20210827-招银国际-浙江鼎力-603338.SH-Satisfactory_results_in_2Q__Negatives_priced_in_U_G_to_BUY_5页_927kb

Zhejiang Dingli - A (603338 CH) Company Update Summary

Core Content

Zhejiang Dingli, a Chinese company listed on the Shanghai Stock Exchange, has received a rating upgrade from Hold to BUY by CMB International Securities. The upgrade is based on its satisfactory performance in the first half of 2021 and positive outlook for future growth.

Key Financial Performance

1H21 Highlights:

• Revenue: Surged 72% YoY to RMB2.58bn
• Gross margin: Narrowed 8.9ppt YoY to 29.2%
• Selling & distribution expenses: Dropped 23% YoY
• General expenses: Increased 41% YoY, mainly due to higher R&D
• Net profit: Grew 24% YoY to RMB507mn

2Q21 Highlights:

• Revenue: Grew 59% YoY to RMB1.74bn despite a high base effect
• Gross margin: Narrowed 8.6ppt YoY to 28.8%, but only dropped 1.2ppt QoQ
• SG&A expense ratio: Dropped YoY
• Net profit: Grew 17% YoY to RMB337mn
• Net operating cash inflow: Improved to RMB255mn, up from an outflow of RMB351mn in 1Q21

Upgrades and Valuation

• Target Price: Revised up to RMB87 from RMB82
• Valuation: Now at 35x 2021E P/E, which is considered more appealing after a 30% pullback since the previous downgrade in April 2021
• Earnings Forecast: Revised up by 1–7% for 2021E–2023E due to higher volume growth, despite slightly lower gross margin assumptions

Growth Drivers

• AWP Fleet Expansion: Far East Horizon (3360 HK, BUY), a major customer of Dingli, is expanding its AWP fleet size, which is expected to boost Dingli's AWP volume growth
• Cost Stabilization: The upside of steel and freight costs seems unlikely, helping to stabilize gross margins
• AWP Penetration: Rising AWP penetration in China is a structural growth trend, driven by the shortage of construction workers

Downside Risks

• Price Competition: More new entrants in the AWP market could lead to further price competition
• Construction Slowdown: An unexpected slowdown in construction activities in China could impact performance

Financial Summary

Revenue (RMB mn):

• FY19A: 2,389
• FY20A: 2,957
• FY21E: 4,721
• FY22E: 5,908
• FY23E: 6,868

Net Profit (RMB mn):

• FY19A: 694
• FY20A: 664
• FY21E: 958
• FY22E: 1,270
• FY23E: 1,497

EPS (RMB):

• FY19A: 1.43
• FY20A: 1.37
• FY21E: 1.97
• FY22E: 2.62
• FY23E: 3.08

Valuation Ratios:

• EV/EBITDA: 45.3 (FY19A), 40.2 (FY20A), 30.7 (FY21E), 22.4 (FY22E), 19.2 (FY23E)
• P/E: 47.8 (FY19A), 50.0 (FY20A), 34.7 (FY21E), 26.2 (FY22E), 22.2 (FY23E)
• P/B: 10.4 (FY19A), 8.9 (FY20A), 7.3 (FY21E), 5.9 (FY22E), 4.8 (FY23E)
• Yield: 0.4% (FY19A), 0.4% (FY20A), 0.5% (FY21E), 0.7% (FY22E), 0.9% (FY23E)
• ROE: 23.9% (FY19A), 19.1% (FY20A), 23.0% (FY21E), 24.8% (FY22E), 23.8% (FY23E)

Share Performance

• Market Cap: RMB31,110mn
• Average 3-Month Turnover: RMB435mn
• 52-Week High/Low: RMB140.3 / RMB53.9
• Total Issued Shares: 485.5mn

Shareholding Structure

• XU Shugen: 47.5%
• Deqing Zhongding Equity: 12.1%
• Investment Management: -
• CCASS (Hong Kong): 11.7%
• National Social Security Fund: 1.6%
• Others: 27.1%

Key Ratios

• Revenue Mix (%):

  • Boom lifts: 12% (FY19A), 19% (FY20A), 27% (FY21E), 28% (FY22E), 28% (FY23E)
  • Scissor lifts: 77% (FY19A), 73% (FY20A), 66% (FY21E), 66% (FY22E), 66% (FY23E)
  • Vertical lifts: 5% (FY19A), 4% (FY20A), 3% (FY21E), 2% (FY22E), 2% (FY23E)
  • Others: 6% (FY19A), 5% (FY20A), 4% (FY21E), 4% (FY22E), 3% (FY23E)

• Profit & Loss Ratio (%):

  • Gross margin: 39.9% (FY19A), 34.9% (FY20A), 29.6% (FY21E), 31.1% (FY22E), 31.1% (FY23E)
  • EBITDA margin: 29.9% (FY19A), 27.2% (FY20A), 22.4% (FY21E), 24.4% (FY22E), 24.6% (FY23E)
  • EBIT margin: 28.7% (FY19A), 25.8% (FY20A), 20.8% (FY21E), 22.5% (FY22E), 22.6% (FY23E)
  • Net profit margin: 29.0% (FY19A), 22.5% (FY20A), 20.3% (FY21E), 21.5% (FY22E), 21.8% (FY23E)

• Balance Sheet Ratio:

  • Current ratio: 2.3 (FY19A), 2.2 (FY20A), 1.9 (FY21E), 2.2 (FY22E), 2.2 (FY23E)
  • Receivable turnover days: 170 (FY19A), 159 (FY20A), 125 (FY21E), 123 (FY22E), 123 (FY23E)
  • Inventory turnover days: 104 (FY19A), 133 (FY20A), 130 (FY21E), 131 (FY22E), 134 (FY23E)
  • Payable turnover days: 166 (FY19A), 190 (FY20A), 191 (FY21E), 191 (FY22E), 191 (FY23E)

• Profitability:

  • ROA: 16.3% (FY19A), 12.4% (FY20A), 14.1% (FY21E), 15.5% (FY22E), 15.3% (FY23E)
  • ROE: 23.9% (FY19A), 19.1% (FY20A), 23.0% (FY21E), 24.8% (FY22E), 23.8% (FY23E)

• Per Share Data:

  • EPS: 1.43 (FY19A), 1.37 (FY20A), 1.97 (FY21E), 2.62 (FY22E), 3.08 (FY23E)
  • BVPS: RMB6.61 (FY19A), RMB7.71 (FY20A), RMB9.43 (FY21E), RMB11.67 (FY22E), RMB14.25 (FY23E)
  • DPS: RMB0.25 (FY19A), RMB0.26 (FY20A), RMB0.37 (FY21E), RMB0.50 (FY22E), RMB0.59 (FY23E)

Analyst Ratings

• BUY: Stock with potential return of over 15% over next 12 months
• HOLD: Stock with potential return of +15% to -10% over next 12 months
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark over next 12 months
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark over next 12 months

CMB International Securities Limited

• Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong
• Tel: (852) 3900 0888
• Fax: (852) 3900 0800
• Parent Company: CMB International Capital Corporation Limited, a wholly owned subsidiary of China Merchants Bank

Important Disclosures

• The information in this report is not suitable for all investors.
• CMBIS does not provide individually tailored investment advice.
• The report is for informational purposes only and should not be construed as an offer or solicitation to buy or sell any security.
• CMBIS may have a conflict of interest and will not assume any responsibility for the report's content.
• The report is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.