Xugong Machinery: a leading enterprise in construction machinery with a full range of categories. The company absorbed and merged XCMG Limited in 2022, adding new businesses such as excavation machinery, concrete machinery, mining machinery, and tower cranes. According to British KHL data, the company's construction machinery market share ranked first in the country and fourth in the world. In the context of the downturn in the domestic construction machinery industry, after the restructuring, the company relied on the good growth momentum of strategic emerging industries and accelerated overseas expansion, and its performance was superior to that of the industry.
The domestic traditional construction machinery industry is expected to bottom out in 2024. Data show that real estate recovery was still slow in July 2024, real estate investment growth declined marginally, and infrastructure investment growth improved. With the introduction of policies such as national real estate support and large-scale equipment renewal since 2024, demand for construction machinery stock renewal is expected to accelerate. We estimate that in 2024, excavator sales are expected to remain flat or decline slightly year-on-year, the bottom of the construction machinery industry is expected to show, and leading domestic manufacturers are expected to fully benefit from the recovery of the industry.
Strategic emerging sectors such as aerial work machinery and mining machinery are resistant to cycles. The main growth logic for high aircraft is man-machine replacement. Compared with developed countries, China still has a lot of room for improvement in the number of high aircraft per capita. China's mining industry has maintained a high level of prosperity. According to the Research Report Network, China's mining machinery market reached 487.7 billion yuan in 2022, and the market space is broad. In 2023, the company's aerial work machinery/mining machinery achieved revenue of 8.9/5.9 billion yuan, an increase of 36%/14% over the previous year, becoming one of the company's important cross-cycle growth drivers.
Globalization has broad prospects, and overseas expansion has become the core driving force. By region, since October 2023, the US real estate market has gradually picked up, infrastructure investment has remained booming, and the mining industry production index has basically maintained an upward trend, with slight fluctuations in 2024; demand in the European construction industry is weak, and domestic brands have more room to increase in market share in Europe and the US, which is expected to rely on the advantages of electrification to open up the European market more quickly; the low urbanization rate in Southeast Asia provides long-term demand, and the Indonesian mining industry continues to prosper. Domestic brands are expected to rapidly increase market share based on location advantages and cost performance advantages.
Profit forecast and investment rating: We expect the company to achieve revenue of 102.4/116.3/134.9 billion yuan in 2024-2026, up 10%/14%/16% year on year; net profit to mother of 6.7/8.4/10.7 billion yuan, up 25%/26%/27% year on year, and PE corresponding to the latest closing price is 7 times 12/9/7, respectively. First coverage, giving a “buy” rating.
Risk warning: cyclical risk in the industry; risk of infrastructure and real estate investment falling short of expectations; risk of overseas expansion falling short of expectations; increased risk of market competition; increased risk of trade friction; domestic and international markets cannot be easily and completely compared; the company's business goals do not constitute performance promises and have great uncertainty; estimates are for reference only, subject to reality.