HSBC-中國(guó)機(jī)械行業(yè)：短期內(nèi)該行業(yè)的需求將出現(xiàn)積極變化-2021.5.27-23正式版

27May2021

EquityResearchReport

ChinaMachinery

Weseepositivesforsectordemandinthenearterm

Lowerconstructionstartsandrisingconcernsaroundcyclepeakingandinflationhavedampenedsectorsentiment

Pick-upinlocalgovernmentbondissuancecouldsupportmachinerydemand;our2021eEPSestimateforSanyis

4.5%aboveconsensusonmorepositivemarginforecast

LowerSanyTPtoRMB38.80fromRMB49.60;maintainBuyonSanyandLiugong,anddowngradeXCMGtoHold

Headwindslargelypricedin.Thesharepricesofmachineryleadersaredown17%year-to-date(CSI300Indexup2%overthesameperiod)oncommoditypricehikes,lowerconstructionstarts,andconcernsofcyclepeakingandintensifyingcompetitionintheexcavatorsector.Weseelimiteddownside,withpositivesahead.

Sufficientfinancingforinvestmentprojectscouldsupport3Qsectordemand.

LeverageconstraintsforlocalgovernmentandSOEs(GovernmentWorkReport,15March2021)havereducedissuanceoflocalgovernmentspecialbonds.Only20%ofthefull-yeartargetwasissuedin4M21vs30%in4M19.However,withcRMB3trnofthequotaleft(Wind),andwiththepeakseasonapproaching(June-September),wethinkbondissuancecouldpickup,bolsteringconstructionactivityandmachinerydemand.AdditionalfinancingfromChinainfrastructureREITsshouldalsosupportdemand,inourview.InlightofsalesunitgrowthtrendsYTD(4M21+52%y-o-y),weraiseour2021eChinaexcavatorsalesestimateto380kunits(from351k),up16%vs2020.Weexpectstrongerexportgrowthofc60%in2021e,drivenbyanoverseasrecovery.

MarginresilienceandfasteroverseasexpansionarepotentialcatalystsforSany.WeargueSanycanprotectitsmarginsgivenitsstronger-than-peers’bargainingpower,betterdealermanagement,recentmanufacturingupgrade,andprepaymentofrawmaterialsin1Q21thathelpedtolockinsomecosts.Fasteroverseasexpansion,especiallyindevelopedmarkets,couldalsosupportitsshareprice,inourview.

Earningsrevisions.WeraiseourEPSestimatesforSanyby6.5%for2021eand4.2%for2022e;wemaintainBuybasedonthecompany’smarketleadership,overseasexpansionplans,andabilitytodealwithrawmaterialpricevolatility.WemaintainourBuyratingonLiugonggivenitsimprovingROEoutlook.WedowngradeXCMGtoHoldfromBuyaswebelievethepositivesofSOEreformarepricedin,andweareconservativeaboutthecompany’sprofitabilityimprovementandriskcontrol.

Equities

Machinery

China

AmyHu*(Regno:S1700520090001)

Analyst,A-shareIndustrials&EnvironmentalHSBCQianhaiSecuritiesLimitedruo.lin.hu@+8675588983408

Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulations

Keychangestoratingsandestimates

Company

Ticker

Currency

Current

______TP_______

__Rating___

Upside/

__________PE___________

______EPSgrowth_______

price

Old

New

Old

New

downside

2021e

2022e

2021e

2022e

Sany

600031CH

RMB

29.80

49.60

38.80

Buy

Buy

30%

12.6

11.5

29.6%

10.4%

XCMG

000425CH

RMB

6.75

8.40

7.10

Buy

Hold

5%

11.7

10.5

21.2%

11.3%

Liugong

000528CH

RMB

8.81

10.70

12.10

Buy

Buy

37%

8.7

8.0

11.8%

8.9%

Source:Bloomberg,HSBCQianhaiSecuritiesestimates.Pricedatcloseof25May2021

Disclosures&Disclaimer

ThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.

