20201023-招银国际-三一国际-00631.HK-3Q_earnings_below_expectation_on_higher_expense_but_growth_remains_solid_6页_1mb

SANY International (631 HK) Summary

Core Content

SANY International (631 HK), a subsidiary of China Merchants Bank, reported its third-quarter 2020 (3Q20) results, showing a net profit increase of 11% YoY to RMB264 million. However, this growth was slightly below expectations due to higher expenses, primarily driven by increased R&D and selling and distribution costs. Despite this, the company demonstrated strong revenue growth, with a 29% YoY increase to RMB1.69 billion. The positive trends in revenue and gross margin expansion were noted as encouraging signs for the company's future performance.

In the first nine months of 2020 (9M20), SANYI's revenue and net profit grew by 26% and 14%, respectively, reaching RMB5.5 billion and RMB902 million. The company's strategic focus on new and intelligent products remains a key driver of its growth, with the development of electronic control units and breaker machinery expected to further enhance its market position.

Main Points

• Revenue Growth:

  • 3Q20: RMB1.69 billion (+29% YoY)
  • 9M20: RMB5.5 billion (+26% YoY)

• Net Profit Growth:

  • 3Q20: RMB264 million (+11% YoY)
  • 9M20: RMB902 million (+14% YoY)

• Gross Margin:

  • 3Q20: 29.5% (up 2ppt QoQ)
  • 9M20: 27.8% (up from 27.8% in 9M19)

• Earnings Forecast Adjustment:

  • Earnings forecast for 2020E-22E trimmed by 4-5% due to higher expense assumptions
  • Target Price adjusted from HK$5.89 to HK$5.66

• New Product Development:

  • Electronic control unit development: 6 sets won in a tender, aiming to deliver 30 sets in 2021E
  • Breaker machinery: Expected to be launched in 2021E, targeting the mid-to-high end market

• Market Share:

  • Road header market share increased to 60% in 9M20 from 53% in 2019

• Orders and Backlog:

  • Pure water hydraulic support orders: RMB275 million and RMB173 million expected to be delivered in Nov 2020 and Mar 2021E
  • Large-size port machinery backlog: RMB1.5 billion (China: RMB800-900 million; Overseas: RMB700 million)

• Future Expectations:

  • Gross margin expected to expand to 20% in 2021E, driven by high-margin overseas orders
  • Light tower plant construction expected to reduce production costs and improve product quality in the long run

Key Information

• Target Price: HK$5.66 (Previous: HK$5.89)
• Current Price: HK$4.73
• Price Target Upside/Downside: +20%
• Dividend Per Share (DPS): RMB0.215 for 2022E
• Book Value Per Share (BVPS): RMB3.19 for 2022E
• Earnings Per Share (EPS): RMB0.538 for 2022E

Financial Highlights

• Revenue Projections (FY18A - FY22E):

  • FY18A: RMB4,417 million
  • FY19A: RMB5,656 million
  • FY20E: RMB7,184 million
  • FY21E: RMB9,504 million
  • FY22E: RMB11,095 million

• Net Profit Projections:

  • FY18A: RMB600 million
  • FY19A: RMB920 million
  • FY20E: RMB1,063 million
  • FY21E: RMB1,366 million
  • FY22E: RMB1,667 million

• Key Ratios:

  • Gross margin: 29% (3Q20)
  • EBITDA margin: 21%
  • Net profit margin: 15%
  • ROE: 8% (2022E)
  • ROA: 18% (2022E)

Risks

• Failure to contain the impact of the COVID-19 outbreak in overseas markets
• Decline in mining activities
• Higher-than-expected expenses for the development of new products

Shareholding and Market Data

• Shareholding Structure:

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

• Stock Data:

  • Market Cap: HK$14,759 million
  • Average 3-month total return: HK$22 million
  • 52-week High/Low: HK$5.22 / HK$3.39

• Share Performance:

  • 1-month: +3.3%
  • 3-month: +8.9%
  • 6-month: +14.8%

Analyst Ratings

• CMBIS Rating: BUY
• Price Target: HK$5.66
• Analyst: Wayne Fung, CFA
• Contact: (852) 3900 0826, waynefung@cmbi.com.hk

Conclusion

Despite the 3Q20 earnings being below expectations due to higher expenses, SANYI's strong revenue growth and gross margin expansion indicate a solid growth story. The company is actively investing in new product development, which is expected to drive future performance. The analyst maintains a BUY rating with a revised target price of HK$5.66, reflecting the adjusted earnings forecast and unchanged P/E multiple. The company's strategic initiatives and market expansion efforts continue to position it for long-term growth.