The company announced the 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 9.836 billion yuan, a year-on-year increase of 30.64%, achieved net profit of 0.674 billion yuan, a year-on-year increase of 34.16%, and achieved net profit after deducting 0.662 billion yuan, an increase of 42.51% year on year. Looking at a single quarter, the company achieved revenue of 3.328 billion yuan, an increase of 24.85% year on year, and achieved net profit to mother 0.256 billion yuan, up 27.64% year on year, achieved net profit without deduction of 0.252 billion yuan, an increase of 25.41% year on year. As a leading domestic bulldozer manufacturer, the company is expected to further open up room for growth and maintain the company's “buy” rating as the company continues to expand overseas markets and strengthen the excavator business.

Key points to support ratings

The company's business performance in the third quarter was impressive. Continued high performance growth reflects the company's strong alpha attributes. The company achieved revenue of 9.836 billion yuan in the first three quarters of 2024, +30.64% year over year, and the revenue scale for the first three quarters was close to the full level of last year; achieved net profit of 0.674 billion yuan, +34.16% year over year, net profit not attributable to mother 0.662 billion yuan, +42.51% year over year, total profit excluding tax shields of 0.787 billion yuan, +49.01% year on year; achieved revenue of 3.328 billion yuan in the third quarter of the same year, +24.85% Net profit attributable to mother was 0.256 billion yuan, +27.64% YoY; net profit not attributable to mother was 0.252 billion yuan, +25.41% YoY. The company's performance continues to increase, reflecting the company's strong alpha attributes.

Cost reduction and efficiency have increased significantly, net interest rates have increased, and cash flow has improved dramatically as the quality of operations continues to improve. The company's overall gross margin for the first three quarters of 2024 was 16.70%, -1.35pct year on year. We think it was mainly due to the rapid revenue growth rate of excavators with low gross margin and an increase in revenue share; the net interest rate was 6.89%, +0.17pct year on year. Under the influence of declining gross margin and tax shields, the company's net interest rate still increased, and the results of cost reduction and efficiency were remarkable. In terms of cost ratio, the cost rate for the first three quarters of 24 was 8.75%, -2.20pct year on year. In terms of cash flow, the company's net operating cash flow in the first three quarters was 0.479 billion yuan, up 640.50% from the same period last year; the net operating cash flow for the third quarter was 0.249 billion yuan, compared to -0.004 billion yuan in the same period last year. Cash flow improved significantly, and the quality of operations continued to improve.

Steady overseas development strategies and continued export volume, and vigorous excavators are expected to create a second growth curve. Since 2024, the company has continued to firmly implement overseas development strategies, actively lay out overseas channels, and establish subsidiaries in Dubai, Belgium, Uz, etc., focusing on expanding 24 overseas dealers in Africa, Europe, America, Southeast Asia, etc. Among them, the share of dealers in Africa, Europe, and America has increased, and the regional structure has been more reasonable, effectively increasing the coverage of the target market. In the first half of 2024, the company achieved overseas revenue of 3.625 billion yuan, accounting for more than 50% of the same period, and continued to maintain a rapid growth trend. In the future, as the company further strengthens its development efforts in markets such as Africa and America, it will add new growth impetus to the company's overseas business. In addition, the company issued an announcement stating that it has begun planning to acquire shares related to Fangshan Reconstruction Machinery Co., Ltd. In the future, the excavator business of Shantui Co., Ltd. is expected to rely on sales channels for bulldozers and other products and the platform advantages and supply chain advantages of Shandong Heavy Industries Group to become the company's second growth curve.

valuations

We expect the company's 2024-2026 revenue to be 13.712/16.09/18.132 billion yuan, net profit to mother 0.98/1.288/1.468 billion yuan, EPS 0.65/0.86/0.98 yuan, corresponding PE is 14.8/11.3/9.9 times. As a leading domestic bulldozer manufacturer, the company is expected to further open up room for growth and maintain the purchase rating as the company continues to develop overseas markets and strengthen the excavator business.

The main risks faced by ratings

The risk of domestic construction machinery demand falling short of expectations; the risk of overseas market expansion falling short of expectations; and the risk of increased competition in the industry.