We maintain "Buy", and increase TP to HK$29.20, representing a 27.5% upside. Monetary policy and employment policies in China have improved broader consumer sentiment, increasing demand for plastic injection molding machines (“PIMM”). Therefore, we increase our Haitian International (the “Company”) 2024-2026 shareholders' net profit forecasts to RMB3,152 mn (+2.5%) / RMB3,405 mn (+4.5%) / RMB3,519 mn (+9.4%), respectively. We forecast the Company's earnings per share in 2024/ 2025/ 2026 to be RMB1.975 (+2.5%), RMB2.133 (+4.5%), and RMB2.205 (+9.4%), respectively. Our TP represents 13.0x/ 12.0x/ 11.7x 2024-2026 PE ratio and 2.0x 2024 PB ratio.
Consumer sentiment returning will indicate an improvement in demand, allowing ASP to recover. Due to the People’s bank of China announced an easing of monetary policy and increased credit access in real estate, and the announcement of supportive policies for youth employment by the CPC Central Committee, we expect the demand for consumer appliances and other plastic goods to recover. Purchases of PIMMs typically follow a 3-4-year cycle, with the current timing being around the time when downstream businesses make decisions regarding major capital investments. We expect that downstream businesses will increase their order sizes in anticipation of growing consumer demand. Increased demand for PIMMs will also allow the Company to phase out their 3rd generation products into 5th generation products faster, allowing their margins to recover faster.
Growth in China’s exports of plastic injection molding machines accelerates. In August 2024, the General Administration of Customs of the People’s Republic of China posted a record high of RMB1.413 bn for PIMM exports, representing an increase of 31.5% YoY. Haitian International has accounted for a stable 43.1% of PIMM exports during 2018-2023. Therefore, we expect Haitian’s foreign sales to maintain growth momentum for the upcoming future.
Catalysts: Release of China’s October PMI index.
Risk factors: Consumer sentiment failing to translate to capital expenditure; International policy risk.