20220210-招银国际-恒立液压-601100.SH-Recovery_weaker-than-expected__Rich_valuation_along_with_earnings_risk_5页_840kb

Summary of Jiangsu Hengli Hydraulic (601100 CH) Company Update

Core Content

Jiangsu Hengli Hydraulic (601100 CH) is a company under the analysis of CMB International Securities. The report outlines the current financial and operational status, highlighting both the challenges and opportunities for the company in the upcoming years.

Main Points

Earnings Forecast and Valuation

• Earnings Forecast Adjustment: CMBIS has revised down the earnings forecast for 2021E, 2022E, and 2023E by 6%, 12%, and 13% respectively, due to weaker-than-expected sales volume.
• Target Price Adjustment: The target price was revised from RMB86 to RMB64, based on a 30x 2022E P/E ratio, which is in line with the 3-year historical average.
• Current Valuation: The company is currently valued at 33x 2022E P/E, which is considered rich.
• Consensus EPS: The consensus EPS for 2021E, 2022E, and 2023E is RMB2.08, RMB2.49, and RMB2.90 respectively.

4Q21E Earnings Preview

• Net Profit Drop: Net profit is expected to drop over 30% YoY in 4Q21E due to weak downstream demand and inventory buildup.
• Full Year 2021E Net Profit: Full year net profit is projected to grow by 12% YoY to ~RMB2.5bn.

February 2022 Production Plan

• Hydraulic Cylinder (Excavator): Scheduled production volume is 63k units, down ~15% YoY.
• Pump/Valve: Production drops ~50% and ~40% YoY, respectively, due to ongoing inventory clearance.
• Non-Standardized Cylinders: Production is expected to double YoY to 14k units due to a low base.
• Motor Production: Increases >60% YoY and >30% MoM, driven by AWP demand.

Share Placement Plan

• Approved by CSRC: Share placement plan approved in mid-January.
• New Shares: Maximum of 391.6mn new shares (23% of enlarged share capital) can be issued.
• Use of Proceeds: Funds will be used for capacity expansion in Mexico and new linear actuator for electric cylinder.

Upside and Downside Risks

• Upside Risks: Meaningful recovery of excavator demand and progress in non-construction machinery areas.
• Downside Risks: Weak recovery of construction activities and risk of overseas expansion.

Key Financial Highlights

Revenue

• FY19A to FY23E: Revenue is projected to grow from RMB5,414mn to RMB10,586mn.
• YoY Growth: Growth rates are 28.6%, 45.1%, 13.5%, 11.9%, and 6.2% for FY19A to FY23E respectively.

Net Income

• FY19A to FY23E: Net income is expected to increase from RMB1,296mn to RMB3,090mn.
• YoY Growth: Growth rates are 54.9%, 73.9%, 11.9%, 10.8%, and 10.5% for FY19A to FY23E respectively.

EPS

• FY19A to FY23E: EPS is projected to rise from RMB0.99 to RMB2.37.
• Consensus EPS: RMB2.08, RMB2.49, and RMB2.90 for 2021E, 2022E, and 2023E respectively.

P/E and P/B

• P/E: Drops from 71.9x to 30.2x over the forecast period.
• P/B: Drops from 16.7x to 7.1x over the forecast period.

ROE and ROA

• ROE: Drops from 25.6% to 25.7%.
• ROA: Drops from 16.5% to 19.4%.

Shareholding and Performance

• Shareholding Structure: Wang's family holds 71.0%, CCASS (Hong Kong) holds 10.0%, and Others hold 19.0%.
• Stock Performance:
  • 1-month: -18.3%
  • 3-months: -14.0%
  • 6-months: -38.6%
• Market Cap: RMB93,190mn.
• Avg 3-months Turnover: RMB380.43mn.
• 52-week High/Low: RMB131.29/RMB67.55.

Earnings Summary Table

Financial Summary

Income Statement

• Total Revenue: Rises from RMB5,414mn to RMB10,586mn.
• Gross Profit: Increases from RMB2,045mn to RMB4,181mn.
• EBIT: Increases from RMB1,395mn to RMB3,112mn.
• Net Profit: Increases from RMB1,296mn to RMB3,090mn.

Cash Flow Summary

• Cash Flow from Operation: Rises from RMB1,660mn to RMB3,403mn.
• Net Capex on PP&E: Rises from RMB434mn to RMB600mn.
• Change in Cash: Rises from RMB754mn to RMB1,696mn.
• Cash at End of Year: Rises from RMB2,343mn to RMB7,658mn.

Balance Sheet

• Non-Current Assets: Rises from RMB2,935mn to RMB3,619mn.
• Current Assets: Rises from RMB5,492mn to RMB13,278mn.
• Equity: Rises from RMB5,614mn to RMB13,132mn.
• Shareholders' Equity: Rises from RMB5,584mn to RMB13,077mn.

Key Ratios

Key Assumptions and Changes

Analyst Rating

• CMBIS Ratings:

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

• Industry Ratings:

  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months
  • MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark over next 12 months
  • UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark over next 12 months

Disclosures

• The research analyst certifies that the views expressed accurately reflect their personal views and that their compensation is not related to the specific views in the report.
• The analyst confirms that they have not traded in the stock covered in this report within 30 days prior to its release and will not trade in it for 3 business days after.
• The report is not an offer or solicitation to buy or sell any security and is intended solely for information purposes.
• CMBIS does not provide individually tailored investment advice and encourages investors to consult a professional financial advisor.