Incidents:
Sany Heavy Industries announced its 2023 annual report and 2024 quarterly report on April 29: In 2023, the company achieved operating income of 74.019 billion yuan, a year-on-year decrease of 8.44%; realized net profit of 4.527 billion yuan, an increase of 5.33% over the previous year; realized net profit without return to mother of 4.388 billion yuan, an increase of 40.35% over the previous year.
With 2024Q1, the company achieved operating income of 17.830 billion yuan, a year-on-year decrease of 0.95%; realized net profit of 15.80 yuan, an increase of 4.21% over the previous year; realized net profit without deduction of 1,346 billion yuan, a year-on-year decrease of 6.41%.
Investment highlights:
Maintaining the competitiveness of core products and continuing to improve profitability in 2023, the domestic construction machinery industry is still in a period of downward adjustment. The company's core products continue to maintain high competitiveness, and excavation machinery has been the top domestic sales champion for 13 consecutive years; concrete machinery has steadily ranked first in the world; the overseas growth rate of lifting machinery has exceeded 50%, and the global market share has increased dramatically; pavers and rotary drilling rigs have steadily ranked first in the country. In 2023, the company's gross margin/net margin was 27.71%/6.29%, respectively, +3.69pct/+0.79pct; 2024Q1, gross margin/net margin was 28.15%/9.19%, and +0.55pct/+0.41pct, respectively. Benefiting from improvements in domestic and foreign market structure and product structure, promotion of cost reduction and efficiency measures, profitability continued to improve.
Strictly control loan risks, insist on high-quality development, and focus on business quality and risk management. In the context of tight capital in the domestic construction machinery downstream market in 2023, the company received 78.276 billion yuan in cash from sales and labor provision, with a repayment rate of 99.38%. The overdue rate of the purchase value of various major product divisions was kept at a low level, and the overall scale and quality of foreign payments remained at a good level.
Based on long-term principles, the “new three modernizations” steadily promoted the company's “new three modernization” strategy. (1) Globalization: In 2023, the company achieved overseas revenue of 43.258 billion yuan, accounting for 60.48% of the main business revenue, a significant increase of 14.78 pcts over the previous year; of these, the European region achieved revenue of 16.25 billion yuan, +38% over the same period, making it the fastest growing overseas region; the overseas business achieved a gross profit margin of 30.78%, +4.42pct year on year, increasing overall profitability. (2) Digital intelligence: As of December 31, 2023, the company has built 33 lighthouse factories, and MySany, a unified customer interface, has been launched in 129 countries and regions, effectively improving service efficiency and customer experience; significant progress has been made in intelligent product development. (3) Low carbonization: In line with industry trends, all product divisions have set up electrification management and research teams to focus on the three major technical routes of pure electricity, hybrid and hydrogen fuel, and continue to iterate on electrified products. In 2023, the company's electric mixer truck and electric crane products all ranked first in the industry.
The company is expected to fully benefit from the recovery of domestic excavators. According to data from the China Construction Machinery Industry Association, in March 2024, China's excavator sales volume was 24,980 units, down 2.34% year on year. Its sales volume in China was 15,188 units, up 9.27% year on year. According to CME forecasts, in April 2024, China's excavator sales volume was around 18,500 units, down about 1.5% year on year, and the decline improved from month to month. As the equipment renewal policy continues to advance, domestic demand for excavators can be expected to bottom out under the low base effect in the second half of the year, and the company's revenue growth rate is expected to improve.
Profit forecasts and investment rating The competitiveness of the company's core products continues to increase, and overseas expansion results are remarkable. As a leading construction machinery company, the company is expected to fully benefit from 2024-2026. We expect the company's revenue for 2024-2026 to be 804.96/933.88/111.089 billion yuan, net profit to mother of 62.27/80.10/9.41 billion yuan, respectively, and current stock price corresponding to PE is 22/17/14 times. First coverage, giving a “buy” rating.
Risks indicate downside risk of industry demand, risk of overseas demand falling short of expectations, competition increasing risk, geopolitical risk, and risk of exchange rate fluctuations.