中联重科:Profit surprise in 3Q20reaffirms our positive view

Zoomlion released a positive profit alert last night, stating that the net profit in 3Q20E would surge 64-97% YoY to RMB1.48-1.78bn. The high-end of the range is above our expectation. We expect Zoomlion’s growth will continue to be driven by both the upcycle of existing products (concrete, crane and agricultural machinery) and the Company’s expansion in new products. Besides, we believe the subscription of new shares by management team in the upcoming fund-raising exercise will further enhance market confidence. Maintain BUY with TP of RMB10.2 (12x 2020E P/E).

9M20E net profit up 58%-67% YoY. Zoomlion estimated the net profit in 9M20E to be in the range of RMB5.5-5.8bn. This would represent 76%-80% of our above-consensus full year estimate, and we see potential upside to the consensus forecast. The growth in 9M20E was driven by the infrastructure, new energy and agricultural machinery. Besides, new business such as aerial working platform (AWP) and excavator continued to achieve breakthrough in the market.

Upcoming catalysts: The stock is trading at only 9x 2021E P/E, which we believe has yet to reflect the Company’s structural growth potential. We expect strong machinery sales datapoint in 4Q20E and the completion of share placement in early 2021E will serve as share price catalysts. Besides, the potential upside on China’s wind power installation target in the 14th FYP will lift the demand for truck crane.

Risk factors: (1) Unexpected weakness on infrastructure spending; (2) Slow recovery of property construction; (3) Risks of new business expansion.