三一重工：Earnings upside +multiple expansion_股票频道

We see potential re-rating opportunity on SANY given that:

(1) excavator demandwill continue to be driven by structural drivers, making the upcoming sales moresustainable;

(2) SANY’s digital transformation strategy will help widen itscompetitive edge over competitors;

(3) Overseas expansion will offer hugeopportunity. As such, we believe market will gradually price SANY as a growthstock instead of a cyclical growth. We revised up our earnings forecast in 2020E-22E by 6-14%. Our new TP of RMB49.5is based on 22x 2021E PE (up from 17x),on the back of 22% earnings growth in 2021E. We believe surprise on excavatordemand in 1Q21E will serve as a strong near-term catalyst. Reiterate BUY.Digital transformation to enhance global competitiveness. SANY startedthe digital transformation of intelligent manufacturing years ago, which hasenabled SANY to gradually achieve higher production efficiency. In 2019,SANY’s revenue per employee reached US$590k, surpassing that ofCaterpillar (CAT US) (US$530k). Going forward, with the commencement ofmore light tower plants and further digital transformation, we expect SANY’sglobal competitiveness will be further enhanced.n Overseas opportunity. Caterpillar generated ~60% of revenue outside theUS, while Komatsu (6301JP) generated >70% of revenue outside Japan foryears. We see huge potential for SANY to expand outside China given thatoversea accounted for <20% of total revenue between 2019and 1H20. Withenhancing products quality and the continuous sales network construction, webelieve overseas markets will become an important revenue driver over thecoming years. We believe the increase in overseas exposure will smooth theearnings trend of SANY going forward, which will help boost the valuation.Higher industry forecast on excavator. According to CCMA, excavatorsales by major producers in China increased 39% YoY to 328k units in 2020,a record high. Going forward, we see the continuous replacement of labour,substitution of wheel loader and tightening emission standard as structuralgrowth drivers. We revise up our excavator demand growth forecast in 2021Eto 10% from 3%. Based on the feedback from the upstream supply chain, weexpect the excavator demand growth will remain strong in 1H21E. We expectexcavator sales growth of >70% YoY in 2M21E, which should surprise themarket on the upside.Key risks:

(1) Risk of overseas business due to pandemic;

(2) Slowdown ofconstruction activities;

(3) Risk of expanding to financing business.