2023 net profit a miss; 1Q24 still weak; Stay on the sidelines

Investment Rating - The report maintains a HOLD rating for SANY Heavy with a new target price of RMB14.80, revised from RMB12.30, based on a 24x 2024E P/E ratio [2][3]. Core Insights - SANY Heavy's net profit for 2023 was RMB4.53 billion, a 6% year-over-year increase, but 12% below estimates. The 1Q24 net profit grew only 5% year-over-year to RMB1.58 billion, attributed to a revenue decline of 1% year-over-year [2][3]. - Concerns persist regarding a potential slowdown in exports, particularly in Europe, impacting overall performance [2][3]. - The report anticipates a moderate recovery in the Chinese market, leading to an 8% increase in 2025E earnings estimates, although these remain 24% to 29% below consensus [2][3]. Financial Performance Summary - 2023 Results: Revenue decreased by 17% year-over-year to RMB17.9 billion, with a gross margin contraction of 1.9 percentage points to 25.6%. Net profit fell by 29% year-over-year to RMB480 million [2][3]. - 1Q24 Results: Revenue dropped 1% year-over-year, but gross margin improved by 0.5 percentage points to 28.4%. Operating cash flow significantly improved to RMB4.38 billion compared to -RMB1.6 billion in 1Q23 [2][3]. - Overseas Revenue: In 2H23, overseas revenue (62% of total) grew 4% year-over-year to RMB20.8 billion, with Europe showing a 15% increase to RMB8.1 billion [2][3][7]. Valuation and Market Outlook - The target price of RMB14.80 reflects a valuation that is 0.5 standard deviations above the average P/E of 20x since 2017, indicating initial signs of stabilization in excavator sales in China [2][3]. - Upside risks include stabilization in property investment in China, while downside risks involve further declines in overseas demand [2][3].