Incident: Recently, Xugong Machinery released its 2024 semi-annual report.

Comment:

2024Q2 net profit to mother increased both year over month. With 2024H1, the company achieved revenue of 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. Gross margin was 22.89%, up 0.03 pct year on year; net margin was 7.52%, up 0.67 pct year on year. The sales expense ratio, management cost rate, R&D expense ratio, and financial expense ratio changed year-on-year to -0.41 pct, +0.40 pct, -0.46 pct, and +3.30 pct, respectively. With 2024Q2, the company achieved revenue of 25.458 billion yuan, down 7.04% year on year and up 5.31% month on month; net profit to mother was 2.105 billion yuan, up 1.89% year on year, up 31.54% month on month. Gross margin was 22.89%, down 0.17pct year on year, and remained flat; net margin was 8.37%, up 1.23pct year on year and 1.74pct month-on-month. The sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were -1.08pct, +0.37pct, -0.56pct, and +6.29pct, respectively. The month-on-month changes were -2.02pct, -0.44pct, -0.19pct, and +2.39pct, respectively.

High-end products have taken advantage of the trend, and the share of new energy products has increased dramatically. The company's emerging business gradually forms a strategic hierarchy to help the company diversify its layout. The company's high-end products are the main focus of structural adjustment, and the path choice to shape differentiated competitiveness. In the first half of 2024, the revenue of high-end products increased by more than 10.00% year on year, accounting for more than 32.00% of total revenue, up 4.00pct year on year. The effect of product structural adjustment was quite obvious. (1) Revenue from new energy products increased 26.76% year over year. Among them, NEV loaders accounted for 23.3% of total revenue, ranking first in industry sales; NEV products accounted for 74.00% of revenue, an increase of 6.70 pct over the previous year, leading the industry level. XCMG focused on new energy forklift tracks, and new energy forklift revenue increased 80.60% year over year. XCMG Shi Weiying, XCMG Environmental, and XCMG Port Machinery products have also penetrated significantly into new energy sources. (2) All-terrain cranes of 100 tons and above increased by about 30.00% year on year. The revenue share of high-horsepower mining graders and minecycles above 100 tons increased by 6.00 pcts and 12.80 pcts compared to the full year of 2023; the revenue share of excavators facing high-end markets in Europe, America, and Australia increased by 6.00 pcts compared to the full year of 2023. At the same time, a number of major heavy equipment were launched, such as the 4,000-ton wheel crane XCA4000, which broke the world record, the XE650GK HEV, the world's first hybrid excavator for mining, and the XTC130E, the country's first electric double wheel slot milling machine.

With a firm internationalization strategy, overseas market share has increased. The company is firm in its internationalization strategy and continues to improve its global layout. In the first half of 2024, the company's positioning was more clear and collaboration was more efficient. Overseas business achieved revenue of 21.901 billion yuan, an increase of 4.80% over the previous year. Overseas revenue accounted for 44.13%, an increase of 3.38 pcts over the previous year. The overall share of overseas product terminal sales increased by 0.58 pct over the same period last year. The overseas share of major products such as excavators, loaders, rollers, and aerial work platforms has increased.

Overseas revenue from all-terrain cranes and off-road tire cranes has nearly doubled. Overseas revenue from excavators increased 16.00% year on year, global synergy of concrete equipment is beginning to show, revenue from overseas pump trucks and mixing plants has doubled, and mixers have increased by about 2 times. The gross margin of overseas business was 24.41%, up 1.22 pct year-on-year. Overseas production capacity layouts such as Brazil, Germany, Mexico, India, and Uzbekistan have been gradually improved to help the company further expand overseas markets.

Investment advice: Maintain a “buy” rating. The company's 2024-2026 EPS is expected to be 0.54 yuan, 0.64 yuan, and 0.79 yuan respectively. The corresponding PE is 12 times, 10 times, and 8 times, respectively, maintaining a “buy” rating.

Risk warning: (1) If downstream demand falls short of expectations, demand for the company's products weakens; (2) if overseas market demand for domestic companies' products decreases, it will put pressure on the company's performance; (3) if raw material prices rise sharply, the company's performance will face great pressure.