恒立液压(601100)

　　Hengli’s EBIT in 2Q24 surged 58% YoY to RMB644mn, driven by accelerationof revenue (+22% YoY) and a surprising gross margin expansion of 6.3ppt YoY.Reported net profit grew only 5% YoY to RMB686mn, but largely due to highbase effect as large fx gains were recognized in 2Q23. We continue to seepositive development going forward, as (1) revenue contribution from nonexcavator components continues to increase; (2) delivery of electric cylindersand ball screws (a key component of robots) started in Jul while linear motionsaw fast production ramp-up. All these will serve as growth drivers in 2025E; (3)the hydraulic components production base in Mexico is expected to commenceoperation in Dec (designed annual output value: US$450mn). Our earningsforecast is largely unchanged despite fine-tuning of our assumptions. Our TP isunchanged at RMB64, based on 31x 2024E P/E (historical average).

　　Key highlights in 2Q24 results: Revenue in 2Q24 grew 22% YoY toRMB2.47bn. Blended gross margin expanded 6.3ppt YoY and 3ppt QoQ to43.1%, a positive surprise. EBIT surged 58% YoY as SG&A expense ratiowas under good control. Operating cash inflow was RMB452mn, down 29%YoY but up 3.8x QoQ from a low base.

　　Decent growth of non-excavators cylinders in 1H24. Sales volume ofnon-excavators cylinders in 1H24 rose 21.5% YoY to 139k units, driven bytunnel boring machines, cranes and AWPs. Non-excavators cylindersrevenue grew ~20% to RMB1.3bn while revenue from cylinders forexcavators dropped 13.5% YoY to RMB1.1bn.

　　Motors, pumps & valves all reported growth in 1H24. Pumps and valvesfor excavators grew 10% YoY in 1H24. Non-excavator pumps/valves grew18%/35% YoY. Motor revenue grew 12% YoY (breakdown: excavators+9%; AWPs +13%).

　　Risk factors: (1) further weakness in the demand for hydraulic componentsfor excavators; (2) slower-than-expected new business development.