20201012-招银国际-恒立液压-601100.SH-Expect_a_strong_3Q__Robust_demand_in_Oct__Raised_estimate___TP_5页_938kb

Summary of Jiangsu Hengli Hydraulic (601100 CH) Company Update

Core Content

This report provides an equity research update on Jiangsu Hengli Hydraulic (601100 CH), highlighting its strong performance and positive outlook for the upcoming quarters. The research firm CMB International Securities has reissued a BUY rating, with an updated Target Price (TP) of RMB87.00, up from RMB82.00, indicating a potential upside of +16% from the current price of RMB74.77.

Main Points

• Strong 3Q20E Performance: Hengli is expected to report a 95% YoY net profit growth to RMB481 million in the third quarter of 2020, driven by strong demand and improved utilization rates.
• Robust Demand in October: The company's production plan for October shows a stable level of excavator cylinder production and sequential growth in pump and valve production, suggesting continued strong demand across its major products.
• Sustainable Demand in Construction Machinery Sector: The report notes that the construction machinery sector, particularly for excavators, is expected to maintain strong demand in the second half of 2020, supported by ongoing construction activities.
• Revised Earnings Forecast: The research firm has raised its earnings forecast for 2020E–2022E by 3–6%, which is 9–10% above consensus.
• Valuation Metrics: The Target Price (TP) is based on an unchanged multiple of 45x 2021E P/E, which is slightly below the historical average, suggesting a favorable valuation outlook.

Key Financials (YE 31 Dec)

Key Assumptions and Revenue Breakdown

• 3Q20E Revenue Forecast: Total revenue is expected to be RMB1,557 million, representing a 49.5% YoY increase.
• Segment Performance:
  • Excavator Hydraulic Cylinder: Revenue is expected to grow to RMB1,557 million in 3Q20E, with a 95.4% YoY increase in net profit.
  • Hydraulic Pump and Valve: Expected to show sequential growth in October, contributing positively to the overall performance.
  • Completed Set of Equipment: Revenue is expected to remain stable, with no significant YoY growth.
  • Component: Revenue is expected to grow, with an increase in net profit.
• Gross Margin Improvements: Gross margin is expected to expand across all segments, with the hydraulic business showing an average 41.7% in FY21E and 41.8% in FY22E.

Shareholding and Performance

• Shareholding Structure:
  • Wang's family: 71.0%
  • CCASS (Hong Kong): 10.0%
  • Free float: 19.0%
• Share Performance:
  • 1-month: +15.4%
  • 3-months: +28.9%
  • 6-months: +66.5%

Key Risks

• Slowdown in construction activities
• Risk associated with overseas expansion
• Increase in raw material costs

Analyst Certification

The analyst certifies that the views expressed in the report reflect personal opinions and that there are no conflicts of interest. No trading in the stock covered in the report occurred within 30 days before the report's issuance, and there are no direct or indirect financial interests in the companies mentioned.

CMBIS Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10% over the next 12 months.
• UNDERPERFORM: Potential loss of over 10% over the next 12 months.

Disclaimer

The report is intended for CMBIS clients and affiliates only. It is not an offer or solicitation to buy/sell securities. CMBIS does not provide tailored investment advice and recommends consulting a professional financial advisor. The information is based on public data and may not be accurate or complete, and is subject to change without notice. There may be conflicts of interest due to CMBIS's investment banking relationships with the companies mentioned.

Important Disclosures

• The report is subject to the Financial Services and Markets Act 2000 in the UK and the Securities and Futures Act in Singapore.
• In the US, the report is provided solely to major US institutional investors and is not subject to US regulatory requirements. Investors should use a US-registered broker-dealer to execute any transactions based on this report.