Description of the event

The company released its 2024 mid-year report. 24H1 achieved revenue of 39.06 billion yuan, -2.16%; realized net profit attributable to mother of 3.573 billion yuan, +4.80% year-on-year; and realized net profit after deduction of 3.126 billion yuan, or -19.09% year-on-year. 24Q2 achieved revenue of 21.23 billion yuan, -3.16% year over year; realized net profit of 1.993 billion yuan, +5.28% year over year; realized net profit deducted from non-mother of 1.78 billion yuan, -26.62% year over year.

Incident comments

Globalization continues to advance, and the share of export revenue continues to rise. 24H1's revenue fell slightly by 2.16% year on year. Its revenue in China was -11.7% year over year, which should be mainly dragged down by the decline in the concrete machinery and lifting machinery industry; international revenue was +4.79% year over year, and the share of international revenue increased to 62.2%. Looking at the subregions, Africa grew the fastest, with revenue +66.71% year over year, revenue accounting for 9.8%, up 3.6 pct year on year; Asia and Australia achieved a slight increase of +2.55% year on year, with revenue accounting for 39.0%, down 0.9 pct year on year; Europe +1.08% year on year, revenue accounting for 35.1%, down 1.3 pct year on year; the US region accounted for 16.1% of revenue, down 1.5 pct year on year. Among them, the performance of South and North America may be affected by last year's high base and inventory transfers. It is expected to decline, while demand in South America is relatively strong.

The domestic excavator business is gradually recovering due to the decline in concrete and lifting machinery. According to the China Construction Machinery Industry Association, China's excavator industry sold 10,3213 units in the first half of 2024, or -5.2% year-on-year. Meanwhile, sales in the excavator industry bottomed out after the second quarter. The company's sales growth performance may be significantly better than that of the industry, and its market share gradually recovered, especially at CUHK. Looking ahead to the second half of the year, domestic sales in the excavator industry are expected to continue the recovery trend, and the export growth rate is also expected to improve. As an industry leader, the company is expected to benefit, and the excavation machinery revenue growth rate in the second half of the year is expected to be better than in the first half of the year. 24H1's concrete machinery and lifting machinery revenue declined by 5.22% and 10.10%, respectively, and was mainly affected by domestic infrastructure real estate. The decline is expected to narrow in the second half of the year.

Profitability increased, and gross margin of hoisting machinery improved markedly. 24H1's gross profit margin and net profit margin were +0.03pct and +0.56pct, respectively, mainly due to an increase in the share of foreign revenue and increased cost reduction and fee control. 24H1's international gross margin was +0.56pct year on year, higher than domestic 8.54pct. At the same time, the share of international revenue was +4.1pct year on year, driving the company's profit upward. By product, the gross margin of the company's hoisting machinery in the first half of the year was +2.58pct, or was mainly driven by overseas market sentiment; gross margins of excavation machinery and concrete machinery were basically stable.

During the restoration process of the domestic industry, excavators recovered first, and the company's core business excavation machinery accounted for about 40% or fully benefited. The company's excavator market share recovered in the first half of the year, and domestic demand is expected to continue to pick up in the second half of the year, driving the company's domestic business to recover steadily. Short-term excavator exports have improved marginally, and overseas non-excavation growth continues, and the company's export revenue is expected to accelerate in the second half of the year.

The company has long been leading in overseas competitiveness and has production capacity in the US, Germany, Brazil, India, Indonesia, etc., which is expected to help increase its high-end market share. Domestic and overseas business continues to improve, combined cost reduction and efficiency improvements continue to advance, and the company's performance and profitability are expected to rise. The company is expected to achieve net profit of 6.286 billion yuan and 8.262 billion yuan respectively in 2024-2025, corresponding to PE of 22 times and 17 times, respectively, maintaining a “buy” rating.

Risk warning

1. Domestic demand recovery falls short of expectations;

2. Overseas business expansion falls short of expectations.