We visited SANYI’s headquarters and mining equipment smart factory in Shenyang, Liaoning last week. Our discussion with the senior management and plant managers reaffirm our positive stance. We continue to like SANYI’s strong commitment to deliver growth through strategical expansion in different segments and the continuous launch of new products. We revise up our 2023E- 25E earnings forecast by 22-43%, after factoring in strong demand for hybrid mining trucks, CCMU, as well as the contribution of lithium battery equipment and petroleum equipment from acquisition. We now expect SANYI to deliver 33% earnings CAGR in 2023E-25E. We revise up our TP to HK$16.2, based on 19x 2023E. Reiterate BUY. SANYI is the key pick in our universe.
　　Surprising demand for new mining trucks with diesel-electric hybrid　power. The new mining truck has payload of 150 tonnes. Two sets of engines (Weichai brand; 500kw each) are installed as main source of power, while two sets of electric drive systems (CRRC Time Electric brand) provide additional power storage and output. ASP is ~RMB8.4mn, which is ~20% below major competitors’ models. Gross margin can reach 30% (for direct sales). The monthly output is 10 units at present. SANYI targets to deliver >100 units in 2023E and we forecast the volume will reach 180 units 2024E when the new model (payload of 200 tonnes or above) is launched. We estimate this hybrid mining truck achieved RMB300mn revenue in 4M23.We expect revenue contribution to reach ~RMB840mn/1.5bn in 2023E/24E, up substantially from RMB200mn in 2022.
　　Strong growth of wide-body trucks. Production capacity of wide-body trucks in Shenyang is 500 units/month. It takes only an hour to produce a unit of wide-body truck. We saw large amount of trucks ready for delivery.Sales volume in 4M23 reached 1,500 units (China: 900 units; Overseas: 600 units), representing 36% of our full year forecast. ASP in China/overseas are RMB0.9mn / >RMB1.0mn. Going forward, ASP will likely increase given higher contribution of 2nd generation model and electric model.
　　Fast-growing CCMU driven by hydraulic support. Production capacity of　hydraulic support is 500 units/month. We observed that the production line was busy with high utilization rate. SANYI saw strong orders for hydraulic support and electrohydraulic control systems. We estimate CCMU revenue grew 40% YoY in 4M23, with gross margin expansion.
　　On-track growth of road header. Monthly capacity of road header is ~80 units in Shenyang base. Sales in 4M23 was ~340 units and we expect the full year volume to reach ~945 units (+5% YoY). Going forward, ASP growth through transformation to intelligent model remains the key driver.