JIANGSU HENGLI HYDRAULIC(601100):EARNINGS IMPRESSIVE BUT WE ARE NOW MORE CONSERVATIVE ON VALUATION

类别:公司 机构:招银国际证券有限公司 研究员:Wayne Fung 日期:2021-04-27

Hengli’s net profit in 2020 came in at RMB2.25bn (+74% YoY) which is close to the high end of the profit range stated in the profit alert. Besides, net profit in 1Q21 surged 126% YoY to RMB783mn, in line with our expectation. While the results are brilliant, the revenue guidance of 15% in 2021E is conservative in our view. We slightly revise up our earnings forecast in 2021E2/22E by 1%/2% but trim our TP to RMB95 from RMB143 (based on 43x 2021E P/E, down from 65x)。 Our lower target valuation is to reflect a potential slowdown of excavator demand in the near term, as preliminary industry figures suggest that excavator sales growth in Apr is expected to slow to 10% for the industry as whole, versus 60% in Mar.

    Earnings highlight in 2020. Hengli’s net profit in 2020 surged 74% YoY to RMB2.25bn, driven by 45% YoY increase in revenue, gross margin expansion by 6.3ppt YoY to 44.1% and operating leverage. In 4Q20, net profit surged 106% YoY to RMB782mn. Gross margin in 4Q20 reached an impressive level of 48% (+7.3ppt YoY)。 Hengli proposed final dividend of RMB0.6 per share, implying 34.7% payout ratio.

    Solid market share gain on hydraulic cylinder for excavator. Hydraulic cylinder sales volume grew 45% YoY to 706k units in 2020. We estimate Hengli achieved 54% market share (+3ppt YoY)。 Gross margin of hydraulic cylinder (including non-standardized products) expanded 7.4ppt YoY to 46.8%.

    Explosive growth of pump and valve + strong gross margin expansion. Sales volume of pump and valves surged 103% YoY to 137k units in 2020. The segment gross margin impressively expanded 14.4ppt YoY to 52.3%. We expect pump and valve will continue to serve as important drivers go forward.

    Earnings highlight in 1Q21. Net profit surged 126% YoY to RMB783mn, driven by 109% YoY increase in revenue and 3.2ppt gross margin expansion (to 41%)。 Net profit in 1Q21 accounted for 27% of our full year estimates (run rate in 1Q20: 15%)。

    Key risks: (1) Slowdown of construction activities; (2) risk of overseas expansion; (3) increase in raw materials cost.