中联重科(000157) 2024 results below expectation; Still positive on the structural overseas growth trend

　　中联重科(000157)

　　Zoomlion’s2024results were weaker than our expectation,due to a slowdownof overseas revenue growth(14%)in4Q24,reduction of other income,andincrease in inventory turnover days.While we revise down our2025E/26Eearnings forecast by7%/8%,after incorporating lower sales volume growth andhigher distribution expenses due to overseas expansion,we remain positiveon Zoomlion’s structural overseas growth strategy with priorities on emergingeconomies.On inventory,management is confident of a reduction of theinventory level in2025E.Our TP for Zoomlion A/H is revised down/up toRMB9.9/HK$7.4,based on2025E target P/E multiple of19.5x for A-share and30%discount for H-share.We see buying opportunities following the post-results pullback.Maintain BUY.

　　4Q24earnings highlight.Revenue in4Q24dropped4%YoY toRMB11.1bn,as the decline in China revenue(-18%YoY to RMB5.36bn)offset the growth overseas(+14%YoY to RMB5.74bn).Overseas revenueaccounted for52%of total revenue in4Q24,slightly down from57%in3Q24.Blended gross margin expanded0.6ppt YoY to27.5%,as overseasmarkets commanded a higher margin.Given the decline of non-operatingincome(-89%YoY to RMB61mn),EBIT dropped19%YoY to RMB519mn.Net profit declined45%YoY to RMB382mn,as a result of higher minorityinterest due to higher growth of non-wholly owned AWP business.For thefull year in2024,revenue/net profit dropped1.2%/0.8%YoY toRMB53bn/RMB3.5bn.Zoomlion proposed a dividend of RMB0.3/shr,representing a pay-out ratio of74%.

　　Low exposure to domestic property sector.Domestic property relatedproducts such as concrete machinery and cranes sales accounted for only13%of Zoomlion’s total sales in2024.For tower cranes,managementrevealed that only30-40%are related to property,with the balance relatedto infrastructure,wind power installation and chemical plants construction.For truck cranes,only10%of the demand comes from property,with thebalance related to infrastructure,energy and municipal projects.

　　2025outlook.Management did not provide much quantitative guidance inthe post-results call,but provided some key directions:(1)overseas marketexpansion will be accelerated;(2)earth-working,mining,and agriculturalmachinery will continue to be growth drivers;(3)share-based expenses,which surged2.1x YoY to RMB866mn,is expected to drop>50%in2025;(4)other operating expenses are expected to be on a downtrend.

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