20211011-招银国际-恒立液压-601100.SH-Short-term_impact_of_power_outage__Wait_for_more_positive_signals_5页_1mb

Summary of Jiangsu Hengli Hydraulic (601100 CH) - CMB International Securities Company Update

Core Content

This report provides an update on Jiangsu Hengli Hydraulic (601100 CH) from CMB International Securities, outlining the short-term impact of a power outage on production, revised earnings forecasts, and new business initiatives. The report also includes financial summaries, key ratios, and valuation metrics, with a recommendation to maintain a HOLD rating.

Main Points

• Short-term Impact:

  • The company's October production schedule is affected by the current power shortage, leading to a slower-than-expected sales recovery in 4Q21E.
  • Earnings for 2021E are trimmed by 8%, and forecasts for 2022E and 2023E are revised down by 4% each due to conservative margin assumptions.
  • The target price (TP) is revised from RMB103 to RMB86, based on a 42x 2021E P/E ratio, which is at the historical average.

• Production Outlook:

  • Scheduled production in October for excavator hydraulic cylinders is 66k units, a 5% increase YoY but 6% decrease MoM.
  • Large & medium size pump/valve production growth is 8% and 19% YoY, respectively, which is slower than expected.
  • These conservative production plans are attributed to the uncertainty caused by the power suspension.

• Earnings Forecast:

  • 3Q21E earnings are expected to slightly drop by 3% YoY to RMB471mn, due to margin contraction offsetting revenue growth of 13%.
  • The company's net profit is projected to be RMB2,716mn for 2021E, RMB3,237mn for 2022E, and RMB3,652mn for 2023E.

• New Business Initiatives:

  • Hengli is planning a RMB5bn fund-raising to support capacity expansion in Mexico and the development of a new linear actuator for electric cylinders.
  • These initiatives are seen as positive due to the company's strong track record in import substitution for hydraulic products.

• Risks and Opportunities:

  • Upside Risks:
    • Rapid recovery of power supply.
    • Better-than-expected demand for excavators.
  • Downside Risks:
    • Continuous slowdown in construction activities.
    • Longer-than-expected power suspension.
    • Potential challenges in overseas expansion.

Key Financial Information

Revenue (RMB mn)

Net Income (RMB mn)

EPS (RMB)

Valuation Metrics

Shareholding and Performance

• Shareholding Structure:

  • Wang's family: 71.0%
  • CCASS (Hong Kong): 10.0%
  • Others: 19.0%

• Share Performance (Bloomberg):

  • 1-month: -10.4%
  • 3-months: +18.0%
  • 6-months: -9.2%

• Market Cap (RMB mn): RMB109,089

• Average 3-month Turnover (RMB mn): RMB937

• 52-week High/Low (RMB): 137.66 / 67.50

Analyst Recommendations

• Rating: HOLD
• Target Price: RMB86.00 (Previous: RMB103.00)
• Up/Downside: +3%
• Current Price: RMB83.57

Key Ratios

Financial Summary Highlights

• Cash Flow from Operation (RMB mn): RMB1,660 (FY19A), RMB1,981 (FY20A), RMB2,818 (FY21E), RMB3,552 (FY22E), RMB3,852 (FY23E)
• Cash at the end of the year (RMB mn): RMB2,343 (FY19A), RMB2,777 (FY20A), RMB4,033 (FY21E), RMB6,056 (FY22E), RMB8,310 (FY23E)
• Equity: RMB5,614 (FY19A), RMB7,352 (FY20A), RMB9,260 (FY21E), RMB11,499 (FY22E), RMB13,959 (FY23E)

Conclusion

Jiangsu Hengli Hydraulic is currently facing a short-term challenge due to the power outage, which has impacted production and earnings forecasts. Despite this, the company is pursuing new business initiatives that aim to diversify its product offerings and expand internationally. The revised target price reflects a more conservative outlook on the company's future performance. While there are upside risks, such as a quick recovery of power and higher-than-expected demand, there are also significant downside risks, including prolonged power suspension and challenges in overseas expansion. The HOLD rating suggests that the company's stock is expected to perform in-line with the market over the next 12 months.