The loader industry has the largest market share, and the product category covers all kinds of construction machinery and equipment
The company was founded in 1958 in Liuzhou, Guangxi, and has been deeply involved in the industry for many years and has gradually grown into the first listed company in China's construction machinery industry and an international construction machinery giant. The company is ranked 17th among the world's top construction machinery manufacturers (YellowTable 2023, “International Construction” magazine under the British KHL Group). The products cover earthmoving machinery, mining machinery, aerial machinery, agricultural machinery, industrial vehicles and other categories. The domestic market sales volume and share of earthmoving machinery are at the forefront of the industry, and the loader industry has the highest market share.
Domestic demand in the construction machinery industry bottomed out and stabilized in 2024, and overseas markets continued to grow
The construction machinery industry has entered this downward cycle since 2021. Combining macro-level infrastructure, real estate, and industry-level equipment upgrades and environmental emissions, we believe that the construction machinery industry is expected to recover steadily in 2024. Let's take a closer look:
In terms of domestic demand, in March 2024, the domestic sales data for excavators was corrected year on year, and the year-on-year decline for loaders narrowed. With the further development of downstream infrastructure projects, the industry is expected to stabilize and gradually pick up during the year.
In terms of export sales, from the demand side, the overseas market space is wider, and it has become the main growth engine for the development of domestic industry manufacturers. From the supply side, domestic construction machinery manufacturers have accelerated their overseas layout and actively promoted internationalization strategies in recent years, and their share of overseas revenue has increased markedly. Monthly excavator export data has declined year-on-year since June 2023 due to the early high base combined with the recovery of the epidemic and the recovery of overseas supply chains. However, through the continuous international layout of domestic construction machinery for many years, leading companies showed high growth rates in overseas revenue and orders, and continued to gain overseas market share with their product advantages.
State-owned enterprise reforms stimulate vitality, and the momentum for performance growth is strong
Over the past few years, the company has implemented mixed ownership reforms, established a medium- to long-term incentive mechanism, stimulated the source of reform, and made a long-term effective layout for continuous and rapid growth in performance:
1. Full internationalization. The share of overseas revenue increased from 19% in 2018 to 41.65% in 2023, and overseas business has become an important driving force for the company's growth; the gross margin of overseas business increased from 18.6% in 2018 to 27.4% in 2023. After years of layout, the company's overseas markets have entered a harvest period, and there is still huge room for improvement in the future.
2. Electrification and intelligence enhance product strength. The company deployed electric construction machinery earlier, and has taken the lead in technical exploration and product planning in the field of electric construction machinery since 2014. Currently, the company's electric products cover 11 product lines, including loaders, excavators, mining trucks, and aerial work platforms.
3. Accelerate weak cycle business. In addition to the two main products, excavators and loaders, the company has continued to develop new businesses such as prestressed machinery, agricultural machinery, forklifts, and high-altitude machinery over the years, and has broad prospects for future development.
Investment advice
We are optimistic about the continued development of various Liugong products in domestic and overseas markets. We expect the company to achieve revenue of 295.98/339.41/39.544 billion yuan in 2024 to 2026, up 8%/15%/17% year on year; achieve net profit of 13.46/19.31/2,552 billion yuan, up 55%/44%/32% year on year; and EPS corresponding to 2024 to 2026 is 0.69/0.99/1.31 yuan. The PE corresponding to the company's current stock price is 15/11/8 times. First coverage, giving a “buy” rating.
Risk warning
1) Domestic industry demand falls short of expectations; 2) Overseas market expansion falls short of expectations; 3) Accounts receivable recovery risk becomes bad debt preparation; 4) Industry competition intensifies.