CMB International Global Markets | Equity Research | Company Update PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE MORE REPORTS FROM BLOOMBERG: RESP CMBR OR .hk China Capital Goods Wayne Fung, CFA (852) 3900 0826 .hk Stock Data Mkt Cap (HK$ mn) 26,148 Avg 3 mths t/o (HK$ mn) 18.1 52w High/Low (HK$) 10.80/6.93 Total Issued Shares (mn) 3,154 Source: Bloomberg Shareholding Structure Sany Heavy Equipment Investments Company 67.7% Free float 32.3% Source: HKEx Share Performance Absolute Relative 1-mth 0.5% 4.1% 3-mth 11.7% 17.6% 6-mth -13.0% -2.1% Source: Bloomberg 12-mth Price Performance Source: Bloomberg Auditor: Ernst & Young Related Reports 1. SANY Intl NDR takeaways: Growth to accelerate in 2022E on strong backlog 20 Jan 2022 2. SANY Intl 3Q21 Net profit +8%, in line with estimates; Revenue growth acceleration a positive sign 1 Nov 2021 3. SANY Intl Good crisis management to remove impact of power suspension; Solid coal mining equipment order intakes 4 Oct 2021 0 . 02. 04. 06 . 08. 010 .012 .03/ 20 2 1 6/ 20 2 1 9/ 20 2 1 12 /20 2163 1 HK HS I (r eb as ed )( HK $)BUY (Maintain) Target Price HK$14.60 (Previous TP HK$14.60) Up/Downside +76.1% Current Price HK$8.29 1 31 Mar 2022 We joined SANYI post-results briefing and hosted NDR for SANYI yesterday. Management provided upbeat guidance for 2022E: (1) YTD, both mining and logistics equipment achieved higher revenue growth than the full year revenue growth of 38% in 2021; (2) SANYI is confident of delivering 50%/100% revenue growth of mining equipment/logistics equipment in the overseas market; (3) Intelligent and electric products are gaining traction and the ratio is expected to further increase this year (2021: 15%), which will help improve gross margin; (4) Expansion into new energy business through potential M&A. All these reaffirm our positive stance on SANYIs structural growth story. Maintain BUY with unchanged TP at HK$14.6, based on 23x 2022E P/E (1x PEG on the back of 23% earnings CAGR in 2022E-24E). Mining equipment: For road header, sales volume in Jan reached 91 units and the monthly shipment at present is 70-80 units, much higher than 50 units a year ago. The growth is driven by the demand for the industry as a whole. For combined coal mining equipment (CCMU), SANYI targets to achieve 50% YoY in 2022E. SANYI expects the upcycle of coal mining machinery to sustain over the coming 2-3 years, driven by the increase in mechanization rate, improvement of safety standard and