浙江鼎力：2Q20profit +78%YoY in line;Strong operating cash flow

Dingli’s net profit in 1H20grew 57% YoY RMB409mn, in line with the profit alertreleased in Jul. This implies a 78% YoY increase in 2Q20net profit to RMB284mn.Most notable is that the operating cash inflow in 1H20surged 12x YoY toRMB756mn, suggesting high earnings quality. We expect rising penetration ofaerial working platform (AWP) in China remains a structural growth story. Weslightly revised up our 2020E-22E earnings forecast by 1-3%. We lifted our TPfrom RMB81to RMB117, after rolling over our valuation base to 2021E (42x P/Emultiple unchanged). Reiterate BUY.n 2Q20results highlight: Revenue grew 135% YoY to RMB1.09bn in 2Q20,driven by strong demand for AWP in China. Gross margin contracted 3.3pptYoY to 37.4% which was due to more new competitors in the market. Sellingexpense and administrative expense ratio dropped 1.4ppt and 1.9ppt YoY,respectively, to 4.5% and 4.6%, helped by operating leverage. Operating cashinflow surged 6.4x YoY to RMB677mn, much higher than the net profit.n Strong demand in China to continue. In 1H20, the total revenue growth of77% YoY was driven mainly by China market, where revenue surged 172%YoY to RMB1.09bn, accounting for 76% of Dingli’s total revenue. Such growthwas stronger than the industry average of 54% YoY growth (in terms of volume,according to the figures from CCMA). Going forward, the construction of newproduction line for 3.2k units of boom lift with a focus on China market is aboutto complete. We expect a gradual capacity ramp-up in 4Q20E and the newproduction line will serve as a key growth driver for Dingli in 2021E.n Recovery in the overseas market will offer additional upside. Dingli’soverseas revenue (focus mainly on the US and Europe) dropped 9% YoY toRMB350mn (accounted for 24% of total revenue), largely due to the COVID-related shutdown. That said, such decline was less than the industry averagedecline of 19%. Indeed, improvement in overseas market has been seen asDingli received orders early this month for 300units of boom lifts from Collé,an equipment leasing company in Europe. Going forward, we expect thegradual re-opening of the overseas economies will offer upside to the AWPsales.n Major risk factors:

(1) Price competition due to more new entrants in the AWPmarket;

(2) prolonged impact of COVID-19in overseas;

(3) Unexpected slowdownof construction activities in China.