Incident: On the evening of December 18, the company issued an announcement on changing the chairman, general manager, directors and by-election of members of the special committee.

Key investment points

Management changes such as the chairman, general manager, and directors are looking forward to a new round of growth

On December 17, 2024, the company held the 13th meeting of the 11th board of directors:

1) Mr. Li Shizhen assumed the position of chairman: After review and approval at the meeting, Mr. Li Shizhen was elected as the chairman of the company, and Mr. Li Shizhen was by-elected as the convener of the company's strategy committee, nomination committee, and member of the remuneration and assessment committee. The term of office begins on the date of the current board review and ends on the date the term of the 11th board of directors expires. After becoming the chairman of the company, Mr. Li Shizhen ceased to be the general manager of the company.

2) Mr. Zhang Min assumed the position of general manager: After review and approval at the meeting, Mr. Zhang Min was appointed as the general manager of the company. The term of office begins on the date of approval of the current board of directors and ends on the date the term of the 11th board of directors expires.

3) Ms. Wang Cuiping proposes to be a candidate for non-independent director: The current board of directors nominated Ms. Wang Cuiping as a candidate for the non-independent director of the 11th board of directors of the company, and intends to serve as a member of the Strategy Committee and Audit Committee of the 11th board of directors. The term of office starts on the date of approval of the shareholders' meeting and ends on the date the current board of directors expires.

Excavators: Relying on bulldozer channels and Shandong Heavy Industries Group's platform and supply chain advantages, they are expected to rise rapidly

On the evening of December 12, the company announced that the acquisition of 100% of the shares in Mountain Reconstruction Equipment was completed. From January to September 2024, the market share of Yueshan Reconstructor excavators was 4.03%. Shandong Heavy Industries Group promised to resolve the issue of competition between the excavator businesses of Leiwo Heavy Industries, Weichai Qingdao and Shantui Co., Ltd. within 5 years. In 2023, Lovol Heavy Industries' revenue reached 5 billion yuan.

Golden core: Weichai engine+Linde hydraulic parts+Shantui transmission are professionally matched, and have the unique advantages of being more fuel-efficient, more efficient and more reliable.

Homemade accessories: The company's accessories provide support for major domestic and foreign construction machinery OEMs. The company's parts production rate is relatively high, which is expected to provide the company with a cost advantage.

③ Channel collaboration: The company's excavator products are expected to be sold collaboratively through bulldozer sales channels and channels such as Weichai Power and Sinotruk, a subsidiary of Shandong Heavy Industries Group.

④ Breakthrough at both ends: The company is expected to increase production and sales of mining, large excavation and micro excavation, and optimize the product structure.

Bulldozers: The export and domestic replacement of high-horsepower bulldozers is expected to help improve profitability

The company's bulldozer sales volume is third in the world, after Carter and Komatsu. It is also the leading bulldozer in China. In 2023, the domestic market share of the company's bulldozers exceeded 70%. The company is actively promoting export and domestic substitution, and boosting the share of high gross margin, which is expected to promote an increase in profitability.

Cost reduction and fee control: Increased cost reduction and fee control efforts to help improve profitability

The company achieves cost reduction and fee control through the use of group procurement and tender collection, design process improvement, automation level improvement, and cost savings management and control. The company reduced costs by $0.154 billion in 2023.

Profit forecast and valuation: The company's net profit for 2024-2026 is expected to be 1.025 billion, 1.451 billion, and 1.895 billion yuan, respectively, up 34%, 42%, and 31% year-on-year (2024-2026 CAGR is 36%). The closing price on December 18 corresponds to PE 14, 10, and 8 times, which is lower than the industry average. Maintain a “buy” rating.

Risk warning: Excavator business development falls short of expectations; risk of overseas trade friction.