security of coal supply. Given the strong backlog, SANYI has already started planning the capacity in 2023E. Robust overseas demand. SANYI targets to achieve 50% YoY revenue growth of mining equipment in the overseas this year, and sales was on track in 1Q22. For logistics equipment (overseas), SANYI aims to double the revenue this year. Orders from Europe and the US already covered the capacity in 2H22E. While there exists bottleneck in certain import components due to the global supply chain issue, the Company expects the full year shipment target will not be a problem. Stabilization of gross margin this year. Gross margin contraction in 2H21 was due to high steel price, high freight rate as well as high initial costs for some new models of logistics equipment. SANYI aims to achieve a stable gross margin this year, driven by increasing contribution of higher margin intelligent products, reduction of steel price and other operating cost reduction measures. Earnings Summary (YE 31 Dec) FY20A FY21A FY22E FY23E FY24E Revenue (RMB mn) 7,364 10,195 15,293 18,403 21,739 YoY growth (%) 30.2 38.4 50.0 20.3 18.1 Net income (RMB mn) 1,045 1,259 1,655 1,992 2,327 EPS (RMB) 0.34 0.40 0.53 0.63 0.74 YoY growth (%) 12.5 19.3 31.5 20.3 16.8 Consensus EPS (RMB) N/A N/A 0.50 0.62 N/A EV/EBITDA (x) 13.3 11.6 8.6 7.3 6.4 P/E (x) 21.0 16.5 12.7 10.5 9.0 P/B (x) 2.8 2.4 2.1 1.8 1.6 Yield (%) 1.9 1.9 2.4 3.0 3.5 ROE (%) 14.0 15.2 17.7 18.6 18.9 Net gearing (%) Net cash Net cash Net cash Net cash Net cash Source: Company data, Bloomberg, CMBIGM estimates SANY International (631 HK) Post-results and NDR takeaways: Expect a strong year in 2022E 31 Mar 2022 PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE 2 Figure 1: SANYIs 2021 segment breakdown Source: Company data, CMBIGM estimates Figure 2: SANYIs 2021 results review Source: Company data, CMBIGM estimates Figure 3: SANYIs quarterly results Source: Company data, CMBIGM estimates ( R M B m n ) 2020 2021 C h a n g e ( Y o Y ) 1 H 2 0 1 H 2 1 C h a n g e ( Y o Y ) 2 H 2 0 2 H 2 1 C h a n g e ( Y o Y )R e v e n u eM i n i n g e q u i p m e n t s a l e s 5 , 1 4 7 7 , 4 3 2 4 4 . 4 % 2 , 5 4 7 3 , 5 8 4 4 0 . 7 % 2 , 6 0 0 3 , 8 4 8 4 8 . 0 % S a l e s 4 , 8 4 6 6 , 8 9 6 4 2 . 3 % 2 , 3 7 0 3 , 2 2 7 3 6 . 2 % 2 , 4 7 7 3 , 6 6 9 4 8 . 1 % O t h e r s 301 536 7 8 . 1 % 178 357 1 0 1 . 1 % 123 179 4 5 . 0 %L o g i s t i c s e q u i p m e n t s a l e s 2 , 6 3 7 3 , 5 0 3 3 2 . 8 % 1 , 4 8 3 1 , 8 5 8 2 5 . 