Leading manufacturers of construction machinery have improved their profitability significantly. The company is an established construction machinery manufacturer. The actual controller is the Guangxi State-owned Assets Administration Commission. The main products are earthmoving machinery, including loaders and excavators, which account for 58% of revenue in 23 years. In addition, the company also has products such as cranes, mining machinery, agricultural machinery, high speed machinery, forklifts, prestressed machinery, etc., and is one of the few companies in the world that can provide a full range of products and comprehensive solutions. With continued breakthroughs in electrical equipment and excavator sales, the company achieved 4% contrarian revenue growth in 23, based on a 1.12% year-on-year decline in the total revenue of key enterprises in the industry, and the 24Q1-3 revenue growth rate further reached 8.25%. In terms of profit, gross profit margin increased by 4.0/2.66pct to 20.82%/23.48% yoy, net profit to mother increased 45%/59.8% yoy to 0.868/1.321 billion yuan, and net margin to mother increased 0.89/2.63pct to 3.15%/5.78% yoy.

The domestic demand boom in the industry continues to rise, and the overseas factory space is still large. (1) Domestic: Domestic sales of excavators +21.6% in October, cumulative domestic sales of excavators were +9.8% year-on-year in January-October, and the growth rate was +1.2pct. Komatsu data shows that the number of operating hours of Komatsu excavators in China maintained a positive year-on-year increase (+4.3%) in October. The last boom cycle began in '16. The excavator renewal cycle is generally 7-8 years, corresponding to 24 years, and will gradually enter a new round of replacement cycle. Looking forward to the future, with the dual strength of monetary and fiscal policies, we believe that the financial situation of construction machinery terminals is expected to improve, and that large-scale infrastructure, agricultural infrastructure, equipment upgrades, and real estate “stop falling and stabilize” are expected to jointly boost domestic demand. (2) Overseas: The global construction machinery market has a space of about trillion yuan. According to Off-Highway, global construction machinery sales volume in '22 was about 1.188 million units/ +10.3% y0y. According to KHL, global construction machinery sales in '23 were around $243.4 billion/+5.6% yoy. Currently, the share of Chinese enterprises in Europe and the US is still low, and demand for infrastructure, mining, and housing construction is still strong in emerging countries represented by South America, Africa, and India. Based on the multiple advantages that have been established in terms of product richness, price, and service, there is still great potential for Chinese enterprises to go overseas.

Continuous horizontal business expansion, mixed reform unleashed enterprise vitality. As one of the leading manufacturers of construction machinery, the company's alpha is mainly reflected in: (1) Earthmoving machinery has deep accumulation and leading advantages in R&D, manufacturing, procurement, channels, etc.: the domestic market share of loaders is the most comprehensive, 24H1 has achieved a 159% year-on-year increase in sales, leading the market share industry: excavators are progressing rapidly, and the market share has reached 14+% and continues to increase. (2) International expansion went smoothly, and the revenue growth rate in the first three quarters of 24 won the industry by 22.5 pct. (3) Emerging fields such as high speed mining machinery and agricultural machinery have been steadily expanding, and product coverage has been further improved. (4) Comprehensive intelligence helps reduce costs and increase efficiency, and improves decision-making and management efficiency after mixed reform.

Profit forecasting and investment suggestions: Based on equipment updates, active monetary and fiscal policies, and catalytic factors such as “stopping falling and stabilizing” in real estate, the domestic demand boom continues to rise; overseas regions are divided, and emerging markets have broad space; the beta nature of the industry is improving. At the same time, the company's electrical equipment and overseas operations have achieved a high growth rate, the market share of excavators has increased, emerging fields have been steadily expanding, intelligence has helped reduce costs and increase efficiency, mixed reform has stimulated management efficiency, and its own α has been continuously consolidated. We are optimistic that the company will continue to achieve both revenue and profit growth in line with the recovery in domestic demand and the acceleration of overseas expansion. We expect the company to achieve net profit of 1.506 billion yuan/2.056 billion/ 2.634 billion yuan in 24-26. The current stock price corresponds to 16.5x/12.1x/9.5xPE in 24-26, and the recommended rating is given for the first time.

Risk warning: the risk that the domestic macroeconomy falls short of expectations, the risk that the degree of policy progress falls short of expectations, the risk of increased industry competition, and the risk of export trade disputes.