Sany Heavy Industries released its three-quarter report: Q3 achieved revenue of 19.3 billion yuan (yoy +18.87%, qoq -9.09%) and net profit of 1.295 billion yuan (yoy +96.49%, qoq -35.00%). Q1-Q3 2024 achieved revenue of 58.361 billion yuan (yoy +3.92%) and net profit of 4.868 billion yuan (yoy +19.66%) to mother. The high increase in the company's revenue in the third quarter during the bottoming out of the industry highlighted the company's alpha as an industry leader, and the company's fee control effects gradually showed. All expenses such as sales/management/R&D/finance declined year-on-year. We are optimistic that the company, as an industry leader, will benefit from the profit elasticity brought about by the recovery of the domestic construction machinery industry. Maintain a “buy” rating.

24Q3 fee control has paid off

The company's gross profit margin for the first three quarters of 24 was 28.27% /yoy-0.23pct, and the net profit margin was 8.60% /yoy+1.13pct. Among them, the 24Q3 gross profit margin was 28.32% /yoy-0.87pct, and the net profit margin was 6.95% /yoy+2.89pct. In terms of cost ratio, 24Q3 sales/management/R&D/finance expenses were 8.36%/3.48%/6.42%/0.09%, respectively, -1.33pct/-0.51 pct/-1.93pct/-2.88pct. The company continued to invest heavily in intelligent production line transformation, electrification research and development, etc., and gradually entered the harvest period. As the company began to strengthen cost control, all of the company's 24Q3 cost rates declined, and the company's fee control was already showing results.

The incremental policy continues to be implemented, and downstream customer repayments are expected to improve and support construction machinery demand. According to the Ministry of Finance press conference on October 12, the Ministry of Finance will launch a package of targeted incremental policy measures in the near future, focusing on steady growth, expansion of domestic demand, and risk mitigation, to step up local government debt risks, continue to increase central to local transfers, and issue 400 billion debt limits to the local community to supplement the comprehensive financial resources of the region. The next step is to study and formulate a “Three Guarantees” (protecting basic livelihood, wage protection, and operation protection) list, helmet Secure the bottom line of the “Three Guarantees” at the grassroots level. Downstream real estate and infrastructure projects for construction machinery are expected to benefit from debt conversion policies and improved repayment, thereby supporting construction machinery demand.

Profit forecasting and valuation

We maintain our profit forecast. We expect the company's net profit to be 6.199 billion yuan, 8.257 billion yuan, and 10.439 billion yuan in 2024-2026, corresponding growth rates of 36.92%, 33.19%, and 26.43%. The corresponding EPS is 0.73, 0.97, and 1.23 yuan, respectively. Comparable to the 25-year Wind, the average PE value was 17.51 times. Considering that the company, as an industry leader, led the expansion of overseas markets in the domestic construction machinery industry and is expected to fully benefit from the profit flexibility brought about by the recovery of the domestic construction machinery industry, the company was given 20 times PE in 25 years. Corresponding target price 19.49 yuan (previous value 19.02 yuan).

Risk warning: The competitive landscape of the industry worsened beyond expectations; overseas business expansion fell short of expectations.