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The "unusual movement" of Weichai Power's stock price in July also shows that any news about Tan Xiaoguang's resignation may cause market concerns.

Text/Daily Financial Report Huishui

Recently, Weichai Power has made the capital market "a little uneasy."

On the evening of July 14, Weichai Power released its performance forecast. It is expected that the company will achieve a net profit attributable to shareholders of 5.46 billion yuan to 6.24 billion yuan in the first half of 2024, a year-on-year increase of 40% to 60%, exceeding market expectations.

▲Source: Company announcement

Regarding the reasons for the expected increase in performance, Weichai Power stated that in the first half of the year, the company actively promoted the optimization of business and product structure, strengthened the implementation of cost reduction and efficiency improvement measures, significantly enhanced profitability, and achieved substantial year-on-year growth in performance.

Weichai Power's profitability is not surprising. However, the stock price trend of Weichai Power in the secondary market is not optimistic.

Starting from the morning of July 2, the share price of the old white horse Weichai Power suddenly plunged during the trading session, closing down 6.43% that day. Since then, the share price has continued to weaken. On the evening of July 14, the company released an announcement of its expected performance, which stimulated the stock price to open higher the next day. However, the stock price eventually weakened again. As of July 19, the share price of Weichai Power had fallen by more than 14% within the month.

▲Source: Tonghuashun

Industry insiders said that this wave of decline may be related to market concerns about the resignation of Weichai Power Chairman Tan Xuguang. In a research report released by Citi, Weichai Power's industry headwinds will intensify in the third quarter of this year, coupled with concerns about the reorganization of its parent company's management, which may affect Weichai Power's recent stock price performance.

On the evening of July 8, Shandong Heavy Industry Group's official WeChat public account "Shandong Heavy Industry Information" published an article that the Youth League Party Committee Secretary and Chairman Man Shengang went to the affiliated enterprises to conduct on-site research. This indirectly confirmed that the leadership team of Shandong Heavy Industry had been adjusted and the former Party Committee Secretary and Chairman Tan Xuguang had resigned.

▲Source: Shandong Heavy Industry Information Public Account

According to the official websites of Weichai Group and Sinotruk, Ma Changhai has been appointed as the Party Secretary and Chairman of Weichai Group. Wang Zhijian is now the Party Secretary, Chairman and General Manager of Sinotruk. In this adjustment, Tan Xuguang was also quietly relieved of his duties as Chairman of the two subsidiaries. Currently, Tan Xiaoguang is still the Chairman of Weichai Power.

▲Source: Weichai Power official website

Why does the capital market show great concern about Tan Xiaoguang's stay or departure? Is he really that important to Weichai Power?

Turn a bad hand into a winning hand

It is no exaggeration to say that Tan Xuguang is the soul of Weichai Power and Shandong Heavy Industry.

In 1998, 37-year-old Tan Xuguang officially took the helm of Weichai. At that time, under the impact of the Asian financial crisis, Weichai Power was struggling. A string of cold figures revealed the severity of the crisis at the time: a book loss of 300 million yuan, a debt of 360 million yuan, only 80,000 yuan in cash on the account, and 13,000 employees of the company had not received wages for 6 months, and the company was on the verge of bankruptcy.

Tan Xiaoguang decisively chose reform. He revitalized Weichai Power through a series of "painful" measures, such as canceling state-owned enterprise welfare, streamlining personnel, and strengthening product quality management. In 1999, the company achieved sales revenue of 700 million yuan, turning losses into profits, and profits exceeded 5 million yuan. Weichai Power successfully "survived" and paid off all debts in 2000.

In 2004, Weichai Power was listed in Hong Kong. With the support of the capital market, the company's R&D was smooth sailing and its innovative strength was fully unleashed. In 2005, China's first high-speed, high-power engine with independent intellectual property rights, Landking, was launched.

In the same year, Tan Xiaoguang took over Xianghuo Torch from Delong Group at a sky-high price of 1.02 billion yuan. From the subsequent development, this deal was a good deal. Xianghuo Torch controlled a number of strong companies including Shaanxi Heavy Duty Automobile, Fast Gear and Hande. Among them, Shaanxi Heavy Duty Automobile is the leader in 15-ton heavy trucks, Fast Gear is the world's number one heavy-duty gearbox, and Hande is the number one heavy-duty axle in China.

