The company's recent situation

We recently conducted company research. Since the second half of the year, the domestic and foreign excavator situation has improved compared to the first half of the year. Mining machinery is expected to be better than the first half of the year. We expect the company to achieve accelerated growth in the second half of the year. We believe that in the past two years, the company has achieved a good transformation in terms of business strategy optimization and investor returns.

reviews

Export growth has accelerated, and Indonesian demand has improved. In the first half of the year, China's excavator export sales fell 14% year on year. Among them, demand in Southeast Asia, Europe and the US was weak. Entering the second half of the year, on the one hand, the base effect began to weaken. On the other hand, after the election was settled, investment in the mining industry gradually recovered, and the Indonesian market gradually got rid of the decline in the first half of the year. As a result, 3Q24 excavator export sales increased 3% year on year. 1H24's export revenue increased 5% year on year, and the company expects export revenue to accelerate in the second half of the year.

Domestic demand for construction machinery is expected to bottom out in 2023. Focus on the prospects for repairing demand for earthwork equipment. The first half of the year was dragged down by real estate, and domestic demand for cranes and concrete equipment was weak. Driven by infrastructure such as farmland and water conservancy, small-scale excavation showed a good growth trend. The company believes that the current sales volume and revenue of major domestic products have reached a low level. Looking forward to next year, domestic revenue is expected to pick up. Among them, earthwork equipment will perform better than other products.

Mining machinery is expected to achieve year-on-year growth throughout the year, and there is plenty of room for improvement in profitability. In the first half of the year, the company's mining machinery revenue decreased 16% year over year to 3.54 billion yuan. The company expects domestic and foreign mining investment to recover in the second half of the year compared to the first half of the year, and still achieve good growth throughout the year. The gross margin of mining machinery increased 7.7ppt to 24.1% year-on-year in the first half of the year, leading the increase in all sectors. The company believes that in the future, there is plenty of room for growth in the overseas mining machinery market. As the company enters major overseas mining customers such as the company expands and expands the market simultaneously, there is still plenty of room for improvement in the profitability of the company's mining machinery.

Adhere to the idea of high-quality development, and shift from pursuing scale to pursuing more profitable quality. Since the mixed reform, the company has strengthened its assessment of indicators such as cash flow and gross margin, and made more trade-offs in domestic low-profit businesses. In terms of parts cost reduction, the company has stepped up efforts to promote self-production and cost reduction. The company expects that with inventory rotation, subsequent results will continue to be reflected.

Pay more attention to investor returns, and combine dividends with repurchases. Since the mixed reform, the company has increased its annual dividend ratio and increased repurchase efforts. According to the company's announcement, the company plans to use 0.3-0.6 billion yuan for repurchases in 2024. As of September 30, 0.3 billion yuan has been completed, and all repurchased shares will be cancelled. The company expects to normalize measures such as repurchases and dividends in the future to promote the optimization of investor returns.

Profit forecasting and valuation

We maintain the 2024/2025 EPS forecast of 0.53/0.64 yuan, corresponding to 2024/2025 15x/12.5x P/E. Considering the valuation switch, based on 15x P/E in 2025, we raised our target price by 13% to 9.54 yuan, with 20% room to rise, and maintain our outperforming industry rating.

risks

The recovery in domestic demand fell short of expectations; the growth rate of overseas exports fell short of expectations; and downstream repayments fell short of expectations.