20171017-广发证券_香港_-中国龙工-03339.HK-Beneficiary_of_the_upcycle_in_China_s_construction_machinery_industry_initiate_at_Buy_16页_1mb
报告摘要
Lonking (3339 HK) Equity Research Summary
Core Content
Lonking is a construction machinery company that has been identified as a potential investment opportunity due to its strong performance and strategic position in the industry. The report initiates coverage with a Buy rating and a target price of HK$4.30, based on its historical P/E and P/B ratios and a 10% discount to the average P/E of its international peers.
Main Points
Industry Upcycle
- The construction machinery industry in China has been on an upcycle since 2H16, driven by steady infrastructure, property, and mining investment.
- Loader sales increased by 48% YoY in 9M17, reaching 67,786 units.
- Excavator sales surged by 100% YoY in 9M17, reaching 101,934 units.
- The previous upcycle (2004-11) was followed by a downcycle (2012-1H16), but the industry is now in a recovery phase, with the upward trend expected to last until at least 2020.
Strong Sales Growth
- 1H17 net profit surged by 149% YoY to Rmb497.8m.
- 1H17 revenue increased by 73% YoY to Rmb4.52bn.
- Loader sales volume rose by 64.7% YoY, and excavator sales volume increased by 113.4% YoY.
- Total sales volume increased by 60.2% YoY in 1H17.
Profitability Drivers
- Product price increases are expected to improve ASP (Average Selling Price) and GPM (Gross Margin).
- Cost pressure is anticipated to be passed on to clients due to increased ASP.
- Utilization rates for excavators have increased, indicating strong downstream demand.
Market Share Expansion
- Lonking has become the largest loader manufacturer in China, increasing its market share from 13.7% in 2012 to 24.4% in 1H17.
- Excavator market share grew from 1% in 2012 to 2.7% in 1H17, although still relatively small.
- Forklift and road roller market shares also increased, from 5.2% to 8.5% and 2.3% to 3.2% respectively.
Strategic Expansion
- Lonking is building a new forklift production facility with a capacity of 15,000 units per year (58% of 2016 sales volume), expected to begin operations by the end of 2017.
- The company is targeting 20% YoY revenue growth in its overseas business over the next few years, driven by the One Belt One Road initiative.
Revenue and Net Profit Forecasts
- Revenue growth CAGR is expected to be 33.5% during 2016-19.
- Net profit growth CAGR is expected to be 37.3% during the same period.
- Revenue in 2017E is forecasted to be Rmb8.56bn, and 2018E is expected to reach Rmb11.01bn.
- Net profit in 2017E is expected to be Rmb837m, and 2018E is projected to be Rmb1039m.
Cost Structure
- The company has a self-production ratio of 70%, which helps maintain a stable cost structure.
- Steel costs account for 20% of total costs, but price increases are expected to be passed on to clients.
Key Risks
- Reliance on the Chinese economy.
- Slowdown in China's FAI (Fixed Asset Investment).
- Weaker-than-expected replacement demand.
- Greater-than-expected cost pressure.
Financial Performance
| Year | Revenue (Rmb m) | YoY Growth (%) | Net Profit (Rmb m) | YoY Growth (%) | EPS (Rmb) | EPS YoY Growth (%) | P/E | P/B | DPS (Rmb) | Dividend Yield (%) | ROE (%) |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2015 | 4,829 | -35% | 117 | -72% | 0.03 | -72% | 110 | 1.9 | 0.05 | 1.7 | 1.8 |
| 2016 | 5,146 | 7% | 462 | 296% | 0.11 | 296% | 27.8 | 1.9 | 0.01 | 0.5 | 6.9 |
| 2017E | 8,560 | 66% | 837 | 81% | 0.20 | 81% | 15.3 | 1.8 | 0.07 | 2.3 | 11.9 |
| 2018E | 11,014 | 29% | 1,040 | 24% | 0.24 | 24% | 12.3 | 1.7 | 0.09 | 2.8 | 13.7 |
| 2019E | 12,242 | 11% | 1,196 | 15% | 0.28 | 15% | 10.7 | 1.6 | 0.10 | 3.3 | 14.9 |
Peer Comparison
| Ticker | Company Name | Currency | Price (HK$) | EPS 2016 | EPS 2017E | EPS 2018E | EPS CAGR | P/E 2016 | P/E 2017E | P/E 2018E | P/B 2016 | P/B 2017E | P/B 2018E | Market Cap (USD m) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 3339 HK | Lonking | HKD | 3.55 | 0.13 | 0.23 | 0.29 | 50% | 27.61 | 15.31 | 12.35 | 1.91 | 1.83 | 1.69 | 1973.18 |
| 1157 HK | Zoomlion Heavy Industry - H | HKD | 3.96 | - | 0.21 | 0.17 | - | - | 18.59 | 22.76 | 0.68 | 0.67 | 0.66 | 5151.75 |
| 38 HK | First Tractor Co-H | HKD | 3.91 | 0.26 | 0.25 | 0.28 | 3% | 34.40 | 15.83 | 14.01 | 0.69 | 0.66 | 0.63 | 997.80 |
| 1882 HK | Haijian International Hldgs | HKD | 23.3 | 1.13 | 1.51 | 1.71 | 23% | 17.45 | 15.53 | 13.69 | 3.21 | 2.99 | 2.60 | 4772.32 |
| 631 HK | Sany Heavy Equipment Intl | HKD | 1.47 | - | 0.09 | 0.10 | - | 16.54 | 14.26 | 0.57 | 2.48 | 2.41 | 2.17 | 572.46 |
| 2039 HK | China International Marine-H | HKD | 15.6 | 0.16 | 0.93 | 1.19 | 170% | 25.19 | 16.62 | 12.92 | 1.39 | 1.17 | 1.09 | 6909.68 |
| 3899 HK | CIMC Enric Holdings Ltd | HKD | 5.2 | - | 0.31 | 0.43 | - | 59.35 | 17.53 | 12.62 | 1.67 | 1.50 | 1.36 | 1342.76 |
| Average | - | - | - | - | - | - | - | 32.80 | 16.56 | 14.66 | 1.45 | 1.34 | 1.23 | - |
Key Takeaways
- Lonking is a beneficiary of the upcycle in China's construction machinery industry.
- The company is expected to increase its market share and ASP.
- Revenue and net profit growth are projected to be strong, with CAGRs of 33.5% and 37.3% respectively during 2016-19.
- The One Belt One Road initiative is expected to drive export demand.
- Cost structure is relatively stable, with self-production ratio at 70%.
- Key risks include reliance on the Chinese economy and possible slowdown in FAI.
Conclusion
Lonking is well-positioned to benefit from the current upcycle in the construction machinery industry, with strong sales growth, profitability improvements, and market share expansion. The company is expected to achieve revenue and net profit growth at CAGRs of 33.5% and 37.3% respectively during 2016-19. With a Buy rating and target price of HK$4.30, Lonking appears to be a solid investment opportunity.
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