We forecast SANYI’s new products such as pure-water hydraulic support and off-highway wide body mining trucks will see meaningful delivery in 2020E. These, together with the solid backlog of large-size port equipment, will serve as earnings growth drivers in 2020E. We continue to like SANYI’s on track new product development and diversification. We raise our 2020E/21E earnings forecast by 4% and 10%, mainly due to higher sales projection on mining truck and large-size port machinery. We raised our TP to HK$5.6 from HK$5.0, after rolling over the valuation base from 2019E to 2020E (based on unchanged 2x P/B multiple, on the back of 15-17% ROE in 2020E-21E). Reiterate BUY.
- Explosive growth of wide body mining trucks sales in 2020E. Wide body trucks can be widely applied in various mine operations. SANYI’s mainstream product is SKT90s with rated load of 60-tonne. SANYI targets to penetrate to the customers who are inefficiently using traditional dump trucks in mine operation at present. We estimate SANYI delivered 400 units of wide body truck in 2019E with ASP of RMB650-750k, and we forecast SANYI to deliver 900 units in 2020E, up 125% YoY. SANYI has already established 1,200 units of annual production capacity for wide body trucks. In the long term, SANYI targets to boost the annual capacity to >4k units.
- Pure water hydraulic support a key driver in the coal mining equipment segment. SANYI targets to deliver two sets of pure water hydraulic support to its customers in 2020E, which we estimate will contribute RMB500mn revenue and become a key driver in the combined coal mining unit (CCMU) segment. For road header, we expect the growth will be driven by ASP increase boosted by the continuous product upgrade.
- Growth visibility on port equipment. We expect SANYI’s large-size port machinery to continue to benefit from the trend of port automation. We forecast the backlog on hand should support 50% revenue growth in 2020E.
- Major risk factors: (1) decline in coal mining activities; (2) increase in component cost; (3) weaker-than-expected international trade.
