20200825-招银国际-恒立液压-601100.SH-2Q_Net_profit_+85__YoY__Significant_margin_expansion_6页_922kb

Jiangsu Hengli Hydraulic (601100 CH) Company Update Summary

Core Content

Jiangsu Hengli Hydraulic (601100 CH) is a company operating in the hydraulic equipment sector, with its financial performance and market position analyzed by CMB International Securities. The company has shown strong growth in both revenue and net profit for the first half of 2020, with a notable increase in gross margin. CMBIS has maintained a "BUY" rating and raised the target price to RMB82.00, reflecting confidence in its future performance.

Key Financial Highlights (1H20)

• Revenue: Increased by 24% YoY to RMB3.46bn.
• Gross Margin: Expanded by 4.9ppt YoY to 41.9%.
• Net Profit: Grew by 47% YoY to RMB986mn.
• Operating Cash Inflow: Rose by 19% YoY to RMB944mn.
• 2Q20 Net Profit: Surged by 85% YoY to RMB639mn, driven by 71% YoY revenue growth and 4.6ppt YoY gross margin expansion to 44.5%.

Segment Performance

• Hydraulic Cylinder for Excavator: Sales volume increased by 27% YoY to 330k units. Segment revenue grew by 16% YoY to RMB1.4bn, despite a lower average selling price (ASP) due to increased demand for small excavators.
• Hydraulic Technology (Pump & Valve): Reported 86% YoY revenue growth, which is a key driver of the company's overall performance.
• Non-standardized Hydraulic Cylinders: Revenue declined by 9% YoY to RMB577mn.

Production and Demand

• Production volume in July and August reached 53k and 54k units, respectively, indicating strong downstream demand.
• Production of pumps and valves is expected to remain high in the third quarter.

Financial Projections (2020E–2022E)

Valuation and Metrics

• Target Price (TP): RMB82.00 (up from RMB62.84).
• P/E Ratio: RMB30.0 (as of 2022E).
• P/B Ratio: RMB7.9 (as of 2022E).
• EV/EBITDA: RMB26.0 (as of 2022E).
• ROE: 31.2% in 2020E, showing strong profitability.
• Current Ratio: Increased to 4.1x in 2022E, indicating improved liquidity.
• Inventory Turnover Days: Stabilized at 110 days.
• Receivable Turnover Days: Reduced slightly to 98 days.

Key Risks

1. Slowdown in Construction Activities: May impact demand for hydraulic equipment.
2. Overseas Expansion Risks: Potential challenges in international markets.
3. Rising Raw Material Costs: Could affect gross margins and profitability.

Market Position and Share

• Hengli holds a significant market share in hydraulic cylinder for excavators, as depicted in Figure 6.
• The hydraulic pump and valve segment has shown robust growth, which is expected to continue supporting the company's valuation.

Analyst Recommendations

• CMBIS Rating: "BUY" for the stock, indicating potential for a +15% return over the next 12 months.
• Valuation Update: After rolling over the valuation base to 2021E, the TP was raised to RMB82.00 based on an unchanged P/E multiple of 45x.

Share Performance

Shareholding Structure

• Wang's Family: 71.0% of shares.
• CCASS (Hong Kong): 10.0%.
• Free Float: 19.0%.

Conclusion

Jiangsu Hengli Hydraulic is experiencing strong growth in revenue and net profit, with a notable improvement in gross margins. The company's performance is driven by its hydraulic pump and valve segment, which has shown impressive YoY growth. CMBIS maintains a "BUY" rating and has adjusted its target price upward, suggesting confidence in the company's ability to sustain this growth. However, the company faces key risks, including potential slowdown in construction activities and rising raw material costs, which could impact future performance. The company's solid financials and strong market position support its current valuation and outlook.