Description of the event

The company released its 2024 mid-year report. 24H1 achieved revenue of 49.632 billion yuan, -3.21%; realized net profit attributable to mother of 3.706 billion yuan, +3.24% year over year; realized net profit of 3.295 billion yuan without return to mother, or -2.35% year-on-year. 24Q2 achieved revenue of 25.458 billion yuan, -7.04% year over year; realized net profit of 2.105 billion yuan, +1.89% year over year; realized net profit deducted from non-mother of 1.828 billion yuan, -11.69% year over year.

Incident comments

Domestic business improved markedly, and overseas business continued to grow. After two years of continuous downward cycles, the domestic construction machinery industry bottomed out in the first half of this year. Domestic sales of excavators were the first to correct in March '24. Domestic sales of loaders also improved in April, and the product line with improved domestic demand gradually spread. Benefiting from the steady recovery of the domestic industry cycle, 24H1's domestic revenue was 27.731 billion yuan, -8.72% year over year. The decline was significantly narrower than in the full year of 23. At the same time, the company continued to deepen overseas market expansion, with 24H1 overseas revenue of 21.901 billion yuan, +4.8% year over year; the share of overseas revenue increased by 3.37 pct to 44% year on year, and the overall market share of overseas product terminal sales was +0.58 pct year on year. Looking at the subregions, regions such as South America, Africa, and the Middle East may have performed better in the first half of the year; Southeast Asia may have recovered; and regions such as Europe, America, and Central Asia may be relatively weak. CME predicts that the excavator industry's export sales volume will be positive for the first time in August by +4% year-on-year. Benefiting from the recovery of the excavator industry's exports, the company's overseas revenue growth is expected to accelerate in the second half of the year.

The earthmoving machinery sector has clearly picked up, and the mining machinery sector is expected to improve in the second half of the year. 24H1's earthmoving machinery revenue was +6.98% year over year, or mainly benefited from domestic industry recovery and export growth; revenue from lifting machinery and concrete machinery was -15.23%, -3.45% year over year, or dragged down by the domestic market decline; mining machinery revenue was -16.43% year over year, or mainly due to high base and demand side effects, which is expected to improve after revenue confirmation and major customer orders are placed in the second half of the year; revenue from the aerial work machinery sector is -11.50%, or mainly dragged down by the domestic industry decline, but the company's overseas revenue is expected to increase significantly.

Adhering to contextualized high-quality development, the quality of operations and profitability have improved markedly. The company sticks to its main business and adheres to the business policy of “high quality, risk control, world-class, and steady growth”. In the first half of the year 24, the balance ratio dropped by 1.24 pct, inventory pressure dropped 2.16 billion yuan, operating cash flow was +11% year-on-year, and the operating quality improved significantly. At the same time, the company achieved both gross profit margin and net profit margin increases in the first half of the year, +0.03pct and +0.67pct, respectively. The gross margin of the international business reached 24.41% and +1.22pct year over year. Profitability improved markedly, and the results of high-quality connotative development were remarkable. By product, the gross margin of mining machinery increased significantly by 7.67 pct year on year. Aerial platforms and hoisting machinery increased slightly, and earthmoving machinery and concrete machinery decreased slightly year on year. At the same time, exchange losses dragged down the company's profits in the first half of the year. Under such circumstances, the first half of the year's performance continued to grow.

In the process of repairing domestic demand in the construction machinery industry, excavators took the lead in recovering. The company's core business, excavation machinery, is expected to fully benefit. At the same time, new sectors such as high machinery and mining machinery are expected to continue to contribute more. As a leading domestic mining machinery company, there is plenty of room for growth. The company's overseas layout has expanded comprehensively, global competitiveness continues to improve, export growth is strong, and export revenue is expected to accelerate in the second half of the year. As national reforms reduce costs and improve efficiency, and the two pressure drops continue to advance, the company's performance and profitability are expected to continue to improve. The company is expected to achieve net profit of 6.411 billion yuan and 8.32 billion yuan respectively in 2024-2025, corresponding to PE of 12 times and 9 times, respectively, maintaining a “buy” rating.

Risk warning

1. The implementation of the steady growth policy fell short of expectations, leading to a decline in the growth rate of infrastructure and real estate investment; 2. The decline in overseas market sentiment and changes in trade policies led to lower overseas expansion than expected.