Key points of investment:
The company is a leading domestic construction machinery enterprise. The market position of traditional dominant industries such as concrete machinery and lifting machinery is steadily rising; emerging potential businesses such as earthmoving machinery, aerial work machinery, and mining machinery are developing rapidly. The company increases sales efforts in overseas markets and actively exploits the advantages of intelligent manufacturing on a large scale.
Demand in the traditional construction machinery industry is expected to pick up. Demand for aerial work vehicles is still mainly affected by factors such as infrastructure investment and replacement after the national standard was switched. Domestic demand has continued to decline since May 2021. The central government issued an additional 1 trillion yuan in treasury bonds in 2023Q4, which is expected to drive a gradual increase in equipment demand in 2024.
China's aerial work platform market started late and developed rapidly in recent years. The growth rate of China's aerial work platform ownership in 2019-2022 was 65.4%/62.8%/57.0%/36.0%, respectively. It is expected that in the future, as labor costs increase, the industry is expected to maintain a high growth rate.
The company continues to lead the market position for leading products, and its emerging potential business accelerates development. The company's leading products such as hoisting machinery and concrete machinery are in a leading position. In 2023, Zhonglian Heavy Industry's hoisting machinery sales rank second in China, and concrete machinery sales rank third in China. The equipment renewal policy is expected to increase demand for the company's traditional products. The company's emerging businesses, such as earthmoving machinery and aerial work platforms, accelerated development. In 2023, the company's earthmoving machinery revenue increased 89.29% year on year, and the overseas sales scale of excavators increased by more than 100% year on year; the company's high machine sales increased 24.16% year on year, ranking first in the market share of small and medium-sized customers in the domestic market. The rapid growth of emerging businesses brought the company room for continuous development.
The company comprehensively accelerated overseas business development. Demand from the “Belt and Road” region drove the company's overseas business growth. Overseas revenue in 2023 increased by more than 79.2% year-on-year. The regional competitive advantage of the company's products is mainly in “Belt and Road” regions and countries such as Southeast Asia, South Asia, the Middle East, and Russia. In 2023, China's construction machinery exports to countries along the “Belt and Road” are US$21.055 billion. We assume that the company's exports in the “Belt and Road” region will account for 90% of overseas revenue in 2023, and the corresponding export amount will be about 2,288 billion US dollars, accounting for about 10.9% of the total exports of the “Belt and Road” countries.
Profit Forecasts, Valuations, and Ratings
We expect the company's 2024-2026 revenue to be 562.77/656.69/75.490 billion yuan, respectively, up 19.55%/16.69%/14.96% year-on-year; net profit to mother will be 47.89/57.67/ 7.102 billion yuan, with year-on-year growth rates of 36.58%/20.43%/23.14%, EPS 0.55/0.66/0.82 yuan/share, respectively, and a 3-year CAGR of 26.53%. The absolute valuation method measures the value of the company per share at 9.28 yuan, which is 16.53 times the average valuation of the company in 2024. Combining the absolute valuation method and the relative valuation method, we gave the company 17 times PE in 2024 and a target price of 9.38 yuan. For the first time, we covered it and gave it a “buy” rating.
Risk warning: raw material price fluctuation risk, international trade risk, industry space estimation deviation risk