Core views

The company implemented a high-quality development and management strategy in 2023. Revenue was -8% year-on-year, but overseas revenue increased by 18%, accounting for nearly 60% of revenue, and the share of medium to large tonnage products increased. In the context of the dual optimization of the market and product structure, the company's gross margin increased 3.7 pct year on year, net interest rate increased 0.8 pct, profitability both increased, and net profit increased. 2024Q1's revenue was -1% year-on-year, and the decline narrowed significantly. Profitability continued to improve, and net profit increased. In the medium to long term, the company's internationalization, electrification, and digital intelligence layout lead the industry, and its core competitiveness is prominent.

occurrences

The company achieved total revenue of 74.019 billion yuan in 2023, a year-on-year decrease of 8.44%, and net profit to mother of 4.527 billion yuan, an increase of 5.53% over the previous year. Among them, Q4 achieved total revenue of 17.882 billion yuan in a single quarter, a year-on-year decrease of 17.58%, and net profit to mother of 480 million yuan, a year-on-year decrease of 30.74%

In the first quarter of 2024, the company achieved total revenue of 17.830 billion yuan, a year-on-year decrease of 0.95%, and net profit to mother of 1,580 billion yuan, an increase of 4.21% over the previous year.

Brief review

2023: Overseas revenue accounts for about 60%, and profitability is improving. The domestic market is still in a downward phase in 2023. The overseas market is still facing structural adjustments. The company insisted on high-quality development, and achieved a total revenue of 74.019 billion yuan in 2023, or -8.44% over the same period last year.

By business, leading products are in a stable position. The performance of lifting machinery and concrete machinery is better than excavators, and the gross margin of various core products has increased.

1) Excavation machinery: Revenue of 27.636 billion yuan, -22.71% year on year, gross profit margin of 33.17%, +5.27pct year on year. The domestic market has been the sales champion for 13 consecutive years.

2) Concrete machinery: revenue of 15.314 billion yuan, +1.55% year on year, gross profit margin 22.33%, +0.56pct year on year. It is the number one brand in the world, with sales volume of electric mixers +47% year-on-year, maintaining the number one market share for three consecutive years.

3) Crane machinery: revenue of 12.999 billion yuan, +2.60% year over year, gross profit margin 24.67%, +8.90pct year on year. The overseas growth rate is over 50%, and the global market share has risen sharply.

4) Pavement machinery: Revenue of 2,485 billion yuan, -19.32% YoY, gross profit margin 30.00%, +7.69pct YoY. The share of pavers exceeded 30%, ranking first in the country; the market share of rollers and graders all increased sharply.

5) Piling machinery: revenue of 2,085 billion yuan, -31.97% YoY, gross profit margin 34.08%, YoY -2.38pct. The domestic market share of rotary drilling rigs is 40%, ranking first in the country.

By market, overseas revenue accounts for nearly 60%. In 2023, the company achieved overseas sales revenue of 43.258 billion yuan, +18.28% year-on-year, accounting for 58% of revenue.

The gross margin of overseas sales reached 30.94%, an increase of 4.42pct over the previous year. The gross margin was much higher than the domestic market's 22.96%. Looking at regional segments, the share of revenue in Europe and the US has increased, making it the fastest growing region. The Asia and Australia region was 16.5 billion yuan, +11.10%; the European region was 16.25 billion yuan, +37.97% year over year; the American region was 7.58 billion yuan, +6.82% year over year; and the Africa region was 2.92 billion yuan, +2.56% year over year. According to customs data, the company maintains a stable market position in overseas exports of excavation machinery, lifting machinery, and concrete machinery products.

Adhere to high-quality development and improve profitability. Net profit to mother was 4.527 billion yuan in 2023, an increase of 5.53% year over year. In terms of profitability, gross profit margin and net profit margin were 27.71% and 6.29%, respectively, and +3.69pct and +0.79pct year-on-year, respectively. Gross margin has increased dramatically, mainly because the company has insisted on high-quality development, increased overseas share and medium to large tonnage share, and promoted cost reduction and increase. The year-on-year increase in net interest rate fell short of the gross margin mainly due to the company's large impairment losses and higher foreign exchange locking costs. The company's impairment burden was reduced in 2024, and it is expected that the net interest rate will be repaired.

