China HDT sales in Apr recorded an explosive growth, surging 43% YoY and 42% MoM, which is substantially above expectations. We have conviction BUY on Sinotruk (3808 HK, TP: HK$20.5) and Weichai Power (2338 HK, TP: HK16.0 / 000338 CH, TP: RMB14.3) as market has yet to price in such robust demand. Besides, post-1Q result remarks from major construction machinery makers also point to strong demand for the full year. All these reaffirmed our bullish stance on the infrastructure-driven story. Reiterate BUY on SANY Heavy (600031 CH, TP: RMB23.5), Jiangsu Hengli (601100 CH, TP: RMB85) and Zoomlion (1157 HK, TP: HK$6.90 / 000157 CH, TP: RMB6.85), as we expect strong data point of excavator sales will be near term catalyst. In addition, we revised up our earnings forecast and TP on Zhejiang Dingli (603338 CH, BUY, TP: RMB94), following the release of strong 4Q19 and 1Q20 results.
- China HDT sales +43% in Apr a surprise. HDT sales in Apr reached 170k units, marking a record high, according to Cvworld. Based on our understanding, overall demand was strong in Apr for all major types of HDT, such as dump truck, logistic truck and tractors. Besides, preliminary data shows that FAW, the leading player, reported 89% YoY sales growth. We believe Weichai is a major beneficiary given that FAW is a major customer. In 4M20, HDT sales in China reached 444k units, stable YoY. We expect the sales momentum to continue in May, as we see strong demand for construction trucks driven by infrastructure spending.
- Key highlights on 1Q20 results for construction machinery, HDT and component makers. Dingli, Zoomlion and Hengli reported surprising earnings growth despite the impact of COVID-19 and lockdown. Weichai, SANY Heavy and Sinotruk Ji’nan Truck (000951 CH, NR, major subsidiary of Sinotruk) reported earnings decline but largely within our expectation. Most importantly, majority of these players maintained strong balance sheet and generated decent operating cash inflow in 1Q20. While Weichai and SANY Heavy reported negative operating cash flow, we expect improvement in 2Q given the potential strong demand (please see the results reviews for selected individual companies in this report).
- Upbeat post-1Q result comments from major players. SANY Heavy’s excavator sales reported growth 4M20, implying very strong sales in Mar-Apr. SANY Heavy expects its excavator sales growth will potentially reach 20-30% this year (above our estimate of 16%). Besides, SANY Heavy revealed that concrete machinery sales started to see recovery in late Mar, and reached a record high in Apr. Full year concrete machinery sales growth is expected to reach 15-20% for the industry as a whole. SANY Heavy expects gross margin expansion this year. On the other hand, Zoomlion revealed that current demand is already higher than last year. The Company expects the overall demand for construction machinery is 2Q to be doubled from 1Q. Demand for tower crane has returned to normal since late Mar. Both companies are confident of achieving market share gain going forward.
