Profitability of construction machinery may pick up

Profitability may stabilise and rebound

Although construction machinery companies increase revenue through more credit sales, it is still difficult to hide the overall downward trend of the market since the mid-year inflection point in 2011. The research shows that the total operating revenue and total profit of the 10 sample companies in 2012 decreased by 9.96% and 30.57% respectively year-on-year, representing the first negative growth in recent years, which is basically in line with market expectations. In the first quarter of 2013, the total operating income and total profit of the sample companies in the industry fell by 25.55% and 53.55%, respectively, and the decline has increased.

At the end of 2012, the total inventory of sample companies was RMB 41.90 billion, an increase of 5.42% over the same period of the previous year. Inventory at the end of 1Q13 further increased to a record high of RMB 45.015 billion, which was not only affected by the declining economic climate in the industry but also at the end of last year. The recovery is expected to be too high. Although the proportion of net assets in inventory was slightly lower by 45% due to the increase in net assets in 2012, it immediately rebounded to 48% at the end of 1Q13. As a whole, inventory pressure remains high.

The falling profits of the sample companies continued to exceed the decline in revenue, reflecting the weakening of the industry's profitability. In 2012 and 2013, although the industry's operating gross profit margin was relatively stable at 19.61% and 21.04% respectively, the average EBIT margin of the sample companies decreased significantly, and the major players in the industry were unable to realize the scale advantage. The cost and other expenses are more difficult to control, and sample companies have higher sales and management expenses.

On the whole, with the weak recovery of the construction machinery industry in 2013, the revenue and profit scale of major companies are expected to increase year-on-year, but due to the recovery pressure of concrete machinery, Sany Heavy Industry and Zhonglian Heavy Industries Due to the large proportion of sample companies, it is expected that the total income and profit scale of the sample companies will remain basically stable in 2013. In the next few quarters, the overall profitability of the industry will show a certain degree of stabilization and recovery as the company tightens sales policies.

Accounts receivable remains the main issue

From 2010 to 2011, the "crazy expansion" of industry credit sales has led to a rapid increase in the growth rate of accounts receivable for construction machinery enterprises and a continuous outflow of net cash flow from operating activities. In the second half of 2012, Sany Heavy Industry and other representatives of the company's risk control strategy adjustments, coupled with the practice of concentrating the strengthening of collections at the end of the year, the total amount of receivables of the sample companies at the end of the year decreased by 11.50% from the end of the third quarter. At the same time, cash flow from operating activities improved significantly in the fourth quarter of 2012, and net cash flow for the entire year was positive for the first time in two years. However, as the growth rate of receivables was still faster than the growth rate of operating income, the average trade receivable ratio in the industry continued to decline to 3.44 times in 2012, which was at a historically low level. Receivables are still the major issues facing the industry.

At the end of the first quarter of 2013, the growth rate of receivables of sample enterprises fell to 31.16%. As the industry's first-quarter sales did not improve, and the purchase of raw materials and spare parts was increased to prepare for the peak season, the net cash flow from operating activities for the current period was -7.735 billion yuan, and the outflow was still large. The improvement did not continue. In the future, with the recovery of industry inventories and weak market recovery, the subsequent quarterly cash flow performance during the year may achieve a weaker improvement, and the probability that the growth rate of receivables rebounded sharply in the context of the company’s still-repaired balance sheet. Not great.

The scale of repurchase obligations undertaken by construction machinery companies due to bank acceptance bills, bank mortgages, and financial lease sales of machinery and equipment increased year by year. At the end of 2012, the balance of repurchase guarantees increased to 56.561 billion yuan. According to the annual report of the sample company, the total size of actual repurchases in 2012 was 2.595 billion yuan. The percentage of repurchasing of major companies (the actual repurchase scale in the current year/the scale of repurchase obligations at the beginning of the year) was basically below 7%, or The probability of occurrence of the risk was lower than the previous market expectation, but the overall proportion of repurchase was still due to shrinking market demand and rose from 4.36% in the previous year to 5.12%. The probability of overdue or default of customers increased year-on-year.

At the end of June 2012, the scale of total debt of the sample companies was as high as nearly 99.5 billion yuan, but it fell to 91.25 billion yuan by the end of 1Q13. It is expected that with the decrease in demand for follow-up investment spending, the probability of a substantial increase in the total debt scale will be small. At the end of 2012, the asset-liability ratio and total debt capitalization ratio of the sample companies rose slightly to 54.93% and 42.57% year-on-year, respectively, but the chain ratio has declined. The two indicators fluctuate within a small range at the end of the first quarter of 2013, and the future corporate financial leverage will be maintained in the future. stable.

In recent years, major construction machinery companies have continuously replaced long-term debt to optimize their debt structure. At the end of 2012 and the end of 1Q13, the ratio of average short-term debt to long-term debt of the sample companies has dropped to 1.26 times and 1.10 times respectively.

In terms of short-term solvency, from the perspective of the industry as a whole, cash-related assets have a high degree of coverage of short-term debt and short-term financial pressure. In terms of long-term solvency, as sample companies’ overall debt size increases and profitability declines, 2012 The overall long-term solvency was significantly weaker than in 2011. It is expected that with the recovery of the weak market in the following quarters, the industry's annual revenue and profit scale in 2013 is expected to resume growth, the financial leverage will be basically stable, and the debt repayment index will improve slightly.