2024Q1: Revenue decline narrows, profitability continues to improve

In the first quarter of 2024, the company achieved total revenue of 17.830 billion yuan, -0.95% year-on-year. Compared with 2023Q4, the decline was significantly narrower. The company's operating plan is to increase revenue by more than 10% in 2024. The revenue growth rate is expected to improve quarterly. Net profit attributable to mother was 1,580 billion yuan, +4.21% YoY. In terms of profitability, the company's gross profit margin and net interest rate were 28.15% and 9.19% respectively, +0.55pct and +0.41pct, respectively. The company will continue to achieve year-on-year growth. The company will still adhere to the principles of high-quality development and management, and profitability will remain at a good level.

It is expected that the domestic construction machinery market will bottom out in 2024 and the overseas market will continue to grow positively. Looking at the leading industry level of the company's “three-phase” layout, the domestic construction machinery market began to enter a downward cycle in the first half of 2021 and is currently still bottoming out. Considering the 8-10 year service life, products sold in 2016 and after will enter the upgrading cycle one after another. Furthermore, the construction machinery upgrading policy introduced by the Ministry of Housing and Construction will accelerate the arrival of the replacement cycle. We expect the domestic market to bottom out in 2024 and is expected to start positive growth in 2025. The competitiveness of China's construction machinery products in overseas markets continues to increase, and construction machinery exports are expected to continue to grow. In the short term, the boom in North America, the Middle East, Africa, South America and other regions are relatively high, and Southeast Asia and other regions are relatively sluggish; in the medium to long term, we believe that China's construction machinery market share in developed European and American countries has a lot of room for growth in the future.

At the company level, the company leads the industry in internationalization, electrification, and digital intelligence layout. In terms of internationalization, the company leads the international revenue industry, accounting for nearly 60% of revenue, continuous channel improvement to accelerate global product development. In 2023, 35 new products were launched in Europe and the US, and 15 new overseas equipment were launched; in terms of electrification, all kinds of new energy products achieved market leading positions. In terms of electrification, electric products achieved revenue of 3.146 billion yuan and hydrogen energy products achieved revenue of 130 million yuan; in terms of digital intelligence, Sany Heavy Industries, Sany Heavy Industries, Sany Heavy Industries, Sany , Zhejiang Sany Equipment's five 5G factories are on the “2023 5G Factory List” and are in a leading position in intelligent manufacturing in the global heavy industry.

Investment advice

The company is expected to achieve operating income of 807.47, 912.34, and 106.021 billion yuan respectively in 2024-2026, up 10.28%, 12.99%, and 16.21% year-on-year, and net profit to mother of 60.59, 81.68, and 10.639 billion yuan respectively, up 33.82%, 34.82%, and 30.24% year-on-year respectively. The corresponding PE is 22.84x, 16.94x, and 13.01x respectively, maintaining the “buy” rating.

Risk analysis

1) Risk of economic fluctuations: The construction machinery industry to which the company belongs is closely related to macroeconomics. The complexity of macroeconomic operations and the uncertainty of national economic policies may cause fluctuations in the development of the industry.

2) Market competition risk: The construction machinery industry is highly competitive. The company must continue to maintain core competitiveness in terms of superior products and core technology, and adjust the industrial layout in a timely manner; otherwise, the company faces the risk of a decline in market share.

3) Supply chain security risks: The procurement cycle for some of the company's key components and imported materials is long. The impact of the international situation and emergencies poses challenges to the supply chain. The production capacity and transportation of some material and component suppliers are limited, and supply chain safety and operating costs face a certain degree of risk.

4) Risk of exchange rate fluctuations: The company is increasing the construction of overseas factories and developing overseas product markets, which is mostly calculated in the invested country's currency or US dollar. Affected by the complex international situation, the future trend of overseas markets and exchange rates is highly uncertain, which will have a great impact on the company's earnings.