Investment summary
It has a rich historical heritage, and has grown into a leader in the construction machinery industry thanks to XCMG Group. The predecessor of XCMG Group was the Huaxing Iron Works founded in 1943. It is the founder and pioneer of the construction machinery industry in China. As the Group's only listed company platform, XCMG Machinery undertakes the Group's high-quality industrial resources.
Currently, Xugong Machinery is a leading domestic construction machinery company. It has a complete range of products and series, covering lifting machinery, earthmoving machinery, concrete machinery, mining machinery, and aerial work platforms, etc., leading the market share in many products. According to the latest list of the top 50 global construction machinery manufacturers released by the British KHL Group, XCMG Machinery ranked fourth in the world, ranked first among domestic enterprises, and ranked first in the global industry for many years.
Domestic demand in the construction machinery industry is bottoming out and stabilizing, and global expansion is still the main theme. 1) The domestic market entered a period of downward adjustment in 2021 due to factors such as a slowdown in macroeconomic growth. The 2024 industry cycle may have stabilized. The recent marginal improvement signal is clear, and domestic sales data for excavators and loaders have improved month by month and achieved positive growth. As the renewal and replacement window approaches and large-scale equipment renewal policies are implemented, the domestic construction machinery industry is expected to begin a new upward cycle. 2) In recent years, China's construction machinery manufacturers have actively explored overseas markets, completed the leap from “products going overseas” to “industrial going overseas”, and the scale of construction machinery exports has continued to increase. In 2023, China's exports reached 78.552 billion US dollars, a year-on-year increase of 9.59%. The overseas market is about twice the size of the domestic market, and there is great potential for market development. Domestic enterprises continue to promote a global layout. As product quality improves, overseas channel layout is becoming more and more perfect, post-service market construction accelerates, and the overall competitiveness of domestic brands improves, and the penetration rate of overseas markets is expected to continue to grow.
The revitalization of the system stimulates vitality, and the internationalization+diversification layout creates a long-term growth engine. In recent years, the company has taken many steps to improve its comprehensive competitiveness: 1) complete mixed reform and integration of the group's superior assets to stimulate the company's operational vitality and endogenous motivation; establish a medium- to long-term incentive system to help the company develop in the long term. 2) The company strengthens traditional dominant industries, develops strategic innovative industries, and guarantees long-term growth momentum. In 2023, the revenue growth rate of strategic emerging industries was nearly 30%, accounting for more than 20%. Among them, the company's emerging businesses such as mining machinery and high machinery progressed smoothly, and the revenue of mining machinery/high machinery increased 14.17%/35.62% year-on-year. 3) The company's international layout has achieved “going global” from products to personnel to capital, and has entered the “going in” stage of deep-rooted localization and accelerated progress towards high-quality “walking up”. It has now formed a “four in one” international development model of overseas marketing, cross-border mergers and acquisitions, overseas factory construction, and global R&D. In 2023, the company's overseas sales revenue reached 37.22 billion yuan, a year-on-year increase of 33.71%, accounting for 40.09% of overseas revenue. Currently, the company's global market share is only 5.8%. With the continuous deepening of the global strategic layout system, the company's market share has a lot of room to increase.
Investment advice
Xugong is a leading domestic construction machinery company. As internationalization and diversification continue to deepen, we expect the company to achieve revenue of 101.131/113.22/129.963 billion yuan in 2024-2026, up 8.92%/11.95%/14.79% year on year; net profit to mother is 6.461/7.982/9.943 billion yuan respectively, up 21.31%/23.53%/24.57% year on year. The current stock price corresponds to PE is 12/10/8 times, for the first time Coverage, giving a “buy” rating.
Risk warning
Risk of market demand falling short of expectations, risk of overseas market expansion falling short of expectations, risk of exchange rate fluctuations, risk of increased market competition, risk of raw material price fluctuations, etc.