Event: The company announced the 2024Q1 performance advance.
Key points of investment
The 2024Q1 performance is expected to increase 45% to 70% year on year, accounting for 50% of overseas revenue. Profitability continues to increase. The 2024Q1 company is expected to achieve net profit of 457 to 536 million yuan, an increase of 45% to 70% year on year; net profit after deducting non-return to mother is 413 to 492 million yuan, an increase of 51% to 80% year on year. The company continues to adhere to mixed reform and overall transformation and innovation since listing, and has enhanced execution. Its main business revenue has grown year on year. The revenue growth rate in the international and domestic markets has surpassed the industry. In particular, the share of international market revenue has further increased to about 50%, and profitability (including gross profit margin and net sales rate) has grown steadily, contributing to a significant increase in the company's business performance.
With mixed reform+internationalization+product structure optimization, the company's profitability is expected to continue to improve 1) Mixed transformation: Operational efficiency and profitability have improved significantly. The company continues to stimulate the efficiency of the mixed reform mechanism and promote cost reduction and efficiency throughout the value chain. In 2023, the company's ROE (weighted) was 5.4%, up 1.6 pct year on year; gross profit margin was 20.8%, up 4.0 pct year on year; net profit margin was 3.4%, up 1.0 pct year on year; market value management achieved remarkable results.
2) Subregion: Exports: The comprehensive internationalization strategy was advanced. In 2023, the company's overseas revenue was 11.46 billion yuan, an increase of 41% over the previous year, accounting for 42% of total revenue. Overseas revenue is expected to account for 50% in 2024Q1. Domestic: Domestic demand for construction machinery is expected to improve marginally. Domestic excavator sales in March 2024 were 15,188 units, up 9.3% year on year, exceeding previous expectations (CME forecast 14,800 units in March, up 6.5% year on year), and resumed positive growth.
3) Product category: Excavators: Market share increased rapidly. The profit level was further increased in 2023. The domestic market share exceeded 11%, the market share increased by 3 pcts, and the domestic sales growth rate outperformed the industry by more than 20 pcts; loaders: electric loaders grew rapidly. Electric loader sales increased 67% year-on-year in 2023, leading the market share; comprehensive solution: open up room for growth. The company vigorously develops strategic new businesses and growth businesses such as mining machinery, aerial machinery, agricultural machinery, industrial vehicles, etc., to provide new growth points for long-term development. Mining machinery: rapidly broadening the coverage of key overseas markets, achieving mass sales in multiple regions, with significant year-on-year sales growth; high-altitude machinery: sales revenue increased 112% year on year in 2023, of which overseas increased 123% year on year; agricultural machinery: completed batch switching of national four tractor products, established projects to develop high-end intelligent tractor products, sugar cane harvesters entered international markets such as Australia and Thailand; industrial vehicles: overseas revenue increased 57% in 2023, accounting for 60% overseas.
4) Impairment calculation: In 2023, the company accrued impairment preparation of about 786 million yuan (credit impairment loss of 531 million yuan+asset impairment loss of 255 million yuan). By impairing problematic and risky assets, it is expected that the soundness of financial statements will be guaranteed. It is expected that the company will accrue or reduce future impairment losses, which is expected to provide flexibility for future performance growth.
5) Buyback + dividend: Shows the company's confidence in future development. Buyback: Employee incentives are expected to increase. On the evening of March 29, the company announced its intention to repurchase 1-2 billion yuan of shares to be used for equity incentives or employee stock ownership plans. Dividends: The 2023 dividend rate is approximately 45%. In 2023, the company plans to pay a cash dividend of 390 million yuan, accounting for 47.6% of total profit distribution, accounting for about 45% of net profit attributable to mother, corresponding to a dividend rate of 2.2% on April 9, 2024.
Profit forecast and valuation: Net profit due to mother for 2024-2026 is expected to be 1.24 billion, 1.81 billion yuan, and 2.66 billion yuan, up 43%, 46%, and 47% year-on-year (CAGR 2024-2026 is 46%), corresponding to PE 14, 10, and 7 times.
The current price corresponds to the 24-year PB valuation of 1.0x (2024/4/9), which is lower than the industry average. Maintain a “buy” rating.
Risk warning: Domestic demand improvement falls short of expectations; exports fall short of expectations; new business development falls short of expectations; industry competition increases risk.