20211101-招银国际-三一重工-600031.SH-Low_market_expectation_after_3Q21_results__Electric_products_and_export_to_serve_as_medium_term_drivers_6页

SANY Heavy Industry (600031 CH) – Equity Research Summary

Core Content

SANY Heavy Industry is a leading Chinese construction machinery company with a strong global presence. Despite a significant 3Q21 earnings decline of 35% YoY, the report suggests that the company has set a low base and that further valuation downside is likely limited. The company is expected to benefit from risk reduction factors, including stabilization of gross margin and increased local government bond issuance, which should support machinery demand in China. In the medium term, SANY is positioned to become a global tier-one player, driven by its overseas expansion strategy, growth in electric products, and advancements in intelligent production.

Main Points

• Earnings Performance:

  • 3Q21 net profit dropped 35% YoY to RMB2.5bn, which was better than expected.
  • Revenue fell 13% YoY to RMB20.8bn, primarily due to weak domestic demand for medium-sized excavators, though supported by strong export sales.
  • Gross margin declined to 24.9%, narrowing 5.5ppt YoY and 1.8ppt QoQ.
  • R&D expenses increased by 4.5% YoY to RMB1.3bn, with a target of maintaining RMB1.3–1.6bn per quarter.
  • Operating cash inflow fell 88% YoY to RMB448bn, indicating potential cash flow risks.

• Sales Performance:

  • Domestic excavator sales grew 13% YoY in 9M21, with a 3ppt increase in market share.
  • SANY targets 8–10% growth in excavator sales for 2021E, with 1.33x YoY growth in overseas sales for 9M21.
  • The company aims for 1.2–1.3x YoY growth in 2021E and >50% YoY in 2022E for excavators.
  • For crane machinery, SANY targets ~5% YoY growth in 2022E.

• Electric Products:

  • The carbon reduction policy in China has spurred procurement of electric mixers.
  • SANY delivered ~850 units in 10M21 and targets 1.2k units (RMB0.8–1.0bn revenue) in 2021E.
  • Future revenue targets from electric mixers are RMB4bn in 2022E, RMB8bn in 2023E, and RMB10bn in 2025E.

• Global Expansion:

  • SANY ranks No.5 globally (excluding China), with No.1 in 15 countries (e.g., Indonesia) and No.2 in India, Chile, and the Philippines.
  • It has a 5% market share in Russia, Canada, France, UK, and New Zealand.
  • The company plans to build lighthouse factories in Europe and establish leasing companies in the US, Germany, UK, Italy, and Canada.

• Financial Outlook:

  • Revenue is projected to grow at a slower pace from 2021E onwards, with an estimated 13.4% growth in 2021E and 8.0% in 2022E.
  • Net profit margin is expected to decline slightly, with a target of 14.0% for 2021E.
  • EBIT margin is forecasted to decrease from 16.8% in FY20A to 14.3% in FY21E.
  • EBITDA is expected to grow steadily, reaching RMB21.9bn in 2023E.

• Valuation Metrics:

  • The current price is RMB22.96, with a target price of RMB30.00 (upside of +31%).
  • P/E ratio is currently at 16.8x, with a forecasted 10.4x in 2023E.
  • P/B ratio is at 4.1x, decreasing to 2.1x in 2023E.
  • EV/EBITDA is at 12.6x, declining to 8.3x in 2023E.

• Key Ratios and Performance:

  • The company maintains a strong ROE, with a forecasted 21.6% in 2023E.
  • ROA is expected to remain stable, at 11.6% in 2023E.
  • Current ratio is projected to rise to 2.0x in 2023E.
  • Receivable turnover days increased slightly, and inventory turnover days remained stable.
  • Payable turnover days increased in 2021E but are expected to stabilize.

Key Risks

• Unexpected slowdown in overseas business.
• Continuous weakness in construction activities.
• Deterioration of operating cash flow.

Analyst Recommendations

• Rating: BUY
• Target Price: RMB30.00
• Upside: +31% from current price of RMB22.96
• Reasoning: The report maintains a BUY rating based on the expectation of improved performance from stabilization of margins, strong export growth, and long-term growth from electric products and global expansion.

Financial Summary Highlights

• Revenue Growth: Expected to slow from 36.6% in FY19A to 5.4% in FY23E.
• Net Profit: Projected to grow from RMB11.3bn in FY19A to RMB18.6bn in FY23E.
• Cash Flow: Operating cash flow is expected to improve from RMB12.8bn in FY21E to RMB16.1bn in FY23E.
• Equity: Shareholders' equity is projected to grow from RMB47.2bn in FY19A to RMB92.7bn in FY23E.
• Debt/Equity: Net debt to total equity remains at "Net cash" across all periods, indicating strong financial position.

Share Performance

• Market Cap: RMB194,982 million.
• Average 3-month Turnover: RMB4,947 million.
• 52-week High/Low: RMB50.30 / RMB22.44.
• Shareholding Structure: SANY Group holds 29.2%, Hong Kong CCASS 7.2%, Liang Wengen 2.8%, and Others 60.8%.
• Share Performance (12-month):
  • Absolute: -25.6%
  • Relative: -22.4%

CMBIS Ratings

• BUY: Stock with potential return of over 15% over the next 12 months.
• HOLD: Stock with potential return of +15% to -10%.
• SELL: Stock with potential loss of over 10%.
• NOT RATED: Stock not rated by CMBIS.
• 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.

Analyst Certification

The analyst certifies that the views expressed in the report reflect personal opinions and that there are no conflicts of interest. The analyst has not traded in the stock covered in the report within 30 days prior to the report's issue and will not trade within 3 business days after.

Important Disclosures

• The report is not an offer or solicitation to buy/sell any security.
• CMBIS does not provide personalized investment advice.
• Information is based on public data and may not be suitable for all investors.
• Past performance does not guarantee future results.
• The company may have positions or engage in transactions inconsistent with the report’s recommendations.