Core views

In the third quarter of 2024, the company's traditional businesses all faced varying degrees of pressure. The mining machinery sector experienced a decline in domestic coal machine revenue due to the decline in the domestic coal machine industry, and the growth rate of logistics equipment declined compared to the previous period due to product delivery; although the emerging business sector was still losing money, the amount of loss had weakened. Looking ahead, the company's overseas development strategy continues to advance. The new products, large mining trucks and telescopic forklifts, have plenty of room to grow, and I am optimistic about the company's growth under mature emerging businesses.

occurrences

The company released its report for the third quarter of 2024. In the first three quarters, the company achieved operating income of 15.91 billion yuan, a year-on-year increase of 0.5%, and realized a net profit of 1.39 billion yuan, a year-on-year decrease of 21.6%; in the third quarter, the company achieved operating income of 5.154 billion yuan, an increase of 3.1% over the previous year, and realized a net profit of 0.357 billion yuan, a year-on-year decrease of 37.3%.

Brief review

Revenue from traditional sectors is under pressure, and the profitability of some products has increased

Looking at the revenue growth rate of the company's mining machinery, logistics equipment, and oil service divisions, there is some differentiation, but overall, the growth rate declined or was negative year on year. Specifically: ① Mining equipment: In terms of mining equipment, the revenue growth rate of tunneling machines, comprehensive mining, and wide-body vehicles, which are highly related to domestic demand for coal engines, was negative year-on-year. Among them, the growth rate of tunneling machines and wide-body vehicles declined significantly. The decline in comprehensive mining was relatively limited due to new products such as pure water brackets and high-strength brackets. In terms of gross margin, the gross margin of the company's tunneling machines, wide-body vehicles, and mining vehicles declined in the third quarter. The gross margin of tunneling machines declined slightly. The gross margin of wide-body vehicles declined significantly due to inventory sales of low-cost domestic used mobile phones. Judging from overseas wide-body vehicles and mining trucks, the company's overseas large-scale product sales results were relatively good, and the mining equipment sector maintained a relatively rapid growth rate of overseas revenue in the third quarter. Looking ahead, there is still some pressure on the domestic coal machine industry in the short term, and the company is expected to hedge against industry fluctuations to a certain extent through new product layout and diversification strategies. At the same time, overseas business is progressing smoothly, and there is still plenty of room for improvement in the company's market share.

② Logistics equipment: The growth rate of the company's logistics equipment revenue declined month-on-month in the third quarter, mainly due to factors such as geopolitical conflicts and increased shipping rates. At the same time, Dagang Airport delayed delivery of Dagang Aircraft products due to factors such as geopolitical conflicts and increased shipping costs. In summary, with shipping costs falling and port infrastructure completed, logistics equipment is expected to return to relatively rapid growth. In terms of profit, the gross margin of both large and small Hong Kong Airlines declined in a single quarter, mainly due to changes in product structure, and a phased increase in the share of some low-margin products, which in turn led to a slight decline in profitability. Looking back, the competitive pattern in the logistics equipment industry is stable, and long-term profitability is expected to remain relatively stable.

③ Oil service department: The company's oil service department experienced a certain decline in revenue in the third quarter due to limited winning bids for previous projects and changes in product structure, etc., and the year-on-year base in 2023 was relatively high, so the growth pressure in the single quarter in 2024 was high; from the profit side, the decline in gross margin was relatively obvious, mainly due to a significant increase in the share of some low gross margin products in 2024. This is a phased characteristic of the company's diversified development strategy. Looking ahead, the company is also gradually developing overseas markets, hoping to form a new growth pole through the development of overseas markets.

The emerging business sector has strong short-term profit pressure, and there is plenty of room for long-term growth. In the company's emerging business, it is difficult to achieve profits in a short period of time due to the fact that hydrogen energy, lithium battery technology equipment, smart minerals, and silicon energy are still in the early investment stage, but under strict control of expenses and optimization of personnel layout, the amount of losses has narrowed compared to the first half of the year. Looking ahead, the company's emerging businesses all have great potential for growth, and are expected to contribute more obvious increases after the layout is mature and perfect.

Investment proposal: The company is expected to achieve operating income of 21.718 billion yuan, 23.192 billion yuan, and 24.654 billion yuan respectively from 2024 to 2026, up 7.10%, 6.79%, and 6.30% year-on-year, and achieve net profit to mother of 2.112 billion yuan, 2.276 billion yuan, and 2.448 billion yuan, respectively, with year-on-year increases of 9.47%, 7.77%, and 7.58%, respectively. 7.15x, 6.64x, 6.17x, maintaining a “buy” rating.

Risk analysis

1. Price fluctuations of steel and other raw materials

The company's production process depends on a stable supply of large quantities of raw materials, especially steel. The prices of these raw materials are subject to fluctuations caused by external conditions. It is expected that steel prices will continue to fluctuate and be uncertain, and there is no guarantee that the company will be able to pass on any cost increases to customers.

Therefore, any increase in the price of raw materials used to manufacture such products will adversely affect the company's operating performance.

2. Fluctuations in supplier supply

The company procures some parts from external suppliers, and any unforeseen shortage, delivery delay, price fluctuation or other factors beyond its control may disrupt the supply of raw materials and parts. Failure to guarantee sufficient quantities of raw materials and machine parts for the company's current operation and planned business operation according to specified standards and reasonable prices may have a significant adverse impact on the company's business, financial situation and operating performance.

3. Uncertainty in the external environment

The rapid growth of some of the company's products stems from the rapid expansion of overseas markets. If the external environment fluctuates, unfavorable uncertainty will affect the growth rate of the company's overseas business, which in turn will have a certain impact on the company's overall business.

4. New business growth falls short of expectations

Although the company has conducted a detailed evaluation of the new business, there are still business growth that falls short of expectations due to factors such as policy and customer changes.