20201211-招银国际-恒立液压-601100.SH-Solid_share_gain_story_for_both_short_and_long-term__Raise_earnings_est.___TP_5页_985kb

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

Core Content

Jiangsu Hengli Hydraulic (601100 CH) is a company in the hydraulic components industry, with a strong growth trajectory and strategic positioning in the high-end market. CMB International Securities has upgraded its earnings estimates and target price (TP) for the company, citing robust demand and structural growth drivers.

Main Points

• Strong Growth Outlook: CMBIS forecasts Hengli's revenue and net income to grow significantly over the next few years, with earnings expected to exceed industry consensus.
• Earnings Estimate Revision: The earnings forecast for 2020E-22E has been revised up by 8–10%, which is 9–10% above the consensus.
• Target Price Increase: The TP has been raised to RMB114.4 from RMB87, based on a 55x 2021E P/E ratio, a 30% premium over the historical average of 42x.
• Demand Drivers:
  • Short-term: A 20% MoM increase in hydraulic cylinder output in December 2020 suggests strong demand.
  • Medium-term: Increasing market share of Chinese excavator manufacturers, which are Hengli's major customers, is expected to drive Hengli's share gains.
  • Long-term: The trend of import substitution in pump & valves and other products is a key growth factor.
• Market Share Projections: Hengli's market share in hydraulic cylinders is projected to rise from 52% in 2020E to 61% in 2022E.
• Revenue Breakdown: Hydraulic cylinders for excavators and pumps & valves are the primary contributors to revenue, with increasing shares in 2021E and 2022E.
• Valuation Metrics:
  • P/E ratio is expected to increase from 46.7 in 2021E to 40.1 in 2022E.
  • P/B ratio is projected to decline from 14.1 in 2021E to 11.5 in 2022E.
• Key Risks:
  • Slowdown in construction activities.
  • Risks associated with overseas expansion.
  • Increase in raw material costs.

Key Financial Highlights

Revenue and Profit Drivers

• Excavator Demand: Excavator sales in 2021E are expected to grow by ~40% compared to 2020, driven by infrastructure spending and the trend of substituting labor with excavators.
• Hengli's Growth: A single-digit increase in excavator demand could lead to 20% revenue growth for Hengli in 2021E, due to the high installation ratios of its customers.
• Segment Growth: Hydraulic cylinders for excavators and pumps & valves are expected to show significant growth, while other segments remain relatively stable.

Key Ratios

Shareholding and Performance

• Shareholding Structure:
  • Wang's family: 71.0%
  • CCASS (Hong Kong): 10.0%
  • Free float: 19.0%
• Share Performance:
  • 1-month: +9.6%
  • 3-month: +48.1%
  • 6-month: +93.2%

Investment Recommendations

• Rating: BUY (Maintain)
• Target Price: RMB114.40 (up from RMB87)
• Up/Downside: +16% from current price of RMB98.43

Conclusion

Jiangsu Hengli Hydraulic is well-positioned for growth in the hydraulic components sector, with strong short-, medium-, and long-term drivers. The company's strategic focus on import substitution and its growing market share in excavator hydraulic cylinders make it an attractive investment. However, potential risks such as construction slowdown, overseas expansion challenges, and rising raw material costs should be monitored. CMBIS believes the valuation premium is justified due to improved earnings visibility and structural growth trends.