【行业研究报告】恒立液压-Positive takeaways from plant visit

13Mar202313Mar2023CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdateJiangsuHengli(601100CH)Positivetakeawaysfromplantvisit;U/GtoBUYWeupgradeHenglitoBUYfromHoldforthefirsttimesinceMay2021.WeareturningpositiveaftervisitingHengli’sproductionbaselastweek.Inthenearterm(comingmonths),webelievethegrowth(YoY)ofexcavatorhydrauliccylinderproductioninMar,aftergoingthroughadecliningtrendsincelate2021,suggestsanearlysignofturnaroundofdownstreamdemand.Besides,productionofAWPmotorinMarisexpectedtoreacharecordhigh,whichreaffirmsourpositivestanceonAWP.Fromalong-termperspective(1-3years),continuousmarketsharegaininpump&valves,aswellaspenetrationintoglobalagriculturalmachinerycomponentmarketwillofferhighvisibilitytoHengli’searnings.Inaddition,thecommencementofproductionbaseinMexico(estimatedannualoutputvalueofRMB1.5-2.0bn)in3Q23EwillhelpspeedupthepenetrationintheUSmarket.Wereviseupour2023E/24Eearningsforecastby1%/10%.OurTPisraisedtoRMB90,basedon42x2023EP/E,1SDabovethe4-yearaverageof30xtoreflecttheaccelerationofearningsgrowth.ExcavatorhydrauliccylindergrowthturnspositiveinMar.WeunderstandthatHenglihasscheduledproductionof64kunitsofexcavatorhydrauliccylinderinMar,whichrepresents12%growthYoY.WebelievethegrowthislargelydrivenbyChineseOEM’sorders.Growthofexcavatorpump&valvetocontinuein2023E.WhileHenglihashighmarketshareinpump&valveforsmall-sizeexcavator(>50%),theshareinmedium-largesizeexcavatorisonly~15%.WeseeahighchanceforHenglitoachievefurthermarketsharegaingiventhesolidtrackrecordincylinder,pump&valve(small-size).Agriculturalmachinerycomponentgrowthtoaccelerate.Henglioffersmotors,pumps&valvesforagriculturalmachinerysuchascottonpickersandcombinedharvesters.Thesecomponentscarryshorterusefullifethanthatofexcavatorgiventhecontinuousoperationofthepumpingsystem.Thisimpliesalargeaftersalesmarket.AgainstthebackdropofsupplychaindisruptioninEurope,HenglicapturestheopportunityofpenetratingintotheagriculturemachinerycomponentmarketinEurope.WeforecastHenglitoachieveRMB500mnrevenueinoverseasin2023E(up100%+YoY).InChinamarket,weexpecttheimportsubstitutiontrendwillofferlargegrowthpotentialgiventhelowbase.AWPmotor:Surpriseontheupside.Hengli’sproductionvolumeofmotor(largelyforAWP)isexpectedtoreach23kinMar,representing90%+growth.WeseepotentialforHenglitocontinuetopenetrateintotheglobalAWPmotormarketasoverseasAWPOEMsarefacingsupplychainbottleneck.Asacrosscheck,Hengli’sstrongproductionfigureinMaralsoreaffirmsourbullishviewonZhejiangDingli(603338CH,BUY).TargetPriceRMB90.00(PreviousTPRMB58.00)Up/Downside35.8%CurrentPriceRMB66.27ChinaCapitalGoodsWayneFUNG,CFA(852)39000826waynefung@cmbi.com.hkKatherineNG(852)37618725katherineng@cmbi.com.hkStockDataMktCap(RMBmn)88,856.1Avg3mthst/o(RMBmn)66.352wHigh/Low(RMB)73.10/41.76TotalIssuedShares(mn)1340.8Source:FactSetShareholdingStructureWANG'sfamily66.7%CCASS(HongKong)11.5%Source:SSESharePerformanceAbsoluteRelative1-mth1.3%4.9%3-mth1.2%2.0%6-mth29.7%33.9%Source:FactSet12-mthPricePerformanceSource:FactSetRelatedreports:1.ChinaConstructionMachinery–UpbeatguidancefromUSAWPmanufacturersreaffirmsourpositivestanceonthesector–13Feb2023(link)2.ChinaConstructionMachinery&HDTSector–2023outlook:Difficultiesmasteredareopportunitieswon–7Dec2022(link)3.JiangsuHengli(601100CH,HOLD)–Revenuereboundedin3Q22;Waitformoredatapointstoconfirmrecovery–25Oct2022(link)EarningsSummary(YE31Dec)FY20AFY21AFY22EFY23EFY24ERevenue(RMBmn)7,8559,3098,7519,61311,006YoYgrowth(%)45.118.5(6.0)9.814.5Adjustednetprofit(RMBmn)2,253.92,694.12,425.62,868.83,461.1EPS(Reported)(RMB)1.732.061.862.142.58YoYgrowth(%)73.919.5(10.0)15.120.6ConsensusEPS(RMB)nana1.852.052.44P/E(x)34.544.535.731.025.7P/B(x)10.613.17.06.05.2Yield(%)1.00.81.01.11.4Netgearing(%)(25.3)(32.6)(49.1)(52.4)(54.3)Source:Companydata,Bloomberg,CMBIGMestimatesOur2023E-24EEPSisadjustedfortheshareplacementcompletedinlate2022.