The history of a leader in the construction machinery industry is being reviewed. Xiang Liang Business Card Company of China's manufacturing equipment industry was founded in 1989. Since its inception, it has been deeply involved in construction machinery, experienced many cycles, and developed into one of the leading domestic construction machinery companies. According to the company's 2023 annual report, the company became the only Chinese construction machinery manufacturer to rank in the top three KHL Yellow Table in the world for three consecutive years. Among the 21 categories of construction machinery according to the China Construction Machinery Industry Association, the company's 16 types of mainframes rank first in the domestic industry. In 2023, the company achieved revenue of 92.848 billion yuan, or -1.03% year on year, achieving net profit of 5.326 billion yuan, up 23.51% year on year; in the first three quarters of 2024, the company achieved revenue of 68.726 billion yuan, or -4.11% year on year, achieving net profit of 5.309 billion yuan, or 9.71% year on year.

Excavators: The domestic industry is bottoming up, and overseas expansion continues. Domestic: From the downstream side, start-up side, and sales side, we judge that the domestic construction machinery industry is expected to gradually enter an upward channel after experiencing a downward adjustment. At the same time, the superposition policy of equipment replacement demand promotes large-scale equipment updates to jointly help the industry enter a period of growth; according to HighwayResearch's forecast, the domestic construction machinery market is gradually picking up this year, and the market size is expected to reach 19.2 billion US dollars in 2027. The 24-27 CAGR is 19.73%; as one of the leaders in the domestic industry, the company's business performance is expected to resonate with the upward cycle.

Overseas: At present, there is a clear trend of construction machinery companies going overseas independently. In 2022, China's construction machinery export value increased by 30.20% year on year to 44.302 billion US dollars. The overseas market still maintained a high level of prosperity in 2023, with an export value of 48.552 billion US dollars. Domestic OEMs have achieved remarkable results in overseas expansion; moreover, the gross margin of the overseas market is significantly higher than domestic, and the profit margin is considerable. The overseas market has become one of the main growth drivers for the domestic construction machinery industry in the future. With an overseas market space of 700 billion yuan in the next few years, the two markets of North America and Europe will account for about half of the share, but at present, the company's market share in the European and American markets is still at a low level, and there is plenty of room for future growth.

Mining machinery: Liquidity loosening has led to an increase in mining capital expenditure, and the company's mining machinery has entered the supply chain of leading enterprises

Shoveling and transportation are the core links of the mining industry. The industry concentration is extremely high, the localization rate is low, and the global market space is broad.

Beta: Changes in copper prices are highly consistent with mining equipment revenue. As we resume the copper price cycle, we expect that in the future, along with the release of liquidity, copper prices may rise, which in turn will drive copper companies' capital expenses, which will eventually be transmitted to mining machinery manufacturers.

α: The company has been deeply involved in mining excavator equipment since 2010, and has accumulated extensive relevant experience. Reliability is one of the core indicators of mining machinery. The 125-ton mining excavator produced by the company has operated continuously for more than 0.02 million+ hours, the 400-ton mining excavator has been in continuous operation for 8 years, with a cumulative operation of 0.04 million+ hours, and the 700-ton mining has passed 0.015 million+ hours of reliability tests. Mining trucks and mining excavators have all entered high-end international high-end mining enterprises, and it is expected that they will continue to be introduced in the future.

Profit forecast: We believe that the construction machinery industry is expected to bottom up and enter a new upward channel; in addition, the company's future mining machinery and equipment is expected to continue to increase performance; therefore, we expect the company's 2024-2026 revenue to be 93.73, 101.971, and 115.633 billion yuan respectively, with YOY +0.95%, +8.79%, and +13.40% respectively; net profit to mother is 6.262, 8.157, 10.719 billion yuan, yoy is +, respectively 17.55%, +30.27%, +31.41%; as the only Chinese construction machinery manufacturer that has been ranked in the top three KHL Yellow Table in the world for three consecutive years, we gave the company a target PE 15X for 2025, corresponding to a target price of 10.35 yuan, maintaining a “buy” rating.

Risk warning: macroeconomic fluctuation risk, market competition risk, supply chain security risk, exchange rate fluctuation risk, overseas expansion falling short of expectations