Deeply involved in the construction machinery industry, the company with a rich product range was established in 1989 in Lianyuan, Hunan. It has been deeply involved in the industry for many years, and has gradually grown from a “small town factory” to a leading enterprise in the domestic construction machinery field. The company has a wide range of products, mainly including concrete machinery, excavation machinery, hoisting machinery, pile construction machinery, pavement machinery, etc., which are highly recognized by the entire market. According to the 2023 annual report, the company's concrete equipment has become the number one brand in the world, and leading products such as excavators, large tonnage cranes, rotary drilling rigs, and complete pavement equipment have become the number one brand in China.

Domestic demand in the construction machinery industry bottomed out and stabilized in 2024, and the overseas market continued to grow, and the construction machinery industry entered this downward cycle since 2021. Combining macro-level infrastructure, real estate, and industry-level equipment renewal and environmental emission reduction trends, we believe that the construction machinery industry is expected to recover steadily in 2024. Let's take a closer look:

In terms of domestic demand, data on domestic demand for excavators continues to grow. Domestic excavator sales grew at a positive year-on-year rate from March to July 2024, and began to show an accelerated improvement trend in April. With the further development of downstream infrastructure projects, the industry is expected to stabilize and gradually pick up during the year.

In terms of export sales, from the demand side, the overseas market space is wider, and it has become the main growth engine for the development of domestic industry manufacturers. From the supply side, domestic construction machinery manufacturers have accelerated their overseas layout and actively promoted internationalization strategies in recent years, and their share of overseas revenue has increased markedly. Monthly excavator export data has declined year-on-year since June 2023 due to the early high base combined with the recovery of the epidemic and the recovery of overseas supply chains. However, through the continuous international layout of domestic construction machinery for many years, leading companies showed high growth rates in overseas revenue and orders, and continued to gain overseas market share with their product advantages.

From the domestic market to the global market, the four major advantages have built a highly competitive company that has developed over the years, gradually moving from the domestic market to the overseas market, and directly competed with manufacturers such as the international giant Caterpillar. Looking to the future, there is still plenty of room for the company to grow:

1. The core product has obvious advantages, but there is still a lot of room for strength. The market share of excavators is the largest in the country, but there is still room for growth compared to Caterpillar in terms of volume; in terms of concrete machinery, the company is an industry leader and has stabilized as the number one brand in the world; in terms of lifting machinery, the company continued to gain strength in the overseas market and achieved sales volume of 13 billion yuan in 2023. Among them, exports from overseas markets remained number one in the industry, with a growth rate of more than 50%.

2. Electrification enhances product strength. The company established an electrification development strategy in 2018. Currently, the company's electrification products continue to be updated and iterated. In 2023, the company achieved revenue of 3.146 billion yuan (accounting for 4.3%) of electric and hybrid products and 0.13 billion yuan of revenue from hydrogen energy products. Currently, the company has achieved a leading position in the industry in the field of new energy engineering equipment that can be commercialized.

3. Accelerated overseas layout. The company's overseas market layout has been around for many years, and the company's share of overseas revenue increased from 25.1% to 60.5% in 2018-2023. By the end of 2023, overseas product sales had covered more than 180 countries and regions, and Europe and America had become the fastest growing overseas region.

4. “Digital intelligence” accelerates development. After years of “digital intelligence” construction and support, the company's core competitiveness has greatly improved. With smart products, intelligent manufacturing, and intelligent operation as the main content, the company actively promotes digital and intelligent transformation to achieve high-quality development.

Investment advice

We are optimistic about the continued development of various products of Sany Heavy Industries in domestic and overseas markets. We expect the company to achieve revenue of 78.698/87.056/98.356 billion yuan in 2024-2026, up 6%/11%/13% year on year; achieve net profit of 5.833/8.138/10.011 billion yuan, up 29%/40%/23% year on year; EPS corresponding to 2024-2026 is 0.69/0.96/1.18 yuan. The PE corresponding to the company's current stock price is 23/16/13 times. First coverage, giving a “buy” rating.

Risk warning

1) Domestic industry demand falls short of expectations; 2) Overseas market expansion falls short of expectations; 3) Accounts receivable recovery risk; 4) Industry competition intensifies.