Issuerofreport:HSBCQianhaiSecuritiesLimited

ViewHSBCQianhaiSecuritiesat:

Equities●Machinery

27May2021

Valuationandrisks

Valuation

Risks

Currentprice:

WecontinuetovalueSanyusingaPB-basedapproach.WelowerthetargetPB

Downsiderisks:Profitabilitysofteningif

Sany

RMB29.80

multipleto4.1x(1SDabovethehistoricalaverage)from5.3x(2SDabove).Ourtarget

higherrawmaterialcostscouldnotbe

600031CH

Targetprice:

PBmultipleisjustified,consideringour2021-23eaverageROEestimateof28%vsthe

fullypassedthroughtoendcustomers,

slowdowninexcavatordemandamid

previousestimateof30%in2020-22eandaverage22%over2009-17inthelastcycle.

RMB38.80

Wethinkthestockdeservestotradeatapremiumtohistoricallevel,givenitsmarket

tighteningoffinancingforinfrastructure

Buy

Up/downside:

PPPprojects,anduncertaintiesrelated

leaderpositionacrossmanymachinerysectors,overseasexpansion,muchenhanced

tooverseasmarkets.

30%

R&Dandmanufacturingcapabilityandbetterriskmanagement.WeapplythisPB

multipletoour2021-22eaverageBVPSofRMB9.36(previouslyBVPSofRMB9.24-

adjustedforcorporateaction)andderiveourtargetpriceofRMB38.80,implying30%

upsidefromcurrentlevels;wemaintainourBuyratingonthestock.

AmyHu*(Regno:S1700520090001)|ruo.lin.hu@|+8675588983408

Currentprice:

WecontinuetovalueXCMGusingaPB-basedapproach.WelowerourtargetPB

Downsiderisks:Profitability

XCMG

RMB6.75

multipleto1.4x(historicalaverage)from1.8x(20%abovethestock’shistorical

deteriorating,slowdownofmachinery

000425CH

Targetprice:

averageof1.5x).OurtargetPBlooksreasonable,given2021-23eaverageROEof

demandinChinaandworkingcapital

13%vsthepreviousestimateof2021-22eROEof16%,and2010-20ROEof11%.We

managementissues.

RMB7.10

applythetargetPBtoour2021-22eBVPSofRMB5.0(previously2020eBVPS

Upsiderisks:Profitability

Hold

Up/downside:

estimateofRMB4.8)andderiveournewtargetpriceofRMB7.10(earlierRMB8.40).

improvement,strongmachinery

5%

OurnewTPimplies5%upsidefromcurrentlevels.WedowngradethestocktoHold

demandinChinaandfastermarket

ratingfromBuyaswebelievethepositivesofSOE-reformarepricedinandweholda

sharegaininChina’sexcavatormarket.

conservativeviewonthecompany’sprofitabilityandriskcontrol.

AmyHu*(Regno:S1700520090001)|ruo.lin.hu@|+8675588983408

Currentprice:

LiugongRMB8.81000528CH

Targetprice:

RMB12.10

Buy Up/downside:

37%

WecontinuetovalueLiugongusingaPB-basedapproach.Wecontinuetousea1.4x(historicalaverage)1-yrforwardtargetPBmultipletovalueLiugong.OurPBtargetmultipleisreasonable,consideringits2021-23eROEof12.5%vsthepreviousestimateof2020-22eROEof13%and2009-20averageROEof9%.WeapplythetargetPBtoour2021-22eBVPSofRMB8.89(previously2020eBVPSestimateofRMB7.70)andderiveournewtargetpriceofRMB12.10(fromRMB10.70).With37%upsidefromthecurrentshareprice,wehaveaBuyratingonthestock.

AmyHu*(Regno:S1700520090001)|ruo.lin.hu@|+8675588983408

Downsiderisks:Profitabilitydeteriorating,slowdownrisksiftheexcavatorbusinessisunabletogainfurthermarketshare,decelerationofmachinerysalesifinfrastructureandpropertyconstructionweakens,andworkingcapitalmanagementissues.

Pricedat25May2021

Source:HSBCQianhaiSecuritiesestimates

*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulations.

