WHAT THE BROKER SAYS
Policy risks have prompted Morgan Stanley to downgrade its recommendation on Weichai Power, a manufacturer of heavy-duty engines in China, to 'equal weight V', meaning the stock's return is expected to be only in line with the China MSCI index return over the next 12 to 18 months.
The broker has cut its price target by 13 per cent to $25.80, implying an upside of only 2.4 per cent. It sees two policy risks for the sales of big trucks: the government's new restrictions on truck design, which are disrupting production and causing a slowdown in orders; and renewed overloading of trucks in many regions, causing demand for trucks to slow.
It believes the government will reaffirm its commitment to crack down on overloading as it cannot afford the social cost of road damage, safety, pollution and poor fuel economy. When the government acts, Weichai's growth trend could revive.
Weichai said last month its net profit jumped 94.2 per cent last year to 538.88 million yuan. Chairman Tan Xuguang said the Shangdong company should be able to sell 180,000 engines this year, up from 134,464 last year.
The counter closed at $23.70 on Friday.