In the post-result NDR, SANYI showed confidence of achieving 20% revenue growth in 2020E, after taking into consideration the impact of COVID-19 which mainly hit the near-term demand for the small-size port equipment. Meanwhile, mining equipment demand has been improving in China, with latest order intakes saw YoY increase. We remain confident on SANYI’s growth strategy through the introduction of massive brand-new and advanced products. We fine-tuned our 2020E/21E earnings forecast by -5%/-6% after incorporating the impact of COVID-19 and latest margin trend. Our TP is revised from HK$6.24 to HK$5.92, based on 15x 2020E P/E (unchanged multiple), on the back of earnings growth of 20%/33% in 2020E/21E.
- Key highlights on 2019 results. Revenue increased 28% YoY while net profit grew 51% YoY to RMB920mn, helped by two non-operating items: (1) 41% YoY increase in other income (mainly government grant); (2) RMB83mn fair value gains on financial assets. Gross margin of 29.5% was slightly lower than expectation as it implied 4Q19 gross margin of ~26%.
- Impact of COVID-19 mainly on small-size port equipment. SANYI revealed in the post-result conference call that there is currently delay in overseas orders for a period of 2-3 months due to the pandemic in the overseas. However, the impact to the Company as a whole is limited as <20% of revenue generated from overseas. On the other hand, apart from small-size port equipment that requires imported engines and gearboxes, other products do not encounter any component shortage at present.
- Solid backlog. Backlog for port equipment amounted to RMB1.8bn, including RMB1.5bn on large-size port equipment (covering period in 2020E and 1H21E) and RMB300mn on small-size port equipment. Besides, backlog for mining equipment amounted to RMB1bn, comprising RMB800mn on CCMU, RMB100mn on road header and RMB100mn on wide-body trucks. What’s more, SANYI just won a tender to supply CNH Energy a set of pure water hydraulic support with a contract value of RMB275mn. Gross margin of this product is expected to be higher than the Company’s average. SANYI is confident of gaining more contracts this year.
- Major risk factors: (1) failure to contain COVID-19; (2) decline in coal mining activities; (3) increase in component cost; (4) weaker-than-expected international trade.
