Zoomlion Heavy Industry
Zoomlion is a leading construction machinery manufacturer with a diverse product line and potential for strong earnings growth in the next few years. Besides, Zoomlion finished its management buy-outs (MBO) in 2009; its operation and management system are expected to improve with more participation from management. This is likely to be key to Zoomlion’s ability to achieving its long-term aim: to be among the top five construction machinery manufacturers globally with annual revenue of Rmb100 bn. Our DCF-based target price of HK$22.06 implies 20% potential upside.
Recently, manufacturers
have turned more bullish on their equipment sales and industry demand outlook for 2011. Major equipment sales will likely be better than expected. The upcoming strong season should lead to upward revisions in consensus estimates and drive the stock price performance. Also, the upcoming Sany A share dual-listing, longer version of the 12th Five-Year Plan (FYP) and initiation by other brokers could represent catalysts for its share price.
In our view, investment is still the focus of local governments in China to drive economic growth in the next five years. As a key player in the Chinese construction machinery sector, Zoomlion should achieve strong growth by gaining market share. We expect the company to have a net profit CAGR of 39% over FY10-12, driven by robust demand, capacity expansion, improving corporate management, rising market share of major products, further consolidation with CIFA and an expanding distribution system. Zoomlion crawler cran ZCC1100H PDF manuals,Zoomlion Crane RT100 PDF manuals,Zoomlion Crane RT75 PDF manuals,Zoomlion Crane RT60 PDF manuals,Zoomlion Crane RT55 PDF manuals,Zoomlion Crane RT35 PDF manuals,Zoomlion Crawler Crane QUY260 PDF manuals,zoomlion qy70v manual pdf,zoomlion crane manual pdf,zoomlion 80 ton crane,zoomlion qay 2000 load chart,zoomlion headquarters,zoomlion crane 75 ton,zoomlion crane spare parts.
Gaining market share to achieve above-average growth
Among major competitors, Zoomlion has the most diverse product mix. The acquisition of CIFA in 2008 also helped Zoomlion become a leading concrete machinery supplier globally. We expect the company to increase its market share of major products by improving the entire corporate operating system after MBO (management buy-outs), launching new products and models, introducing the CIFA technology, expanding capacity and completing/consolidating its distribution system in local and global markets. For Zoomlion, we forecast a 2010-12 net profit CAGR of 39%. Product mix upgrades to largersize and higher-end products will partly offset the steel cost increase and keep gross margin stable in the next few years, in our view. We estimate its net margin will increase in 2011 due to savings on SG&A expenses and no further asset depreciation losses.
Taking more moves in the global market
In our view, the fast-growth period for the China construction machinery sector will come to an end sooner than later. For the leading companies, expansion in overseas markets is quite important to grow further in this space in the long term. Zoomlion has taken the first step by acquiring CIFA in 2008. In the next few years, the company will likely build its distribution system and production bases in major markets, which we expect to fuel the company’s sales increase in the long term. We expect Zoomlion’s top line to double in the next five years
Investment risks
The risks to our estimates include changes in government policies on infrastructure investment, slower-than-estimated property investment, increasing cash flow pressure from financial leasing, lower-than-estimated machine prices due to stiffer competition, higher-than-estimated steel costs, lower-than-estimated demand led by faster-thanestimated interest rate rise.
Valuation
Zoomlion is a leading construction machinery manufacturer with a diverse product line and potential for strong earnings growth in the next few years. Besides, Zoomlion finished its MBO in 2009; its operation and management system are likely to improve with more participation from management. This is likely to be key to Zoomlion’s ability to achieving its long-term aim: to be among the top five construction machinery manufacturers globally with annual revenue of Rmb100 bn.
We initiate coverage on Zoomlion H with an OUTPERFORM rating and a target price of HK$22.06, representing 16.6x P/E on 2011E. We think this is conservative, , which is lower than the average valuation of its global peers (18x). While Zoomlion’s EPS CAGR in 2010-12 is estimated to be 36%, higher than most of its local and global peers. We believe Zoomlion deserves a valuation premium on Lonking, because: (1) Lonking is a leading player in the sub-market, wheel loader; (2) it is much smaller than Zoomlion; (3) its product lines are not as diversified as Zoomlion’s; and (4) its major revenue contributor, wheel loader’s growth is expected to be weaker than other machines.
Chairman’s Statement
2020 is the last year for building a moderately prosperous society in all respects and carrying out the 13th Five-Year Plan. Zoomlion has comprehensively implemented the new development concept, accelerated the intelligent, digital and green transformation and upgrading, and achieved our best business performance as well as quality in history. “Steady for Far-Reaching” has become the basic logic throughout the development of enterprises. 2020 is the last year for building a moderately prosperous society in all respects and carrying out the 13th Five-Year Plan. Zoomlion has comprehensively implemented the new development concept, accelerated the intelligent, digital and green transformation and upgrading, and achieved our best business performance as well as quality in history. “Steady for Far-Reaching” has become the basic logic throughout the development of enterprises.
In 2020, based on the deep understanding of macro-economy and industrial laws, Zoomlion accelerated the creation of growth pole and growth point of advanced manufacturing industry. The competitive industries took advantage of the trend while the emerging industries accumulated richly and broke forth vastly, the combination of which contributed to the formation of a 100 billion level industrial cluster. In 2020, Zoomlion marched into the unknown area of scientific and technological innovation, continuously promoted the development of technologies and products to the in-depth intelligence, automation and new energy, and manufactured the extraordinary products based on the extraordinary thinking. In 2020, Zoomlion reshaped its management model, operation model and business model digitally, integrated Internet thinking into the whole chain of enterprise business, kept to it through the whole process of enterprise management and utilized it to activate the whole elements of enterprise development. In 2020, Zoomlion accelerated the overall planning of domestic and international markets, built a new model of “overseas airport + ground force”, and continuously launched the extraordinary products and services on the global market, offering new momentum of steady development surging in the new pattern of double cycle.