We slightly trim the revenue and net profit in 2H23 due to the weaker- than-expected domestic market. We forecast sales and net profit to increase by 12.5% and 18.1% YoY in 2H23, while the still nice growth is mainly driven by the low base. Gross margin is estimated to remain flat YoY at 33%. We forecast annual revenue and net profit to grow by 4.8% and 7.4% YoY in 2023 respectively. We also forecast sales and net profit to grow by 10% and 13% YoY in 2024E, much better than most other cyclical industrial peers. The decent growth will be driven by the overseas portion, whose contribution is estimated to rise to over 40% in 2024E from 35.7% in 2022. We roll over and derive the new TP of HK$27.99 by applying the same target multiple 14x 24E P/E, representing 54% upside. Reiterate BUY as Haitian remains our top pick.
Key Factors for Rating
We expect Haitian to be the best outperformer in the cyclical industrial sector, thanks to the strong sales momentum of the overseas legs. Haitian is the early bird that arranged the move of production capacity to overseas with the downstream clients. Haitian has mapping covering Vietnam, India, Turkey, East Europe, and Mexico. Starting from 2H23, Haitian’s overseas new order obviously has been ramping up to over 20% YoY growth, especially in India and Mexico. With the help of overseas market, the total new order is estimated to grow by 15-20% YoY in 2H23 and would be even higher in 2024.
In 2024, Haitian is poised to fully benefit from the global market recovery on the US$ interest rate cut cycle. The overseas sales portion would rise from 30% in 2021 to over 40% in 2024E. Downstream clients like the auto manufacturing sector, home appliance, and electronic products are moving to Vietnam, India, and Mexico. In addition, Haitian has learned from the past lesson of how to manage the risk of transferring the profit out of India. The anticipated US$ interest cut in 2024 would bring the global demand recovery in cyclical products. Haitian would be the greatest beneficiary in the global recovery cycle.
We expect gross margin to remain at high level 33% in 2H23, due to good sales growth and low commodity price. In 2024E, we expect gross margin and net margin will expand further in 2024E due to strong sales growth and still low steel price.
Key Risks for Rating
Domestic leg and domestic valuation may bring some uncertainty.
Valuation
We slightly cut sales and net profit estimate in 2H23, but raise the estimate in 24E and 25E to factor in the good sales growth of overseas leg. We roll over and derive the new TP of HK$27.99 by applying the same target multiple, 14x 24E P/E. New TP HK$27.99 represents 54% upside. Reiterate BUY rating as Haitian remains to be our top pick.