After the positive profit alert released by Zoomlion (1157 HK / 000157 CH, BUY) last week followed by favourable share price reaction, SANY Heavy (600031 CH, BUY, Top pick) and Jiangsu Hengli (601100 CH, BUY) also released positive alert yesterday with net profit in 2019E up 76-93% YoY and 47-53% YoY respectively. The strong earnings growth reaffirms our positive stance on both companies. On the other hand, within our universe, we expect SANYI (631 HK, BUY) will potentially issue positive alert as well, which should serve as near term share price catalyst.
- SANY Heavy’s net profit in 2019E surged 76-93% YoY. According to the Company, the net profit range is RMB10.8-11.8bn, with mid-point of RMB11.3bn slightly above our estimate of RMB11.1bn. This implies 4Q19E earnings of RMB1.64-2.64bn, up 33%-114% YoY, with a mid-point of RMB2.14bn higher than our estimate of RMB1.97bn. The growth was driven by all business lines including excavator, crane, concrete, and pilling machinery. Besides, production efficiency enhancement and operating leverage also helped drive the earnings growth. Going forward, we expect an extended upcycle of excavator, together with the strong cycle of concrete and crane machinery, will continue to offer earnings surprise in 2020E.
- Jiangsu Hengli’s net profit in 2019E grew 47-53% YoY. The net profit range is RMB1.23-1.28bn, with a mid-point of ~RMB1.255bn, largely in line with our forecast of RMB1.27bn and consensus estimates of RMB1.24bn. The result implies 4Q19E net profit of RMB313-363mn, up 167-210% YoY. Significant profit growth in 4Q19E, after a profit decline in 3Q19, was driven by a sharp improvement in product demand that boosted the utilization rate (two shifts per day). We continue to like Hengli’s on-going market share gain on hydraulic cylinder and fast-growing sales of pumps, valves and motors with huge room of import substitution.
- What to expect next? SANYI. We expect SANYI’s net profit to grow 51% YoY to RMB916mn in 2019E, driven by strong delivery of road header and mining truck, as well as operating margin expansion on better gross margin and lower expense ratios. Please refer to our latest company note on SANYI “Raising earnings forecast & TP on new product development”.
