Incident: On the evening of February 21, the company issued a plan for the spin-off, restructuring and listing of Zhonglian Hi-Tech (Second Revision).
Key points of investment
Zhonglian Hi-Tech plans to use the capital market to rapidly expand and strengthen its subsidiary Zhonglian Hi-Tech restructuring and listing. The plan is for Lu Chang Technology to issue shares at 23.89 yuan/share to buy 99.532% of the shares held by Zhonglian Hi-Tech (the remaining 0.468% shares held by Dongguan Jinqing and Changsha are to be transferred to Zoomlion Heavy Industries), and to issue shares to no more than 35 specific targets to raise supporting capital for Zhonglian Hi-Tech split city. In this transaction, Zhonglian Hi-Tech's 99.532% equity transaction price was 9.380 billion yuan (100% equity corresponds to 9.424 billion yuan). After the transaction is completed, Zoomlion Hi-Tech will become a subsidiary of Lucang Technology, and Zoomlion Heavy Industries will remain the controlling shareholder of Zhonglian Hi-Tech. Lu Chang Technology plans to raise no more than 2.5 billion yuan in supporting capital (3.35 billion yuan before the revision) to supplement the working capital or debt repayment of Lu Chang Technology and Zhonglian Hi-Tech and production base construction projects in Mexico.
The performance shows shareholders' confidence, and the growth prospects for the aerial machinery business are expected. Zhonglian Hi-Tech's main products include a series of aerial work machines such as scissors, straight arms, and curved arms. In 2020-2022, Zhonglian Hi-Tech achieved revenue of 1.03 billion, 2.98 billion yuan, and 4.58 billion yuan, respectively, and net profit of 0.2, 2.4, and 580 million yuan, respectively. The company promises that if the asset purchase transaction is completed in 2024, Zhonglian Hi-Tech's net profit for 2024-2026 will not be less than 7.4, 9.0, and 1.03 billion yuan, corresponding to PE of 13, 10, and 9 times.
Zhonglian Heavy Industries: The 2023 results are expected to increase 47% to 57% year on year. The profit growth rate for the fourth quarter is expected to increase significantly. The company's net profit in 2023 is expected to be 3.38 billion yuan to 3.62 billion yuan, up 47% to 57% year on year, and net profit after deducting non-return to mother is 2.27 billion yuan to 2.42 billion yuan, up 76% to 87% year on year; based on this estimate, net profit for the fourth quarter is 520 million yuan to 760 million yuan, up 282% to 457% year on year. The high annual performance mainly benefits from 1) the company deepened the “end-to-end”, “digital” and “localized” overseas business system, and the accelerated expansion and upgrading of overseas R&D and manufacturing bases, with remarkable results in overseas market expansion; 2) the company's emerging business sectors such as excavators, high machinery, and mining machinery grew rapidly; 3) the gradual commissioning of smart industrial cities to improve manufacturing efficiency, end-to-end transformation, digital applications, and improved self-control rate of key components.
The construction machinery industry is gradually bottoming out, and there is a trilogy of recovery: the start of the renewal cycle, improvement in domestic demand, and steady export renewal: domestic estimates are based on the 8-9th year of excavators as the peak renewal period, and it is expected that 2024 will begin a new renewal cycle. Domestic demand: As real estate and infrastructure policies continue to be favorable, the operating rate is expected to rise, and domestic demand will gradually improve. Exports: Overseas market share continues to rise, and China's leaders are gradually becoming global leaders. In 2023, China's cumulative export value of construction machinery (in RMB) was 341.405 billion yuan, an increase of 16% over the previous year.
Profit forecast: Net profit from 2023 to 2025 is expected to be 3.5 billion, 4.5 billion yuan, and 6 billion yuan, an increase of 52%, 29%, and 33% over the previous year. PE is 20, 16, and 12 times, maintaining the purchase rating.
Risk warning: 1) Infrastructure investment and housing commencement fell short of expectations; 2) Exports fell short of expectations