Core views

The company's revenue declined slightly in the first half of 2024, down 3% year on year, but structurally, overseas revenue increased 5%, and earthmoving, road, and other construction machinery is growing. Net profit due to mother increased 3% in the first half of the year. The company's exchange loss in the first half of the year was about 0.74 billion yuan, while exchange earnings for the same period last year were about 0.95 billion yuan. Against this background, profit continued to grow, and gross profit margin and net interest rates both increased steadily. Furthermore, the overall pressure on the company's inventory and risk exposure has also been reduced, and the overall quality of reports continues to improve. We believe that the construction machinery industry will usher in domestic and overseas resonance. The results of the company's state-owned enterprise reform are expected to continue to be realized, and we are optimistic about the company's long-term growth.

occurrences

Revenue for the first half of 2024 was 49.632 billion yuan, down 3.21% year on year; net profit to mother was 3.706 billion yuan, up 3.24% year on year. Among them, Q2's revenue for the single quarter was 254.5.8 billion yuan, down 7.31% year on year, and net profit to mother was 2.105 billion yuan, up 1.89% year on year.

Brief review

Profit continued to grow under the influence of exchange losses, and inventory and risk exposure continued to weigh down the company's revenue of 49.632 billion yuan in the first half of 2024, or -3.21% year over year. Of these, Q2 revenue for the single quarter was 25.458 billion yuan, or -7.31% year over year. Revenue declined slightly in the first half of the year. From a structural perspective:

Overseas market revenue increased, accounting for 44%. The company's overseas revenue was 21.9 billion yuan, +4.80% year on year, accounting for 44% of revenue, up 3.38 pct year on year, gross profit margin of 24.41%, +1.22pct year on year, gross margin was higher and increased year on year; domestic revenue was 27.731 billion yuan, -8.72% year on year, gross profit margin 21.69%, and -0.94 pct year on year.

Core products are becoming more competitive, and earthmoving, road and other construction machinery and machinery are growing.

(1) Hoisting machinery: revenue of 10.096 billion yuan, -15.23%; gross margin of 21.46%, year-on-year +0.12pct. Looking at the situation in various business segments, XCMG Heavy's domestic sales share was +2 pct year over year, a record high in recent years, and the share of overseas terminal landings was +1 pct year over year. XCMG tower cranes were restructured to the middle and large towers, and gross margin was +2.89pct year on year; XCMG's gross and net profit margins increased by 3.2 pct and 1.8 pct, respectively.

(2) Earthmoving machinery: revenue 13.908 billion yuan, +6.98% year over year; gross profit margin 27.17%, -1.66 pct year on year. Against the backdrop of a decline in the industry, there was a steady acceleration, and the increase in net operating cash flow was greater than the increase in profit.

(3) Concrete machinery: revenue of 5.156 billion yuan, -3.45% year on year; gross profit margin 15.48%, -2.70 pct year on year. Actively promote internationalization+renewable energy.

(4) Aerial work machinery: Revenue of 4.527 billion yuan, -11.50% year on year; gross profit margin of 31.25%, +0.43pct year on year, ranking third in the world, and the overseas share continues to increase.

(5) Mining machinery: Revenue of 3.54 billion yuan, -16.43%; gross profit margin of 24.11%, +7.67pct year over year, building core competitiveness, and gross margin increased significantly.

(6) Road machinery: revenue of 2.724 billion yuan, +0.96% year on year; gross profit margin 26.94%, 3.38 pct year on year. The advantages of integration are remarkable, and the sales volume of the five types of products such as rollers, pavers, graders, milling machines, and asphalt stations remains number one in the domestic industry.

(7) Other construction machinery, spare parts and others: 9.681 billion yuan, +7.83% year over year; gross profit margin 16.68%, -0.63pct year on year.

Profitability increased steadily, and profits continued to grow positively against the backdrop of unfavorable exchange rates. In the first half of 2024, the company's net profit to mother was 3.706 billion yuan, +3.24% year over year, of which net profit for the Q2 single quarter was 2.105 billion yuan, +1.89% year on year. In terms of profitability, the gross profit margin was 22.89%, +0.03pct year on year; the net profit margin to mother was 7.47% and +0.47pct year on year, all achieving steady increases. The company lost about 0.74 billion yuan in exchange in the first half of the year, while the exchange earnings for the same period last year were about 0.95 billion yuan. In this context, profit continued to grow.

Inventory and risk exposure have generally reduced pressure. By the end of the first half of 2024, the company's inventory pressure dropped by 4.48 billion yuan, or 12.9%, from the beginning of the year, about 6.7%; accounts receivable in the statement increased by 1.57 billion yuan compared to the same period last year, but large customers such as companies, central and state-owned enterprises account for a high proportion of repayments. It is expected that the accelerated repayment in the second half of the year will drive the decline in in-statement accounts receivable. The balance of off-balance mortgages and financial leases dropped by 12.9 billion yuan compared to the same period last year, achieving an overall pressure drop of 12.9 billion yuan.

The construction machinery industry is expected to resonate at home and abroad, and we are optimistic that the quality of company reports will continue to improve at the industry level. We believe that 2024 will be the year the domestic market will bottom out. The switching cycle driven by the service life of machines is superimposed on the Ministry of Housing and Construction's equipment upgrading policy, and it is expected that the country will usher in an upward inflection point in 2025. Overseas markets are still resilient. Judging from key market performance, the Southeast Asian market is under slight pressure and is expected to recover later. Other emerging markets, such as South America, Africa, and the Middle East, have high growth rates, and there is plenty of room for future penetration in the European and American markets. Judging from the performance of different categories, the current export performance of non-mining is better than excavators, driving overall overseas revenue to maintain good growth. Overall, the domestic and overseas markets of construction machinery are expected to resonate and improve in the future. At the corporate level, the company is actively promoting the reform of state-owned enterprises, achieving a steady increase in profitability, and some pressure on inventory and risk exposure. It is expected that the quality of reports will continue to improve. Furthermore, after completing asset injection, the company currently has the largest product category. In particular, emerging businesses such as mining machinery and high machinery are expected to contribute to growth.

Investment advice

The company is expected to achieve revenue of 98.683, 111.536, and 129.935 billion yuan respectively in 2024-2026, up 6.28%, 13.02%, and 16.50% year-on-year net profit of 6.557, 8.586, and 11.126 billion yuan respectively, increasing 23.11%, 30.94%, and 29.58% year-on-year respectively. Corresponding PE is 12.04x, 9.19x, and 7.09x, maintaining a “buy” rating.

Risk analysis

(1) Risk of economic fluctuations: The construction machinery industry to which the company belongs is closely related to macroeconomics. The complexity of macroeconomic operations and the uncertainty of national economic policies may cause fluctuations in the development of the industry.

(2) Market competition risk: The construction machinery industry is highly competitive. The company must continue to maintain core competitiveness in terms of superior products and core technology, and adjust the industrial layout in a timely manner; otherwise, the company faces the risk of a decline in market share.

(3) Risk of exchange rate fluctuations: The company increases overseas factory construction and overseas markets, mostly using local currency or US dollars. Affected by the complex international situation, future trends in overseas markets and exchange rates are uncertain, which will have a great impact on the company's earnings.