SANY International (631 HK- HK$7.56) 1Q22 review: Topline accelerates but margin is under pressure

Strong order backlog supported the topline growth. SANYI’s revenue increased 71% YoY in 1Q22, +15pp YoY, +28pp QoQ. We attribute the acceleration to SANY’s competitiveness in the industry. According to the NBS, raw coal production in 4M22 and Apr-22 both increased 13% YoY. Per company’s announcement, the company highlights their strong order backlog of mining and logistics equipment, guaranteeing the topline. Riding on the transformation of mining equipment, we believe SANY is well positioned to further expand its footprint beyond its road header (mkt share: 60%) and wide body truck (mkt share: 15%).

However margin is under pressure. Gross margin was 21% in 1Q22, -5pp YoY, -1pp QoQ. Net margin also dropped by 3pp from 14% in 1Q21 to 11% in 1Q22. We attributed the margin drop to higher raw material and shipping costs. Moving forward, we expect the margin pressure to ease after the steel price drop and SANY’s market share improvement.

Recommend Long. We think SANY has its niche in industrial equipment. We believe its innovative electric wide body truck and fast-growing robot business will be its driver in the next five years. The current valuation is attractive, trading at 12.7x FY22E P/E, thus we recommend LONG. (Eason Cui)