During the post-results call, SANY Heavy (SANY) remained positive on the overseas outlook despite the recent weakness of excavators in Europe and the US. SANY expects the sales in the US to see potential stabilisation in 2025E, while the growth in emerging countries will continue to be strong. For 2H24E, SANY expects China's sales to stabilize (-12% in 1H24) while overseas sales growth will accelerate (+4.8% in 1H24). Given that our 2024E-26E earnings forecasts (unchanged after 1H24 results) remain 13-29% below consensus even taking into consideration of growth acceleration in 2H, we maintain our HOLD rating with an unchanged TP of RMB14.8, based on 24x 2024E P/E.
2Q24 results highlights. Revenue dropped 3% YoY to RMB21.2bn. Gross margin slightly contracted 0.4ppt YoY to 28.6%. S&D / administrative expense ratio increased 0.3ppt / 0.4ppt YoY to 8%/3%, while R&D expense ratio reduced 0.5ppt YoY to 6.2% (a continuous reduction trend since late 2022). Pre-tax profit slightly increased 0.5% YoY, as the FX loss (versus large gain in 2Q23) was offset by a reduction of fair value loss. Net profit increased 5.5% YoY to RMB2bn, helped by lower tax rate. Operating cash inflow surged 1x YoY to RMB4bn from a low base.
Overseas revenue growth driven by Africa in 1H24. Overseas revenue in 1H24 (62% of total revenue) grew 4.8% YoY to RMB23.5bn. In terms of region, Africa surged 66% YoY to RMB2.3bn (10% of overseas revenue). Asia Pacific (ex-China) grew 3% YoY to RMB9.2bn (39% of overseas). Europe grew 1% YoY to RMB8.2bn (35% of overseas). America revenue dropped 4% YoY to RMB3.8bn (16% of overseas). In terms of products, overseas' excavator / concrete machinery / crane were -7%/+10%/+20%. Overseas gross margin expanded 0.6ppt YoY to 31.6%.
Outlook for emerging markets: SANY expects Africa (+60% YoY in 1H24), Latin America (+70% in 1H24) and the Middle East will see explosive growth potential across different products. India is expected to maintain 30% growth going forward and SANY will increase the production capacity there. For Indonesia (where SANY has 30% market share for excavators), sales were affected by the election but have been recovered recently.
Outlook for Europe and the US. Sales in the US market were affected by high inventories, and SANY expects a recovery in 2025E. For Europe, cranes will see decent growth in 2H24E.
Outlook for China. Small-size excavators have maintained an accelerated growth trend, while medium & large-size excavators are stabilizing. Concrete machinery and cranes remain on a downtrend.
