Sales of aerial working platform (AWP) by major players in China surged 121% YoY to 13.6k units in Apr, taking the 4M20 sales up 42% YoY to 26.7k units. We expect the growth momentum to continue over the upcoming months, driven by resilient construction activities in China as well as recovering demand with the gradual re-opening of economies in overseas. We revised up our 2020E-22E earnings forecast on Dingli by 4-8% (16-25% above consensus). We lifted our TP from RMB67.14 to RMB81, based on 42x 2020E P/E, on the back of 35%/42% earnings growth in 2020E/21E. Reiterate BUY.
- Explosive growth of AMP sales. According to CCMA data, sales of AWP by the nine major manufacturers located in China surged 121% YoY to 13.6k units in Apr. Domestic sales surged 196% YoY to 12.2k units, driven by strong construction activities. Apart from Dingli, we expect Jiangsu Hengli (601100 CH, BUY, TP: RMB85) is also a major beneficiary as Hengli supplies hydraulic cylinders and motors to major AWP makers.
- Expect gradual recovery of export over the coming months. Overseas revenue (mainly in the US and Europe) accounted for 37% of Dingli’s total revenue in 2019. According to CCMA, AWP export volume declined 31% YoY to 1.4k units in Apr (for the industry as a whole), due to the COVID-related shutdown in the overseas. That said, we expect the gradual re-opening of the overseas economies will offer upside to the AWP sales in the near term.
- Our 2020E-22E earnings forecast is now 16-25% above consensus. In view of the strong demand for scissor lifts, we raised our sales volume forecast on Dingli’s scissor lifts by 3-10% in 2020E-22E. Our earnings forecast is revised up by 4-8% in 2020E-22E.
- Raised TP to RMB81. Dingli announced stock split (1 to 1.4) after the release of 2019 result and it came into effect last Friday. Our previous TP was therefore automatically adjusted from RMB94 to RMB67.14. We raised our TP to RMB81, based on 42x 2020E PE (up from 36x). Our higher multiple is to reflect the 42% estimated earnings growth in 2021E. Besides, we believe our high target multiple is justified, given that rising labor cost will remain the structural driver for the application of AWP in China over the coming years.
- Major risk factors: (1) more new entrants in the AWP market; (2) prolonged impact of COVID-19 in overseas; (3) slowdown of construction activities in China.
