occurrences

Xugong Machinery announced its results for the first three quarters of 2024 on October 30: Q1-Q3 of 2024 achieved operating income of 68.726 billion yuan (-4.11% YoY), net profit to mother of 5.309 billion yuan (+9.71% YoY), and net profit of 4.889 billion yuan (YoY +11.85%) after deducting non-return net profit of 4.889 billion yuan (YoY +11.85%). Among them, Q3 2024 achieved operating income of 19.093 billion yuan (-6.37% YoY), net profit attributable to mother of 1.603 billion yuan (+28.28% YoY), and net profit of 1.594 billion yuan (YoY +59.91%) after deducting non-return net profit to mother.

Key points of investment

The inflection point of the construction machinery industry is approaching, and the company is expected to benefit as a leading enterprise

Since the beginning of 2024, with the launch of trillion-dollar treasury bond issuance projects, the market demand side gradually stabilized, and large-scale equipment renewal policies accelerated the elimination process of old equipment and stimulated the need to renew some new equipment. From January to September 2024, domestic excavator sales were 0.074 million units, +8.62% over the same period last year, and overall domestic excavator sales showed a bottom recovery trend. In September 2024, the average monthly operating time for major construction machinery products was 90 hours, up 3.99%. Among them, excavators were 82.6 hours. The inflection point of construction machinery is approaching. With its strong R&D capabilities, rich product line and extensive market coverage, the company is in a leading position in the domestic and foreign construction machinery industry. As a leading enterprise in the industry, the company is expected to fully benefit.

The increase in the share of overseas revenue and revenue from emerging businesses is expected to boost profit levels

The company invigorated overseas markets, and its share of overseas revenue continued to increase. As of 2024, H1's overseas revenue accounted for 44.13% (+3.38pct year on year). Furthermore, the high gross margin of the overseas business was 24.41%, which was significantly higher than the domestic gross margin of 2.72 pct, driving the overall gross margin increase. The gross margin for Q3 2024 was 25.54% (+2.53 pct year on year). With the gradual improvement of overseas production capacity layouts in Brazil, Germany, Mexico, India, Uzbekistan, etc., overseas markets will be further expanded to increase the share of overseas revenue, thereby increasing the company's overall gross profit margin. In addition, the company is actively seeking a second growth curve to develop aerial work platforms, mining machinery and other businesses in the high-margin sector. The gross margins of 24H1's aerial work machinery and mining machinery reached 31.25% and 24.11% respectively. The increase in the revenue share of the two emerging businesses is expected to increase the overall profit level.

The cost control rate is good, and operating cash flow continues to improve

In 2024, the Q3 company achieved a gross sales margin of 25.54% (+2.53 pct year on year), achieved high growth, and the company's profitability continued to increase; in terms of cost ratio, the 2024 Q3 company's expense ratio was 16.55% (-2.13pct year on year), of which the sales expense ratio was 7.43% (-0.20pct year on year), the management expense ratio was 3.76% (-0.25pct year on year), and the R&D expense ratio was 4.31% (y-o-y +) 0.15pct), the financial expense ratio was 1.05% (-1.83 pct year on year), and the overall cost control rate was good. In Q1-Q3 2024, the company's net operating cash flow was 2.044 billion yuan (+24.45% year over year), further improving operating cash flow.

Profit forecasting

The company's revenue for 2024-2026 is 988.58, 1103.92, and 126.299 billion yuan respectively, EPS is 0.55, 0.68, and 0.89 yuan, respectively. The PE corresponding to the current stock price is 14.9, 12.0, and 9.2 times, respectively, giving a “buy” investment rating.

Risk warning

International trade risks; increased risk of industry competition; risk of price fluctuations of major raw materials; risk of overseas operation; risk of customer concentration; risk of exchange rate fluctuations.