Valuationcomparisontable

Exhibit1.Valuationcomparison

Market

EPS

Company

Stock

Cap

ADTV

________PE(x)_________

________PB(x)_________

________ROE(%)________

CAGR

Name

Code

Ccy

Price

(USDbn)

USDm

2021e

2022e

2023e

2021e

2022e

2023e

2021e

2022e

2023e

2021-23e

Sany*

600031CH

RMB

29.80

39.4

619.9

12.6

11.5

10.6

3.5

2.9

2.4

31.2

27.9

25.1

16%

XCMG

601100CH

RMB

6.75

8.2

162.8

11.7

10.5

9.8

1.4

1.3

1.2

12.7

12.7

12.3

13%

Liugong

603638CH

RMB

8.81

2.0

57.2

8.7

8.0

7.2

1.0

0.9

0.9

12.4

12.4

12.6

11%

Average

11.0

10.0

9.2

2.0

1.7

1.5

18.8

17.7

16.7

13%

ShaanxiCon

600984CH

RMB

12.16

1.8

51.0

14.4

10.7

8.7

1.9

1.5

1.2

13.8

14.8

14.7

32%

Zoomlion

1157HK

HKD

9.16

13.7

17.6

7.1

6.1

5.6

1.2

1.0

0.9

17.8

17.8

17.4

11%

Caterpillar

CATUS

USD

237.17

129.9

713.6

25.2

20.6

17.7

9.1

8.9

8.1

37.7

48.9

44.0

28%

Komatsu

6301JP

JPY

3232.00

28.9

93.2

18.3

14.5

13.4

1.6

1.5

1.3

8.8

10.6

10.3

29%

Kubota

6326JP

JPY

2585.50

28.7

62.0

18.9

17.9

16.4

1.9

1.8

1.7

10.8

10.8

11.1

14%

Volvo

VOLVBSS

SEK

211.90

52.4

139.1

14.7

12.9

12.0

3.1

2.9

2.8

20.7

22.0

21.8

28%

Average

16.4

13.8

12.3

3.1

3.0

2.7

18.3

20.8

19.9

24%

Pricedasof25May2021

Source:Bloombergconsensusfornotrated(NR)stocks,HSBCQianhaiSecuritiesestimatesforcoveredstocksSany,XCMGandLiugong.

2

Equities●Machinery

27May2021

Exhibit2.Chinaexcavatorsalesvolume

380,000

250%

Units

327,605

205%

280,000

166,813178,352

203,420235,693

200%

150%

180,000

140,302

115,583

112,40490,507

97%

60%

100%

79,035

56,349

70,321

46,572

80,000

100%

45%

19,60128,305

50%

76%

16%

-20,000

39%

0%

-35%

-

35%

19%

-120,000

7%

-3%

3%

-50%

-19%

Excavators

y-o-ygrowth(RHS)

Source:Wind,HSBCQianhaiSecurities

Exhibit3.Excavatorutilisationrate

200

100%

150

50%

100

0%

50

-50%

0

-100%

Jan-13May-14Sep-15Jan-17May-18Sep-19Jan-21ChinaKomtraxequipmentusage(Hours/month)AveragesinceJan2013

y-o-ychange(RHS)

Source:Wind,HSBCQianhaiSecurities

Exhibit4.Localgovernmentspecialbondissuance

1200RMBbn

1000

800

600

400

200

0JanFebMarAprMayJunJulAugSepOctNovDec

2018201920202021

Source:Wind,HSBCQianhaiSecurities

Exhibit5.YTDsharepriceperformance

Exhibit6.Chinaexcavatormarketshare

-40%-30%-20%-10%0%10%20%30%

30%

26%

28%

ZhejiangDingli-

36%

20%

22%

23%

HengliHydraulic-

29%

20%

17%

SanyHeavy

-15%

14%

16%

Eddie

-13%

10%

12%

Hangcha

-5%

8%

7%

10%

ShaanxiConstruction

-2%

Sunward

1%

CSI300

2%

0%

Shantui

7%

2015

2016

2017

2018

2019

2020

Hangyang

8%

Sany

XCMG

Liugong

20%

LiuGong

Volvo

XCMG

26%

Caterpillar

Doosan

Komatsu

Source:Bloomberg,HSBCQianhaiSecurities

Source:CCMA,HSBCQianhaiSecurities

3

Equities●Machinery

27May2021

SanyHeavy(600031CH,Buy,TPRMB38.80)

