20201030-招银国际-三一重工-600031.SH-3Q20_Net_profit_+57__YoY__Promising_outlook_6页_1mb

SANY Heavy Industry (600031 CH) – Equity Research Summary

Core Content and Overview

SANY Heavy Industry (600031 CH) reported a 3Q20 net profit of RMB3.86bn, representing a 57% YoY increase, aligning with expectations. The company also saw a 55% YoY revenue growth to RMB23.9bn, with the net profit margin slightly expanding to 16.6%. For the 9M20, net profit reached RMB12.4bn, accounting for 83% of the full year estimate, indicating a strong performance and a consistent run rate.

The company's operating cash inflow increased by 33% YoY to RMB11bn, which is in line with the net profit growth. SANY has consolidated its auto financing business in its financial results since 3Q20, following the acquisition of 91.4% interest in SANY Capital for RMB3.38bn in Dec 2019. The auto financing segment contributed RMB104mn in net interest income, with a net interest margin of 8.9% (annualized), though it is not expected to be a major profit driver but rather a tool for boosting machinery sales.

Key Financial Highlights

• Revenue: RMB23.9bn in 3Q20, up 55% YoY.
• Net Profit: RMB3.86bn in 3Q20, up 57% YoY.
• Gross Margin: 30.4% in 3Q20, down 2.8ppt YoY, but offset by improved expense control.
• Selling and Distribution Expenses: Reduced by 1.7ppt YoY to 5.1%.
• R&D Spending: Increased by 51% YoY to RMB1.28bn, reinforcing competitive advantage.
• Operating Cash Inflow: RMB11bn, up 33% YoY.
• Net Profit Margin: Expanded slightly to 16.6%.
• 9M20 Net Profit: RMB12.4bn, contributing 83% of full year estimates.
• Earnings Forecast: Unchanged, with RMB18.417bn expected for FY20 and a target price of RMB34.60 based on 17x 2021E P/E.

Key Ratios and Performance

Metric	FY18A	FY19A	FY20E	FY21E	FY22E
Revenue (RMB mn)	55,822	75,666	94,682	103,771	109,855
Net Profit (RMB mn)	6,116	11,207	14,773	17,225	18,417
EPS (RMB)	0.79	1.36	1.75	2.04	2.18
P/E (x)	33.0	19.3	15.0	12.8	12.0
P/B (x)	6.5	5.0	4.0	3.2	2.7
ROE (%)	21.5	29.5	29.5	27.8	24.6

Key Assumptions and Revenue Breakdown

Business Segment	FY20E (RMB mn)	FY21E (RMB mn)	FY22E (RMB mn)
Concrete Machinery	27,064	30,853	33,321
Excavator	37,672	40,309	41,921
Crane Machinery	16,711	18,549	20,033
Piling Machinery	6,107	6,413	6,605
Earth Moving Machinery	2,594	2,724	2,805
Other Machinery	2,707	3,005	3,155
Other Business	1,827	1,918	2,014
Total Revenue	94,682	103,771	109,855

Revenue Growth Projections:

• Concrete Machinery: 16.7% in FY20E
• Excavator: 36.4% in FY20E
• Crane Machinery: 19.5% in FY20E
• Piling Machinery: 27.0% in FY20E
• Earth Moving Machinery: 20.8% in FY20E
• Other Machinery: 25.0% in FY20E
• Other Business: 5.0% in FY20E

Key Risks

1. Overseas Business Risk: Due to the ongoing pandemic.
2. Construction Activity Slowdown: Could impact demand for machinery.
3. Financing Business Expansion Risk: Potential challenges in scaling and profitability.

Analyst Recommendation

• Rating: BUY
• Target Price: RMB34.60
• Upside/Downside: +33%
• Current Price: RMB26.12

Shareholding and Performance

• Shareholding Structure:

  • SANY Group: 30.2%
  • Hong Kong CCASS: 9.9%
  • Liang Wengen: 2.8%
  • Others: 57.1%

• Share Performance:

  • 1-Month: +2.4% (Absolute), -1.0% (Relative)
  • 3-Month: +20.6% (Absolute), +16.3% (Relative)
  • 6-Month: +28.1% (Absolute), +4.1% (Relative)

Conclusion

SANY Heavy Industry continues to demonstrate strong growth in revenue and net profit, supported by effective cost management and strategic R&D investment. The consolidation of the auto financing business is expected to aid in driving machinery sales, although it may not be a significant profit contributor. The company is currently rated BUY, with a target price of RMB34.60, suggesting a positive outlook for future performance. Despite the risks associated with overseas operations and market conditions, the company's fundamentals remain robust, with consistent earnings growth and a favorable financial position.