Multi-tiered products to create a growth-oriented construction machinery leader, new business segments are working together and are expected to rebuild a Zhonglian

The company released its third quarterly report for 2020: in the first three quarters, it realized operating income of 45.24 billion yuan, a year-on-year increase of 42.5%, net profit attributable to the parent was 5.69 billion yuan, a year-on-year increase of 63.4%, and net profit deducted from the parent company was 4.96 billion yuan, a year-on-year increase of 79.2% , Operating net cash flow was 4.02 billion yuan, a year-on-year decrease of 19.1%.

Points to support rating

In the off-season, revenue and profit continued to grow at a high level, and the market share of core products continued to increase steadily. The impact of the epidemic has delayed industry demand. In the third quarter, the off-season was obviously not weak, and the development trend of high growth in the second quarter continued. The downstream infrastructure and real estate industry demand continued to maintain a high degree of prosperity. Concrete pump trucks, tower cranes, engineering cranes and other mid-to-late cycle products The demand for replacements continues to be strong, and the market demand for concrete mixer trucks is also very hot. In recent years, the company has built a closed loop of R&D, products, and services. The 4.0 products launched have continued to be popular in the market, and the market share has continued to increase steadily. The market share of truck cranes has continued to increase this year under the background of the substantial increase last year, further narrowing the gap with industry leaders. Tower cranes continue to maintain the demeanor of the world's strongest. September shipments have exceeded 10 billion, strengthening the leading position. The market share of concrete pump trucks has greatly increased, and the market share of mixer trucks has also risen to the top three in the industry. The industry is booming and The increase in the market share of core products drove the company's third-quarter revenue and profit to achieve double-high growth. The single-quarter revenue was 16.42 billion yuan, an increase of 72.9% year-on-year, and the net profit attributable to the parent was 1.67 billion yuan, an increase of 84.6% year-on-year. Revenue and profit growth rate Compared with the first half of the year, it is further improved.

Continue to implement the business philosophy of sustainable and high-quality development, and the operating cash flow in the third quarter began to accelerate the restoration. 2020Q1-3 the company’s period expense ratio was 13.6%, a year-on-year decrease of 3.9pct, of which the sales expense ratio, management expense ratio, R&D expense ratio, and financial expense ratio were 6.9%, 2.8%, 3.8%, and 0.1%, respectively, down 1.8% year-on-year pct, a decrease of 0.8pct, an increase of 1.5pct, and a decrease of 2.8pct. The decline in the sales and management expense ratio is mainly due to the successful promotion of the end-to-end sales model, the strengthening of cost and expense control, the scale effect and the increase in online sales promotion activities. The sharp decline in the financial expense ratio was mainly due to the decrease in the size of net debt and the decrease in exchange losses. In the first three quarters, the company’s overall gross profit margin was 28.5%, a year-on-year decrease of 1.3pct. The decline in gross profit margin was mainly due to the adjustment of product structure and the decline of product prices compared with the same period last year. Subsequent to the stabilization of product prices and product structure Optimization, the company's gross profit margin is expected to rebound steadily, the company's profitability in the first three quarters has further improved, and the net profit margin increased by 1.8pct year-on-year to 12.7%. Q1-3 The company’s operating net cash flow was 4.02 billion yuan, of which Q3 was 2.54 billion yuan in the single quarter. The impact of the first half of the epidemic caused delays in customer payment and the company increased its supply chain stocking. Cash flow was greatly affected. Accelerated recovery, cash flow improved significantly, and the annual cash flow is still expected to reach the level of last year.

Emerging business sectors such as earthmoving machinery, agricultural machinery, and aerial work platforms will create new engines for mid- to long-term growth. The growth-oriented construction machinery leaders are expected to usher in the double-click of sustained performance release and increased valuation center. The company has formed a rich product echelon. The first-line concrete machinery, tower cranes, construction cranes and other post-cycle construction machinery continue to maintain a high degree of prosperity. The company's core competitiveness continues to increase, and its market share is expected to continue to increase. First-line echelon products The strength of the company will release high performance flexibility for the company in the next 2-3 years, and the performance growth rate is expected to continue to lead the industry. Emerging business sectors such as the second-tier earthmoving machinery, agricultural machinery, and aerial work platforms have begun to exert significant force this year. They achieved strong growth in the first three quarters and their market position has greatly improved. These potential new business sectors will gradually become the company's new medium and long-term growth engine. It will grow into a large business segment that stands alone. Earthmoving machinery launches the "Hero of the Mining" big digging product, improves the product pedigree, and further optimizes the sales and service system. Excavators will achieve a market share of about 2% in the first year after returning. Next year, the intelligent production line of 33,000 excavators in the Smart Industry City will be put into operation, and the market competitiveness of excavators will be further strengthened. We are optimistic that the company's earthmoving machinery will grow into the top 5 and even the top 3 in the country in the next 3-5 years; the demand for the agricultural machinery industry is obviously picking up. The company has increased the R&D and promotion of economic crops and high-end smart models, and the sales and profitability of its products have been significantly improved. As the country pays more attention to food security, the domestic penetration rate of high-end agricultural machinery is expected to gradually increase. The level of agricultural mechanization and operation efficiency will also be greatly improved. The agricultural machinery business has a huge market space. The company's agricultural machinery is most hopeful to become China's John Deere. The aerial work platform entered the market as a dark horse last year, and this year continues to achieve high growth and stabilize the industry. The first echelon has outstanding advantages in arm-type products, and overseas markets have also begun to deploy this year. In the future, it is expected to become a large business sector with a scale of 5-10 billion. Third-line dry-mixed mortar equipment, emergency equipment, etc. are also constantly being cultivated and incubated to cultivate growth factors for the company's long-term development. The multi-echelon product development strategy helps the company to smooth out the cyclical fluctuations of traditional construction machinery. The next few years will still be the golden period of the company's rapid development. The company is expected to grow into a construction machinery growth company. These new business sectors should also be provided accordingly. Therefore, the company is expected to usher in the double-click of continued performance release and valuation center enhancement in the future.

Valuation

Based on the continued high prosperity of the industry and the improvement of the company’s core competitiveness, we have raised the company’s 2020-2022 net profit attributable to the parent company to 74.8/96.3/11.37 billion yuan, corresponding to EPS of 0.94/1.21/1.44 yuan/share, corresponding to PE respectively It is 7.7/6.0/5.0 times and maintains the buy rating.

Main risks faced by ratings

The global epidemic continues to ferment, industry competition has intensified, infrastructure and real estate investment has fallen short of expectations, and environmental protection and governance efforts have fallen short of expectations.