3 % 1 , 1 5 4 1 , 6 4 5 4 2 . 6 % S a l e s 2 , 5 1 8 3 , 2 9 9 3 1 . 0 % 1 , 4 4 6 1 , 7 5 7 2 1 . 6 % 1 , 0 7 2 1 , 5 4 1 4 3 . 8 % O t h e r s 119 204 7 1 . 4 % 38 101 1 6 8 . 4 % 82 103 2 6 . 7 %T o t a l r e v e n u e 7 , 7 8 4 1 0 , 9 3 5 4 0 . 5 % 4 , 0 3 0 5 , 4 4 2 3 5 . 0 % 3 , 7 5 4 5 , 4 9 2 4 6 . 3 %S e g m e n t E B I TE n e r g y e q u i p m e n t 894 1 , 2 2 9 3 7 . 4 % 561 783 3 9 . 7 % 334 446 3 3 . 7 %P o r t m a c h i n e r y 392 278 - 2 9 . 1 % 249 192 - 2 2 . 9 % 143 86 - 3 9 . 8 %T o t a l s e g m e n t r e s u l t s 1 , 2 8 6 1 , 5 0 7 1 7 . 2 % 810 975 2 0 . 4 % 477 532 1 1 . 6 %S e g m e n t m a r g i n ppt pptE n e r g y e q u i p m e n t 1 7 . 4 % 1 6 . 5 % - 0 . 0 2 2 . 0 % 2 1 . 8 % - 0 . 0 1 2 . 8 % 1 1 . 6 % - 0 . 1 P o r t m a c h i n e r y 1 4 . 9 % 7 . 9 % - 0 . 5 1 6 . 8 % 1 0 . 3 % - 0 . 4 1 2 . 4 % 5 . 2 % - 0 . 6 A v e r a g e 1 6 . 5 % 1 3 . 8 % - 0 . 2 2 0 . 1 % 1 7 . 9 % - 0 . 1 1 2 . 7 % 9 . 7 % - 0 . 2 Y E D e c 3 1 ( R M B m n ) 2020 2021 C h a n g e ( Y o Y ) 1 H 2 0 1 H 2 1 C h a n g e ( Y o Y ) 2 H 2 0 2 H 2 1 C h a n g e ( Y o Y )R e v e n u eM i n i n g e q u i p m e n t 4 , 8 4 6 6 , 8 9 6 4 2 . 3 % 2 , 3 7 0 3 , 2 2 7 3 6 . 2 % 2 , 4 7 7 3 , 6 6 9 4 8 . 1 %L o g i s t i c s e q u i p m e n t 2 , 5 1 8 3 , 2 9 9 3 1 . 0 % 1 , 4 4 6 1 , 7 5 7 2 1 . 6 % 1 , 0 7 2 1 , 5 4 1 4 3 . 8 %T o t a l r e v e n u e 7 , 3 6 4 1 0 , 1 9 5 3 8 . 4 % 3 , 8 1 5 4 , 9 8 4 3 0 . 6 % 3 , 5 4 9 5 , 2 1 0 4 6 . 8 %C o s t o f s a l e s ( 5 , 4 0 3 ) ( 7 , 8 0 5 ) 4 4 . 5 % ( 2 , 7 8 5 ) ( 3 , 7 6 9 ) 3 5 . 3 % ( 2 , 6 1 8 ) ( 4 , 0 3 6 ) 5 4 . 2 %G r o s s p r o f i t 1 , 9 6 1 2 , 3 9 0 2 1 . 9 % 1 , 0 3 0 1 , 2 1 5 1 8 . 0 % 931 1 , 1 7 5 2 6 . 2 %O t h e r i n c o m e 237 391 6 4 . 8 % 215 458 1 1 2 . 8 % 22 ( 6 7 ) - 4 0 3 . 5 %O t h e r g a i n s a n d l o s s e s 257 347 3 4 . 9 % 57 19 - 6 6 . 3 % 200 327 6 3 . 4 %S & D e x p e n s e s ( 4 3 0 ) ( 5 6 7 ) 3 1 . 6 % ( 1 8 0 ) ( 2 4 4 ) 3 5 . 7 % ( 2 5 1 ) ( 3 2 3 ) 2 8 . 7 %A d m i n i s t r a t i v e e x p e n s e s ( 7 0 7 ) ( 1 , 0 5 3 ) 4 9 . 0 % ( 3 1 1 ) ( 4 7 0 ) 5 1 . 3 % ( 3 9 6 ) ( 5 8 3 ) 4 7 . 1 %O t h e r e x p e n s e s ( 3 1 ) ( 1 ) - 9 7 . 8 % ( 2 ) ( 3 ) n / a ( 3 0 ) 3 n / aE B I T 1 , 2 8 6 1 , 5 0 7 1 7 . 2 % 810 975 2 0 . 4 % 477 532 1 1 . 6 %N e t f i n a n c e i n c o m e / ( c o s t ) ( 9 6 ) ( 6 9 ) - 2 8 . 2 % ( 5 6 ) ( 2 9 ) - 4 7 . 9 % ( 4 0 ) ( 4 0 ) - 0 . 9 % F i n a n c e i n c o m e 36 51 4 0 . 0 % 19 26 3 5 . 3 % 17 24 4 5 . 