1H24 results were slightly lower than our expectations

The company announced 1H24 results: revenue of 9.009 billion yuan, a year-on-year increase of 4.6%, and net profit to mother of 0.803 billion yuan, an increase of 22.1% year-on-year. Looking at a single quarter, 2Q24 revenue was 4.704 billion yuan, up 5.5% year on year, and net profit to mother was 0.413 billion yuan, up 4.6% year on year. The results were slightly lower than our expectations, mainly due to weak domestic demand and sales and R&D expenses exceeding expectations in the second quarter.

New energy and overseas business are driving revenue growth, and profitability has increased dramatically. The company's electrification and overseas share continued to increase. 1H24 achieved a 54.03% share of electric new energy forklift sales, an increase of 5.02 percentage points over the previous year, and achieved a 34% increase in overseas revenue. Product structure improvements, raw material cost optimization, and the upward trend in the US dollar exchange rate drove 1H24's gross margin to increase 1.8 ppt to 21.6% year over year.

1H24 sales/management/R&D expenses increased by 1.0/0.2/0.6ppt, respectively. The increase in sales expenses was mainly due to the expansion of the company's overseas sales network. The financial expense ratio was -0.3ppt to -0.4% year over year. 1H24's net profit margin increased by 1.3ppt to 8.9% year-on-year.

Cash flow from operating activities declined year over year. The net cash flow from 1H24's operating activities was $0.257 billion, compared to $0.496 billion in the same period last year, mainly due to increased inventory and reduced loans due to extended shipping times.

Development trends

Export sales growth of forklifts is slowing, and domestic demand is weak. According to data from the Construction Machinery Industry Association, the cumulative sales volume of forklifts from January to June 2024 was 0.586 million units, up 13.0% year on year. In June 2024, 0.112 million forklifts were sold, up 11.1% year on year. Among them, domestic sales were 0.066 million units, up 3.9% year on year, and export sales were 0.046 million units, up 23.4% year on year. Forklift sales are mainly driven by the three types of trucks at low prices. Excluding the three types of trucks, in the first half of 2024, the industry's overall forklift sales declined by one digit, the export growth rate slowed down, while domestic heavy truck revenue declined. Affected by weak demand for large trucks, Heli Forklift's revenue growth was lower than sales growth.

Optimistic about lithium electrification and internationalization drive the development of the forklift industry in the medium to long term. The increase in the share of lithium electrification in heavy forklifts in the past few years has led to an increase in the forklift industry and an increase in profits. Relying on China's mature lithium battery industry chain, the export competitiveness of China's heavy duty lithium-electric forklifts has increased. We estimate Heli's share in overseas markets in 2024. We are optimistic that the increase in NEV forklift export competitiveness will drive Heli's overseas market share in the medium to long term.

Profit forecasting and valuation

Considering that the company's expense ratio increased beyond expectations, we lowered the company's 2024/2025 EPS 3.5%/2.3% to 1.68/1.85 yuan. The company's current stock price corresponds to 2024/2025 9.6x/8.7xp/E. Due to the revised profit forecast and the downward shift in the valuation center, we lowered our target price by -24.9% to 20.81 yuan, corresponding to 2024/2025 12.4x/11.3x P/E, with 32.7% upside, maintaining the industry's rating.

risks

The recovery in the domestic manufacturing industry fell short of expectations; overseas manufacturing sentiment declined marginally.