The performance is sound, but the main business lacks a growth point.
The company's revenue fell 1% year-on-year in 2019, basically the same as expected; the company's net profit increased by 43% year-on-year, but part of the growth came from equity wealth management products, which was in line with our expectations after deduction.
The company plans to continue to improve the large tonnage product line in 2020, but we believe that the loader and excavator industry will be in a state of high consolidation, and it will be difficult to achieve a significant increase in sales.
The company's expansion of large tonnage product line hedges the pressure of gross margin compression of small tonnage products to a certain extent, but it lacks explosive products. At present, the valuation has reached a reasonable level, and the company's rating has been downgraded to neutral.
The performance is in line with expectations, and the increase in net profit comes from the increase in income from wealth management products.
The company's revenue fell 1% in the first half of the year compared with the same period last year, with little change in revenue from major products, 2% in sales of loaders and 2% in sales of excavators. According to the sales data, the proportion of sales of large loaders increased, while that of large excavators decreased; at the same time, the gross profit margin of loaders increased by 4.4 percentage points, while the gross profit margin of excavators decreased by 7.2 percentage points. the changing trend of gross profit margin is consistent with that of product structure. The company's net profit rose 43% or 500 million yuan from a year earlier, mainly due to an increase of 657 million yuan in income from the company's equity wealth management products compared with 2019. After deducting the impact of financial products, the company's net profit is basically in line with our expectations. Other operating indicators of the company remain stable.
The company plans to produce large tonnage products, but the situation in 2020 is full of challenges.
The company disclosed that its revenue growth target for 2020 was 20%, but stressed that this was a judgment made before the outbreak, and the actual progress of completion still depends on the situation. The company's main development direction is to further expand the product line of existing products, including large tonnage excavators and loaders. However, we believe that as excavators and loaders are pre-cycle products, there are clear signs of peaking in terms of industry growth. Although large tonnage products are better than small tonnage products in terms of gross profit margin and competition pattern, the threshold is higher. The company is in the second echelon in the construction machinery industry as a whole and does not have an advantage in the competition with the industry leaders. At the same time, the company has stepped up its efforts to expand overseas markets. In the first two months, the growth of overseas sales of major products increased by 30% and 50% compared with the same period last year. However, due to the outbreak of the COVID-19 epidemic, there are signs of a marked slowdown in overseas markets.
Slightly adjust the profit forecast and downgrade the company's rating to neutral
We believe that the company has maintained a consistent and steady style, but it is difficult to make a breakthrough in the product line, and the COVID-19 epidemic has slowed down the company's overseas expansion. Equity wealth management products are difficult to provide long-term and stable profit contribution. The company plans to pay a dividend of 0.25 yuan per share. Corresponding to a dividend yield of 65% and a dividend yield of 10.9%, the long-term dividend ratio will remain no less than 30%. We slightly raised the company's net profit forecast for 2020 / 21 by 1.6% to 1.9% to reflect the changes in sales and gross profit brought about by the company's large tonnage product sales, maintained the company's 6.6 times 2020 forecast price-to-earnings ratio, and raised the company's target price by 0.9% to HK $2.43. We believe that the company has entered a growth bottleneck in the short term, the valuation has reached a reasonable level, and the company's rating has been downgraded to neutral.
