Machinery Industry Model: Sany Heavy Industry: Comprehensive Strength in Technology Management Leads Growth

Concrete machinery is still the driving force for growth. As China's investment in fixed assets is still operating at a high level, it will bring about a strong demand for products for the production enterprises of construction machinery. As a concrete machinery leader, the company's sales in the third quarter were not slack during the off-season. In July alone, the output of concrete pumps reached 601 units in one month, a record high. With the increasing demand for affordable housing, concrete machinery is expected to maintain strong demand. In July, the excavator industry fell by 20% month-on-month, but exports achieved substantial growth. The sales volume of the excavator machines in the 31 industry rose against the market and is expected to reach 8 billion sales revenue throughout the year. The company is currently expanding its production capacity of excavators. The capacity will reach 10,000 units this year. As the country regulates the import of second-hand excavators, the demand for excavators is expected to maintain steady growth. In July, the sales volume of the crane industry showed a significant decline from the previous months, falling below the 4,000-mark mark, a drop of more than 20% from the previous month. Trinity’s sales in July remained stable. The sales volume of the company's truck cranes has increased by more than 100% in the past three years, and it has grown into one of China's three largest truck crane manufacturers. It is expected to achieve sales revenue of 3 billion this year. The company's crawler cranes benefit from the development of nuclear power and will also maintain steady growth.

Increased product structure leads to higher gross profit. The company pays attention to research and development, has a postdoctoral mobile station, and has institutes in Beijing and Shanghai. The annual research and development expenses account for more than 5% of the total sales revenue. The company's talent incentive policy is second to none in the construction machinery industry. R&D investment brings about an upgrade in product technology. The company's pump trucks maintain the industry's longest pump arm record. At the same time, it achieved the independent production of key components, pump arm, etc., and reduced production costs. The company's product positioning is high-end, attracting customers with product reliability and technical performance. The excavation machine is 20,000 yuan more than the national brand price, and 6% higher than the Korean product price. The company has its own research and development technology in the excavator and crane market. At the same time, the company has good inventory management, zero product inventories, increased capital operation capabilities, and enhanced corporate profitability.

Accelerating the pace of overseas business The company invested 200 million U.S. dollars in the first phase to build a construction machinery production base in Brazil. This is a further expansion in the international market following the investment in the United States, India, and Germany. Brazil proposed an investment plan of RMB 6 trillion (converted into RMB). There will be large-scale infrastructure construction and demand for construction machinery will be strong. Sany Heavy Industries Brazil's production base is expected to be put into production in the first half of next year. It will mainly produce excavators, crawler cranes and truck cranes. These products will be exported to the South American market in addition to domestic sales in Brazil. The company strives to issue H shares at the end of the year and plans to raise 10 billion Hong Kong dollars, mainly for the international service network, mergers and acquisitions of overseas companies, and the construction of four major industrial parks, and step up the pace of going global.

Earnings forecasts and ratings. We expect the EPS for 2010-2012 to be 1.7 yuan, 2.2 yuan and 2.67 yuan, corresponding to the closing prices of September 10, PE of 16 times, 12 times and 10 times; give the "strongly recommended -A" rating.