Reiterate BUY. The acceleration of excavator sales growth in Sep reaffirms our positive view on the industry upcycle. Besides, we remain confident on SANY’s market share gain story, on the back of strong R&D and management execution. We raised our 2020E-22E earnings forecast for SANY by 5-6%, after incorporating higher sales volume assumptions. We raised our TP from RMB26.4 to RMB34.6, after rolling over our target P/E multiple (17x) to 2021E P/E, on the back of 17% estimated earnings growth in 2021E.
- Industry sales growth of excavator accelerated in Sep. According to the latest figure from CCMA, excavator sales volume by major players in China surged 65% YoY to 26k units in Sep, the highest growth rate since May. Large / mid-size excavator sales growth reached 53%/106% YoY in Sep, which suggested strong demand from infrastructure and property construction projects. In 9M20, excavator sales growth reached 32% YoY.
- Raise industry sales projection. Based on Jiangsu Hengli’s (601100 CH, BUY) latest production plan of hydraulic cylinders (see our latest note on Hengli [link]), we foresee strong excavator demand growth with high visibility in 4Q20E. We raise our industry excavator sales volume assumption in 2020E/21E by 13%/10%. We expect 35%/3% YoY growth in 2020E/21E, with key drivers coming from resilient construction activities, replacement of labour and stringent environmental policies.
