SGH Ltd (ASX: SGH) $46.32

We covered SGH in detail in June, here, adding the stock to our Active Growth Portfolio’s Hitlist at the time. Looking ahead, we believe the key for SGH is capital allocation. With a strong balance sheet, the company has ample capacity to pursue value-accretive acquisitions, and management has made it clear that the $500 million buyback will not constrain future M&A. Its unsuccessful approach for BlueScope Steel (BSL) earlier this year demonstrated both its appetite for transformative deals and its valuation discipline. We remain fans of Ryan Stokes & Co. and believe any acquisition is likely to enhance shareholder value. If management executes on the right opportunity, we can see SGH retesting its ~$56 high, which is why we added the stock to our Hitlist.

One story that did catch our attention this week was around Chinese EV Trucks, a potential headwind for its WesTrac Caterpillar-authorised dealership, which contributed over 50% of its revenue last year. If BHP, Rio Tinto and Fortescue increasingly replace traditional diesel haul trucks with lower-cost Chinese electric alternatives, WesTrac risks losing sales of Caterpillar’s flagship 793 and 797 haul trucks, some of its highest-value products. Chinese manufacturers are targeting the next fleet replacement cycle, precisely when miners are making major capital allocation decisions, increasing the competitive threat.

The Chinese EV truck threat is real but medium-term in nature. The immediate risk to WesTrac revenue is modest; Caterpillar’s diesel fleet dominance and aftermarket lock-in provide near-term protection. The more significant risk is a 3–7 year transition window where Chinese OEMs could capture new fleet orders at major Pilbara miners, eroding both equipment sales and the high-margin aftermarket revenue stream that underpins WesTrac’s profitability. SGH’s FY26 results in five days are unlikely to show any material impact yet, but management commentary on the competitive landscape and WesTrac’s electrification strategy will be closely watched.

• We like SGH but will be delving deeper into the EV risks before pressing any buy buttons.