Auto/Trucks:Slower demand ahead

HDT sales peaks this year; maintaining Sell on Weichai-H

    Industry sales surged 70% YTD, driving strong performance of the stock pricesin the sector. The share prices of Weichai-H/Sinotruk have rallied 43%/52% YTDvs. 22% of the HSCEI. We now expect 57% sales growth for China HDT marketin 2017, driven by replacement orders, strict implementation of overloading andheavy polluting vehicle control, and infrastructure projects. However, this yearwill be the sales peak and the outlook for the stocks turns neutral to negative. Webelieve that the industry sales will decline mildly in 2018and 2019. We maintaina Sell rating on Weichai-H in view of HDT sales decline in 2018-19and a Holdrating on Sinotruk given our view on its product technology upgrade and abilityto gain market share.