The profit in the first half of the year was flat compared with the same period last year, which was basically in line with our expectations. Due to the rise in the price of raw materials and the price reduction of some products, the gross profit level declined compared with the same period last year.
The prosperity of the industry has weakened since the second quarter, and the downstream demand is expected to pick up after September.
Downgrade the company's earnings forecast and valuation multiplier, lower the target price by 15% to HK $2.7, and maintain a neutral rating.
The profit in the first half was flat compared with the same period last year, and the gross profit margin fell.
The company's first-half revenue rose 25.8 per cent year-on-year to 8.19 billion yuan, while net profit rose 0.1 per cent to 950 million yuan. The company's comprehensive gross profit margin fell 4.2 percentage points year-on-year, mainly due to the rise in raw material prices and the price reduction of some products in the first half of the year. The gross profit margin of the company is lower than we expected, but the performance of other income, profit and loss and expenses is better than we expected, so the net profit is in line with expectations. From a product point of view: 1) Loader revenue increased by 21.2% to 3.9 billion yuan, and gross profit margin decreased by 6.7% to 21.4%. 2) forklift revenue increased by 54.8% to 2.09 billion yuan, and gross profit margin increased by 0.1% to 16.9%. 3) excavator revenue fell 1.4 per cent year-on-year to 1.26 billion yuan, and gross profit margin decreased 5.4 percentage points to 14.7 per cent. 4) Road roller revenue increased 10.2 per cent year-on-year to 53.46 million yuan, and gross profit margin increased 3.9 percentage points to 19.1 per cent. The company has a sound financial position and plenty of cash on hand.
The prosperity of the industry has weakened since the second quarter
The construction machinery industry ushered in a high magnificent demeanor at the beginning of this year. Since the second quarter, due to the rise of last year's base, the early withdrawal of demand in the first quarter and the lower-than-expected construction demand, the construction machinery scene has declined; in addition, raw material prices, including steel prices, have risen sharply, squeezing the profits of the construction machinery industry. At the same time, the market competition of some products is fierce, which has a negative impact on the price and profit. Domestic excavator sales fell 24.1 per cent in July from a year earlier, while loaders fell 13.6 per cent year-on-year, continuing the decline in the second quarter, and natural disasters also had a negative impact; according to CME, domestic excavator sales fell 38 per cent in August from a year earlier. In terms of exports, the export of construction machinery still maintained a high bearing, and the growth rate of export excavator sales from January to July was more than 100% compared with the same period last year. The traditional construction season will begin in September, and considering that the progress of construction in the lower reaches of the first half of the year is slower than expected, it is expected to accelerate in the second half of the year, while high-frequency indicators such as cement prices have rebounded significantly since August. Downstream demand is expected to pick up in September, driving construction machinery sales to pick up somewhat from the previous month.
Downgrade profit forecast and target price to maintain the company's neutral rating
We lowered our profit forecast for 2021-23 by 2-6%, mainly based on a reduction in gross margin forecasts and adjustments to other income and expense rate assumptions. Taking into account the decline in industry sentiment compared with our last report, we lowered the company's valuation by 15% to 6.2 times forecast 2021 earnings, combined with new earnings forecasts and exchange rate changes, lowered the company's target price by 15% to HK $2.7, maintaining the company's neutral rating.
