Key points of investment
A global strategic cooperation was signed with Rio Tinto and won a 0.8 billion bid. Mining machinery achieved a major breakthrough. On August 12, local time, XCMG Group and Rio Tinto Group, the world's largest iron ore producer, jointly signed a global cooperation framework agreement in Conakry, the capital of Guinea. At the same time, XCMG and Rio Tinto Simfer signed a working mission letter for the Guinea mine project to work together to help mine the Simandou (Simandou) project, the world's largest undeveloped iron ore.
XCMG successfully won the bid for the Simandou mine project in Guinea, which will provide a complete set of core mining equipment, including dozens of 230-ton mining trucks, 350 horsepower and 550 horsepower large-scale mining graders, with a total contract amount of nearly 0.8 billion yuan. XCMG and Rio Tinto began collaborating in 2014. From the beginning of the excavator's hydraulic cylinder to the subsequent joint development of the GR2605 grader and XC9 series high-end loader with Rio Tinto.
We believe that the extension of this equipment contract to provide Rio Tinto with dozens of 230-ton mining trucks is an important sign that XCMG mining equipment has entered world-class customers. XCMG is leading the mining machinery industry in China. The company's mining machinery business achieved revenue of 5.9 billion in 2023, an increase of 14% over the previous year, and its share of overall revenue increased to 6%.
The inflection point of the excavator industry is expected to gradually approach. Domestic and foreign sales in the second half of the year are expected to resonate with a year-on-year increase of nearly 22% in July, exceeding previous CME expectations (nearly 17%), and achieving positive growth for 5 consecutive months from March to July. Total excavator sales in July were 13,690 units, up 8.6% year on year. From April to July, it was growing for 4 consecutive months; domestic sales volume was 6,234 units, up 21.9% year on year; export sales volume was 7,456 units, down 0.5% year on year.
Loaders: Total loader sales increased for 4 consecutive months in April-July, and electric loaders increased 332% year-on-year in July (penetration rate reached 16%). In 2023, XCMG loaders were second in the world and number one in the country; new energy loaders doubled in growth and ranked first in the industry. The company is expected to fully benefit from the electrification trend of loaders.
Accelerated international business and continuous optimization of balance sheets
1) The international layout is progressing rapidly, and the global market share is expected to gradually increase. In 2023, the company's overseas revenue increased 34% year on year, accounting for 40% of revenue, up more than 10 pcts year on year. International revenue reached a record high. The gross margin of overseas sales in 2023 was 24%, up 2 pcts year-on-year, and 3 pcts higher than the gross margin of domestic sales in 2023.
2) Balance sheet optimization, and intrinsic value is expected to be revalued. The company's financial lease repurchase obligation balance at the end of 2023 fell 11% compared to mid-2023. The 2023 dividend ratio is 40%. It is also proposed to repurchase shares for 0.3-0.6 billion yuan and cancel them.
Profit forecasting and valuation
The company's revenue for 2024-2026 is expected to be 100.8, 117.4, and 144.4 billion, up 9%, 16%, and 23% year-on-year; net profit to mother will be 6.6, 8.2, and 10.3 billion yuan, up 24%, and 26% year-on-year, corresponding to PE of 12, 10, and 8 times, maintaining the purchase rating.
Risk warning
1) Investment in infrastructure and real estate falls short of expectations; 2) Exports fall short of expectations; 3) Exposure to risks such as accounts receivable