4 % F i n a n c e e x p e n s e s ( 1 3 2 ) ( 1 2 0 ) - 9 . 5 % ( 7 5 ) ( 5 5 ) - 2 6 . 5 % ( 5 7 ) ( 6 4 ) 1 2 . 8 %S h a r e o f p r o f i t o f J V a n d a s s o c i a t e s 0 0 n / a 0 0 n / a 0 0 n / aP r e t a x p r o f i t 1 , 1 9 0 1 , 4 3 8 2 0 . 8 % 754 946 2 5 . 5 % 436 492 1 2 . 8 %I n c o m e t a x ( 1 3 9 ) ( 1 2 9 ) - 7 . 1 % ( 1 1 5 ) ( 1 1 7 ) 1 . 4 % ( 2 3 ) ( 1 2 ) - 4 9 . 2 %A f t e r t a x p r o f i t 1 , 0 5 2 1 , 3 0 9 2 4 . 5 % 639 829 2 9 . 8 % 413 480 1 6 . 3 %MI ( 6 ) ( 5 0 ) 6 8 2 . 0 % 1 ( 1 8 ) n / a ( 7 ) ( 3 2 ) n / aN e t p r o f i t 1 , 0 4 5 1 , 2 5 9 2 0 . 5 % 640 811 2 6 . 8 % 405 448 1 0 . 5 % D & A 249 249 - 0 . 1 % 124 126 1 . 8 % 125 122 - 1 . 9 % E B I T D A 1 , 5 3 5 1 , 7 5 6 1 4 . 4 % 934 1 , 1 0 1 1 7 . 9 % 601 654 8 . 8 %R M B m n 1 Q 2 0 1 Q 2 1 C hg ( Y oY ) 2 Q 2 0 2 Q 2 1 C hg ( Y oY ) 3 Q 2 0 3 Q 2 1 C hg ( Y oY ) 4 Q 2 0 4 Q 2 1 C hg ( Y oY )R e v e n u e 1 , 5 5 3 2 , 4 1 1 55% 2 , 2 6 2 2 , 5 7 3 14% 1 , 6 8 9 2 , 5 5 7 51% 1 , 8 6 0 2 , 6 5 3 43%C o s t o f s a l e s ( 1 , 1 4 6 ) ( 1 , 7 9 0 ) 56% ( 1 , 6 3 9 ) ( 1 , 9 8 0 ) 21% ( 1 , 1 9 0 ) ( 1 , 9 6 3 ) 65% ( 1 , 4 2 8 ) ( 2 , 0 7 3 ) 45%G r o s s p r o f i t 407 622 53% 623 593 - 5 % 499 594 19% 432 580 34% G r o s s m a r g i n 2 6 . 2 % 2 5 . 8 % 2 7 . 5 % 2 3 . 1 % 2 9 . 5 % 2 3 . 2 % 2 3 . 2 % 2 1 . 9 %P r e t a x p r o f i t 296 368 24% 458 578 26% 278 298 7% 158 194 22% P r e t a x p r o f i t m a r g i n 1 9 . 1 % 1 5 . 3 % 2 0 . 2 % 2 2 . 5 % 1 6 . 5 % 1 1 . 7 % 8 . 5 % 7 . 3 %N e t pr of i t 257 340 32% 383 471 23% 264 284 8% 142 164 15% N e t m a r g i n 1 6 . 5 % 1 4 . 1 % 1 6 . 9 % 1 8 . 3 % 1 5 . 6 % 1 1 . 1 % 7 . 6 % 6 . 2 %31 Mar 2022 PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE 3 Figure 4: SANYIs revenue breakdown by product (2021) Source: Company data, CMBIGM Figure 5: SANYIs revenue breakdown by region Source: Company data, CMBIGM Figure 6: Change in key assumptions Source: Company data, CMBIGM estimates Figure 7: China raw coal production (annual) Source: Wind, CCTDCOAL, CMBIGM Figure 8: China raw coal production (monthly) Source: Wind, CCTDCOAL, CMBIGM Road he ad er20%Com bi ne d c oa l m i ni ng un i ts ( CCMU)19%S m a l l - s i z e p o r t m ac hi ne r y27%La r ge - s i z e po r t m ac hi ne r y9%Mi ni ng tr uc k s17%A f te r s a l e s s erv i c e8%R e g i o n 2019 2020 2021( R M B m n )M a i n l a n d C h i n a 4 , 5 9 5 6 , 0 0 3 8 , 0 9 9A s i a ( e x - C h i n a ) 588 708 1 , 0 4 8E u r o p e a n U n i o m 69 137 269U S A 139 238 338O t h e r s 266 278 441T o t a l 5 , 6 5 6 7 , 3 6 4 1 0 , 1 9 5C h a n g e ( Y o Y )M a i n l a n d C h i n a 3 2 . 