Raiseour2021-22eearningsestimates

Sanyreported1Q21earningsofRMB5.5bn,up152%y-o-yand72%vs1Q19.OverallGPMof30%wasstrongerthanexpectedand2pptabovethe1Q20level.Wefactorin2020actualnumbers.Wekeepour2021eexcavatorsaleslargelyunchangedashighervolumeisoffsetbylowerASPassumption.Werevisedown2022esalesforecastduetothehighbase.Weraiseoursalesforecastsforthecranesegmentby3.2%in2021eand1.4%in2022etoreflectstrongerindustrysalesandexporty-t-d.Weincreaseourrevenueestimatesby4.6%in2021eand2.2%in2022e.Regardingprofitability,wecutourexcavatorGPMestimatesby1.5pptin2021eand1.7pptin2022etoreflectrisingpricecompetitionandtheimpactofhigherrawmaterialprices.Asaresult,our2021eand2022eEPSestimatesareupby6.5%and4.2%,respectively.Weintroduceour2023eEPSestimateofRMB2.82inthisreport.

Exhibit7.Sany:Changestoourrevenueandearningsestimates

_______________2021e________________

_______________2022e________________

2023e

RMBm

Old

New

changes

Old

New

changes

New

Revenue

115,374

120,626

4.6%

129,189

131,992

2.2%

141,213

GPM

31.8%

32.2%

0.5

31.8%

32.0%

0.2

31.9%

Netprofit

18,781

20,006

6.5%

21,197

22,079

4.2%

23,940

EPS

2.21

2.36

6.5%

2.50

2.60

4.2%

2.82

Note:2021-22eoldEPSwereadjustedforcorporateactions.

Source:HSBCQianhaiSecuritiesestimates.

Exhibit8.Sany:Changestosegmentrevenue

2020a

___________

2021e____________

___________2022e_____________

2023e

RMBm

Old

New

changes

Old

New

changes

New

Excavator

37,528

46,063

45,761

-0.7%

50,669

48,611

-4.1%

50,963

Concretemachinery

27,052

36,192

36,250

0.2%

41,621

41,687

0.2%

45,856

Crane

19,409

21,807

22,515

3.2%

25,078

25,441

1.4%

27,986

Pilingmachinery

6,825

5,303

6,825

28.7%

5,568

6,893

23.8%

6,962

Roadmachinery

2,804

2,368

2,804

18.4%

2,486

2,888

16.2%

2,975

Source:HSBCQianhaiSecuritiesestimates.

Exhibit9.Sany:ChangestosegmentGPM

2020a

___________

2021e____________

___________2022e_____________

2023e

RMBm

Old

New

changes

Old

New

changes

New

Excavator

34.7%

36.2%

34.7%

-1.5

36.4%

34.7%

-1.7

34.9%

Concretemachinery

27.3%

29.8%

28.7%

-1.1

29.8%

28.7%

-1.1

28.7%

Crane

21.7%

23.5%

23.5%

0.0

24.0%

23.7%

-0.3

23.9%

Pilingmachinery

45.0%

44.0%

44.0%

0.0

44.0%

44.0%

0.0

44.0%

Roadmachinery

31.1%

34.0%

31.1%

-2.9

34.0%

31.1%

-2.9

31.1%

Source:HSBCQianhaiSecuritiesestimates.

Exhibit10.Sany:EPSsensitivityanalysistoGPMchanges

_______________________EPSchanges_______________________

2021e

2022e

2023e

GPMofexcavatorsegmentcutby5ppt

-9.3%

-8.8%

-10.4%

GPMofconcretemachinerysegmentcutby5ppt

-8.1%

-8.1%

-8.5%

Source:HSBCQianhaiSecuritiesestimates

Our2021eearningsestimatesarehigherthanBloombergconsensusduetoourmorepositiveviewonthecompany’smargintrend.

