Incident: Sany Heavy Industries announced results. In 2023, it achieved total operating income of 74.019 billion yuan, net profit of 4.527 billion yuan, +5.53% year on year; in Q1 of 2024, total operating income of 17.830 billion yuan, -0.95% year on year, and net profit to mother of 1.58 billion yuan, +4.21% year on year.
Product competitiveness continues to improve, and overseas markets continue to grow: According to the China Construction Machinery Industry Association, the excavator industry sold about 196,000 units and 49,000 units respectively, with growth rates of about -25.0% and -13.1% respectively. The company's overall performance surpassed the industry. The new three chemicals achieved positive results, and the domestic market position was stable. 13 leading products, including oversized excavators, ranked first in the domestic market share. Overseas market growth continued. The international revenue in 2023 was 43.258 billion yuan, +18.28% year-on-year. It accounted for 60.48% of main revenue, an increase of 14.78pct.
By product:
① Excavators: Revenue in 2023 was about 27.6 billion yuan, -23% year-on-year, accounting for about 38% of the operating revenue of various products. In 2024, Q1 revenue was about 7.05 billion yuan, +2.8% year-on-year, accounting for about 40%.
Sany excavator has been the domestic market sales champion for 13 consecutive years, and its individual business performance is superior to the industry.
② Concrete machinery: Revenue of about 15.3 billion yuan in 2023, +2% over the same period, accounting for about 21%. It is the number one brand in the world. The sales volume of electric mixers is +47% year-on-year, maintaining the number one market share for three consecutive years. Q1 revenue in 2024 was about 3.46 billion yuan, -0.6% year-on-year, accounting for about 20%.
③ Cranes: Revenue in 2023 was about 13 billion yuan, +3% year-on-year, accounting for about 18%. Overseas growth rate exceeded 50%, and global market share increased. In 2024, Q1 revenue was about 3.24 billion yuan, +2% year-on-year, accounting for about 18%.
④ Pavement and pile construction machinery: Revenue in 2023 was about 2.5 billion yuan and 2.1 billion yuan respectively, -19% and -32% compared with the same period. The market share of pavers exceeds 30%, and the domestic market share of rotary drilling rigs exceeds 40%, all of which have steadily ranked first in the country. The market share of rollers and graders has risen sharply.
Q1 revenue in 2024 was approximately 610,000 yuan and 520 million yuan, respectively, -7.2% and -10.2% year-on-year, respectively.
Product and market structure optimization promotes a recovery in profitability and excellent management quality:
Profit side: In 2023, the company's overall gross profit margin was 27.72%, +3.7 pct year on year, net profit margin 6.3%, and +0.8 pct year on year. Market structure and product structure improvements, combined with cost reduction and efficiency measures, gross margin increased significantly. The period expense ratio was 19.3%, which was basically stable over the previous year. The increase in net margin was less than that of gross margin, which was mainly affected by investment income and credit impairment. In Q1 2024, gross and net margins were 28.15% and 9.19% respectively, with a year-on-year increase of +0.55pct and +0.41pct, maintaining a steady increase.
In terms of operating quality, the company's net operating cash flow in 2023 was 5.7 billion yuan, +39% year over year, net current ratio of about 1.2, and repayment rate of 99.38%, maintaining a good level of repayment. Even though the industry's performance is sluggish, the company still adheres to the value sales policy, focuses on risk control, and maintains a high quality of development.
Domestic growth is expected to stabilize, and overseas growth is gradually becoming dominant, focusing on the medium- to long-term growth capacity of leading companies: We mentioned in the “Construction Machinery 2024 Strategy Topic: Industry Expectations Fluctuate Narrow Range, Focus on Releasing Profit Flexibility” released at the beginning of the year. It is expected that 2024 will still be the bottoming of the industry, and fluctuations may narrow significantly. Based on conservative expectations (domestic and foreign sales -10% and +0%, respectively), the overall sales volume is expected to be around 186,000 units, or -0.8% YoY. Looking at the operation of the industry in the first quarter: ① The domestic market, according to the China Construction Machinery Industry Association, domestic sales of excavators improved in March, which we think is a good support for expectations of narrow fluctuations throughout the year; ② Overseas markets have gradually switched from tight supply and demand to a balanced state since 2021. We believe that the key driving force for export growth is also gradually shifting from beta to α, and fluctuations are also expected to narrow. Leading companies have a comprehensive product structure and stable market position. They are expected to fully benefit from the steady recovery of the domestic market and give full play to the effects of improving the competitiveness of products/channels/services in overseas markets, with outstanding medium- to long-term growth.
Investment advice: Operating income for 2024-2026 is expected to be 809.8, 913.1, and 106.06 billion yuan, respectively, with year-on-year growth rates of 9.4%, 12.8%, and 16.1%, respectively. Net profit to mother is 58.3, 75.8, and 10.37 billion yuan respectively. The year-on-year growth rates are 28.7%, 30.0%, and 36.9%, respectively. The net assets per share are 8.77, 9.5, and 10.57 yuan, respectively. The corresponding PB is 1.9/1.8/1.6 times. The company adheres to the principles of high-quality development and management, and continues to promote global transformation, digital intelligence transformation, and low-carbon “new three modernization” strategic transformation. Global competitiveness is expected to increase steadily, and profit levels are expected to rise steadily. During the downturn in the industry, PE valuation may be distorted. We use PB valuation, give a 2.3X valuation in 2024, target price of 20.17 yuan for 6 months, and maintain a “buy-A” rating.
Risk warning: Domestic demand recovery falls short of expectations; risk of a sharp decline in overseas demand; loss of profits due to market competition; fee control effects fall short of expectations; overseas market expansion falls short of expectations.