On March 29, the company released its annual report for the full year of '23. The company achieved operating income of 47.075 billion yuan, +13.08% year over year; net profit to mother was 3,506 billion yuan, +52.04% year over year. Among them, Q4 achieved revenue of 11.561 billion yuan, +5.26% year over year; net profit to mother was 651 million yuan, +373.72% year over year, in line with market expectations.

Overseas share has increased, costs have been reduced and efficiency has increased, and profitability has increased dramatically. According to the announcement, the company's gross profit margin and net margin reached 27.54%/8.01% respectively, up 5.71/2.28 pcts year on year. The significant increase in profitability was mainly due to: 1) Increased share of overseas revenue and strong overseas profitability: According to the announcement, the company's share of overseas revenue reached 38.04% in '23, +14.04pcts year on year. Among them, the gross margin of the overseas market reached 32.23% in '23, which is 7.57 pcts higher than the domestic market; the share of overseas revenue increased to boost the overall gross profit margin; 2) the cost reduction was smooth: the company improved construction quality and reduced comprehensive costs through new dry-mixed mortar materials. We are optimistic that the company's profitability will remain high. We expect the company's gross margin to be 27.9%/28.5%/28.7% in 23-25.

Products have achieved diversified development, and excavators, high machinery, and agricultural machinery are developing rapidly. According to the announcement, earthmoving machinery and high machinery achieved 6.648/5.707 billion yuan respectively, or +89.32%/24.16%. The above two fields accounted for 14.12%/12.12% of revenue and increased 5.69/1.08pcts respectively, promoting the diversified development of the company. Among them, the earthmoving machinery sector progressed rapidly, adhering to the medium and large excavation strategy, and continued to increase its market share, achieving countercyclical growth in the domestic small-scale cycle of the excavator industry.

Overseas revenue increased dramatically, opening up the global market. The company has actively laid out overseas markets in the past two years, implemented a “two vertical and two horizontal” strategy, and promoted “Belt and Road” countries, with a high increase in exports of core products; according to the announcement, the company's overseas exports reached 17.905 billion yuan, +79.2% year on year; we expect to maintain a high export growth rate throughout 23, and currently the company's market share in overseas markets is still at a low level, and there is still plenty of room for import substitution in the future.

We adjusted the profit forecast according to the announcement. The company's revenue for 2024-2026 is expected to be 602.84/742.10/87.935 billion yuan, and net profit to mother is 45.21/62.13/7.968 billion yuan. The corresponding PE is 16/11/9X, maintaining the “increase in holdings” rating.

Demand for downstream real estate and infrastructure falls short of expectations, increased competition in overseas markets, risk of rising raw material prices, and risk of exchange rate fluctuations.