20201019-招银国际-三一重工-600031.SH-Excavator_sales_growth_accelerated__Raised_earnings_est.___TP_6页_1mb

CMB International Securities | Equity Research | Company Update Summary

Core Content

This report provides an equity research update on SANY Heavy Industry (600031 CH), highlighting its strong performance and positive outlook in the excavator market. The report reiterates a BUY recommendation with an updated Target Price (TP) of RMB34.60 (up from RMB26.40), indicating a potential +27% return from the current price of RMB27.29.

Main Points

Industry Performance

• Excavator sales growth in September 2020 accelerated to 65% YoY, the highest since May, driven by infrastructure and property construction demand.
• Large / mid-size excavator sales grew by 53% / 106% YoY, respectively.
• 9M20 excavator sales increased by 32% YoY, reflecting a continued upcycle in the construction machinery sector.
• The report raises industry sales projections for 2020E and 2021E by 13% and 10%, respectively, due to resilient construction activities, labor replacement, and stringent environmental policies.

Company Performance

• SANY's excavator sales in September surged by 85% YoY, significantly outpacing the industry growth rate.
• SANY's market share reached 28.5% in September and 26.3% for 9M20, demonstrating consistent market share gains.
• Import substitution and export market expansion are identified as structural growth drivers for the company.
• 3Q20E earnings forecast predicts a 60% YoY net profit growth, driven by a 44% YoY revenue increase and operating leverage.
• SANY is scheduled to report results on 29 October 2020.

Earnings and Valuation

• Earnings forecast for FY20E-FY22E has been raised by 5-6% due to increased sales volume assumptions.
• Target P/E multiple has been rolled over to 2021E, with a 17x multiple, supporting the RMB34.60 TP.
• Estimated 2021E earnings growth is 17%, which is a key factor in the updated TP.
• Key financial metrics show steady improvement, including:
  • Revenue growth from FY18A to FY22E: 45.6% to 5.9%
  • Net profit margin increasing from 11.3% to 17.1%
  • ROE declining from 29.5% to 24.6%, but remains positive.
  • P/B ratio is expected to decrease from 6.8 to 2.8, indicating potential value creation.

Financial Summary

• Total revenue is forecasted to grow from RMB55,822 mn (FY18A) to RMB109,855 mn (FY22E).
• Net profit is expected to increase from RMB6,116 mn (FY18A) to RMB18,417 mn (FY22E).
• Cash flow from operations is projected to rise from RMB10,527 mn (FY18A) to RMB18,080 mn (FY22E), with a positive trend over the forecast period.
• Balance sheet shows increasing equity from RMB32,502 mn (FY18A) to RMB83,375 mn (FY22E), and cash increasing from RMB11,985 mn (FY18A) to RMB44,428 mn (FY22E).

Key Risks

• Overseas business risk due to the ongoing pandemic.
• Construction activity slowdown could impact demand.
• Risk of expanding into financing business which may not align with SANY's core strengths.

Share Performance

• Shareholding structure:
  • SANY Group: 29.9%
  • Hong Kong CCASS: 9.6%
  • Liang Wengen: 3.4%
  • Others: 57.1%
• Share price performance:
  • 1-month: +8.3%
  • 3-month: +30.9%
  • 6-month: +39.2%
• 12-month price performance is visualized in a chart, indicating strong growth.

Ratios and Metrics

• Gross margin is expected to stabilize around 33% for FY21E.
• Blended gross margin is projected to increase slightly from 32.0% to 33.0%.
• Net profit is forecasted to grow from RMB14,773 mn (FY20E) to RMB18,417 mn (FY22E).
• EPS is expected to rise from RMB1.75 (FY20E) to RMB2.18 (FY22E).
• BVPS is expected to increase from RMB4.04 (FY18A) to RMB9.60 (FY22E).
• DPS is forecasted to grow from RMB0.55 (FY20E) to RMB0.69 (FY22E).

Analyst Certification

• The research analyst certifies that the views expressed reflect their personal opinions and that no compensation is tied to the report's content.
• The analyst confirms no trading in the stock covered within 30 days before the report's release, and no trading plans for 3 business days after release.
• The analyst does not serve as an officer of any Hong Kong listed companies mentioned and has no financial interest in them.

CMBIS Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10% over the next 12 months.
• SELL: Potential loss of over 10% over the next 12 months.
• OUTPERFORM: Industry expected to outperform the market.
• MARKET-PERFORM: Industry expected to perform in-line with the market.
• UNDERPERFORM: Industry expected to underperform the market.

Disclosures

• The report contains general information and is not tailored to individual investors.
• CMBIS does not guarantee the accuracy or completeness of the information provided.
• Investors are advised to consult with a professional financial advisor before making investment decisions.
• The report is intended for specific recipients and not for public distribution without written consent.

Conclusion

The report underscores SANY's strong performance in the excavator segment, positive industry outlook, and improved financial metrics. The BUY recommendation and raised TP reflect confidence in SANY's ability to sustain growth through R&D, management execution, and structural drivers like import substitution and export expansion. However, it also highlights key risks that investors should be aware of.