UPDATE 1 - Sinotruk shares soar after MAN investment

HONG KONG, July 16 - Shares in Sinotruk roared to life following a three-week suspension on Thursday, after Europe's third-largest heavy truckmaker MAN SE agreed to buy a 25 percent stake in the Chinese company for 560 million euros ($789.5 million) to bolster its presence in the Asian market.

The deal will give Sinotruk, which commands a 20 percent market share of the Chinese heavy truck market, access to the German company's truck, engine, chassis and axle technology, as well as its manufacturing and sales network.

"(The tie-up) could create significant value for Sinotruk in terms of tapping the latest advanced heavy truck technologies from overseas at limited cost," said Vincent Ha, an analyst with Deutsche Bank, in a research report.

"That could also possibly help consolidate Sinotruk's leadership position in China and open up more opportunities for export via MAN's network in the long run," he said.

MAN will acquire a quarter of the Chinese truckmaker by buying existing shares from the controlling shareholder, and by subcribing to a convertible bond issue worth about $769 million.

Even as the German truckmaker looks to China to offset flagging sales in recession-hit Europe, Chinese commercial vehicle makers have been grappling with slow demand and intense competition in their market.

In June, Sinotruk said it expected a substantial drop in its half-year profit on reduced demand for heavy duty trucks amid the financial crisis.

The Chinese truckmaker also blamed the expected drop in profit on lower export sales volume and narrower profit margins as market competition increased.

"There is still 2-3 years before any meaningful volume/ profit generation from this tie-up," said Kate Zhu analyst with Morgan Stanley in a note on Thursday.

"As near-term competition is expected to gow in intensity in 2009-10 with continuous pricing deflation, a hefty valuation can't justify Sinotruk's weakening earning power."

Sinotruk shares have risen 67.2 percent so far this year, far outstripping the 29 percent increase on the benchmark Hang Seng Index.