Incident: The company released its report for the third quarter of '24. 2024Q1-Q3 achieved revenue of 68.726 billion yuan, yoy -4.11%, net profit to mother of 5.309 billion yuan, yoy +9.71%, net profit of 4.889 billion yuan, yoy +11.85%, gross sales margin of 23.63%, +0.73 pct year on year, net sales margin of 7.74%, year-on-year +1.03pct. Among them, 24Q3 achieved revenue of 19.094 billion yuan, yoy -6.37%, net profit of 1.603 billion yuan, yoy +28.28%, net profit of 1.594 billion yuan, yoy +59.91%, gross sales margin of 25.54%, +2.53pct year-on-year, +2.65pct month-on-month, net sales margin 8.31%, year-on-year +1.95pct, month-on-month.

The domestic construction machinery industry is expected to enter an upward cycle. Since the beginning of 2024, projects related to the issuance of trillion yuan treasury bonds have started one after another, and the demand side of the market has stabilized. At the same time, large-scale equipment renewal policies have accelerated the elimination of old “country 1” and “country 2” equipment, stimulating demand for some new machine updates, and overall domestic sales of excavators showed a downward recovery trend. Domestic excavator sales have been positive year on year for many months. 24M1-M9 excavator sales volume was 0.074 million units, +8.6% year over year. In the short term, considering that the issuance of 24Q3-24Q4 special bonds at the macro level is expected to peak. As funds such as special bonds and ultra-long-term treasury bonds are put into use, and related construction starts one after another in the 3rd and 4th quarter, construction machinery is expected to improve this year. In the long run, the “two-step” strategy proposed by the country is currently still in the beginning of the second strategic step, and the construction machinery industry still has plenty of room for development.

The share of high-end products is increasing, and profitability is expected to rise. High-end products are the main focus of structural adjustment. They are a path choice to get rid of traditional pavements, multiple units, and low prices to shape differentiated competitiveness. 24H1's high-end product revenue increased by more than 10% year-on-year, accounting for more than 32% of total revenue and a year-on-year increase of 4 percentage points.

The structural adjustment of the company's products achieved results: 1) The company's new energy products entered the fast track of growth, with revenue up 26.76% year on year; the company's new energy loader revenue increased nearly 2 times year on year, accounting for 23.3% of total revenue, ranking first in the industry's sales volume; 2) The company's “three high and one big” and specialty new products progressed smoothly. The revenue of high-horsepower mining graders increased by 6 percentage points compared to last year. Percentage points.

The quality of the company's operations continues to improve. The company always adheres to its main business, adheres to the “high quality, risk control, world-class, steady growth” business development policy, and continues to improve its business quality. 24Q1-Q3's net operating cash flow was 2.043 billion yuan, up 24.48% year on year, and the growth rate exceeded the company's profit growth rate. By the end of 24Q3, the company's accounts receivable (notes receivable+accounts receivable financing+other receivables plus non-current assets due within one year) decreased by 2.546 billion yuan compared to the second quarter.

Investment advice: Considering that the domestic construction machinery market shows a bottom-up trend, the company's market position is stable, and overseas development continues, we predict that the company's net profit for 2024-2026 will be 6.47, 8.09, and 10.04 billion yuan, corresponding to PE of 14, 11, and 9 times, respectively, maintaining the “recommended” rating.

Risk warning: The recovery in domestic demand for construction machinery falls short of the expected risk; market competition in the construction machinery industry increases the risk; the risk that demand in the overseas construction machinery market will fall back; the development of the mining machinery business falls short of expected risks.