Sales volume of excavators by major producers in Apr surged 60% YoY, which is impressive and above market expectations. Going forward, we expect the sales growth in May and Jun will likely stay above 60%, given the encouraging increase in excavators’ utilization hours and Jiangsu Hengli’s 70% YoY growth of the planned production of hydraulic cylinders in May. We see upside to our full year excavator sales growth estimate of 12% (for the industry as a whole). Reiterate BUY on SANY Heavy (600031 CH, BUY, TP: RMB23.5, Top pick) and Jiangsu Hengli (601100 CH, BUY, TP: RMB85). Jiangsu Hengli will join CMBI Corporate Day this Friday (15 May). Please contact your sales representative for details.
- Strong excavator sales growth in Apr. According to CCMA, sales volume of excavator by 25 major producers in Apr surged 60% YoY to 45,426 units. Sales volume in China jumped 65% YoY to 43,371 units, while export volume increased by 1% YoY to 2,055 units. In 4M20, sales volume increased 10.5% YoY to 114k units, representing 42.1% of our full year estimates (Run rate in 4M19: 42.7%). While the run rate is similar to that in last year, we expect the potential strong growth in May/Jun will offer upside to our full year estimates.
- Excavator utilization hours +15% YoY in Apr. Utilization hours reached 159 in Apr (+15% YoY), a significant improvement from a decline in 1Q20. Key provinces such as Shandong, Guangxi, Guangdong and Henan all reported utilization increase YoY. Hubei also saw significant improvement in utilization in Apr, despite a 17% YoY reduction due to late recovery. Overall speaking, the increase in utilization indicates significant improvement in construction activities and implies strong upcoming demand for excavator going forward.
- Wheel loader sales +31% in Apr. Sales volume of wheel loaders by 23 major producers in Apr grew 31% YoY to 16,666 units. Sales volume in China increased by 35% YoY to 14,662 units, while export volume increased by 9% YoY to 2,004 units. In 4M20, sales volume decreased 7% YoY to 40.9k units, representing 33% of our full year estimates (Run rate in 4M19: 35.6%).
- Lonking (3339 HK, HOLD, TP: HK$2.3) will see potential upside in the near term. While we maintain our cautious stance on Lonking due to concerns on the medium-term competitiveness of wheel loader, we expect the strong construction activities will boost the demand for wheel loader in the foreseeable future. Besides, Lonking proposed generous dividend payment after the release of 2019 results. At the current price of HK$2.66, the stock offers 9.5% yield. The ex-dividend date will be on 1 Jun 2020.
