Core views

2024Q3's revenue increased by nearly 20%, and the growth rate increased significantly, mainly due to the recovery in domestic excavator sales and the increase in overseas revenue growth. The company's net profit returned to mother nearly doubled. The main reason was that the company strictly controlled R&D, management and other expenses, implemented high-quality development, and the net interest rate continued to increase. The company leads the industry in internationalization, electrification, and digital intelligence, and is highly competitive. It is expected that the company's products will be rapidly released in the European and American markets. Furthermore, the company has begun to vigorously reduce costs during the period, which is expected to release profit elasticity.

occurrences

Revenue for the first three quarters of 2024 was 57.891 billion yuan, up 4.27% year on year; net profit to mother was 4.868 billion yuan, up 20.27% year on year;

Looking at single-quarter performance, Q3 revenue for the single quarter was 19.153 billion yuan, up 19.51% year on year; net profit to mother was 1.295 billion yuan, up 100.05% year on year.

Brief review

The revenue growth rate increased significantly in Q3, and the net interest rate for strict control of expenses continued to rise. On the revenue side, revenue for the first three quarters of 2024 was 57.891 billion yuan, up 4.27% year on year; Q3 revenue was 19.153 billion yuan in a single quarter, up 19.51% year on year. The Q3 revenue growth rate increased significantly. We expect the company's domestic and foreign sales to perform well. Domestic sales of Q3 excavators maintained a high growth rate, medium and large excavators also recovered, and overseas revenue growth is also expected to pick up significantly.

On the profit side, net profit for the first three quarters of 2024 was 4.868 billion yuan, up 20.27% year on year; Q3 single quarter net profit was 1.295 billion yuan, up 100.05% year on year, achieving double growth. In terms of profitability, gross profit margin for the first three quarters was 28.27%, down 0.23 pct year on year; net profit margin was 8.60%, up 1.13 pct year on year; Q3 gross profit margin was 28.32%, down 0.87 pct year on year; net profit margin was 6.95%, up 2.88 pct year on year.

The decline in gross margin is mainly due to changes in product structure. We expect the share of excavators with high gross margin in the company's overseas revenue to decline slightly. On the other hand, the scale of consignment products with low gross margin will increase. However, the company actively controlled expenses for the period. The sales, R&D, management, and financial expenses rates for the Q3 quarter were 8.43%, 6.47%, 3.50%, and 0.09%, respectively. The year-on-year decrease was 1.38pct, 1.98pct, 0.53pct, and 2.92pct, respectively, and the net interest rate continued to increase.

The construction machinery industry is expected to usher in an upward resonance at home and abroad. The company's internationalization and other layouts are leading, and positive pressure reduction cost performance can be expected at the industry level. We believe that 2024 is the year the domestic market is bottoming out. The switching cycle driven by machine service life is superimposed on the Ministry of Housing and Construction's equipment upgrading policy, and it is expected that the domestic market will usher in an upward inflection point in 2025. Overseas markets are still resilient. Judging from key market performance, the Southeast Asian market is under slight pressure and is expected to recover later. Other emerging markets, such as South America, Africa, and the Middle East, have high growth rates, and there is plenty of room for future penetration in the European and American markets. Judging from the performance of different categories, the current export performance of non-mining is better than excavators, driving overall overseas revenue to maintain good growth. Overall, the domestic and overseas markets of construction machinery are expected to resonate and improve in the future. At the company level, the company is leading the industry in terms of internationalization, electrification, and digital intelligence. In particular, in terms of internationalization, it is actively promoting manufacturing globalization. In the first half of 2024, the second phase of the Indonesian factory was expanded, and the second phase of the Indian plant is being built in an orderly manner. Furthermore, the company continues to reduce costs and increase efficiency, and future flexibility is worth looking forward to.

Investment advice

The company is expected to achieve operating income of 78.169, 87.993, and 100.398 billion yuan respectively in 2024-2026, up 6.76%, 12.57%, and 14.10%, respectively. Net profit to mother is 6.032, 8.019, and 10.24 billion yuan, respectively, with year-on-year increases of 33.23%, 32.94%, and 27.70%, respectively. Corresponding PE is 25.64x, 19.29x, and 15.10x, respectively, maintaining the “buy” rating.

Risk analysis

(1) Risk of economic fluctuations: The construction machinery industry to which the company belongs is closely related to macroeconomics. The complexity of macroeconomic operations and the uncertainty of national economic policies may cause fluctuations in the development of the industry.

(2) Market competition risk: The construction machinery industry is highly competitive. The company must continue to maintain core competitiveness in terms of superior products and core technology, and adjust the industrial layout in a timely manner; otherwise, the company faces the risk of a decline in market share.

(3) Risk of exchange rate fluctuations: The company increases overseas factory construction and overseas markets, mostly using local currency or US dollars. Affected by the complex international situation, future trends in overseas markets and exchange rates are uncertain, which will have a great impact on the company's earnings.