4

Equities●Machinery

27May2021

Exhibit11.Sany:OurestimatesvsBloombergconsensus

_______HSBCQianhai_______

________Consensus_________

________

Difference_________

RMBm

2021e

2022e

2023e

2021e

2022e

2023e

2021e

2022e

2023e

Revenue

120,626

131,992

141,213

118,936

130,851

140,375

1.4%

0.9%

0.6%

GPM

32.2%

32.0%

31.9%

30.7%

30.9%

30.7%

1.5

1.1

1.2

Netprofit

20,006

22,079

23,940

19,154

21,783

23,945

4.5%

1.4%

0.0%

Source:Bloomberg,HSBCQianhaiSecuritiesestimates

LowertargetpricetoRMB38.80fromRMB49.60

WelowerourtargetPBmultipleto4.1x(1SDabovehistoricalaverage)from5.3x(2SDabove).WebelieveourtargetPBmultipleisjustified,consideringour2021-23eaverageROEestimateof28%vsthepreviousestimateof30%in2020-22eandaverage22%over2009-17inthelastcycle.Wethinkthestockdeservestotradeatapremiumtothehistoricallevel,givenitsmarketleaderpositionacrossmanymachinerysectors,overseasexpansion,muchenhancedR&Dandmanufacturingcapability,andbetterriskmanagement.WeapplythisPBmultipletoour2021-22eaverageBVPSofRMB9.36(previouslyBVPSofRMB9.24–adjustedforcorporateaction),andderiveourtargetpriceofRMB38.80,implying30%upsidefromcurrentlevels.WemaintainourBuyratingonthestock.

Potentialsharepricecatalysts:Higher-than-expectedexcavatorsalesinChina,stronger-than-expectedpenetrationintooverseasmarkets,andbettermarginresiliencefromproductivityimprovementviafactoryupgrades.

Sharepriceperformance:Sany’ssharepricecorrectionstartedafterChineseNewYearduetoitsloftyvaluationandthemarket’ssell-offofcrowdedqualitynames.ThestockpricefurthertrendeddownasthemarketwasincreasinglyconcernedaboutthecyclepeakingafterApril’sexcavatorsalesslowdownandmarginpressurefromsteelpricehikes.Wethinkpotentialupsidetomarginandprogressofoverseasexpansionarenotyetpricedin.

Exhibit12.Sany:Historical12-monthforwardPBvsROE

8.0

(x)

60%

7.0

6.0

40%

5.0

20%

4.0

3.0

0%

2.0

1.0

-20%

Jan-09Feb-10Apr-11May-12Jul-13

Aug-14Oct-15Nov-16Dec-17Feb-19Mar-20May-21Jun-22Aug-23

1-yrforwardPB

Average

+2Std

-1Std

ROE(RHS)

Source:Bloomberg,HSBCQianhaiSecurities

5

Equities●Machinery

27May2021

Exhibit13.Sany:Historical12-monthforwardPE

(x)

50

40

30

20

10

0

Jun-16Nov-16Apr-17Sep-17Feb-18

Jul-18Dec-18May-19

Oct-19

Mar-20Aug-20Jan-21

1-yrforwardPE

Average

+1Std

-1Std

Source:Bloomberg,HSBCQianhaiSecurities

Exhibit14.Sany:Sharepriceperformancein2021

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

Jan-21

Feb-21

Mar-21

Apr-21

May-21

Sany

CSI300Index

Source:Wind,HSBCQianhaiSecurities

Keydownsiderisks:

Profitabilitysoftening.Asuddenanddramaticrawmaterialspricehikemayleadtoamargindeclineifthecompanyfailstofullypassthecoststhroughtoend-users.

Slowingexcavatordemand.WecannotruleouttheriskofaslowdowninexcavatorandmachinerydemandifChinatightensprojectfinancingorencountersadramaticslowdowninpropertyconstruction.AsubstantialdecelerationofFAIgrowthwouldbenegativeforsectordemand,whichwouldinturnbenegativeforSany’ssalesoutlook.

Uncertaintiesrelatedtooverseasmarkets.Overseasmarketsrepresented15%of

Sany’srevenuein2020.Wecannotruleoutuncertaintiesrelatedtoitsoverseasbusinessfromeconomic,financial,legalorpoliticalperspectives.

6

Equities●Machinery

27May2021

XCMGConstructionMachinery(000425CH,Hold,TPMB7.10)

On20April2021,XCMGannouncedpreliminaryplanstoacquire100%equityofitscontrollingshareholder–XCMLtd–throughashareplacement.XCMLtd’sconstructionmachinerybusiness(mainlyexcavator,concretemachinery,towercraneandminingmachinery)wouldbeinjectedintothelistedcompany–XCMG–uponrestructuring.

