TAB Gongle_S recently issued AR report for the third quarter of 2024. From January to September 2024, the company achieved operating income of 22.856 billion yuan, an increase of 8.25% year on year; net profit to mother was 1.321 billion yuan, an increase of 59.82% year on year. With 2024Q3, the company achieved operating income of 6.796 billion yuan, an increase of 11.81% year on year; net profit to mother was 0.337 billion yuan, an increase of 58.74% year on year.

The overall gross margin increased, and the cost ratio increased during the period. In the first three quarters of 2024, the company's comprehensive gross margin increased 2.84 percentage points year-on-year to 23.48%. Effective cost reduction and efficiency throughout the value chain and product structure optimization were the main reasons for the year-on-year increase in the company's gross margin. From January to September 2024, the company's expense ratio increased 0.81 percentage points year on year to 15.02%. Among them, the sales expense ratio increased 0.96 percentage points year on year to 8.52%; the management expense ratio decreased 0.10 percentage points to 2.63% year on year; the R&D expenses ratio increased 0.11 percentage points to 3.35% year on year; and the financial expenses ratio decreased 0.16 percentage points year on year to 0.52% year on year. In the first three quarters of 2024, the company's net interest rate rose 2 percentage points year on year to 5.94%, and profitability increased year on year.

Actively respond to the diversification of demand in the construction machinery industry and improve market competitiveness. Since 2024, domestic construction machinery has been affected by the industry cycle and national policies. Demand in the earthmoving machinery sub-industry has gradually bottomed out, but demand in other construction machinery sub-industries is still relatively sluggish. Although industry demand in most developing countries and regions is growing rapidly, demand from developed European and American economies and individual developing countries and regions has declined, and the international construction machinery market is clearly divided.

Facing an increasingly complex business environment, the company focuses on the “three complete” strategy of “comprehensive solutions, comprehensive intelligence, and comprehensive internationalization” to effectively hedge against the negative impact of falling demand for some products and regions through customer structure optimization and regional market development. The sales growth rate in the international and domestic markets continues to outperform the industry as a whole, and the market share of major products represented by excavators continues to rise.

We attach great importance to electrification and form a product matrix with multiple technology routes. The company began electric technology and product research and development in 2014. As the organizer of the Electric Earthmoving Machinery Sub-contracting Committee, it began leading the preparation of electric construction machinery industry standards in 2019. After years of development, the company has now developed 11 product lines of electric products, forming a multi-technology product matrix to meet the diverse product solution needs of customers. According to data from the China Construction Machinery Industry Association, the sales volume of electric loaders included in the statistics from January to September 2024 was 8,323 units, and the electrification rate was 10.18%, an increase of 6.72 percentage points compared with the full year of 2023. The company's electric loader market share has maintained its leading position in the industry since 2021, and its electrified products have been fully verified by the market. In the first half of 2024, the company's electrification product research and successful prototype development progressed steadily. Nearly 20 new products were launched, developing and improving electric products that meet local needs in key overseas regions and countries, and continued to achieve breakthroughs in markets such as Asia Pacific and Northern Europe. As global energy constraints and environmental pollution problems intensify, the construction machinery industry's green and low-carbon development trend is prominent, and the company is expected to continue to benefit from it through comprehensive advantages such as technology and products.

Profit forecast and investment rating: The company's 2024-2026 EPS is expected to be 0.79, 1.04, and 1.26 yuan (previous values were 0.74, 0.97, and 1.19 yuan, respectively). Based on the closing price of 12.05 yuan/share on October 28, the corresponding PE is 15.25, 11.59, and 9.56 times, respectively, maintaining the company's “recommended” investment rating.

Risk warning: Increased market competition has led to the company's performance falling short of expectations; domestic market demand falling short of expectations; overseas business expansion falling short of expectations; domestic and foreign secondary market risks.