For the FY2025 ended December, Ong and Lim expect the in-house HHP manufacturing capacity to grow 150% to 2,000 units in FY2025, followed by a 35% growth to 2,700 units in FY2026. They add that based on announced plans, MTU Yuchai’s production capacity will also rise 43% in FY2025 to 1,000 units.
Ong and Lim write in their Aug 28 report: “We expect China Yuchai’s gross profit to rise 23% and 11% in the FY2025 and FY2026 respectively, driven by higher indirect exports and sales of GYMCL’s HHP engines, with the latter accounting for 75% and 80% of FY2025 and FY2026 gross profit margin growth respectively.”
They also note that while not all HHP engines made were sold to data centre (DC) customers in the FY2024 and 1HFY2025, average selling prices (ASP) for HHP engines are “customer agnostic” and 20 to 23 times higher than China Yuchai’s blended ASP.
With this, Ong and Lim expect China Yuchai to deliver total sales volume growth of 18% in the FY2025, outpacing their expectation of the industry’s flat or single-digit growth in China.
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“We believe China Yuchai has gained market share in diesel engine sales year-to-date (ytd).. China Yuchai sold 250,396 engine units in the 1HFY2025, in contrast to the decline in China’s industry domestic sales as indirect exports likely supported sales,” write the pair.
Indirect exports formed about 20% of the group’s total sales in FY2024.
According to China’s Administration of Customs, China’s total motor vehicle exports grew 8% y-o-y to US$120 million in the 1HFY2025, which is below China Yuchai’s revenue growth of 34% in the same period.
With this, Ong and Lim believe the group “should be able to maintain” its sales trajectory in the 2HFY2025 and FY2026.
Their call on the stock is based on China Yuchai’s expanded HHP manufacturing capacity, allowing it to capture China’s DC demand. It is also based on the successful indirect penetration of the exports market via its Chinese original equipment manufacturer (OEM) customers.
Ong and Lim’s target price is based on a 2026 price-to-earnings ratio (P/E) of 15 times, at an about 50% premium to the stock’s peers’ average of 10 times. The analysts deem this “fair” as they estimate that China Yuchai has an about 20% to 30% share in China’s HHP/DC generator engine market and above-industry sales volume growth, supported by indirect exports.
Key re-rating catalysts noted by them include stronger-than-expected JV capacity utilisation, higher earnings and value unlocking of an indirect subsidiary via an initial public offering (IPO).
On the other hand, key risks include fiercer-than-expected competition, eroding margins and supply chain disruptions, impacting output.
Shares in China Yuchai closed 45 US cents higher or 1.40% up at US$32.69 on Aug 27.
