Morningstar | Sany’s Preliminary 2Q18 Beat Expectations; Shares Overvalued on Long-Term Uncertainties
Sany announced preliminary first-half 2018 earnings that beat our expectations, with net profit expected to increase by around 180% to 210% year over year to CNY 3.25 billion to CNY 3.60 billion compared with CNY 1.16 billion during the same period last year. This implies that net profit for second-quarter 2018 increased by around 322% to 406% year over year to CNY 1.75 billion to CNY 2.10 billion.We expect to raise our fair value estimate for Sany by less than 10% on this strong performance pending further clarity on its first-half result which is expected to be announced this month. Our no-moat and stable moat trend ratings on the firm are intact. Management attributed the strong first-half performance to strong demand for its concrete machinery, excavator and crane machinery supported by strong end demand for new machinery as well as for replacement. Management also managed to keep costs under control with higher production utilization rates, resulting in higher profit margin for the company. Nonetheless, we think that Sany's current share price is overvalued as long-term uncertainties remain as we expect a slowdown in China's infrastructure spending.
SANY HEAVY INDUSTRY CO.,LTD is a China-based company principally engaged in the research and development, manufacture, distribution and provision of services of engineering machinery. The Company's major products are categorized into five types, which are concrete machinery, excavating machinery, hoisting machinery, pile driving machinery and road construction machinery, including truck-mounted concrete pumps, trailer concrete pumps, excavators, truck cranes, rotary drilling rigs and sets of road equipment, among others. The Company distributes its products in both domestic and to overseas markets.
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