Key points of investment

Profit growth is in line with expectations, and Q3 results are expected to accelerate

2024H1 achieved revenue of 49.63 billion yuan, -3.2% year over year; net profit attributable to mother of 3.71 billion yuan, +3.2% year over year; net profit after deducting non-attributable net profit of 3.29 billion yuan, -2.4% year over year. Single Q2 achieved revenue of 25.46 billion yuan, or -7.0% year on year; net profit of Single Q2 was 2.11 billion yuan, +1.9% year over year; net profit after deducting non-return to mother was 1.83 billion yuan, -11.7% year over year. The performance was in line with previous market expectations. Last year's Q2 net profit was a high base due to exchange earnings. Against this background, the company's Q2 performance still achieved positive growth, and profitability improved markedly.

(1) By product, 2024H1 earthmoving machinery, lifting machinery, and concrete machinery achieved revenue of 13.9/10.1/5.2 billion yuan respectively, up 7.0%/-15.2%/-3.5% year-on-year. The positive growth of earthmoving machinery mainly benefited from the recovery of domestic excavators and the increase in overseas share. The decline in cranes and concrete machinery was mainly due to weak domestic market demand. The revenue of aerial work machinery and mining machinery in the emerging sector in the first half of the year was 4.5/3.5 billion yuan, respectively, -11.5%/-16.4% year-on-year. The decline was mainly due to a high base and weak domestic demand for the same period last year. (2) At home and abroad, 2024H1's domestic revenue was 27.73 billion yuan, or -8.7%. We judge that the domestic crane and concrete machinery industry is still being dragged down; overseas revenue was 21.9 billion yuan, +4.8%, of which excavator export revenue was +16%, which is significantly better than the industry's export growth rate. Looking ahead to Q3, the excavator industry's domestic and international resonance compounded the low base for the same period last year, and the company's performance is expected to continue to improve.

The mixed reforms have been effective, profit margins have increased, and reports have been improved

2024H1's gross sales margin was 22.9%, the same year on year. Its gross profit margin in China was 21.7%, -0.9pct year on year, and the overseas gross profit margin was 24.4%, +1.2pct year on year. 2024H1 net sales margin was 7.5%, +0.7pct YoY. (1) On the expense side, the 2024H1 company's expenses rate for the period was 15.1%, +2.8pct. Among them, the sales/management/R&D/finance expenses rates were 6.3%/2.5%/3.6%/2.7%, respectively, and -0.4/-0.5/+3.3 pct year-on-year respectively. Among them, the increase in the financial expense ratio was mainly due to the increase in the company's exchange losses of 1.69 billion yuan year on year. (2) Impairment: 2024H1's credit impairment loss was 0.1 billion yuan, with a year-on-year pressure drop of 1.09 billion yuan (including bad receivables losses of 1.02 billion yuan), boosting net interest rate by 2.1 pct. In addition, 2024H1's off-balance sheet mortgage and financial lease guarantee balance fell by 12.9 billion yuan compared to the same period last year, and risk management and control capabilities continued to increase. In the first half of the year, against the backdrop of unfavorable exchange rates and rising sea freight rates, the company's profitability still improved slightly, which fully reflected the long-term trend of the company's effective risk management, improved reporting, and gradual release of profits after mixed reform.

The strategy of internationalization and electrification is progressing steadily, and the long-term prospects are promising.

① Internationalization: In the first half of the year, the company strengthened efficient collaboration between international divisions, regional capacity centers, and OEMs, and achieved a year-on-year increase in the overall sales share of overseas product terminals by 0.6 pct. Among them, the overseas share of major products such as excavators, loaders, rollers, and aerial work platforms all increased. Overseas production capacity layouts such as Brazil, Germany, Mexico, India, and Uzbekistan have been gradually improved, and there is plenty of room for overseas growth. ② Electrification: 2024H1's new energy product revenue increased 26.8% year on year, electric loader revenue increased nearly 2 times year on year, ranking first in industry sales; electric forklift revenue increased 80.6% year on year. Electrification is the future trend of the construction machinery industry. The company has set up a platform-based technology research and development center, and has formed a three-dimensional parts industry layout around new energy sources that are autonomous and controllable, introduced in joint ventures, and the parent company's industrial chain is reinforced. The long-term prospects are promising.

Profit forecast and investment rating: We maintain the forecast that the company's net profit for 2024-2026 is 6.7/8.8/11.7 billion yuan. The current market value corresponds to PE12x/9x/7x, maintaining a “buy” rating.

Risk warning: Domestic industry demand recovery falls short of expectations, electrification penetration falls short of expectations, industry competition intensifies, and overseas trips fall short of expectations.