Comments:
The company is one of the leading enterprises in China's loader industry.
At present, loaders account for about 60% of the company's main business, and about 16% in the domestic market, slightly lower than Liugong and Longgong, ranking third in the industry. In terms of scale, the company is in the second tier position in the industry. Due to the decline in the growth rate of investment in fixed assets in China compared with the same period last year, the decline in investment in the real estate sector due to policy pressure has led to a decline in the purchasing power of construction machinery downstream. The growth rate of major products such as cranes, excavators and loaders in the field of construction machinery in China has declined year-on-year since 2011, and showed negative growth in the first three quarters of 2012. The company's performance fell significantly in the first three quarters, in line with market expectations.
At present, the company has upgraded the full range of loaders III, D series of hydraulic excavators and successfully developed 40 ton new products, forming a full range of products from 4T-40T; at the same time, launched telescopic fork loaders, a new generation of slip loaders, micro hydrostatic loaders, milling machines and other new products.
The company issued new shares and continued to invest in excavators and other projects. The company plans to issue an additional 160 million shares, raising funds to mainly invest in the technical transformation of the production capacity of 15000 excavators and the second phase of the technical renovation and expansion project of Xiamen Machinery (Jiaozuo) Co., Ltd.
Previously, the company had planned to raise funds through a non-public offering of A shares in 2011 to invest in the technological transformation project of 15000 excavators and the second phase of the technical renovation and expansion project of Xia Gong Machinery (Jiaozuo) Co., Ltd. However, due to the influence of the secondary market, the net amount of funds raised by the company's non-public offering in 2011 was only 244.2185 million yuan, of which 182.5802 million yuan was invested in the technical transformation project of 15000 excavators and 61.6383 million yuan in the second phase of the technical renovation and expansion project of Xia Gong Machinery (Jiaozuo) Co., Ltd., which are far lower than the original planned level. At present, the construction progress of the two projects is slower than the original plan, and new production capacity has not yet been formed. The company said that if there is still a gap in the additional funds, the rest will be mainly self-raised.
Affected by the decline in sales growth in the construction machinery industry, the company appropriately adjusted its credit sales policy and increased its receivables. The company issued 1.5 billion corporate bonds in the first half of 2012, effectively alleviating the tight cash flow of the company.
We expect that the additional offering of the company can be carried out smoothly, but as the fund-raising project is unable to contribute profits in the short term, whether the company's performance can be stable in 2013 depends on the stability of the domestic construction machinery industry as a whole.
Profit forecast.
We believe that the company is one of the most important construction machinery companies in China, and the successful issuance of corporate bonds will help the company to tide over the current industry trough. We expect the company's EPS in 2012, 2013 and 2014 to be 0.49 yuan, 0.51 yuan and 0.61 yuan respectively, and the corresponding PE to be 13.8x, 13.1x and 11.05x respectively. We maintain a "neutral" rating with a 13-year 15-fold PE and a target price of 7.65 yuan.
Risk hint.
If the growth rate of domestic investment continues to decline, leading to a continuous downturn in the construction machinery industry, it will affect the stability of the company's future earnings.
