China's leading construction machinery company, rapid market+product expansion, and leapfrog development. It is a leading enterprise in China's construction machinery industry. In the 2017-2021 construction machinery industry boom phase, the company's revenue CAGR was 30.3%, net profit CAGR was 47.3%, gross margin increased 2.26pct, central value was 26.13%, net margin increased 4.15pct, and the central value increased by 4.15pct. The central value was 8.57%, and the ROE increased 7.48pct, and the central value was 9.34%. In the downward phase of the industry in 2022, the company's performance is under pressure, and the industry is expected to gradually bottom up in 2023-2024. In 2023, the company's market+products expanded rapidly, revenue increased 13% year on year, and net profit to mother increased 52% year on year. Leading the industry level, profitability improved significantly. In the future, the company will expand rapidly in overseas markets, release new categories such as excavators and high machinery, and continue to consolidate its position in the traditional sector of concrete machinery and lifting machinery, and leapfrog development will gradually squeeze into the international leading sequence.
Globalization: Strong growth continues, with overseas revenue accounting for 48%, category expansion+market expansion supporting the development of overseas markets with remarkable results: in 2020-2023, the company's overseas revenue increased from 3.8 billion yuan to 17.9 billion yuan, the CAGR was 67%, the share of overseas revenue increased from 6% to 38%, and the share of gross profit increased from 3% to 45%.
Overseas revenue for the first quarter of 2024 was 5.7 billion yuan, up 53% year on year, accounting for 48% of total revenue. Export revenue from overseas revenue increased 61% year on year, maintaining a high trend.
Continued expansion of new overseas markets: In 2023, the localization strategies of key countries achieved remarkable results. Gongqi products became the brand with the highest share in Turkey and Central Asia, and built products to maintain the number one position in the Turkish market. Markets such as Saudi Arabia, Malaysia, Vietnam, and Kenya have rapidly increased their market share through localization efforts. Oil-producing countries such as Turkey, Saudi Arabia, and the United Arab Emirates are promoting infrastructure, and demand is growing rapidly and is expected to continue. The overseas subsidiary CIFA in Italy expanded its business into various fields such as construction and construction. The company has built more than 30 first-level business airports, more than 350 second-level outlets, and its products cover more than 140 countries and regions.
Category expansion: New categories continue to break through, earthmoving and aerial machinery are growing rapidly, agricultural machinery and mining machinery are ready to be launched (accounting for about 14% of revenue): Earthmoving machinery revenue increased from 2.7 billion yuan to 6.6 billion yuan in 2020-2023, and the CAGR was 36%, accounting for a share of total revenue from 4% to 14%, gross margin increased from 2.3% to 14.3%, and gross margin increased year by year. The gross margin increased from 16% to 28% in 2020-2023. Compared to the industry, in 2020-2023, the revenue CAGR for similar products of leading companies in the industry was -3%. The growth rate of the company's earthmoving machinery was significantly higher than that of the industry, and the relative share of revenue increased from 3% to 9%. In the future, the excavator model spectrum will gradually improve, and the pace of exports will accelerate, and it is expected to become another pillar sector of the company. Earthmoving machinery revenue increased 89.3% year on year in 2023, the domestic share of CUHK excavation doubled year on year, and overseas revenue increased by more than 100% year on year.
Aerial work machinery (accounting for about 12% of revenue): In 2021-2023, aerial machinery revenue increased from 3.4 billion yuan to 5.7 billion yuan, and the CAGR was 30%, accounting for 5% to 12% of total revenue, and gross profit increased from 4% to 10% of total gross profit. In 2023, aerial machinery revenue increased 24.2% year-on-year, ranking first in the domestic market share for small and medium-sized customers. The product spectrum achieved full coverage of 4-72 meters, and the penetration rate of electrified products reached more than 90%. The company is promoting the injection of the high-tech business into the subsidiary Lu Chang Technology to achieve a spin-off and listing. After the transaction is completed, Zhonglian Hi-Tech's financial strength will be further enhanced, and it is expected to seize the opportunity to accelerate development. In April 2024, 21,336 lift work platforms of various types were sold, down 4.13% year on year. Sales volume in the Chinese domestic market was 12,600 units, down 16.6% year on year; sales volume in the export market was 8,736 units, up 22.2% year on year, and overseas markets are expected to continue to break through in the future.
Agricultural machinery (accounting for about 4% of revenue): According to data from Intelligent Research Consulting, China's agricultural machinery market reached 397.7 billion yuan in 2023, and the company's agricultural machinery revenue in 2023 was 2.09 billion yuan, and there is still plenty of room for improvement. The company's agricultural machinery focuses on tractors and staple food harvesting machinery. In 2023, agricultural machinery achieved full coverage of major sales models, and the new products have improved markedly in terms of reliability, operating efficiency, and fuel consumption reduction. The domestic market share for dryers and wheat machines remains one of the best. Smart agriculture continues to promote digital agronomy technology research and development, and Zhonglian smart agriculture technology routes and service models have carried out project cooperation in many provinces and cities.