Basedonthecurrentdisclosure,weestimatetherestructuringcouldaddaroundRMB25-30bnto2021erevenueandRMB0.9-1bntonetprofit.Theeventispositiveforsharepricesentimentintheshortterm,butweareconservativeonthecompany’sprospectspost-reformfromtheperspectiveofprofitabilityimprovementandriskcontrol.

Exhibit15.XCMLtd’sshareholdingstructurebeforerestructuring

XCMLtd

XCMLtd’sconstructionmachinery-relatedbusiness

100%

75%

24.92%

100%

38.11%

100%

100%

100%

100%

XCM

XCM

XCM

XCM

XCMG–

XCM

XCMPort

XCM

XCM

Othernon-CM

Excavator

Schwing

Mining

Jianji

000425CH

Guanglian

Machinery

Research

Precision

business

Machinery

rental

Technology

XCMFireSafety

XCMTruck-

XCM

XCMRoad

XCM

XCMBasis

XCMSpecial

XCM

Other

Machinery

Equipment

mountedcrane

Heavy

Construction

Chongqing

Engineering

Hydraulic

Machinery

component

Source:

C

ompanydata,HSBCQianhaiSecurities

Exhibit16.XCMLtd’smachinery-relatedbusiness

Nameof

%of

9M20

subsidiary

shareholding

Mainbusiness

Revenue

Netprofit

Netmargin

RMBm

RMBm

XCMExcavator

100%

Excavatorandparts

16,044

689

4.3%

XCMJianji

100%

Towercrane

4,509

143

3.2%

XCMSchwing

75%

Concretemachinery

4,410

-61

-1.4%

XCMG

38.11%

Listedcompany;crane,pilingmachine,

51,287

2,434

4.7%

scraper,roadmachinery,fire-fightingvehicle

XCMMining

24.92%

Miningmachinery

1,866

-48

-2.6%

Source:Companydata,HSBCQianhaiSecurities

Exhibit17.XCMLtdrevenue

Exhibit18.XCMLtdnetprofit

80,000

1,600

70,000

1,400

60,000

1,200

50,000

1,000

40,000

800

30,000

600

20,000

400

10,000

200

0

0

2017

2018

2019

9M20

2017

2018

2019

9M20

Revenue-RMBm

Netprofit-RMBm

Source:Companydata,HSBCQianhaiSecurities

Source:Companydata,HSBCQianhaiSecurities

7

Exhibit19.Chinatruckcranemarketsharebreakdown

100%

90%

80%

29%

70%

60%

50%

28%

40%

30%

20%

36%

10%

0%

2014

2015

2016

2017

2018

2019

9M20

XCMGmarketshare

Sany

Zoomlion

Others

Source:Wind,CCMA,HSBCQianhaiSecurities

Equities●Machinery

27May2021

Exhibit20.XCMLtdconcretemachinerysalesandmarketsharebreakdown

5000

15%

4000

10%

3000

2000

5%

1000

0

0%

2017

2018

2019

9M20

Concretepumptruck

Concretemixer

Pumpmarketshare

Mixermarketshare

Source:Companydata,HSBCQianhaiSecurities

What’schanged?

Astherestructuringplanispendingregulatoryapproval,wedonotfactorinthedealinourestimates.In1Q21,XCMGreportednetprofitofRMB1.7bn,up182%y-o-yand64%vs1Q19.GPMof17%was2pptlowerthanthatin1Q20.Weraise2021ecranerevenueforecastby

1.5%toreflectsolidindustrydemandbutcutour2022eestimateby5.2%onthehighbase.WeestimatecraneGPMtostayflatin2021eanddropby0.2pptin2022e.Asaresult,welowerourrevenueforecastsby0.6%and8.4%for2021eand2022e,respectively.WereduceourEPSestimatesby27.1%and37.1%in2021eand2022e,respectively,duetoourlargeestimatesofcreditimpairmentloss.Weintroduceour2023eEPSestimateofRMB0.69inthisreport.

