SANYI is set to report 1Q24E financial data on 16 May (this Thu). We forecast SANYI to deliver a ~15% YoY decrease in net profit from a high base, due to (1) miners' disciplined capex as a result of the decline in domestic coal production in 1Q24; (2) keen competition in certain products such as hydraulic supports and wide-body trucks; and (3) a loss-making solar power segment. Despite the near-term headwind, we expect a potential recovery in 2H24E on the back of improvement in solar business and low base effect for mining equipment segment. We also expect strong demand overseas for large mining trucks & telescopic handlers will help counter the potential down-cycle of coal mining machinery. Maintain BUY with an unchanged TP of HK$8 (still based on 11x 2024E P/E).

Preview on 1Q24E results:

Pressure on mining equipment. We forecast mining segment revenue to drop ~15% YoY due to (1) a decrease in coal mining equipment sales; (2) a slowdown of wide-body truck sales, which may offset the relatively strong growth of large-size mining trucks. We expect keen competition has continued for certain products such as hydraulic supports and wide-body trucks, which should exert pressure on margin.

Growth to continue for logistics equipment. We forecast logistics equipment revenue to grow ~25% YoY, driven by decent growth of small- size port machinery and a solid backlog of large-size machinery. We expect telescopic handlers remained a major growth driver in 1Q24

Solar power: loss-making at a beginning stage. SANYI's solar power business includes solar products, equipment, solar farms & EPC. We expect the segment was in a loss-making state in 1Q24E given the decline in TOPCon cell price. That said, we expect the potential completion of some EPS projects will help reduce the loss going forward.

We expect net profit of ~RMB550mn (-15% YoY) in 1Q24E. We expect total revenue in 1Q24E to grow ~4% YoY (note: no revenue contribution from oil & gas equipment in 1Q23). We expect both gross margin and pretax profit margin to drop in 1Q24E, due to competition in certain mining equipment and higher opex on emerging businesses.

Major risk factors: (1) weakness of coal mining activities in China; (2) higher-than-expected loss from emerging business; (3) a rebound of raw material costs; and (4) a rising debt ratio due to high potential capex on new businesses.