20201015-招银国际-中联重科-000157.SZ-Profit_surprise_in_3Q20_reaffirms_our_positive_view_4页_969kb

Zoomlion Heavy Industry (000157 CH) Company Update Summary

Core Content

Zoomlion Heavy Industry (000157 CH) has reported a strong profit performance for the third quarter of 2020 (3Q20E), with net profit expected to increase by 64-97% YoY to RMB1.48-1.78bn, exceeding the high-end of the analyst's expectations. This profit surprise reaffirms the positive outlook of CMB International Securities, maintaining a BUY rating with a target price of RMB10.20, which is 17% above the current price of RMB8.74.

The company's growth is anticipated to be driven by the upcycle of existing products such as concrete, crane, and agricultural machinery, as well as expansion into new product areas like aerial working platforms (AWP) and excavators. The subscription of new shares by the management team during the upcoming fundraising is also expected to bolster market confidence.

Key Financial Highlights

Earnings Summary

• 9M20E net profit is projected to rise by 58-67% YoY, reaching RMB5.5-5.8bn, which would account for 76-80% of the above-consensus full year estimate.
• EPS (Earnings Per Share) is expected to increase to RMB1.05 (FY20E) and RMB1.12 (FY21E), showing consistent growth.
• P/E ratio for 2021E is 9.3x, significantly lower than the current 32.6x, indicating potential undervaluation.

Revenue Trends

• Revenue is forecasted to grow steadily from RMB28,697mn (FY18A) to RMB79,005mn (FY22E), with YoY growth rates declining from 50.9% to 13.1%, reflecting a slowing growth rate in later years.

Profitability

• Gross margin is expected to remain stable at 30.1-30.5%, while EBIT margin and Net profit margin are projected to increase to 14.5-15.1% and 12.1-12.8%, respectively.
• ROE (Return on Equity) is anticipated to rise to 16.2% (FY22E), indicating improved efficiency and returns on equity.

Share Performance and Catalysts

• Market Cap is currently RMB66,800mn.
• Shareholding structure includes SASAC of Hunan Province (15.9%), management team (4.9%), and a significant free float (61.4% A-shares, 17.7% H-shares).
• Share price performance has shown positive trends, with a 1-month return of 7.4% and a 6-month return of 32.2%.
• Upcoming catalysts include:
  • Strong machinery sales data in 4Q20E
  • Completion of share placement in early 2021
  • Potential increase in China's wind power installation targets under the 14th Five-Year Plan, which could boost demand for truck cranes

Risk Factors

• Unexpected weakness in infrastructure spending
• Slow recovery in property construction
• Risks associated with new business expansion

Key Ratios

• Sales mix:
  • Concrete machinery: 35% (FY18A) → 30% (FY20E) → 28% (FY22E)
  • Crane machinery: 43% (FY18A) → 53% (FY20E) → 50% (FY22E)
  • Agricultural machinery: 5% (FY18A) → 3% (FY20E) → 3% (FY22E)
• Profitability ratios:
  • Gross margin: 27.1% (FY18A) → 30.1% (FY20E) → 30.5% (FY22E)
  • EBIT margin: 12.7% (FY18A) → 14.5% (FY20E) → 15.1% (FY22E)
  • Net profit margin: 6.9% (FY18A) → 12.1% (FY20E) → 12.8% (FY22E)
• Balance sheet ratios:
  • Current ratio: 1.6 (FY18A) → 1.7 (FY20E) → 1.6 (FY22E)
  • Net debt / total equity: 33.6% (FY18A) → 3.7% (FY20E) → 1.3% (FY22E)

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:

• All views expressed reflect personal opinions
• No compensation is directly or indirectly related to the views in the report
• No trading in the stock(s) covered was done within 30 days prior to the report's release
• No trading will be done 3 business days after the report's release
• No financial interest in the companies discussed

Important Disclosures

• The report is not investment advice and should not be relied upon for decision-making
• Past performance does not guarantee future results
• The value of investments is uncertain and may fluctuate
• CMBIS is not liable for any loss or damage incurred from reliance on the report
• The report is intended for specific recipients and may not be reproduced or distributed without consent
• Legal restrictions apply in the UK, US, and Singapore based on local regulations

Summary

Zoomlion Heavy Industry is showing strong financial performance and growth potential, supported by a positive profit alert and expectations of continued expansion. The company's financial metrics, including profitability and leverage, are improving, and the upcoming share placement and favorable market conditions are seen as positive catalysts. However, risks such as infrastructure spending weakness and new business challenges remain. CMB International Securities maintains a BUY rating with a target price of RMB10.20, suggesting potential for a 17% upside.