6 % 3 0 . 6 % 3 4 . 9 %A s i a ( e x - C h i n a ) - 3 . 6 % 2 0 . 4 % 4 8 . 1 %E u r o p e a n U n i o m - 5 1 . 3 % 9 8 . 4 % 9 5 . 7 %U S A 7 0 . 8 % 7 1 . 3 % 4 2 . 1 %O t h e r s 1 2 0 . 6 % 4 . 7 % 5 8 . 6 %A v e r a g e 2 8 . 1 % 3 0 . 2 % 3 8 . 4 %O l d N e w C h a n g e2022E 2023E 2022E 2023E 2022E 2023E(R M B m n )R e v e n u eR o a d h e a d e r 2 , 5 2 2 2 , 6 7 6 2 , 6 0 0 2 , 9 1 7 3 . 1 % 9 . 0 %C o m b i n e d co a l m i n i n g u n i t s (C C M U ) 2 , 9 2 2 3 , 3 6 1 2 , 8 5 9 3 , 2 8 8 -2 . 2 % -2 . 2 %Sm a l l -s i z e p o rt m a ch i n e ry 2 , 9 7 0 3 , 4 7 5 3 , 3 6 9 3 , 9 4 2 1 3 . 4 % 1 3 . 4 %L a rg e -s i z e p o rt m a ch i n e ry 1 , 3 3 9 1 , 6 6 1 1 , 3 4 4 1 , 6 6 7 0 . 4 % 0 . 4 %M i n i n g t ru cks 2 , 7 0 0 3 , 7 0 4 2 , 7 5 2 3 , 7 7 7 1 . 9 % 2 . 0 %A f t e r s a l e s s e rv i ce 918 1 , 0 0 9 988 1 , 0 8 7 7 . 7 % 7 . 7 %Robot 1 , 2 9 6 1 , 6 2 0 1 , 3 8 0 1 , 7 2 5 6 . 5 % 6 . 5 %T o t a l 1 4 , 6 6 8 1 7 , 5 0 5 1 5 , 2 9 3 1 8 , 4 0 3 4 . 3 % 5 . 1 %C h a n g e (p p t )Bl e n d e d g ro ss m a rg i n 2 5 . 6 % 2 5 . 1 % 2 3 . 9 % 2 3 . 7 % (1 . 7 ) (1 . 5 )C h a n g e (p p t )S& D e xp e n se ra t i o 5 . 8 % 5 . 8 % 5 . 6 % 5 . 6 % (0 . 2 ) (0 . 2 )Ad m i n e xp e n se ra t i o 9 . 9 % 9 . 6 % 9 . 8 % 9 . 7 % (0 . 1 ) 0 . 1N e t p r o fi t 1 , 6 5 9 1 , 9 6 5 1 , 6 5 5 1 , 9 9 2 -0 . 2 % 1 . 3 %- 15%- 10%- 5%0%5%10 %15 %20 %25 %0. 00 . 51. 01. 52. 02. 53 . 03. 54. 04. 5B n to n n e sRa w c oa l p ro du ct io n (b n to nn es ) Ch an ge (Y oY ) - R HS-2 0 %-1 5 %-1 0 %-5 %0%5%1 0 %1 5 %2 0 %2 5 %3 0 %0501 0 015 020 025 03 0 03 5 04 0 04 5 0m n to n n e sRa w c oal pr oduc t ion v olum e C h a n g e ( Y o Y )31 Mar 2022 PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE 4 Figure 9: China coal mining FAI Source: Wind, NBS, CMBIGM Figure 10: China coal mining FAI growth (YTD) Source: Wind, NBS, CMBIGM Figure 11: China coal miners monthly profit & margin Source: Wind, NBS, CMBIGM Figure 12: China Qinhuangdao Port 5500 kcal price Source: Bloomberg, CMBIGM Major risk factors: (1) weakness in mining activities; (2) higher-than-expected expense for new products; (3) continuous increase in raw material cost and freight rate. ( 30 )( 20 )( 10 )01020304050607080010 020 030 040 050 060 0RM B b nCoa l m i ni ng F A I ( RM B b n) % c ha n ge ( Y oY ) - R HS( 4 0 )( 