Liugong released its 2024 quarterly report: From January to January 2024, the company achieved operating income of 7.939 billion yuan, an increase of 1.88% over the previous year, and net profit to mother of 498 million yuan, an increase of 58.03% over the previous year. Gross profit margin 22.79% (YoY +3.99pct), net profit margin 6.49% (YoY +2.33pct).

From January to December 2023, the company achieved operating income of 27.519 billion yuan, a year-on-year increase of 3.93%, net profit to mother of 868 million yuan, a year-on-year increase of 44.80%; a gross profit margin of 20.82% (+4.02pct) and a net profit margin of 3.42% (+0.98pct year on year).

Key points of investment

The domestic construction machinery industry is in a downward cycle, and the company's performance growth outperforms the overall growth rate of the industry

The construction machinery industry is in a mature stage of development. The industry concentration is high, competition from leading domestic and foreign manufacturers is fierce. The domestic construction machinery industry's exports grew steadily but the growth rate narrowed in 2023; the degree of internationalization of Chinese enterprises deepened, and the share of international business, especially key overseas markets, continued to increase, effectively balancing the cyclical fluctuations of the domestic construction machinery industry; the non-construction machinery market is weak in cyclical nature, and overall development is on a steady upward trend. The company's overall sales growth rate in the domestic market outperformed the industry, the sales growth rate of earthmoving machinery products outperformed the industry by 7%, and the overseas market sales growth rate outperformed the industry by 20%.

Overseas performance increased dramatically, diversified development enhanced market position, and the company actively innovated overseas business models and insisted on driving business growth and profit growth from the two dimensions of channels and customers. The cumulative sales volume in 2023 exceeded 26,000 units, up 23% year on year, and overseas revenue was 11.462 billion yuan, up 41.18% year on year, accounting for 41.65% of the company's overall revenue. Electric loader sales increased 67% year on year, and the market share remained the first; the market share of the excavator business increased by 3 percentage points, reaching a record high; vigorously developing strategic new businesses and growth businesses such as mining machinery, aerial machinery, agricultural machinery, industrial vehicles, etc.; focusing on developing challenging businesses such as lifting machinery, pile construction machinery, concrete machinery, etc., and the crane business innovated sales models and diversified sales channels, and successfully released 26 new products. The gross profit of the new product increased by nearly 8%.

Profitability increased significantly, with operating cash flow markedly improving the gross profit margin of 20.82% (YoY +4.02pct), net profit margin 3.42% (YoY +0.98pct), and the period expense ratio was 14.98% (+2.23% YoY). Among them, the sales expense ratio was 8.18% (+1.30pct year over year) and the R&D expense ratio was 3.29% (YoY +0.47%). The net cash flow from the company's operating activities in 2023 was 1,629 billion yuan, an increase of 69.90% over the previous year, and operating cash flow improved markedly.

Profit forecasting

The company has been deeply involved in the construction machinery market for more than 60 years. The rich product line and perfect supporting service system can provide customers with a full range of products, full life cycle and full value chain solutions for customers with different operating conditions around the world. Many products maintain a leading position in the industry and accelerate the expansion of overseas markets. It is predicted that the company's revenue for 2024-2026 will be 311.12, 344.00, and 37.766 billion yuan, respectively, and EPS will be 0.78, 0.93, and 1.07 yuan, respectively. The current stock price is 14, 11, and 10 times PE, respectively, covered for the first time, giving it a “buy” investment rating.

Risk warning

Industry competition heightens risks; overseas business expansion falls short of expectations; downstream demand growth falls short of expectations.