SANYI’s 1Q24 net profit decline (-21% YoY) was more than our expectation of -15% YoY, as the growth of logistics equipment was offset by the weakness of mining equipment and emerging industries. Looking forward, we see an improving trend given (1) the reduction of loss after the disposal of robot business; (2) wide-body trucks, large mining trucks and logistics equipment remain strong in overseas markets; and (3) potential acceleration of port equipment orders in 2H24E, driven by the government’s equipment upgrade policy. We fine-tune our 2024E/25E earnings by -5%/-2%. Maintain BUY with a new TP of HK$7.9 (based on an unchanged 11x 2024E P/E).
1Q24 results highlights. Revenue dropped 6% YoY to RMB5.1bn (Mining equipment: RMB2.8bn, -26% YoY; Logistics equipment: RMB1.8bn, +23% YoY; Oil & gas equipment and emerging industries: RMB560mn). Net profit dropped 21% YoY to RMB516mn, as oil & gas equipment and emerging industries reported loss in 1Q24.
Domestic logistics equipment to benefit from equipment upgrade policy. During the post-results call, SANYI revealed that major ports in China (SANYI’s customers) have already proposed plans to upgrade their port equipment, such as the replacement of small-size diesel port machinery (NES II) with electric models. SANYI is confident of strong order intakes starting from 2H24E.
Overseas growth remains exciting. For wide-body trucks, SANYI delivered ~200 units in 4M24, and targets to achieve 1,800 units for the full year which will be equivalent to ~RMB2.6bn (VAT-included) sales. For large mining trucks, delivery was not smooth in 1Q24 due to some issues related to products, but such issues have been resolved and delivery is expected to speed up starting from Jun (current backlog ~70 units, valued at RMB600mn). For logistics equipment, telescopic handler sales were more than doubled in 1Q24. We continue to see telescopic handler as a key growth driver this year.
Still see chance for domestic mining equipment to achieve growth in 2024E. In China, SANYI still managed to achieve some market share gains for road headers despite the industry downtrend in 1Q24. For combined coal mining units (CCMU), SANYI believes that the rising adoption of pure water hydraulic support will boost growth of CCMU this year, which will likely offset the weakness of road headers and wide-body trucks. SANYI sees 0-5% growth for the domestic mining equipment segment this year.
Solar power still a drag in the foreseeable future. SANYI currently has 5GW of capacity for crystal growing/wafer slicing/solar cells, as well as 1.5GW for modules. SANYI targets to deliver 3-4GW of modules this year. For EPC, SANYI targets to complete 800MW EPC projects this year. We still expect loss for the full year given the continued declines of solar supply chain pricing.