of Kion's high-margin service business, but the expansion in gross margin will be offset by the negative operating leverage effect, and the operating margin will decline on a YoY base.
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