We revise down our 2024E-26E earnings forecast by 9-13% to reflect lower growth of mining trucks and oil & gas equipment segments. That said, we are encouraged by SANYI’s decision to slow the pace of solar manufacturing business expansion. With potentially less capex and better profit contribution from solar farm disposal, we are now less concerned on the balance sheet pressure. Besides, mining trucks and logistics equipment sales remain strong in overseas markets. Maintain BUY with a new TP of HK$7.2 (previously HK$7.9), based on an unchanged 11x 2024E P/E, the average P/E since 2017.
1H24 results highlights. Total revenue dropped 0.8% YoY to RMB10.7bn as the growth of logistics equipment, oil & gas equipment and new business was offset by the decline in mining equipment. Revenue from China dropped 9% YoY to RMB6.9bn while overseas revenue grew 18% YoY to RMB3.8bn. EBIT dropped 18% YoY to RMB1.2bn (mining equipment: +3% YoY; logistics machinery +13% YoY; emerging industries business: RMB255mn loss). Net profit dropped 14% YoY to RMB1bn. In 2Q24, revenue increased 4% YoY to RMB5.6bn. Net profit dropped 6% YoY to RMB517mn (mining equipment -6% YoY to RMB830mn; logistics equipment +24% to RMB530mn; loss for the balance).
EPC will become the focus of solar power segment. SANYI expects to complete the sale of 260MW project (Shanxi phase 1) this year, which will translate to revenue recognition. Construction for phase 2, which consists of a total of 540MW (240MW +300MW), is expected to be fully completed in Jun 2025. SANYI expects some revenue contribution from phase 2 project sale this year. We estimate the EPC unit gross margin to be ~RMB0.5/watt. SANYI is also in discussion for some GW-scale projects in Shanxi. It will also invest 2GW of module capacity, which is part of the bidding for a 1.5GW EPC project. SANYI is confident of achieving profit in EPC.
High visibility on logistics equipment. SANYI revealed that backlog reached RMB5bn. Management is confident of achieving 30% segment earnings CAGR in 2024E-25E, driven by overseas markets. Products such as telescopic forklifts and small-size port machinery will be key drivers.
Potential stabilisation of mining equipment. The decrease in mining equipment revenue in 1H24 was due to a decline in coal mining equipment sales, lower ASP of hydraulic supports, delay of customers’ orders on large mining trucks and weakness of domestic wide-body trucks. Management expects the demand for coal mining equipment will be gradually stabilised in 4Q24E. For mining trucks, management reveals that large overseas miners will likely resume procurement in 2H24E. For the segment as a whole, management targets to achieve a stable profit (YoY) for the full year.