Key points of investment:
On April 29, Sany Heavy Industries released its 2023 annual report and 2024 quarterly report: 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.
2024Q1 achieved operating income of 17.830 billion yuan, a year-on-year decrease of 0.95%; realized net profit of 15.80 yuan, a year-on-year increase of 4.21%; and realized net profit without deduction of 1,346 billion yuan, a year-on-year decrease of 6.41%.
The revenue of downside companies in the industry is under pressure, and market share continues to increase. The company achieved operating income of 74.019 billion yuan in 2023, 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; and realized net profit of 4.388 billion yuan without return to mother, an increase of 40.35% over the previous year.
Look at it by business:
Excavation machinery: Sales revenue of 27.636 billion yuan, down 22.71% year on year, better than the 2023 excavator sales growth rate (about -24%), and has been the sales champion in the domestic market for 13 consecutive years.
Concrete machinery: sales revenue of 15.315 billion yuan, an increase of 1.55% over the previous year, and is the number one brand in the world. Sales of electric mixers increased 47% year over year, maintaining the top market share for three consecutive years.
Crane machinery: Sales revenue was 13 billion yuan, up 2.6% year on year. Overseas growth rate exceeded 50%, and global market share increased sharply.
Pavement machinery: Sales revenue of 2,485 billion yuan, with a market share of over 30% of pavers, ranking first in the country; the market share of rollers and graders all increased sharply.
Piling machinery: Sales revenue of 2,085 billion yuan, the domestic market share of rotary drilling rigs exceeds 40%, ranking first in the country.
Revenue from other businesses was $11.01 billion, up 29.96% year over year.
Actively promote the new three-phase strategy. Globalization, digital intelligence, and decarbonization have achieved good results. The company's new “three modernization” strategy achieved positive results. In terms of globalization, the international market maintained strong growth, achieving overseas sales revenue of 43.258 billion yuan, an increase of 18.28% over the previous year; in terms of digital intelligence, the five 5G factories of Sany Heavy Industries, Sany Heavy Industries, Sany Heavy Industries, Sany Intelligent Manufacturing, and Zhejiang Sany Equipment were listed in the “2023 5G Factory List” and the “Smart Crane Operation” project was awarded the “Top Ten Data Cases of the Ministry of Industry and Information Technology”; in terms of low carbon All kinds of new Energy products all achieved market-leading positions. In 2023, electric products achieved 31.4% revenue of 600 million yuan, and hydrogen energy products achieved revenue of 130 million yuan.
The company pursues the business strategy of “putting me first, local management, service first”. The international competitiveness continues to improve, and the international market has achieved rapid growth for many years. In 2023, the company achieved international sales revenue of 43.258 billion yuan, an increase of 18.28%; international revenue accounted for 60.48% of the main business revenue, an increase of 14.78 percentage points over the previous year.
By the end of 2023, overseas product sales had covered more than 180 countries and regions, and Europe and America had become the fastest growing overseas region. Regional sales revenue was as follows: Asia and Australia reached 16.5 billion yuan, an increase of 11.10%; the European region was 16.25 billion yuan, an increase of 37.97%; the American region was 7.58 billion yuan, an increase of 6.82%; and the African region was 2.92 billion yuan, an increase of 2.56%.
The company's gross margin rose significantly in 2023, and the company's profit quality gradually improved. In 2023, the company's gross margin was 27.71%, up 3.69 percentage points from the previous year; the net interest rate was 6.29%, up 0.79 percentage points from the previous year; after deducting the non-net interest rate, it was 5.93%, up 2.06 percentage points from the previous year.
The main reasons for the increase in gross margin are: 1) the gross margin of the company's various businesses has increased slightly; 2) the share of international business has increased, and the gross margin of international business is higher than that of domestic business.
By business: gross profit margin of excavators was 33.17%, up 5.27 percentage points year on year; gross profit margin of lifting machinery was 24.67%, up 8.9 percentage points year on year; gross profit margin of concrete machinery was 22.33%, up 0.6 percentage points year on year; gross profit margin of accessories and other businesses was 23.9%, up 4.02 percentage points year on year.
By region: Domestic business gross profit margin was 22.96%, up 1.04 percentage points year on year; foreign business gross profit margin was 30.94%, up 4.58 percentage points year on year.
2024Q1 Continued improvement in operations and continuous improvement in profitability
2024Q1 achieved operating income of 17.830 billion yuan, a year-on-year decrease of 0.95%; realized net profit of 15.80 yuan, a year-on-year increase of 4.21%; and realized net profit without deduction of 1,346 billion yuan, a year-on-year decrease of 6.41%.
The company's 2024Q1 gross profit margin and net profit margin were 28.15% and 9.19% respectively, up 0.44 percentage points and 2.9 percentage points from the 2023 annual report, respectively. The company's operations are continuously optimized, and profitability is constantly improving.
The construction machinery industry is expected to bottom up, and large-scale equipment updates catalyze domestic demand and domestic construction machinery industry demand is expected to bottom up. Domestic construction machinery is mainly driven by renewal demand. The equipment renewal cycle is roughly 8-10 years. The last round of the construction machinery boom cycle began in the second half of 2016 and reached the peak of the industry in the first quarter of 2021. According to industry cycle estimates, equipment that began the last wave of the industry's upward cycle in 2024 will gradually reach the stage of renewal and replacement. The construction machinery industry is expected to bottom out and rise, ending the downward cycle of the industry that has continued for more than three years. Domestic excavator sales from January to April 2024 have gradually reversed the continuous downward trend and achieved positive growth, verifying the inflection point of domestic demand for construction machinery.
Second, the State Council is vigorously promoting large-scale equipment upgrades, and related industry policies and local policies are gradually being implemented. Large-scale equipment updates will catalyze domestic demand and accelerate the arrival of an inflection point in the industry cycle. Furthermore, overseas business expansion is still an important growth point for the construction machinery industry.
Sany Heavy Industries is a leading domestic construction machinery company. The two major types of excavators and concrete machinery are number one in the country, and hoisting machinery ranks in the top three in the country, fully benefiting from the inflection point of the domestic construction machinery industry cycle and the trend of overseas expansion.
Profit forecasting and valuation
Sany Heavy Industries is a leading domestic construction machinery company. The two major types of excavators and concrete machinery are first in the country, and hoisting machinery ranks in the top three in the country. The industry position is outstanding and consolidated, fully benefiting from the inflection point of the domestic construction machinery industry cycle and the trend of overseas expansion. The company vigorously promotes two new and three modernization strategies, and actively promotes digital intelligence, electrification and internationalization routes, which is expected to open up new market space.
We forecast that the company's revenue for 2024 to 2026 will be $82,221 billion, $94.505 billion, and $111,658 billion, respectively, and net profit to mother of 5.674 billion, 707.4 billion, and 9.253 billion, respectively. The corresponding PE is 26.01X, 20.86X, and 15.95X, respectively. The first coverage gives the company a “buy” rating.
Risk Warning: 1: Domestic construction machinery demand falls short of expectations; 2: Export demand and business development fall short of expectations; 3: Increased industry competition and declining gross margin; 4: Fluctuations in raw material prices; 5: Other unpredictable internationalization risks.