This also opened up another important development idea for Weichai Power, which is to strengthen its "business territory" through acquisitions. In 2009, it acquired France's Baudouin, and since then, high-power ship engines above 15 liters have no longer been a blank.

In 2012, Weichai Power successively acquired Italy's Ferretti Group and Germany's KION Group. The two core assets of KION further enriched Weichai's "wings". Its subsidiary Linde Hydraulics controls the world's highest performance hydraulic technology; its forklift business ranks second in the world.

Tan Xiaoguang always maintains a clear strategic mind and insists on independent research and development. In the past ten years, 30 billion yuan has been invested in the engine sector, and the R&D investment ratio is ahead of its global peers. In April 2024, Weichai launched the world's first diesel engine with a body thermal efficiency of 53.09%. The diesel engine has a thermal efficiency of more than 50%, which can easily meet the National VI/Euro VI emission standards and has entered the large-scale mass production stage.

Under the leadership of Tan Xuguang, Weichai Power's market value has increased by more than 30 times, its net profit attributable to the parent company has increased by 16 times, its operating income and profit have increased by 20.5% and 16% respectively, and its market value has reached more than 140 billion yuan at its peak. Today, Weichai Power has developed into a super-large enterprise with assets exceeding 300 billion yuan, annual output value exceeding 200 billion yuan, and market value exceeding 100 billion yuan, and has world-class competitiveness.

Tan Xuguang adheres to three principles in running a business: not getting involved in the real estate sector, not engaging in financial speculation, and not engaging in low-end business. He is committed to expanding the market and paying more attention to technological improvement. At present, Weichai Power is constantly expanding in multiple specific business areas such as power systems, commercial vehicles, and construction machinery, and has demonstrated strong market competitiveness in these areas.

The problem of succession remains to be solved

Along the way, Weichai Power has been marked by Tan Xuguang. During his 20 years at the helm of Weichai Power, he made countless moves, always showing confidence and courage, and was praised as "Tan Bold". Later it was also proved that he led various mergers and acquisitions, which enabled the company to maintain a steady growth momentum, and successfully transformed Weichai Power from a company focusing on a single product to a "giant" with a complete industrial chain.

Success or failure, honor or disgrace, all depend on one person, but there are risks. Tan Xuguang cannot be at the helm forever. Today, Tan Xuguang, who was born in February 1961, is 63 years old. Although he is still the chairman of Weichai Power, he has served beyond his term, and the veteran is getting closer to full retirement.

Tan Xuguang had previously publicly stated at a group meeting that "the biggest concern now is to find a successor, a successor team that can implement the strategy for the next 10 years."

On October 13, 2023, the Weichai Power Board of Directors appointed Wang De as the CEO of Weichai Power, which was interpreted by the outside world as Tan Xuguang's intention to "help the young man get on the horse and send him on his way."

▲Source: Weichai Power’s announcement on the Hong Kong Stock Exchange

Public information shows that Wang Decheng is 45 years old. He has served as director of the application engineering center, director of application engineering, engine platform director, dean of the engine research institute, assistant to the president, vice president, executive president, and executive CEO at Weichai Power.

The "unusual movement" of Weichai Power's stock price in July also shows that any news about Tan Xiaoguang's resignation may cause market concerns.

At present, Weichai Power is also facing some risks. The industry to which Weichai Power belongs is typically cyclical. When the economy is booming, the heavy-duty truck industry is typically cyclical, and its performance is easily affected by macroeconomic fluctuations and policy changes; conversely, when the economy is sluggish, the excess capacity of heavy-duty trucks may lead to setbacks in the company's product sales.

In addition, the company's high leverage and high investment model may lead to higher financial risks, especially when the asset-liability ratio remains at around 65% all year round, and the company needs to maintain a high capital scale all year round. When raw material prices and exchange rates fluctuate significantly, it may have an adverse impact on the company's performance.

In the future, Weichai Power will continue to compete in the business world. We will continue to pay attention to whether its successors can continue the brilliant achievements of the Tan Xuguang era.

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