Profit before deduction increased dramatically, maintaining a high dividend rate
China Longgong announced its 2019 results. It achieved annual revenue of 11.74 billion yuan, a decrease of 1.0% over the previous year; it achieved net profit of 1.64 billion yuan, an increase of 43.7% over the previous year. The high growth was mainly due to positive income of 40 billion yuan from financial assets (-240 million yuan last year). The company's earnings per share in 2019 were RMB 0.38. The payout per share rose to HK$0.25, the payout rate was 58%, and the dividend rate was as high as 11%.
Overall product sales remained flat, and the company's sales of all types of products remained stable in 2019, which will focus on developing the medium and large excavator market with high gross margins in the future. Among them, wheel loader revenue was 6.0.2 billion yuan, down 2.1% year on year; excavator revenue was 2.12 billion yuan, up 0.5% year on year; forklift revenue was 2.37 billion yuan, up 2.8% year on year; roller revenue was 110 million yuan, down 28.7% year on year; and parts revenue was 11.1 yuan, down 2.3% year on year. The company has jointly developed a number of medium and large excavators in the “Transcendor” series with well-known international suppliers to further expand the high-tech, high-margin medium and large excavator market.
Construction starts are picking up, and there is still room for growth in domestic and overseas markets
Due to the impact of the epidemic, in order to guarantee economic growth, infrastructure in domestic demand is still the main source of growth; “new infrastructure” such as 5G towers and rail transit construction also requires traditional infrastructure first. It is expected that a number of large-scale infrastructure projects will be added in the first half of the year, and approval and implementation will be accelerated. Combined with the accelerated growth of the “new infrastructure” market, medium- to long-term demand in the construction machinery industry is expected to increase further, and the growth of the industry will increase. Recently, upstream construction machinery industries such as infrastructure and real estate have accelerated their resumption of work, and demand for construction machinery has begun. The original demand in the first quarter was transferred and superimposed into the second quarter; the company's domestic product sales are gradually entering the peak season.
In terms of overseas markets, the company made sufficient preparations to expand overseas markets this year, actively expanded new sales channels, and developed new products suitable for overseas markets. Since the beginning of the year, the company's overseas orders have achieved rapid year-on-year growth, and the main markets are Africa and Southeast Asia. The impact of the epidemic is expected to be relatively limited.
Maintain a “buy” rating
Excluding the impact of profit and loss from financial products, the company's core profit is basically in line with expectations. We lowered the company's profit forecast slightly to carefully reflect changes in demand in overseas markets this year, lowered the company's 20-21 EPS forecast to 0.31/0.33 yuan (previously 0.34/0.37 yuan), and introduced the 21-year EPS forecast of 0.35 yuan. Maintain the target price of HK$2.60 and maintain the “buy” rating.
Risk warning: overseas market demand risk, product price reduction risk, exchange rate fluctuation risk
