The company's revenue in the first half of the year was 6.76 billion yuan, up 1.6% from the same period last year, which is lower than our and the market's forecast of about 10% growth for the whole year.
The company's first-half net profit was 889 million yuan, an increase of 26.2% over the same period last year, but the increase in net profit was mainly due to an increase of 255 million yuan in equity investment at fair value in profit and loss compared with the same period last year.
The comprehensive gross profit margin is stable, and the operating cash flow is excellent, which is basically equal to the net profit.
We lowered the company's main business income in 2019-21, lowered the company's target price by 28.6% to HK $2.41, and maintained its buy rating.
The company's income is stable in the first half of the year, and its product structure may limit long-term growth.
In the first half of the year, the revenue of the company's three main products, loaders, excavators and forklifts, accounted for 49.4%, 20.8%, 20%, respectively, and the number of units sold was-2%, 7.5%, 5.4%, respectively, compared with the same period last year. Sales of major enterprises in the loader and excavator industry increased by 5.4% over the same period last year. 12.0%. We believe that the main reason why the company's loader growth rate is lower than the industry average is that the company's product line is concentrated towards large tonnage and increases the loader gross profit margin by 2.73 percentage points; the slow growth of excavators is mainly due to the company's relatively conservative business strategy and relative lack of economies of scale. Excavator gross profit margin fell 7.6 percentage points compared with the same period last year, reflecting that there is still a gap between the company's product strength and the industry leader. The company's overall revenue growth was lower than the 20% forecast at the beginning of the year. The product cycles of loaders and excavators are similar, but the overall demand is weaker than excavators; at the same time, the company's product line lacks post-cycle products such as lifting and concrete equipment, and we expect the company's revenue growth to slow significantly in the future.
The growth of net profit mainly depends on the income from equity investment, but the operation quality continues to improve.
The company's first-half net profit increased significantly compared with the same period last year, but excluding the changes in equity investment and derivatives fair value in the income statement, the net profit was the same as the same period last year. The overall operating quality of the company is sound, although the gross profit margin of a single product fluctuates, but the comprehensive gross profit margin is basically flat. The net inflow of operating cash flow of the company was 850 million yuan, compared with 230 million yuan in the same period last year, a significant improvement. In addition to R & D expenditure, the rate of management and sales expenses has declined. Due to the general improvement of the leading operation quality of construction machinery, we believe that China's construction machinery industry still maintains a healthy competition pattern, which helps to smooth the changes in the income cycle of the construction machinery industry and help enterprises maintain a healthy profit level.
Downgrade earnings forecast but maintain buy rating
Combining the company's earnings for the first half of the year and its outlook for the second half of the year, we lowered the company's revenue forecast for 2019-21 by 7.8%, 11.3% and 15.5% (mainly due to the reduction of loader and excavator revenue forecasts); the company's comprehensive gross profit margin forecast was lowered by 0.2 percentage points (mainly due to the reduction of excavator gross profit margin forecast and the decrease in loader revenue share). After the adjustment, the company's net profit forecast for 2019-21 was lowered by 5.8%, 13.6% and 19.5%. We rolled the base period to 2020 and lowered the price-to-earnings multiplier of the company's target price by 20% to 6.6 times to reflect the company's slowing revenue growth and more volatile market and exchange rate conditions. After taking into account exchange rate factors, the company's target price was lowered by 28.6% to HK $2.41. At present, the company's share price corresponding to the price-to-earnings ratio is close to an all-time low, the overall industry demand is stable, the company's capacity cash flow capacity is outstanding, and the company's buy rating is maintained.