Citibank: Target prices for the “buy” ratings for Sany Heavy Industries (00631) and Zoomlion Heavy Industries (01157) are HK$29 and HK$8.9 respectively

The Zhitong Finance App learned that Citibank released a research report saying that Sany Heavy Industries (00631), Zhonglian Heavy Industries (01157), and Hengli Hydraulic (601100.SH) were adjusted by about 3% to 7% this Wednesday (16th). The bank believes that the main reason is market concerns about the Chinese government or cancellation of construction machinery export tax rebates, the US has launched anti-dumping and countervailing investigations on linear cylinder imports from China, India and Mexico, and potential US interest rate hikes or weakening demand for construction machinery from the US and overseas. The bank gave Sany Heavy Industries H shares a target price of HK$29, a target price of 26 yuan for Sany Heavy Industries A shares (600031.SH), and a target price of HK$8.9 for Zhonglian Heavy Industries, all rated as “buy”.

The bank summarizes the views of management and its own. The management of Zhonglian Heavy Industries believes that at present, it is unlikely that the Chinese government will abolish construction machinery export tax rebates. Since the competitiveness of China's construction machinery in the world, especially in developed countries, is still insufficient, the cancellation of export tax rebates should begin with globally dominant industries such as new energy vehicles or batteries.

Hengli Hydraulic, on the other hand, believes that due to its high-end market position in the US, it may export hydraulic cylinders to the US through Mexican and Indonesian plants; management estimates that preliminary survey results may be announced at the end of the first quarter of 2027. At that time, Mexican and Indonesian plants can cover almost all US customer cylinder needs. The Mexican plant is expected to turn a profit when the cylinder output value reaches 120 million US dollars in 2027, and the gross margin may be 2 to 3 percentage points lower than the Chinese average.

Both Sany Heavy Industries and Zhonglian Heavy Industries indicated that since the US entered the interest rate hike cycle in 2023, its overseas revenue has continued to grow. The increase in overseas revenue in recent years is not mainly driven by strong demand in the single market, but is due to an increase in market share, especially in emerging countries.

Sany Heavy Industries, Zhonglian Heavy Industries, and Hengli Hydraulic all believe that compared with the previous year, the pressure on exchange losses in the third quarter may have decreased significantly. Zoomlion Heavy Industries indicated that exchange losses in the third quarter of this year were less than 100 million yuan, down from about 200 million yuan in the same period last year; Sany estimates that the exchange loss for the third quarter of this year was about 400 million yuan, compared to about 300 million yuan for the same period last year; Hengli Hydraulic mentioned exchange losses of 118 million yuan in the third quarter of last year, making the third quarter of this year relatively easy.

The bank believes that the valuation of Sany Heavy Industries A shares (600031.SH) is attractive after the correction. It is now equivalent to about 1.7 times the expected 2026 market account rate, which is only about 13% higher than the historical low; Zoomlion Heavy Industries appears to be the most defensive in the context of a poor atmosphere and US interest rate hikes, due to the cash dividend rate of about 8%.