Weichai's 1H14 profit predicted to balloon big-time by 70-100%

Thanks to a one-off investment gain.

Weichai Power Co., Ltd. posted a profit alert on 14 July stating the company's net profit for 1H14 is expected to be up 70-100% y/y, mainly due to a one-off investment gain.

According to a research note from Barclays, the investment gain reflects the difference between the fair value of the KION shares on acquisition date (12 June, when Weichai became the largest shareholder of KION after Superlift reduced its stake) and the previous carrying amount of such KION shares.

The report noted that further details are expected to be announced before end-August 2014. However, it was ntoed that if the one-off gain was taken out, there would have been worse-than-expected results versus Barclays' 1H14 forecast.

Here's more from Barclays:

According to the profit alert, we calculated the net profit for Weichai of 1H14 is about RMB3.5-4.2bn, including a one-off investment gain of RMB 1.55bn (calculated based on carrying value of KION stake RMB 6.6bn, or €26.42 per share, €32.42 closing price of KION on 11 June and EUR/CNY exchange rate of 8.46).

Excluding the one-off gain, Wechai's 1H14 earnings would be RMB 2.0-2.6bn, -24% lower to flat vs. our forecast of RMB 2.6bn, or mostly a miss.

Furthermore, Weichai's 33.3% stake of KION should have contributed RMB 233mn to Weichai’s bottom line in 1H14 (based on Bloomberg consensus on KION earnings).

As such, Wechai's net profit from its organic business (excluding the one off investment gain and the incremental earnings from the KION stake) would have been between RMB 1.8bn and RMB 2.4bn with a mid-point at RMB 2.1bn, flat to the net profit of RMB 2.1bn for 1H13, despite a 6% sales growth of HDT market in China for the first half and 11% y/y increase of Shaanqi HDT sales - a disappointment, in our view.