Stimulating Economic Policy and Promoting Machinery Industry: Analysis of Weichai Power's 2008 Annual Report

Weichai Power Co., Ltd. (hereinafter referred to as “Weichai Power”) is headquartered in Weifang City, Shandong Province. Its main products include powertrains (engines, transmissions, axles), commercial vehicles and auto parts.

We take Weichai Power as a sample to analyze the development trend of China's construction machinery industry.

I. Weichai Power Financial Analysis

Weichai Power is one of the major professional manufacturers of domestic high-power high-speed diesel engines. After the merger of the Hunan Torch on April 30, 2007, the company's main business scope expanded from the manufacture of engines and their components to heavy-duty vehicles and heavy-duty vehicles. Automobile axles, transmissions and other auto parts business.

In the first half of 2008, China sold 380,139 heavy trucks, which accounted for about 70% of annual sales. Sales of heavy trucks throughout the year reached 540,488 units, a year-on-year increase of 10.87%. According to statistics from the China Association of Automobile Manufacturers, major customers of Weichai Power: Shaanxi Heavy-duty Truck Co., Ltd., Beiqi Foton Motor Co., Ltd., Baotou North-Benz Heavy-duty Truck Co., Ltd., Anhui Hualing Heavy-duty Truck Co., Ltd., and Anhui Jianghuai Automobile Co., Ltd. The sales of heavy-duty vehicles in the company, etc., all increased in 2008, which in turn led to an increase in sales of Weichai Power's products.

In 2008, Weichai Power sold a total of 197,351 heavy truck engines, an increase of 30.37% year-on-year, an increase of 19.29% over the growth rate of the industry. Weichai Power's holding subsidiary Shaanxi Heavy Truck Co., Ltd. sold a total of 64,105 heavy trucks, an increase of 6.81% year-on-year. Weichai Power's holding subsidiary Shaanxi Fast Gear Co., Ltd. sold a total of 464,515 heavy-duty transmissions, an increase of 7.98% year-on-year.

In 2008, the Chinese construction machinery market sold a total of approximately 470,000 units, an increase of approximately 9% year-on-year, of which 104,566 units were sold for large-scale construction machinery with 5 tons of loaders, an increase of 8.07% year-on-year. According to the statistics of China Construction Machinery Association, the main customers of Weichai Power: China Longgong Holdings Co., Ltd., Guangxi Liugong Machinery Co., Ltd., Shandong Linggong Construction Machinery Co., Ltd., Xugong Construction Machinery Group Co., Ltd., Chengdu Chenggong Machinery Co., Ltd. In 2008, Shandong Shangong Machinery Co., Ltd. and other companies achieved growth in 2008 over the same period of the previous year, which in turn boosted sales growth of Weichai Power Products. In 2008, Weichai Power sold a total of 88,302 construction machinery engines, an increase of 3.80% year-on-year, maintaining its leading position in the industry.

In 2008, Weichai Power achieved operating revenue of 33.1 billion yuan, an increase of 13.21% over the same period last year; and operating profit of 2.6 billion yuan, a year-on-year decrease of 18.11%.

The engine is the core product of Weichai Power. In 2008, Weichai Power sold a total of 295,717 diesel engines of various types, an increase of 20.76% year-on-year, and the gross profit margin of the engine business reached 25.63%, which was 7 percentage points higher than that of the entire vehicle and assembly business. Weichai Power's leading position in heavy-duty truck engines is mainly due to technological progress.

In 2008, with the implementation of State III emission standards, Weichai Power's proprietary high-voltage common-rail high-power common rail country III emission high-power high-speed Lanqing engine is fuel-efficient, reliable, and environmentally friendly, and continues to lead the heavy-duty engine market. Advantage. In 2008, Weichai Power's advanced national standard for three years successfully developed a high-power, high-speed engine with the National V emission standard.

Second, the status of China's machinery industry

The main products of Su Changchai and Yunnei Electric are also diesel engines. We take Su Changchai, Yunnei Power and Weichai Power as examples to analyze the status quo of China's machinery industry.