Exhibit21.XCMG:Changestorevenueandearningsforecast

______________2021e________________

_______________2022e_______________

2023e

RMBm

Old

New

changes

Old

New

changes

New

Revenue

82,991

82,457

-0.6%

98,339

90,031

-8.4%

96,156

Grossprofit

14,727

14,231

-3.4%

17,593

15,478

-12.0%

16,417

Netprofit

6,199

4,521

-27.1%

7,992

5,030

-37.1%

5,386

EPS

0.79

0.58

-27.1%

1.02

0.64

-37.1%

0.69

Source:HSBCQianhaiSecuritiesestimates

Exhibit22.XCMG:Changestosegmentrevenue

______________

2021e____________

_______________2022e_____________

2023e

RMBm

Old

New

changes

Old

New

changes

New

Crane

30,000

30,463

1.5%

36,000

34,118

-5.2%

35,824

Parts&Accessories

18,878

20,305

7.6%

22,654

23,350

3.1%

26,853

Scraper

9,099

6,748

-25.8%

10,918

6,748

-38.2%

6,748

Pilingmachinery

7,816

7,478

-4.3%

8,988

7,478

-16.8%

7,478

Othermachinery

17,198

17,464

1.5%

19,778

18,337

-7.3%

19,254

Source:HSBCQianhaiSecuritiesestimates

8

Equities●Machinery

27May2021

Exhibit23.XCMG:ChangestosegmentGPM

______________

2021e_____________

______________2022e______________

2023e

Old

New

Change

Old

New

Change

New

OverallGPM

17.7%

17.3%

-0.5

17.9%

17.2%

-0.7

17.1%

Crane

22.2%

22.2%

0.0

22.4%

22.2%

-0.2

22.4%

Parts&Accessories

11.1%

10.0%

-1.1

11.3%

10.0%

-1.3

10.0%

Scraper

18.8%

18.5%

-0.3

19.0%

18.5%

-0.5

18.5%

Pilingmachinery

21.1%

21.0%

-0.1

21.3%

21.0%

-0.3

21.0%

Othermachinery

15.7%

15.0%

-0.7

15.9%

15.0%

-0.9

15.0%

Source:HSBCQianhaiSecuritiesestimates

Exhibit24.XCMG:EPSsensitivityanalysistosegmentGPMadjustment

___________________________EPSchange___________________________

2021e

2022e

2023e

GPMofcranesegmentiscutby1ppt

-4.6%

-4.3%

-4.0%

GPMofcranesegmentiscutby3ppt

-13.9%

-12.8%

-11.9%

Source:HSBCQianhaiSecuritiesestimates,

Exhibit25.XCMG:OurestimatesvsBloombergconsensus

_______HSBCQianhai_______

________Consensus_________

________

Difference_________

RMBm

2021e

2022e

2023e

2021e

2022e

2023e

2021e

2022e

2023e

Revenue

82,457

90,031

96,156

83,424

89,635

93,228

-1.2%

0.4%

3.1%

GrossProfit

14,231

15,478

16,417

14,789

15,809

16,195

-3.8%

-2.1%

1.4%

GPM

17.3%

17.2%

17.1%

17.7%

17.6%

17.4%

-0.5

-0.4

-0.3

Netprofit

4,521

5,030

5,386

5,593

6,352

6,653

-19.2%

-20.8%

-19.0%

Source:Bloomberg,HSBCQianhaiSecuritiesestimates

Valuationandrisks

WelowerourtargetPBmultipleto1.4x(historicalaverage)from1.8x(20%abovethestock’shistoricalaverageof1.5x).WebelieveourtargetPBlooksreasonable,given2021-23eaverageROEof13%vsthepreviousestimateof2021-22eROEof16%,and2010-20ROEof11%.WeapplythetargetPBtoour2021-22eBVPSofRMB5.0(previously2020eBVPSestimateofRMB4.8)andderiveournewtargetpriceofRMB7.10(earlierRMB8.40)OurnewTPimplies5%upsidefromcurrentlevels.WedowngradethestocktoHoldfromBuyaswebelievethepositivesofSOE-reformarepricedinandweareconservativeonthecompany’sprofitabilityandriskcontrol.

Sharepriceperformance:XCMGoutperformedwiththesharepriceup26%YTD(vstheindexat2%).ItismainlydrivenbytheanticipationofSOEreform.Thecompanyreleasedapreliminaryassetinjectionplanon21April2021,whichwasreflectedinthesharepricemoveme