20210216-招银国际-三一国际-00631.HK-Product_mix_enhancement_to_drive_further_valuation_upside_7页_1mb

CMB International Securities | Equity Research | Company Update Summary

Core Content

This report provides an update on SANY International (631 HK), highlighting its growth strategies, earnings forecast, valuation changes, and key financial metrics. The analysis is conducted by Wayne Fung, CFA, and the report maintains a BUY rating with a revised target price of HK$10.50.

Key Growth Drivers

• Mining Trucks: Expected to be a key growth driver due to rising metal prices. SANYI's sales are projected to increase from 1.1k units in 2020E to 2k units in 2021E, with a backlog of 600 units already secured overseas. The 60t model is the main product, with plans to launch 70t, 80t, and 100t models. The revenue contribution from mining trucks is expected to rise from 12% in 2019 to 23% in 2022E.

• Crusher Machinery: A new growth driver, driven by environmental protection policies in China. Machine-made sand output increased from ~60% in 2011 to ~75% in 2019, and the trend is expected to continue. SANYI plans to launch crusher machinery in 2021E, targeting the mid-to-high end segment.

• Robot Business: SANYI has formed a joint venture (SANY Robot Technology) with SANY Group in early 2020, holding a 65% stake. The JV focuses on sensory perception, autonomous decision, and automatic control. It began generating revenue in 2020, contributing 2-3% of total revenue. In Jan 2021, SANYI acquired a 70% stake in SANY Construction Robot (Xian) Research Institute for RMB17.8mn (3.2x 2020 P/B), to expand its construction robot business.

Earnings Forecast

• 2020E Earnings Revised Down: By 6% due to lower government subsidies.
• 2021E and 2022E Earnings Revised Down: By 9% and 8%, respectively, due to lower margins and higher expenses.
• Earnings CAGR: Expected to be 24% for 2021E-2022E, despite the downward revisions.

Valuation

• Target Price (TP): Revised up from HK$5.66 to HK$10.50, based on a 24x 2021E P/E.
• Current Price: HK$8.88, with a +18% upside to the TP.
• Valuation Bands:
  • EV/EBITDA: 24.0x (2020) to 10.4x (2022E).
  • P/E: 38.8x (2018A) to 16.4x (2022E).
  • P/B: 3.6x (2018A) to 2.6x (2022E).
• Share Price Movement: Broke the 8-13x valuation range that had been maintained for four years, driven by rising metal prices and new business initiatives.

Financial Highlights

• Revenue Growth: Steady increase from 4,417 RMB mn (FY18A) to 11,734 RMB mn (FY22E), with 30% growth in 2021E.
• Net Profit: Expected to grow from 600 RMB mn (FY18A) to 1,541 RMB mn (FY22E), with a 24% CAGR.
• EPS: Projected to increase from 0.20 RMB (FY18A) to 0.49 RMB (FY22E).
• Gross Margin: Expected to decrease slightly from 27.6% (2020E) to 26.3% (2022E).
• EBITDA: Projected to increase from 944 RMB mn (2020E) to 2,169 RMB mn (2022E).
• Net Debt / Total Equity: Maintained as Net Cash throughout the forecast period.
• ROE: Projected to rise from 9% (FY18A) to 17% (FY22E).

Shareholding and Performance

• Shareholding Structure:

  • Sany Heavy Equipment: 67.7%
  • Free Float: 32.3%

• Share Performance:

  • 1-Month: 32.5%
  • 3-Months: 111.9%
  • 6-Months: 120.9%
  • 12-Months: Not provided in absolute terms, but the price performance is expected to continue due to the re-rating.

Risk Factors

• Weakness in Mining Activities: Could impact earnings.
• Higher-than-Expected Expenses: For new product introduction, which may affect profitability.

Analyst Certification

• The analyst certifies that the views expressed accurately reflect his or her personal views.
• No part of the analyst's compensation is directly or indirectly related to the specific views in the report.
• The analyst has not traded in the stock covered in the report within 30 days prior to the report's release or within 3 business days after.

CMBIS Ratings

• BUY: Stock with potential return of over 15% over the next 12 months.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.

Disclosures

• The report is for informational purposes only and not investment advice.
• The information is not guaranteed and may be subject to change.
• CMBIS may have conflicts of interest and is not liable for any loss or damage arising from reliance on the report.
• The report is intended solely for major US institutional investors in the U.S.

Conclusion

SANYI is positioned for sustainable growth through the development of new product lines, including mining trucks, crusher machinery, and industrial robots. The BUY rating reflects confidence in the company's future performance and valuation upside, despite recent earnings revisions. The target price increase and positive growth projections indicate a re-rating is expected as the company continues to expand its business and benefit from rising metal prices and environmental policies.