30 )( 20 )( 10 )01020304050%Chi n a c o a l m i n i n g c a p e x g ro wth (Yo Y)-5 %0%5%1 0 %1 5 %20 %2 5 %3 0 %3 5 %(2 0 ,0 0 0 )02 0 ,0 0 04 0 ,0 0 06 0 ,0 0 08 0 ,0 0 01 0 0 ,0 0 01 2 0 ,0 0 01 4 0 ,0 0 01 6 0 ,0 0 0(RM B m n )M ont hly prof it (R m b m n) Prof it m argin020040060080010001200140016001800C h ina Qi n h u a n g d a o P o r t 5 5 0 0 k c a l/ k g The r m a l FOB - R M B / Met r ict o n n e31 Mar 2022 PLEASE READ THE ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES ON LAST PAGE 5 Financial Summary Income statement Cash flow statement YE 31 Dec (RMB mn) FY20A FY21A FY22E FY23E FY24E YE 31 Dec (RMB mn) FY20A FY21A FY22E FY23E FY24E Revenue Pretax profit 1,190 1,438 1,972 2,372 2,771 - Mining equipment 4,846 6,896 9,002 10,852 12,811 Finance cost 132 120 130 130 123 - Logistics equipment 2,518 3,299 4,911 5,826 6,772 Interest income (36) (51) (57) (61) (70) Total revenue 7,364 10,195 15,293 18,403 21,739 Share of profit or loss of associates 0 0 0 0 0 Cost of sales (5,403) (7,805) (11,642) (14,048) (16,676) Depreciation and amortization 249 249 323 344 351 Gross profit 1,961 2,390 3,651 4,355 5,063 Income tax paid (108) (129) (256) (308) (360) Other income 237 391 489 589 696 Change in working capital 105 475 (858) (910) (771) Other gains and losses 257 347 306 368 435 Others (462) (1,179) 0 0 0 S&D expenses (430) (567) (856) (1,031) (1,217) Cash flow from operation 1,070 923 1,253 1,567 2,043 Administrative expenses (707) (1,053) (1,499) (1,785) (2,087) Net capex on PP&E (334) (944) (500) (300) (100) Other expenses (31) (1) (46) (55) (65) Interest received 36 51 57 61 70 EBIT 1,286 1,507 2,045 2,441 2,824 Others (349) 598 0 0 0 Net finance income/(cost) (96) (69) (73) (69) (53) Cash flow from investing (647) (296) (443) (239) (30) Finance income 36 51 57 61 70 Proceeds from equity financing/(repurchase) 30 0 0 0 0 Finance expenses (132) (120) (130) (130) (123) Net bank borrowings (113) 317 0 0 100 Share of JV and associates 0 0 0 0 0 Dividend paid (394) (408) (385) (513) (617) Pretax profit 1,190 1,438 1,972 2,372 2,771 Interest paid (132) (120) (130) (130) (123) Income tax (139) (129) (256) (308) (360) Others 8 (16) 0 0 0 After tax profit 1,052 1,309 1,715 2,064 2,411 Cash flow from financing (602) (227) (514) (643) (640) MI (6) (50) (60) (72) (84) Net profit 1,045 1,259 1,655 1,992 2,327 Change in cash (179) 400 295 685 1,373 Cash at beginning of the year 1,103 941 1,349 1,645 2,330 D&A 249 249 323 344 351 Exchange gain