Description of the event

The company released its 2024 three-quarter report. 24Q1-3 achieved revenue of 68.726 billion yuan, -4.11%; realized net profit to mother of 5.309 billion yuan, +9.71% year over year; and realized net profit of 4.889 billion yuan without return to mother, +11.85% year over year. 24Q3 achieved revenue of 19.094 billion yuan, -6.37% year over year; realized net profit of 1.603 billion yuan, +28.28% year over year; realized net profit deducted from non-mother of 1.594 billion yuan, +59.91% year over year.

Incident comments

Q3 The domestic excavator business is likely to grow well, and overseas revenue growth is expected to accelerate. On the domestic side, according to the China Construction Machinery Industry Association, sales volume in the 24Q3 excavator industry was +20% year-on-year. From a structural point of view, the company's large excavator advantage is relatively obvious, so domestic excavator sales revenue is expected to be higher than the industry's growth rate. Furthermore, due to weak infrastructure real estate, the lifting machinery and concrete machinery industries may still be weak. For example, sales in China's truck crane industry fell 45% year on year in 24Q3, which may put some pressure on the company's domestic sales revenue. Looking ahead, the start of construction in the industry is expected to bottom out and stabilize. Combined with the stimulus of the real estate easing policy and the low base effect, the company's domestic business is expected to bottom up in the future. Overseas, in August and September, China's excavator exports improved year on year for 2 consecutive months; according to data from the General Administration of Customs, the export value of China's construction cranes and concrete machinery was +16% and +38% year-on-year respectively in 24Q3, and the non-excavation equipment export boom continued. Therefore, the company's overseas revenue growth in Q3 is expected to expand compared to the first half of the year, and Q4 is expected to further accelerate growth.

Profitability continues to improve, and risk pressure reduction has achieved remarkable results. The 24Q3 company's gross profit margin and net interest rate were 25.54% and 8.31%, respectively, or benefited from: 1) the Q3 overseas revenue growth rate is expected to be higher than domestic, and the overseas share of high gross margin increases or drives improved profitability; 2) continuous optimization of the product structure, medium- or significant improvement in domestic high gross profit; 3) Cost reduction and control fees continue to advance. 24Q3 sales/management/R&D/finance expenses, respectively -0.20pc-0.25pct/0.15pc-0.83pct. In addition, the 24Q3 company's revenue ratio reached 129%, up 24 pcts from Q2; notes receivable and accounts receivable in the statement decreased by 2.854 billion yuan month-on-month compared to Q2, and off-balance sheet guarantees decreased significantly compared to 24H1, and the company's repayment and business quality improved markedly.

The mining machinery business is expected to grow rapidly, and gross margin may increase significantly. As a leading domestic mining machinery company, the company successfully won the bid for Rio Tinto Group's Simandou mining project in Guinea in August 2024. It will provide a complete set of core mining equipment, including dozens of 230-ton mining trucks, 350 horsepower and 550 horsepower large-scale mining graders. The total contract amount is nearly 0.8 billion yuan. Q4 is expected to be partially delivered, helping the mining business grow rapidly. At the same time, the gross margin of the company's mining machinery increased significantly. The gross profit margin of 24H1 mining machinery was 24.11%, +7.67pct year-on-year. Q3 may increase further.

The domestic earthmoving machinery industry has clearly recovered this year. The company's core businesses, excavators and loaders, are expected to fully benefit, and hoisting machinery and concrete machinery are expected to be repaired under the stimulus of loose real estate policies and the low base effect. The company's overseas layout has expanded comprehensively, global competitiveness continues to improve, and subsequent export revenue is expected to maintain relatively rapid growth. At the same time, as a leading domestic mining machinery company, the company has broad room for growth. Along with structural optimization, national reform, cost reduction and efficiency, and continuous progress of the two pressure drops, the company's profitability and operating quality have improved markedly. The company is expected to achieve net profit of 6.196 billion yuan and 8.006 billion yuan respectively in 2024-2025, corresponding to PE of 16 times and 12 times, respectively, maintaining a “buy” rating.

Risk warning

1. The implementation of the steady growth policy fell short of expectations, leading to a decline in the growth rate of infrastructure and real estate investment; 2. The decline in overseas market sentiment and changes in trade policies led to lower overseas expansion than expected.