20131206-Maybank_KERPL-A_Return_to_Booming_Days__Initiate_at_BUY_25页_732kb

报告摘要

Lonking Holdings Summary

Core Content Overview

Lonking Holdings is a leading construction and logistics machinery manufacturer in China, operating 19 subsidiaries and 4 production bases. The company specializes in wheel loaders, excavators, road rollers, and forklifts, and also produces machine components for sale. The current share price is HKD1.67, with a new target price of HKD2.20, implying a 31% upside. The investment recommendation is Buy, based on a 12x PER for FY14F earnings.

Key Financial Indicators

Metric	FY12A	FY13F	FY14F	FY15F
Revenue (CNYm)	7,896.0	8,053.3	8,864.9	10,196.5
EBITDA (CNYm)	915.6	1,206.5	1,321.8	1,553.7
Recurring Net Profit (CNYm)	151.5	517.6	621.8	813.1
Recurring Basic EPS (HKD)	0.0	0.2	0.2	0.2
EPS Growth (%)	-91.2	241.7	20.1	30.8
DPS (HKD cents)	0.00	0.00	3.43	4.49
PER	37.5	11.0	9.0	6.9
EV/EBITDA (x)	12.4	8.2	7.2	5.3
Div Yield (%)	0.0	0.0	3.4	4.3
P/BV (x)	0.9	0.8	0.8	0.7
Gearing (%)	68.1	41.3	34.0	14.2
ROE (%)	2.4	7.7	8.5	10.2
ROA (%)	1.1	3.9	4.6	5.8
Consensus Net Profit (CNYm)	-	478.0	588.5	721.5

Main Points and Key Insights

Earnings Growth Forecast: Lonking is expected to see earnings growth of 20.1% in FY14 and 30.8% in FY15, driven by construction machinery demand recovery, margin improvement, high-margin export growth, and reduced gearing.
Market Position: Lonking holds a 13.5% share in the Chinese wheel loader market and is ranked third in the forklift market. Its product mix and focus on infrastructure make it well-positioned for growth compared to peers like Zoomlion and Sany.
Export Growth: Lonking's export sales, which carry a higher margin (1-2ppt above domestic), are expected to grow to 13% of total sales by FY15. The company is expanding its overseas distribution network, targeting the US and European markets.
Margin Expansion: Gross margin is projected to increase from 19.4% in FY12 to 23.1% in FY15, supported by cost management and a stabilized pricing environment. The company has no aggressive capex plan, which should improve its financial position.
Gearing Reduction: Gearing is expected to drop significantly from 68.1% in FY12 to 14.2% in FY15, reducing finance costs and improving overall financial health.
Industry Recovery: The Chinese construction machinery industry is showing signs of recovery, with FAI growth expected at 20% in FY13 and 18% in FY14. Infrastructure FAI is a key growth driver, with Lonking well-placed to benefit from this trend.
Inventory Clearance: The industry is gradually clearing excess inventory, which should support Lonking's future sales growth and pricing power. This trend is expected to continue, leading to improved margins and a stronger pricing environment.
Market Share Outlook: Lonking is expected to gain market share from small and inefficient players due to industry consolidation. It is also anticipated to recapture lost market share in the coming years.
Risks: Potential risks include weaker-than-expected FAI growth, faster-than-anticipated rise in raw material prices, irrational price competition, and deterioration in collection problems.

Conclusion

Lonking Holdings is well-positioned to benefit from the recovery of the Chinese construction machinery industry, driven by infrastructure investment and urbanization. The company's strong cost control, strategic product mix, and growth in export markets are expected to support solid earnings growth and margin expansion. With a target price of HKD2.20 and a 31% upside, the investment recommendation is Buy. The stock is undervalued relative to peers, and we expect it to outperform in the coming years.

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