Incident: Hangcha Group released its 2024 three-quarter report. In January-September, the company achieved operating income of 12.733 billion yuan, +1.55% year over year, and achieved net profit of 1.573 billion yuan, +21.2% year over year; in a single Q3, the company achieved operating income of 4.179 billion yuan, -2.65% year over year, and achieved net profit of 0.566 billion yuan, or +9.07% year on year.

Domestic demand was under pressure, and exports remained high. According to the Construction Machinery Industry Association, from January to September 2024, China's forklifts sold 0.6164 million units, +6.17% year on year, exported 0.3543 million units, +19.9% year on year; single Q3, domestic sales -1.8% year on year, and export +20.38% year over year.

Domestic demand in the industry has declined since the second half of the year, but with the competitive advantage of “cost performance+lithium electrification”, domestic forklift brand exports have maintained rapid growth. As reflected in the company side, there was a slight increase in revenue in January-September, a slight decline in Q3 revenue, and there was little overall fluctuation. We judge that the company's revenue performance is similar to the industry's sales trend. The decline in domestic sales dragged down revenue, and the high increase in exports smoothed out the fluctuations. In October, the country introduced a package of incremental policies to boost the economy. The bottom of the policy is in place. Macro fundamentals are expected to follow the recovery in the future. We are optimistic that the company's domestic sales performance will improve.

The “product+market” structure continues to improve, and profitability is close to historic highs. According to Wind, in terms of gross margin, in January-September, the company's gross profit margin was 22.67%, +2.46pct; in Q1-Q3, the company's gross margin was 20.57%, 22.21%, and 25.24%, respectively, with a significant month-on-month upward trend. Among them, Q3 was close to the historical peak of single-quarter gross margin. We determine that the improvement in the company's gross margin was mainly due to ① an increase in export scale, ② an increase in the share of high-end lithium electrification products, and ③ low raw material costs. In terms of net interest rate, in January-September, the company's net interest rate was 12.91%, +1.9pct; the total cost rate for the period was 10.97%, +1.83pct. Among them, sales, management, R&D, and finance expenses were +0.86pct, +0.56pct, and +0.14pct, respectively. Among them, sales and R&D expenses increased significantly. The main reason was that the company continued to increase overseas marketing network layout and investment in new product R&D. The increase in the company's net profit margin was mainly driven by gross margin optimization, and the cost side remained relatively stable.

The “sales+manufacturing” overseas layout is a two-pronged approach, and global competitiveness continues to be strengthened. According to the company's announcement, starting in the second half of the year, ① sales side: the company set up wholly-owned subsidiaries in Malaysia and Vietnam to further improve the company's overseas sales network, expand overseas leasing business, and enhance the company's global marketing resource allocation; ② manufacturing side: the company set up a wholly-owned subsidiary made in Thailand, plans to build a new production workshop and office building in Thailand, and is responsible for balancing the manufacture of heavy forklifts, aerial work platforms (arm type, scissor type) and lithium battery assembly. The initial plan is to have an annual production capacity of 10,000 units. The company's new layout for overseas manufacturing bases is expected to further enhance the company's overseas supply efficiency and customer responsiveness, and enhance the company's global core competitiveness.

Investment advice: We expect the company's revenue for 2024-2026 to be 17.07, 18.67 and 20.73 billion yuan, respectively, with growth rates of 4.9%, 9.4% and 11%, and net profit of 2.01, 2.18, and 2.47 billion yuan respectively, with growth rates of 16.9%, 8.3%, and 13.4% respectively, corresponding PE 11.6, 10.7, and 9.4 times respectively. The company is expected to continue to benefit from “internationalization+lithium electrification” structural optimization and maintain a “buy-A” investment rating. The target price for 6 months is 19.89 yuan, which is equivalent to a dynamic price-earnings ratio of 13X in 2024.

Risk warning: Macroeconomic recovery falls short of expectations, overseas business expansion falls short of expectations, international trade frictions have intensified, and raw material costs have increased.