20221031-招银国际-浙江鼎力-603338.SH-3Q22_earnings_+36__YoY_better_than_expectation__Raise_earnings_and_TP_on_margin_recovery_5页_943kb

Zhejiang Dingli (603338 CH) Company Update Summary

Core Content and Key Highlights

Zhejiang Dingli (603338 CH) reported strong net profit growth of 36% YoY in 3Q22, despite a 14% YoY decline in revenue. The decline in revenue was primarily due to the delay in sales recognition by certain overseas subsidiaries. However, the company's gross margin expanded by 5.8ppt YoY to 32.4%, driven by lower freight and steel prices, as well as a high contribution from exports. Additionally, FX gains helped offset the revenue decline, contributing to the strong net profit performance.

The company is well positioned to capture the strong overseas demand for AWP (Aerial Work Platforms), with overseas revenue currently accounting for more than 60% of total revenue, and US and Europe accounting for 75% of overseas sales. Dingli has already achieved a significant milestone by offering >30 metres large-size scissor lifts, previously dominated by overseas players, and has a diversified product range including electric, hybrid, and engine-powered boom lifts to cater to different market conditions. The company has also established overseas warehouses and secured components sufficient to support production until mid-2023E, reinforcing its supply chain resilience.

Earnings and Forecast

• Earnings Forecast Revisions: The analyst has raised the earnings forecast for 2022E, 2023E, and 2024E by 7% / 5% / 4%, respectively, due to higher margin assumptions and FX gains.
• Target Price (TP): The TP has been revised up to RMB59.5, from RMB51.00, based on a 25x 2022E P/E (up from 23x previously).
• Current P/E: The current share price implies a <18x 2022E P/E, which is 1SD below the historical average of 32x.
• Earnings CAGR: The company is expected to achieve a 25% earnings CAGR from 2022E to 2024E.

Financial Performance

• 3Q22 Revenue: RMB1.2bn (down 14% YoY)
• 3Q22 Net Profit: RMB302mn (up 36% YoY)
• Operating Cash Inflow: RMB383mn (up 2.3x YoY)
• 9M22 Revenue/Net Profit: RMB4.2bn (up 4% YoY), RMB876mn (up 20% YoY)

Financial Metrics

Key Assumptions and Changes

• Sales Volume: The analyst has revised the sales volume assumptions slightly downward for 2022E and 2023E, with a -5.0% and -1.4% change respectively, but no change in 2024E.
• ASP (Average Selling Price): No change in ASP assumptions for boom lifts, scissor lifts, and vertical lifts across the forecast periods.
• Gross Margin: The gross margin is expected to increase, with a 25% CAGR in 2022E-2024E.

Risks

• Intensified competition in the China AWP market.
• Rebound in freight rates and steel prices, which could impact margins.

Share Performance

• Market Cap: RMB21,332 million
• Avg 3Mths Turnover: RMB202.35 million
• 52W High/Low: RMB88.88 / RMB32.16
• Total Issued Shares: 506.3 million

Shareholding Structure

Investment Recommendation

• Rating: BUY (Maintain)
• Target Price: RMB59.5 (up from RMB51.00)
• Upside/Downside: 41%

Analyst Certification

The analyst certifies that the views expressed in the report reflect his/her personal views and that no compensation is directly or indirectly related to the views expressed.

CMBIGM Ratings

• BUY: Stock with potential return of over 15% over next 12 months
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months

Important Disclosures

• The report is for informational purposes only and not investment advice.
• The information is based on publicly available data and may not be accurate or complete.
• CMBIGM is not liable for any loss or damage arising from reliance on the information.
• The report may not be reproduced, reprinted, sold, or published without prior written consent.

Conclusion

Zhejiang Dingli has demonstrated strong net profit growth in 3Q22, supported by margin recovery and FX gains, despite a revenue decline. The company is well prepared to capture strong overseas demand for AWP, with a diversified product range and robust supply chain. The analyst has raised earnings and TP forecasts, highlighting the company's growth potential and undervaluation. The BUY recommendation is reiterated, with a target price of RMB59.5 and a 41% upside. However, the analyst also warns of potential risks, including intensified competition and rebounding freight and steel prices.