Mining machinery (accounting for about 2% of revenue): Mining machinery focuses on the open pit mining market, accelerating market expansion and team building. The sales scale increased 140% year-on-year, and the sales scale was close to 800 million yuan; product development effectively combines next-generation cutting-edge technologies such as clean energy, big data, mobile interconnection, and artificial intelligence to achieve “unmanned” and “less manned”, and launched the first 100-ton national chemical electric drive mining dump truck developed independently, officially entering the high-end mining equipment market. The year-on-year growth rates of investment in the mining industry from 2021 to 2023 were 10.9%, 4.5%, and 2.1%, respectively. The year-on-year increase in January-April 2024 was 21.3%, with significant improvements. We continue to be optimistic about the development of the company's mining machinery.
Traditional main business: The concrete machinery and hoisting machinery industry continues to prosper. The company's position consolidates the industry: review history. The renewal cycle for domestic concrete machinery and hoisting machinery is similar to that of excavators. The renewal cycle is gradually initiated, compounding the benefits of downstream demand and large-scale equipment updates. The industry is expected to build up in 2024 and accelerate the beginning of a new upward cycle. The export market space is broad. In April 2024, 863 truck cranes were exported, up 17.3% year on year. The cumulative export was 3096 units, up 10.3% year on year. The export performance was clearly superior to that of excavators. Continue to be optimistic about the future overseas expansion of lifting machinery and concrete machinery.
Company: In 2023, the company's dominant business increased steadily. The revenue of lifting machinery and concrete machinery both increased 1.6% year-on-year, accounting for 41% and 18% of revenue respectively. Daita products have been delivered in batches, and construction of a truck-mounted crane plant in Chongqing has begun. The market share of concrete machinery long boom pumps and mixing plants remains the first in the industry, and the market share of mixers remains second in the industry. The market share of construction hoisting machinery remains leading in the industry. Truck cranes with sales volume of 25 tons and above rank first in the industry, crawler cranes of 500 tons and above rank first in the industry, and construction of a truck-mounted crane plant in Chongqing has been fully launched. The sales scale of construction lifting machinery has steadily ranked first in the world.
Increased profitability: The gross profit margin and net interest rate increased significantly. The direct sales model helped leading companies in the profitability industry to have a gross profit margin of 27.54% in 2023, an increase of 5.71 pct over the previous year, and a net profit margin of 8.01%, an increase of 2.28 pcts over the previous year. The 2024Q1 gross profit margin was 28.65%, up 2.26 pct year on year, 1.76 pct; net profit margin was 8.67%, up 0.43 pct year on year, up 2.54 pct month over month. The increase in profitability was mainly due to rapid expansion of overseas markets, optimization of product structure, and the end-to-end direct sales business model is generally conducive to the company's management and cost control of sales channels, combined with digital penetration management to reduce costs and increase efficiency, and help improve profitability.
Manageable operating risk: Asset risk exposure is low, accounting is relatively adequate, and future financial risk is manageable.
In 2023, the company's risk asset exposure was 56.8 billion, corresponding to Sany Heavy Industries and Xugong Machinery, accounting for 43.4% of total assets, 53.1% and 92.3% for Sany Heavy Industries and Xugong Machinery, 16.2, and 17.7 and 28.1 for Sany Heavy Industries and XCMG Machinery. The ratio of risk asset exposure to total revenue was 1.2, corresponding to Sany Heavy Industries and Xugong Machinery. The accrual ratio of the company's accounts receivable in 2023 is about 18%, corresponding to Sany Heavy Industries and XCMG Machinery. The accrual is relatively sufficient, and future financial risks are manageable.
Construction machinery industry: gradual bottoming out, recovery trilogy: start of renewal cycle, improvement in domestic demand, steady export renewal: domestic estimates are based on the 8-9th year of excavators as the peak renewal period, and it is expected that 2024 is expected to begin a new renewal cycle. Domestic demand: As real estate and infrastructure policies continue to be favorable, the operating rate is expected to rise, and domestic demand will gradually improve. Exports: Overseas market share continues to rise, and China's leaders are gradually becoming global leaders. From January to April 2024, China's cumulative export value of construction machinery (in RMB) was 117.7 billion yuan, an increase of 6.8% over the previous year.
Profit forecast and valuation discussion: Net profit from 2024 to 2026 is expected to be 4.5 billion, 6 billion yuan, and 7.7 billion yuan, up 29%, 33%, and 28% year-on-year, and PE is 15, 11, and 9 times, maintaining the purchase rating.
Risk warning: 1) Infrastructure investment and housing commencement fell short of expectations; 2) Exports fell short of expectations