Results for the 3rd quarter of 2024 are in line with our expectations

The company announced results for the 1st to 3rd quarter of 2024: revenue of 34.386 billion yuan, a year-on-year decrease of 3%, and net profit to mother of 3.139 billion yuan, an increase of 10% year-on-year. The performance is in line with our expectations. 3Q24 revenue was 9.85 billion yuan, down 14% year on year, and net profit to mother was 0.851 billion yuan, up 4% year on year.

Gross profit margins continued to rise. The company's consolidated gross margin increased by 0.6/1.1ppt to 28.4%/28.5% year-on-year in the 1-3 quarter 2024/3 quarter, respectively. The company's profitability has increased significantly in the past few years, due to the continuous increase in the share of overseas revenue, the optimization of the company's product structure, the increase in the share of high-end products, and the decline in raw material costs.

Domestic and international business continues to be arranged to increase the cost rate during the period. In the 3rd quarter of 2024, the company's sales/management/R&D expense ratio was +1.1/+2.0/ -3.0ppt to 8.8%/5.6%/5.6%. The increase in the management expense ratio was mainly due to the increase in share payment expenses brought about by employee stock ownership plans, and the continuous expansion of domestic and foreign business increased the sales expenses rate. The financial expense ratio decreased by 1ppt to -1.4% year over year, mainly due to exchange rate fluctuations. The net profit margin for the 1st to 3rd quarter 2024/2024 increased by 1.1 ppt/1.5ppt year to 9.1%/8.6% year over year. The net cash flow from the company's operating activities in the 3rd quarter of 2024 was 0.383 billion yuan, an increase of 0.17 billion yuan over the previous year.

Development trends

Domestic construction machinery bottomed out, and overseas prosperity rebounded in the second half of the year. The sales volume of excavators in the main category of construction machinery has improved. Since excavator sales turned positive in March of this year, the average monthly increase has basically maintained double-digit year-on-year growth. In contrast, construction machinery categories such as concrete and cranes have continued to decline in both places. We judge that domestic demand for construction machinery is gradually bottoming out. The proportion of the company's products, cranes and concrete products, is relatively high, so the company's domestic revenue is more affected. Demand for domestic excavator exports improved from the second half of the year, and the growth rate of crane exports increased in the second half of the year. Over the past 2 years, the company has been active in overseas markets, and the export growth rate has maintained a high three-digit increase. In the first three quarters of 2024, the company's international revenue reached 17.64 billion yuan, an increase of 35.42% over the previous year. We are optimistic that the company's overseas business will continue to develop.

Profit forecasting and valuation

Based on the revenue driven by the company's product expansion, we raised our 2024 EPS forecast by 5.3% to 0.45 yuan, and introduced EPS of 0.58 yuan in 2025. Current A shares correspond to 2024/2025 16.2x/12.5xP/E, and current H shares correspond to 2024/2025 11.2x/8.4x P/E. Based on the upward trend in profit and industry valuation, we raised our target price for A Shares/H Shares by 35.0%/36.1% to 8.65 RMB/6.60 HKD, corresponding to 20.0%/19.8% upward space, respectively. The target price for A shares in 2024/2025 corresponds to 19.4x/15.0x P/E, and the target price for H shares in 2024/2025 corresponds to 13.4x/10.0x P/E, maintaining an outperforming industry rating.

risks

Overseas demand fell short of expectations, new business development fell short of expectations, and the decline in new domestic housing starts exceeded expectations.