Main points of investment

The leader of underground engineering equipment, 2020 begins a new journey.

1) the company was founded in 1999 and has been ploughing construction machinery for 20 years. In 2019, benefiting from counter-cyclical adjustment of macro policies and infrastructure deficiencies, the construction machinery industry continued to maintain its growth trend. In the face of opportunity and development, Shanhe intelligent market volume and management quality have stepped onto a new height, and now it is the leading enterprise of domestic underground engineering equipment (including rotary drilling rigs and static pile drivers). It ranks 34th in the list of the top 50 construction machinery enterprises in the world, the top 20 excavator enterprises in the world and the top 3 regional aircraft leasing in the world.

2) benefit from the continuous prosperity of the construction machinery industry, and the company's performance has entered an upward channel since 2016. The proportion of the main business construction machinery products is as high as 78%, the main business is outstanding, and the gross profit margin is increased, the company's profitability has been strengthened. In addition, the company's cash flow continues to improve, inventory and accounts receivable turnover continues to increase, various operating indicators continue to improve, and business quality continues to improve. 2020Q1 affected by the epidemic, net profit declined compared with the same period last year, with the domestic epidemic prevention and control situation gradually stable, the company's production and operation has returned to normal, the domestic market has recovered rapidly, the demand is very strong, 2020 will start a new journey.

Piling machinery: the industry has entered a period of steady development, and the sales volume of rotary drilling rigs continues to grow.

1) in 2019, the subdivision products of piling machinery showed a trend of differentiation, among which rotary drilling rigs were the largest category of piling machinery, with annual sales of 5526 units, an increase of 9.6% over the same period last year, while sales of multi-shaft drilling rigs and static pile drivers maintained positive growth. Sales of hydraulic grab, long screw drilling rig, pile racks and hammers (diesel hammer and vibration hammer) declined. On the whole, the piling machinery industry has entered a period of steady development since 2019.

2) piling machinery is closely related to economic prosperity, and the growth rate of rotary drilling rig sales is about 6-10 months later than that of capital construction and real estate investment. The growth rate of infrastructure investment has a leading indicator significance for the sales growth of rotary drilling rigs. In 2019, investment in fixed assets in infrastructure increased by 3.3% over the same period last year, with an increase in 1.54pct compared with the same period last year. Therefore, we are optimistic about the development of the piling machinery industry in 2020.

3) in terms of rotary drilling rigs, the company has become the top three in the industry, 2020Q1, the company's cumulative sales of rotary drilling rigs is 226units, second only to Sany heavy Industry and Xugong Machinery, and its market share leaps to the third place in the country, with a significant increase; in terms of hydraulic static pile presses, the company is the first brand in the domestic industry, 2020Q1, and the company has sold 90 static pile machines with a market share of 76.92%, far ahead of the second place, with an obvious competitive advantage.

Excavating machinery: sales have repeatedly exceeded expectations, and the national brand leader of Chinese excavators will set sail again.

1) in 2019, excavators sold 236000 units, an increase of 15.9% over the same period last year, setting another record high. In March 2020, 49000 excavators were sold, a record high in a single month. Since April, the major mainframe factories have issued a notice of price increase of excavator products, the excavator market has entered the stage of simultaneous rise in volume and price, and Gaojing demeanor continues.

2) Shanhe Intelligence is one of the earliest domestic enterprises to manufacture hydraulic excavators, known as "the forerunner of the national brand of Chinese excavators", and ranks among the top 20 excavator enterprises in the world. Excavator products cover 0.8 Mi 90 tons, micro, small, medium and large full series, the overall level of international advanced. The company had full orders for excavators in April, and production and sales are expected to hit a new high on the basis of March. In addition, the company can dynamically adjust production capacity according to the development situation of the domestic epidemic situation, such as strong market demand and capacity can be rapidly increased.

Aviation business: give full play to the aviation business card effect, is expected to enter a stage of steady development. The company's acquisition of AVMAX cuts into the post-aircraft market. AVmax has mature experience in international maintenance, operation and service of regional aircraft, first-class engineering and technical capabilities and excellent qualifications, as well as the qualification of overhaul and modification of mainstream regional aircraft issued by FAA and EASA. We are optimistic about the development of the company in the domestic aviation maintenance market in the future.

In addition, the company cut into the navigation industry earlier, and has initially formed the development pattern of the layout of the whole industry chain. With the gradual improvement of the domestic low-altitude openness and the gradual strengthening of the construction of the low-altitude service guarantee system, the company, as the layout of the whole industry chain, will become the benchmark enterprise for the development of the domestic navigation industry.

Coverage for the first time, giving a "overweight" rating. The company is the leader of underground engineering equipment in China, and its performance has entered an upward channel since 2016. The growth rate of fixed asset investment in China's infrastructure construction will increase in 2019, and the sales of piling machinery in 2020 are expected to continue to grow, and the company's rotary drilling rigs and static pile machines are expected to benefit. In addition, excavator sales have repeatedly exceeded expectations, the company's excavator products cover a full range of products, the overall level of international advanced, and full orders, is expected to continue to contribute to performance. It is estimated that the return net profit of the company from 2020 to 2022 is 5.21,6.07 and 694 million yuan, and the corresponding PE is 14,12 and 10 times respectively.

Risk hints: the lower-than-expected risk of infrastructure and real estate investment, the cyclical decline risk of the industry, the risk of vicious market competition, the impact of the global epidemic, and the risk of declining returns in overseas investment and sales.