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Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

author:The baby elephant talks about wealth

The real estate economy continues to pick up!

As a pillar industry of the mainland economy, the real estate industry is one of the locomotives of economic growth in the past 20 years, which has indirectly driven many related industries.

But real estate is very cyclical. In 2024, with the gradual relaxation of housing purchase conditions in various places and the increase in downstream operating rates, the mainland real estate market will gradually recover.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

Related companies such as I Love My Home, Vanke A, Poly Development, China Merchants Shekou, Hainan Airport, 3Trees, and Oriental Yuhong are quite popular.

In fact, it is not easy for real estate to return to the past market. On the contrary, upstream and downstream industries such as home furnishings and construction machinery, which were previously dragged down by real estate, are still at the bottom of valuations, and will slowly get rid of the impact of real estate with economic development.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

Among the leading enterprises related to construction machinery in mainland China, Zhejiang Dingli has shown a super counter-cyclical characteristic. The company has achieved positive revenue growth in the past ten years, which seems to be completely unaffected by the cycle, and its certainty is better than that of Moutai.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

Zhejiang Dingli is a high-end equipment manufacturing enterprise engaged in R&D, production, sales and service of intelligent aerial work platforms. At present, Zhejiang Dingli ranks second in China, second only to XCMG, and is one of the top 10 high-tech manufacturers in the world.

The certainty of the company's development can be reflected in the price. From the formula, we can see that there are two factors that affect the price, one is performance, and the other is valuation.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

In the long run, performance directly reflects the results of a company's business activities and its ability to develop in the long run, and has the greatest impact on prices.

Since 2018, Zhejiang Dingli's revenue has risen steadily, and the net profit attributable to the parent company has continued to grow rapidly.

From 2018 to 2023, the company's revenue increased from 1.708 billion yuan to 6.312 billion yuan, with a compound annual growth rate of 10%; Net profit increased from 480 million yuan to 1.867 billion yuan, with a compound annual growth rate of 16.67%, and the company's revenue increased and profits.

In the first quarter of 2024, the company achieved a total operating income of 1.452 billion yuan, a year-on-year increase of 11.53%; Net profit decreased slightly, reaching 302 million yuan, down 5.4% year-on-year.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

In the short term, valuations play a more significant role in price fluctuations, and valuations can change rapidly due to market sentiment.

On the one hand, a longitudinal analysis of valuations: observe the percentile of the current P/E ratio in historical data, below 30% is undervalued, between 30% and 70% is in the normal range, and greater than 70% is overvalued.

From 2020 to 2024, Zhejiang Dingli's valuation range is 14.17-75.83 times. As of May 17, the company's dynamic P/E ratio was 19.19 times, which was in the low range in recent years.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

On the other hand, the valuation is analyzed horizontally: the valuation situation is analyzed by screening comparable companies through certain conditions, comparing different aspects that affect the company's development, and then comparing the current price-earnings ratio with comparable companies.

1. Screening comparable companies

First of all, we will screen from high-tech related companies. In 2022, the top 10 global high-tech machinery companies accounted for 73.59% of the market share, including 4 Chinese manufacturers: XCMG Machinery, Zhejiang Dingli, Zoomlion, and Lingong Heavy Machinery.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

Since Lingong Heavy Machinery is not listed, we screen XCMG Machinery and Zoomlion related enterprises.

Secondly, high-speed machinery is a subdivision in construction machinery. We selected Sany Heavy Industry and Liugong from the leading construction machinery enterprises for comparative analysis.

Sany Heavy Industry is a leading enterprise of excavators and cranes, ranking second in the country; Liugong's business mainly involves construction machinery and some leasing business, ranking fourth in the country.

2. Comparative analysis from three aspects: profitability, overseas layout and product growth

1. Profitability

Gross profit margin is the most basic indicator that reflects the profitability of the company's products. Zhejiang Dingli's gross profit margin has always been higher than that of other companies, and reached 41.11% in the first quarter of 2024, much higher than that of Zoomlion (28.65%), which ranked second.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

Secondly, the advantage of net profit margin level is more obvious. The net profit margin of peer companies does not exceed 10%, while Zhejiang Dingli maintains it at 20%, reaching 29.58% in 2023.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

The gross profit margin is only 5 percentage points higher than that of its peers, but the net profit margin is 10 percentage points higher, mainly due to Zhejiang Dingli's strong cost control ability. In 2023, the company's expense ratio for the period is only 5.53%, far lower than the 10% expense ratio of its peers.

