20210125-招银国际-中联重科-000157.SZ-More_drivers__More_sustainable__Higher_earnings_est.___TP_6页_1mb

Zoomlion Heavy Industry - A (000157 CH) Company Update Summary

Core Content and Main Points

Zoomlion Heavy Industry - A (000157 CH) is a Chinese capital goods company that has seen significant growth in recent years. The company is currently rated BUY by CMB International Securities, with a target price of RMB17.8, up from RMB9.56. This reflects a +52% increase from the current price of RMB11.69. The updated target price is based on a 16x 2021E P/E multiple, indicating a higher growth expectation compared to the previous 10x multiple.

Key Drivers for the Buy Rating

1. High Certainty on Concrete Machinery Growth in 2021E:

   • The industry growth rate is expected to reach 15% in 2021E, driven by 10-20% growth in pump trucks and 20% growth in mixer trucks.
   • Infrastructure projects are expected to begin construction in 2021E following the completion of earthworks in 2020E.
   • The implementation of National Emission Standard (NES) VI in July 2021 will further boost replacement demand.

2. Explosive Growth in Excavator Sales:

   • Zoomlion delivered 7k units of excavators in 2020E, generating RMB2.5bn revenue.
   • The company targets 12-14k units of excavator sales in 2021E, a substantial YoY growth.
   • Zoomlion is leveraging its existing sales network for concrete machinery and has begun delivering large size excavators (45-48t) in 2021E.
   • The company aims to become a top 5 player in China within 3 years and top 3 player within 5 years.

3. Resilient Margin Outlook:

   • Zoomlion achieved a gross margin improvement in 4Q20E, aided by cost control.
   • Going forward, the company expects resilient margins across all business lines.
   • Growing sales volume and digital transformation are expected to drive operating leverage, resulting in higher operating margins.

Key Catalysts

• Strong machinery sales in 1Q21E
• Completion of share placement in 1Q21E

Earnings Summary (YE 31 Dec)

Valuation Highlights

• Earnings Growth Forecast:

  • 2021E: 28% net profit growth, 20% EPS growth
  • 2022E: 14% net profit growth, 12% EPS growth
  • EPS CAGR: 16% in 2021E-22E

• Target Price: RMB17.8 (up from RMB9.56)

• P/E Ratio: 16x (up from 10x)

• P/B Ratio: 1.5 (down from 2.5)

• Yield: 4.3% (up from 2.1%)

• ROE: 17.8% (up from 17.2%)

Key Business Segments

Key Ratios

Risk Factors

• Unexpected weakness in infrastructure spending
• Slow recovery of property construction
• Risks associated with new business expansion

Shareholding Structure

Share Performance

Market Cap and Financials

Auditor and Related Reports

• Auditor: KPMG
• Related Reports:
  1. Zoomlion (000157 CH, BUY) - Margin risk priced in; Good buying opportunity - 3 Nov 2020
  2. Zoomlion (000157 CH, BUY) - Profit surprise in 3Q20 reaffirms our positive view - 15 Oct 2020
  3. China Construction Machinery & HDT Sector - Raise industry sales forecast in 2020E-21E; Solid upcycle - 30 Jun 2020

Huge Potential in Aerial Working Platforms (AWP)

• Zoomlion achieved 100% YoY growth in AWP sales in 2020E.
• The company has a competitive edge in boom lifts and is expected to achieve higher ASP than competitors.
• Strong industry growth potential is anticipated, with continued enhancement in product development and sales strategy.

Summary of Key Financials

• Net Profit Growth: 60-72% YoY in 2020E, with a forecast of 28% / 14% in 2021E / 2022E.
• Earnings Growth: 20% / 12% in 2021E / 2022E.
• EPS Growth: 16% CAGR in 2021E-22E.
• Share Performance: Strong growth in both absolute and relative terms over the past 6 months.
• Valuation: The company is undervalued relative to its earnings potential, with a higher P/E ratio compared to previous years.

Conclusion

Zoomlion is positioned for continued growth across multiple segments, including concrete machinery, excavators, and aerial working platforms. The company's resilient margins, strong sales performance, and strategic expansion goals support the BUY rating. The updated target price reflects a more optimistic outlook on the company's future earnings and valuation. Investors are advised to consider the risks associated with the industry and the company's expansion plans.