20210111-招银国际-三一重工-600031.SH-Earnings_upside_+_multiple_expansion_6页_1mb

SANY Heavy Industry (600031 CH) Company Update Summary

Core Content

This report provides an equity research update on SANY Heavy Industry (600031 CH), highlighting the company's potential for re-rating and growth. CMB International Securities has revised its earnings forecast upwards and increased its target price, reflecting confidence in the company's long-term prospects.

Main Points

1. Earnings Upside and Valuation Expansion

• Earnings Forecast Revision: CMB has raised its earnings forecast for 2020E-22E by $6-14%$.
• Target Price (TP): Revised target price is RMB49.50, up from RMB34.60, based on a 22x 2021E P/E ratio and a $22%$ earnings growth in 2021E.
• Current Price: RMB40.37, with a potential upside of +23%.
• Market View: The report suggests that SANY is transitioning from a cyclical growth stock to a growth stock, which may lead to a re-rating opportunity.

2. Digital Transformation

• Intelligent Manufacturing: SANY has been implementing a digital transformation strategy for years, improving production efficiency.
• Revenue per Employee: In 2019, SANY's revenue per employee reached US$590k, surpassing Caterpillar's US$530k.
• Future Outlook: With more light tower plants and continued digital transformation, SANY's global competitiveness is expected to improve.

3. Overseas Expansion

• Current Overseas Revenue: Overseas revenue accounted for less than 20% of total revenue between 2019 and 1H20.
• Potential Growth: SANY is expected to expand significantly in overseas markets, which will become a key revenue driver.
• Impact on Earnings: Increased overseas exposure is anticipated to smooth earnings trends and improve valuation.

4. Excavator Demand

• 2020 Sales Growth: Excavator sales in China rose by $39%$ YoY to 328k units in 2020, a record high.
• 2021E Forecast: Revised excavator demand growth forecast to $10%$ from $3%$.
• 1Q21E Surprise: The report anticipates a strong upside in excavator demand in 1Q21E, which could act as a near-term catalyst.

5. Financial Highlights

• Revenue Growth: Projected revenue growth from 2020E to 2022E is $29.1%$, $14.6%$, and $7.8%$ respectively.
• Net Profit Growth: Net profit is expected to grow by $22.1%$ in 2021E and $10.0%$ in 2022E.
• EPS Growth: EPS is projected to increase from RMB2.25 in 2021E to RMB2.48 in 2022E.
• Valuation Metrics:
  • P/E ratio: Increased from 17x to 22x in 2021E.
  • P/B ratio: Decreased from 10.0 to 4.0 over the period.
  • EV/EBITDA: Declined from 37.9 to 13.7.
  • ROE: Ranged from 21.5% in 2018A to 26.8% in 2022E.
  • ROA: Ranged from 9.3% in 2018A to 14.8% in 2022E.

6. Key Risks

• Pandemic Impact: Risk of disruption in overseas operations.
• Construction Slowdown: Potential slowdown in construction activities could affect demand.
• Financing Business Expansion: Risks associated with expanding into the financing sector.

Key Information

• Stock Rating: BUY, reiterate.
• Share Performance:
  • 1-month return: 28.2%
  • 3-month return: 62.2%
  • 6-month return: 95.6%
• Market Cap: RMB342,277 million.
• Shareholding Structure:
  • SANY Group: 30.2%
  • Hong Kong CCASS: 9.9%
  • Liang Wengen: 2.8%
  • Others: 57.1%

Revenue Breakdown (2020E-22E)

EBITDA and Net Profit

Key Ratios

Conclusion

SANY Heavy Industry is positioned for continued growth, driven by structural demand in the excavator market, digital transformation, and overseas expansion. The revised target price and earnings forecast reflect optimism about the company's future performance. While the outlook is positive, key risks such as the impact of the pandemic, construction activity slowdown, and financing business expansion remain. The report reiterates a BUY rating with a target price of RMB49.50.