Dragged by the weakness of major global peers, SANYI's share price has been weak since early Oct. Its share price was under further pressure yesterday (1 Nov) following the release of weaker-than-expected revenue growth (26% YoY) despite decent earnings growth (46% YoY) in 3Q23. We revise down our 2023E/24E/25E earnings forecast by 5%/9%/7% after factoring in lower sales growth of road header and CCMU. That said, we believe SANYI's growth story remains intact as new products in overseas such as large mining truck & Telescopic forklift (伸缩臂叉车) will help counter the potential downside of coal mining machinery. Our TP is revised down to HK$15.4, based on unchanged P/E of 19x (2023E earnings). We believe the risk is largely in the price and we see the current risk/reward profile attractive.
Reasons for the slowdown of revenue growth in 3Q23: Revenue in 3Q23 grew 26% YoY to RMB5bn (mining equipment: +9% to RMB2.9bn; logistics equipment: +10% to RMB1.5bn; oil & gas equipment: RMB520mn; emerging business: c.RMB100mn). Management explained that the slow growth of mining equipment was due to the delay of delivery of certain products including coal mining equipment (due to lower coal price versus last year) and wide-body truck (due to unfavourable weather condition).
Coal mining equipment. For road headers, we now forecast RMB2.6bn of revenue for the full year (-13% YoY), which has already taken into consideration of the weakness in 2H23E. We forecast roader header sales in 2024E will be largely stable, but with higher ASP thanks to more integrated models. For CCMU, we forecast 22% YoY growth for the full year as SANYI has continued to obtain new customers. In 2024E, management expects growth to accelerate with the potential contribution of electro hydraulic control.
Mining trucks. For large mining trucks, we see potential upside as SANYI targets to achieve RMB1bn/2bn sales in 2023E/24E. For wide-body trucks, SANYI is expanding the sales of electric, large-size models. The mainstream models have already been moved to 70T from 60T, while 90T & 100T models have been launched in 4Q. Besides, electric models have been introduced to European customers.
Telescopic forklift. SANYI maintains the target to achieve RMB950mn revenue (+4x YoY) in 2023E and RMB2bn in 2024E (+1x YoY).
Latest backlog: As at end Oct, total backlog stood at RMB11bn (similar to Aug). For CCMU, c.RMB1.9bn of orders will be postponed to 1Q24E.
Major risk factors: (1) weakness in mining activities; (2) development of new products below expectation; and (3) rebound of raw material costs.