Jiangsu Hengli Hydraulic (601100 CH) Summary
Core Content
Jiangsu Hengli Hydraulic, a company listed on the Shanghai Stock Exchange, reported its third-quarter 2022 (3Q22) financial results, showing a rebound in revenue and net profit. However, the recovery in the core business appears weaker than expected, and the company's earnings outlook has been revised downward. The report provides an analysis of the company's financial performance, production plans, and market outlook, alongside key financial metrics and valuation data.
Key Financial Highlights
- Revenue: 3Q22 revenue grew by 4% YoY to RMB 2bn, which is an improvement compared to the -25% YoY in the first half of 2022.
- Net Profit: 3Q22 net profit rose 20% YoY to RMB 692mn, primarily driven by net finance income from FX gains (RMB 170mn).
- Core Profit: Estimated core profit (excluding FX gains) dropped ~9% YoY.
- EBIT: Slightly declined 1.6% YoY to RMB 576mn.
- Gross Margin: Narrowed 2.1ppt YoY but expanded 1.7ppt QoQ.
- Operating Cash Inflow: Dropped 59% YoY to RMB 377mn.
- 9M22 Net Profit: Decreased 11% YoY to RMB 1.75bn.
Production Plan (October 2022)
- Hydraulic Cylinder: Scheduled production of 56k units, a ~15% YoY decline.
- Small/medium-large size pump: Production declined by >50% YoY due to inventory clearance.
- Motor (for AWP): Production decreased by 15% YoY.
- Non-standardized cylinders: Production increased by 7% YoY to 16k units.
Industry Recovery Outlook
- Excavator Sales: Early signs of recovery are observed, with potential for improved performance in 3Q22.
- Export Demand: Strong export is expected to exceed expectations due to overseas mining activities.
- China Sales Data: Upcoming sales data may beat expectations due to a low base and policy easing.
- Cost Trends: Key costs such as steel plate and freight rates are declining, offering potential margin improvements.
Valuation and Earnings Forecast
- Earnings Forecast Revision: Revised down 2022E/23E earnings by 9%/8% due to more conservative assumptions on sales volume.
- Target Price (TP): Revised from RMB64.00 to RMB58.00.
- P/E Ratio: Maintained at 30x for 2022E, equivalent to the 3-year historical average.
- P/B Ratio: Reduced from 9.2x to 4.5x over the forecast period.
- EV/EBITDA: Ranged from 18.6x to 23.1x across FY20A to FY24E.
Earnings Summary (FY20A to FY24E)
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue (RMB mn) |
7,855 |
9,309 |
8,378 |
9,008 |
9,714 |
| YoY Growth (%) |
45.1 |
18.5 |
-10.0 |
7.5 |
7.8 |
| Net Income (RMB mn) |
2,254 |
2,694 |
2,536 |
2,844 |
3,137 |
| EPS (RMB) |
1.73 |
2.06 |
1.94 |
2.18 |
2.40 |
| YoY Growth (%) |
73.9 |
19.5 |
-5.9 |
12.2 |
10.3 |
| Consensus EPS (RMB) |
NA |
NA |
1.87 |
2.15 |
2.58 |
| P/E (x) |
30.0 |
25.1 |
26.7 |
23.8 |
21.5 |
| P/B (x) |
9.2 |
7.4 |
6.3 |
5.3 |
4.5 |
| Yield (%) |
1.2 |
1.4 |
1.3 |
1.5 |
1.6 |
| ROE (%) |
35.0 |
32.6 |
25.4 |
24.2 |
22.7 |
| Net Debt/Equity (%) |
Net Cash |
Net Cash |
Net Cash |
Net Cash |
Net Cash |
Key Risks
- Upside Risk: Strong recovery of excavator demand in China.
- Downside Risk: Weak construction activities and risk of overseas demand.
Share Performance
- Market Cap: RMB 67,592 mn.
- Average 3-Month Turnover: RMB 262.19 mn.
- 52-Week High/Low: RMB 90.67 / RMB 41.08.
- Total Issued Shares: 1,305 mn.
Shareholding Structure
| Holder |
Percentage |
| Wang's family |
71.0% |
| CCASS (Hong Kong) |
10.0% |
| Others |
19.0% |
Share Performance (Bloomberg)
| Period |
Absolute (%) |
Relative (%) |
| 1-Month |
9.1 |
12.4 |
| 3-Month |
-6.0 |
6.4 |
| 6-Month |
13.8 |
22.0 |
Financial Summary
- Cash Flow from Operations: Increased to RMB 3,305 mn in FY22E.
- Net Capex on PP&E: Declined to -600 mn in FY22E.
- Equity Financing: No activity in FY22E.
- Cash at End of Year: Increased to RMB 8,214 mn in FY24E.
Balance Sheet Summary
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Non-Current Assets |
3,025 |
3,186 |
3,370 |
3,517 |
3,420 |
| Current Assets |
7,595 |
9,146 |
10,454 |
12,560 |
14,730 |
| Current Liabilities |
2,590 |
2,691 |
2,595 |
2,885 |
2,811 |
| Non-Current Liabilities |
679 |
402 |
402 |
402 |
402 |
| Equity |
7,352 |
9,239 |
10,827 |
12,790 |
14,937 |
Key Ratios
| Ratio |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Gross Margin (%) |
44.1 |
44.0 |
41.4 |
43.1 |
42.9 |
| EBIT Margin (%) |
34.2 |
32.2 |
28.2 |
30.8 |
30.6 |
| Net Profit Margin (%) |
28.8 |
29.0 |
30.3 |
31.6 |
32.4 |
| ROA (%) |
23.7 |
23.5 |
19.4 |
19.0 |
18.3 |
| ROE (%) |
35.0 |
32.6 |
25.4 |
24.2 |
22.7 |
| BVPS (RMB) |
5.60 |
7.04 |
8.26 |
9.76 |
11.40 |
| DPS (RMB) |
0.60 |
0.73 |
0.68 |
0.76 |
0.84 |
CMBIGM Ratings
- BUY: Potential return of over 15% over next 12 months.
- HOLD: Potential return of +15% to -10% over next 12 months.
- SELL: Potential loss of over 10% over next 12 months.
- NOT RATED: Not rated.
- OUTPERFORM: Industry expected to outperform the market.
- MARKET-PERFORM: Industry expected to perform in-line with the market.
- UNDERPERFORM: Industry expected to underperform the market.
Analyst Certification
The analyst certifies that:
- All views expressed accurately reflect personal views.
- No compensation was directly or indirectly related to the views expressed.
Important Disclosures
- The report is not investment advice and should not be relied upon for investment decisions.
- CMBIGM may have conflicts of interest due to market-making activities.
- The report is for intended recipients only and may not be reproduced without consent.