Morningstar | Jungheinrich Posts Solid 3Q; Shares Attractive. See Updated Analyst Note from 06 Nov 2018
Jungheinrich's third-quarter results were solid, allaying concerns about severe pressure on margins with EBIT down just 10 basis points year over year, mainly from one-off factors. The company tweaked up full-year revenue and order guidance by 1%-3%, reflecting an unusually strong level of demand from the forklift market for the second year in a row. We retain our narrow moat rating and EUR 36 fair value estimate and believe the shares are trading at attractive levels, reflecting perhaps greater concerns about a market slowdown versus our expectations.Jungheinrich raised prices in September by 3% and will probably realise about half of that. The current order backlog carrying lower margins should be worked through in the next several months, with margins return to normalised level in the first half of 2019. We expect a slowdown in revenue growth on forklift demand globally and for Jungheinrich next year, given the unusually high demand in the past couple of years. Consensus is expecting a slowdown as well, so concerns are really about the degree of the slowdown, which we think will be to mid-single-digit growth from high-single-digit growth.
Demand for forklifts globally slowed in the third quarter relative to the first half of the year, but still grew at above-midcycle 10% growth. Demand from China was a key driver of the 18% growth in 2017 and the 14% growth in the first nine months of this year and will probably be the key to the market's deceleration, with the third quarter posting a deceleration to 12% from 23% in the first half. In the medium term, we expect global forklift demand to grow at 4% with tight labour markets, rising wages, and continued growth in e-commerce offering greater support through the next downturn in the cycle relative to the last one.
Jungheinrich is engaged in the development of new trucks and logistics solutions. Co.'s operating activities are divided into two segments: Intralogistics, which is engaged in the development, production and sale of new trucks including logistics systems as well as the mail-order business, short-term hire which include the rental of new and used material handling equipment, reconditioning and sale of used equipment and the provision of after-sales services including the maintenance, repair and spare parts businesses; and Financial Services, which encompasses the usage transfer and sales financing of material handling equipment and warehousing technology products.
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