The impact of the global financial crisis on Su Changchai far exceeds Weichai Power. In the second half of 2008, the market demand for agricultural machinery dropped drastically, and it became more difficult to withdraw loans. Most parts suppliers stopped production. The annual sales of single-cylinder diesel engines, the main product of Su Changchai, decreased by 30% year-on-year, resulting in only 2008 operating income. 1.9 billion yuan, a year-on-year decrease of 3.31%; from the operating profit of 190 million yuan in the previous year, it was reduced to an operating loss of 88.03 million yuan in 2008.

In 2008, due to the global financial crisis, Su Changchai sold 791,200 diesel engines of various types, a year-on-year decrease of 28.13%, of which sales of single cylinder machines were 708,400, down 30.2% year-on-year, and sales of multi-cylinder machines were 82,700, down 2.93% year-on-year.

In 2008, Su Changchai focused on the implementation of the development of 4B28TC and other State III diesel engines, and developed 4D20TCI, 4D28TC, and 4D28TCI electronically controlled VE pump diesel engines that meet the national III emission standards for supporting light vehicles. Accelerated the development and supporting progress of agricultural machinery products such as light engines, generator sets and rotary cultivators.

In 2008, Yunnei achieved mass sales of diesel engine products. Affected by the global financial crisis, China's automobile production and sales volume fell sharply in the second half of 2008. In the fourth quarter, many automobile manufacturers were in limited production or semi-discontinued production. In addition, the implementation of the State III motor vehicle emission standards changed the market demand. In 2008, Yunnei Power realized operating revenue of 1.8 billion yuan, a year-on-year decrease of 8.2%; operating profit of 62.33 million yuan, a year-on-year decrease of 73%; gross profit margin of diesel engines was 16.47%, a year-on-year decrease of 3.38 percentage points.

Weichai Power, Su Changchai and Yunnei Diesel are used in different downstream products. Weichai Power's diesel engines are mainly used for heavy-duty trucks and heavy construction machinery, while China’s government’s four trillion yuan stimulus project focuses on heavy-duty trucks and heavy construction machinery. It can be seen that Weichai Power is less affected by the financial crisis.

In 2008, the difference in operating performance between Weichai Power, Su Changchai, and Yunnei Power also came from the level of technological progress. In 2006, Weichai Power introduced the first fully-powered 10 litre, 12-liter high-power Euro III engine. In 2005, Yunnei Power and German FEV engines introduced D16TCI and D19TCI diesel engines with independent intellectual property rights. In the face of the global financial crisis, all enterprises that have independent intellectual property rights have been hit harder than those without independent intellectual property rights.

Third, the impact of the machinery industry on China's economic development

China's upstream industries in the machinery industry include metallurgy, chemical materials, transportation, and equipment and equipment manufacturing. The downstream industries include automobiles, ports, and real estate.

In the first quarter of 2009, we saw more than expected economic statistics, indicating that China's economic slowdown has slowed down significantly. One of the industries that contributes significantly to macroeconomic development in the first quarter of 2009 is the automotive industry, and in particular, the demand for heavy-duty vehicles from the automobile to the countryside and key projects. However, whether the second quarter can continue the development trend of the first quarter depends, to a large extent, on the performance of the machinery industry. Because only the recovery of the machinery industry can lead the recovery of the upstream industries such as metallurgy.

Taking Weichai Power as an example, only the demand for heavy-duty vehicles will continue to grow. Weichai Power will be able to purchase new equipment and equipment because the turnover rate of Weichai Power's fixed assets has dropped from 37% in 2007 to 30 in 2008. %. The substantial increase in the demand for equipment and equipment can lead to the recovery of the metallurgical industry and other industries.

Faced with the large number of orders arising from the demand for heavy-duty vehicles from the automobile to the countryside and key projects, vehicle and auto parts companies have been afraid to purchase new equipment and equipment. The big reason is that entrepreneurs cannot determine the continuity of market demand.

Only when we see companies in the machinery industry begin to purchase new equipment and equipment, we can be sure that the confidence of entrepreneurs has recovered.