Return on equity (ROE) is a fundamental indicator to measure the profitability of a company. Zhejiang Dingli is not only the highest among comparable companies, but also the most stable. In the past ten years, the company's ROE has been maintained at around 20%, and its profitability is very strong.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

2. Overseas layout

The main reason why Zhejiang Dingli can get out of the downward cycle of construction machinery is the successful application of the strategy of going to sea. The company has invested in a number of companies in Europe and the United States, cut into the local market, and has offices in many countries.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

From 2020 to 2023, Zhejiang Dingli's overseas revenue will increase steadily. In 2023, the company will achieve overseas revenue of 3.84 billion yuan, a year-on-year increase of 13.34%, accounting for 66.41% of revenue.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

Of course, other companies in the same industry are also actively expanding their overseas business, but the progress is relatively slow, accounting for a relatively small proportion of revenue and the gross profit margin is far lower than that of Zhejiang Dingli.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

3. Product growth

High-tech manufacturing is a relatively mature industry, and the technical barriers of products are not very high. Although XCMG Machinery and Zoomlion occupy a certain market share, their main business is cranes, earthmoving machines, etc., and the proportion of high-rise machinery in revenue is only 10%.

That is to say, they will most likely not spend a lot of energy on a small business, and Zhejiang Dingli is wholeheartedly only producing high-speed products, and pays more attention to product upgrades and the release of production capacity.

First, the electrification of products

Zhejiang Dingli not only has a comprehensive layout of product types, but also is the first enterprise in the industry to complete the electrification of all products, which is preferential to enterprises such as XCMG Machinery and Zoomlion.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

In 2023, on the basis of continuing to maintain the nearly 100% electrification rate of scissors and mast products, the company will increase the boom electrification rate to 73.36%, an increase of 11.07 percentage points.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

On the one hand, the electrification of products is in response to the call for zero carbon, and on the other hand, with the continuous decline in the price of lithium batteries, it will have a positive impact on the cost control of electrified products, which will help Zhejiang Dingli improve profitability and accelerate the transformation.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

Second, the release of production capacity

Zhejiang has made great efforts to expand production several times, and the production efficiency has been greatly improved, and the capacity utilization rate has exceeded 80%. In 2024, the company's five-phase "Future Factory" project with an investment of 2.2 billion yuan will be officially completed and enter the production line commissioning stage.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

Recently, when answering a question from the secretary of the board of directors, he pointed out that the factory with an annual output of 4,000 units is currently in the trial production stage, and the company's annual output value will be nearly 10 billion yuan after it is put into operation, which will be greatly increased by 80% compared with 2023, and there is huge room for future development.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

3. Comparative valuations

On May 17, 2024, Zhejiang Dingli's dynamic P/E ratio was 19.19 times, while XCMG Machinery was 17.10 times, Zoomlion was 20.13 times, Sany Heavy Industry was 31.51 times, and Liugong was 20.21 times.

The average dynamic P/E ratio of comparable companies is 21.63 times, while the average value of the entire construction machinery is 28.86 times.

Real estate dark horse, the first stock of machinery to go to sea, ROE of 20% for 10 consecutive years, 450 institutions research!

In 2023, the per capita ownership of high-speed machines in mainland China will only be 4, while the number of high-tech machines in the United States will be 24, coupled with the recovery of the real estate market in mainland China, which will increase the demand for upstream high-speed machines, and there is still broad room for growth in the future.

In general, Zhejiang Dingli, as a high-rise leader, is still in an underestimated state. In addition, the company is also continuing to promote product electrification and production capacity release, and there is full room for future growth, which has been investigated by nearly 450 institutions in the past year.

The above analysis does not constitute specific investment advice. The stock market is risky, and investors need to be cautious.

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