Event: Company Releases 2024 Semi-Annual Results Forecast Investment Highlights

Q2's performance was in line with expectations, and the electrification overseas logic continued to verify that 2024H1 is expected to achieve net profit of 0.89-1.044 billion yuan, +45%-70% year-on-year, median of 0.967 billion yuan, +57.5% year over year; net profit excluding non-return to mother of 0.826-0.979 billion yuan, up 58%-88% year over year, median 0.902 billion yuan, +73% year over year; Single Q2 achieves net profit to mother of 3.92 to 0.546 billion yuan, up 24.4% to 74.3% year on year, -21.3% to +9.64% month on month, median 0.469 billion yuan, +48.9% year on year, and -5.8% month on month. Benefiting from improvements in electronic equipment volume and corporate governance after the mixed reform, the company's international and domestic sales growth rate continued to outperform the industry. Market share continued to increase, and the improvement in gross profit margin and net interest rate exceeded expectations, contributing to a significant increase in operating performance and cash flow in the first half of the year.

Denso leads the world, and excavator channel changes and expands against the trend

The company is a leading domestic earthwork machinery leader, and the core categories of loaders and excavators have outstanding growth: ① Loaders: The downstream application scenarios of loaders are mainly steel mills, mines, logistics, ports, etc., with fixed work locations, relatively concentrated equipment, and less difficult to build charging stations. At the same time, electric loaders have strong environmental protection properties, low life cycle costs, and strong economy. Easy charging+low cost The domestic penetration rate of electric equipment is increasing rapidly. The 2024M4 sold 940 electric loaders in China, with a penetration rate of 18%, compared to +14pct. In the long run, the domestic electric equipment penetration rate is expected to reach 80%. The company started with loaders. After more than 50 years of accumulation and accumulation, the loader market share exceeded 20% in 2023, ranking first in the industry. Moreover, the company's electrified loader layout was early, with a market share of 30% + in Denso in 2023. As a leader in the electrical equipment industry, the company is expected to fully benefit from the increase in electrification penetration. ② Excavator: In 2022, the company carried out forward-looking channel changes to maintain product prices, boost channel confidence, meet the early recovery trend of domestic small mining during the downturn of the industry, and achieve a contrarian increase in market share. In 2023, the company's excavator market share was 11%, up 3-4 pcts year-on-year. Looking forward to the future, the company's channel advantage in the excavator field is already basically stable, and the advance layout of the four national products has a cost advantage, waiting for the domestic upward inflection point to arrive.

Mixed reform improves business quality, equity incentives and fixed increases strengthen competitiveness. In 2022, the company completed mixed reform and achieved overall listing. After the mixed reform was completed, equity incentives and fixed increases were issued one after another to effectively expand production capacity, upgrade smart factories, stimulate employee enthusiasm, and greatly enhance overall competitiveness: ① Equity incentives: bind 974 executives and core technical personnel. Performance evaluation indicators focus on business quality, demonstrating the company's confidence in development. ② Fixed increase: Raise 3 billion yuan for factory upgrades, component capacity expansion, and “three modernization” research and development. After the excavator project is put into operation, the factory will be upgraded to a smart factory and the production capacity of medium and large excavators will double; after the loader project is put into operation, large-scale loaders will be arranged to enhance competitiveness; after the new Zhongyuan Hydraulic Business plant is fully put into operation, the production capacity of hydraulic components will expand dramatically, and the increase in component autonomy will help reduce costs and increase efficiency, and the overall competitiveness will be further enhanced.

Profit forecast: The company is a leading domestic earthwork machinery company. After the mixed reform, it began a new journey of internationalization and category expansion. We maintain the company's 2024-2026 net profit forecast of 1.46/1.94/2.73 billion yuan, respectively. The current market value corresponds to 2024-2026 PE of 14.82/11.14/7.91 times, respectively, and maintains a “buy” rating.

Risk warning: Domestic industry demand recovery falls short of expectations, industry competition intensifies, and overseas trips fall short of expectations.