20220425-招银国际-三一重工-600031.SH-2021_results__Big_miss_on_a_surprising_net_loss_in_4Q21_Yet_to_see_meaningful_recovery_in_the_near_term_7页_1mb

SANY Heavy Industry – A (600031 CH) Company Update Summary

Core Content

SANY Heavy Industry reported its 2021 results, showing a significant decline in earnings and a surprising net loss in the fourth quarter. The company's net profit fell 22% YoY to RMB12bn, below both the analyst and consensus estimates. The 4Q21 net loss of RMB533mn was attributed to a sharp drop in gross margin and increased expense ratios, particularly in S&D and R&D.

Key Financial Highlights

• Revenue: Declined 8% YoY to RMB97.989bn in FY22E and 22% YoY to RMB106.874bn in FY21A.
• Net Profit: Fell 22% YoY to RMB12bn in 2021, with a 23.9% decline in FY22E to RMB9.163bn.
• EPS: Decreased to RMB1.08 in FY22E, compared to the consensus estimate of RMB1.81.
• EBITDA: Dropped 31.4% YoY to RMB12.861bn in 2021.
• P/E: Decreased to 15.6x in FY21A, and further to 15.0x and 14.2x in FY22E and FY23E respectively.
• P/B: Reduced to 2.1x in FY21A, with a projected 1.9x and 1.7x in FY22E and FY23E respectively.
• Target Price: Revised to RMB15.20, reflecting a 1.5x forward P/B valuation, equivalent to RMB12.2, which is seen as a key support level.

Revenue and Gross Margin Analysis

• Revenue Breakdown (2021):

  • Concrete machinery: RMB26.674bn, down 1.4% YoY.
  • Excavator: RMB41.751bn, down 16.6% in 2H21.
  • Crane machinery: RMB21.859bn, up 12.6% YoY.
  • Piling machinery: RMB5.166bn, down 24.3% YoY.
  • Earth moving machinery: RMB2.706bn, down 3.5% YoY.
  • Other machinery: RMB5.405bn, up 68.6% YoY.

• Gross Margin (2021):

  • Concrete machinery: 25.0% in FY21A, down 2.3ppt YoY.
  • Excavator: 28.9% in FY21A, down 10.5ppt YoY to 19.4% in 4Q21.
  • Crane machinery: 19.6% in FY21A, down 2.1ppt YoY.
  • Piling machinery: 40.7% in FY21A, down 4.2ppt YoY.
  • Earth moving machinery: 29.0% in FY21A, down 2.5ppt YoY.
  • Other machinery: 19.0% in FY21A, up 3.8ppt YoY.

• Blended Gross Margin: Declined 7.2ppt YoY to 22.3% in 2H21, with a forecasted drop of 3.7ppt to 23.2% in FY22E and 4ppt to 23.3% in FY23E.

Key Risks and Outlook

• Upside Risks:

  • Stabilization of property investment.
  • Decline in freight rates for exports.

• Downside Risks:

  • Further weakness in 1Q22 results (due to delayed reporting).
  • Slowdown in overseas demand.

Market and Valuation

• Market Cap: RMB143.027bn.
• Average 3-month Turnover: RMB1,872mn.
• 52-week High/Low: RMB33.35 / RMB16.2.
• Total Issued Shares: 8,435mn.
• Valuation Under Bear Case: 1.5x forward P/B, equivalent to RMB12.2, which is seen as a key support level.

Key Assumptions and Projections

• Revised Gross Margin Assumptions:

  • Excavator: Reduced to 25% in FY22E/FY23E.
  • Other machinery: Increased to 22.0% in FY22E.
  • Blended gross margin: Revised down to 23.2% in FY22E and 23.3% in FY23E.

• Earnings Forecast:

  • FY22E: RMB9.163bn.
  • FY23E: RMB9.503bn.
  • FY24E: RMB10.029bn.

• Operating Cash Flow:

  • FY21A: RMB11.9bn, down 11% YoY.
  • FY22E: RMB9.712bn.
  • FY23E: RMB10.828bn.

Conclusion

CMB International maintains a HOLD rating, with a revised target price of RMB15.20, reflecting a 30% reduction from the previous target. The bear case valuation is based on a 1.5x forward P/B, which aligns with the previous trough cycle (2014-17). The company is expected to face continued competitive pressure and weak demand in the domestic market, with high freight costs affecting its export performance. Despite this, there are potential upside risks from property investment stabilization and reduced freight rates. The company's share price has underperformed in the short term, with a 33.1% drop over 6 months.