gs-asia pacific construction-shifting preference to machinery-091123

1、November232009AsiaPacific:Machinery:ConstructionGoldmanSachsGlobalInvestmentResearch1November232009AsiaPacific:Machinery:ConstructionShiftingpreferencetomachineryupgradeLonkingtoBuy(Conv.)WeprefermachinerytoconstructionO

2、urrecentcheckswithChinamachineryproducersindicaterobustdemcontinuingthrough2010drivenprimarilybyinfrastructureconstructiondemsecondarilybypropertydevelopmentminingactivity.WeupgradeLonkingtoBuyaddittoourConvictionlistasa

3、keybeneficiaryofthesetrends.WeupgradeLiugongtoNeutralfromSellduetostrongerthanexpectedgrossmarginperfmancebutbelievethesharesarecurrentlyfairlyvalued.Withintheinfrastructureconstructsgroupweremainpositiveontherevenuegrow

4、thpotentialintherailwayhighwaysegmentsbutnegativeonwaterwaysegments.WedowngradeCRCC(HA)toNeutralfromBuyaswethinkitlacksclearsharepricecatalysts.WeremoveCRGfromourConvictionlistaswethinkconcernovergrossmarginsislikelytobe

5、aneartermoverhangbutretainourBuyratingduetoourexpectationofcontinuedrailwayconstructiongrowththroughto2012.WecontinuetopreferCRGoverCRCCCCCCduetoitsnoncebusinessdiversification.Sourceofopptunity–favableriskrewardfLonking

6、At11X2010EPEwethinkLonking’sbelowpeervaluationoffersacompellingriskrewardprofilegivenupsidefromsustainedmachinerydemweseein2010.WealsobelievefurtheraccelerationininfrastructureconstructionspendingpropertydevelopmentinChi

7、naisakeysharepricecatalyst.Welookfaveragemonthlyshipmentsof300unitsstartingin2Q10.RetainfavableviewonCRG:WereiterateourBuyonCRG(HA)aswethinkitsgrossmarginlikelybottomedin2009Ecouldseeamildrecoveryin2010expectitsnoncebusi

8、nessextensionstobesignificantlongtermearningsgrowthdrivers.WethinkcurrentHAsharehisticallowPEsnear14X15X2010EEPSarenotjustifiedgivenourexpectationof25%EPSCAGRin2009E12E.EarningstargetpricerevisionsFmachinerymakersweraise

9、2009E11Eearningsestimatesby4%–36%targetpricesby10%–36%.Finfrastructureconstructionnameswemodestlyadjustour2009E11Eearningsby1%to13%butreducetargetpricesby20%32%afterapplyinglowervaluationpremiums.Risks1)Sustainedgovernme

10、ntinvestmentininfrastructure2)risingdeclininginputcosts3)shiftsinthecompetitivelscape.RATINGTARGETPRICECHANGESNewCurrentTargetNewTPRatingPricepriceUpsideMachinerySany(A)Neutral37.7435.107%Liugong(A)Neutral20.7119.904%Lon

11、king(H)Buy4.645.9027%ConstructionCCCC(H)Neutral8.428.703%CRCC(H)Neutral10.5012.3017%CRG(H)Buy6.417.7020%CRCC(A)Neutral9.2810.109%CRG(A)Buy6.297.0011%indicatesstockisonourregionalConvictionlist.OVERVIEWMarketCapPE(X)PB(X)

12、EVEBITDA(X)(US$mn)2010E2010E2010ESanyHeavy822619.04.711.9Liugong189415.33.310.2Lonking129511.32.39.1CCCCH1610714.52.19.4CRCCH1671512.82.06.1CRGH1761713.51.87.1CRCCA1677112.82.06.1CRGA1962415.12.07.9Source:DatastreamGoldm

13、anSachsResearchestimates.TommyWong886(2)27304194|tommy.wong@GoldmanSachs(Asia)L.L.C.TaipeiBranchTheGoldmanSachsGroupInc.doesseekstodobusinesswithcompaniescoveredinitsresearchrepts.Asaresultinvestsshouldbeawarethatthefirm

14、mayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisrept.Investsshouldconsiderthisreptasonlyasinglefactinmakingtheirinvestmentdecision.FRegACcertificationseetheendofthetext.OtherimptantdisclosuresfollowtheRegACc

15、ertificationgotoresearchhedge.html.AnalystsemployedbynonUSaffiliatesarenotregisteredqualifiedasresearchanalystswithFINRAintheU.S.TheGoldmanSachsGroupInc.GlobalInvestmentResearch迅嘉機(jī)構(gòu)內(nèi)參November232009AsiaPacific:Machinery:C

16、onstructionGoldmanSachsGlobalInvestmentResearch3ShiftingpreferencetomachineryupgradeLonkingtoBuy(Conv.)WereappraisetheoutlookvaluationsofChinamachineryinfrastructureconstructsnamesunderourcoverage.Weshiftourpreferencetom

17、achineryfrominfrastructureconstructsasweseecontinuedpropertydevelopmentexpansionasacatalystfmachinerystockswhilewethinklacklustergrossmarginperfmancewillcontinuetoweighontheneartermsharepriceperfmanceofinfrastructurecons

18、tructstocksdespitetheircurrentlyattractivevaluationsversushisticallevels.AssuchweremoveCRG(HA)fromourConvictionlist(butretainourBuyrating)upgradeLonkingtoBuyfromNeutraladdittoourConvictionlist.Exhibit3:WeupgradeLonkingto

19、BuyaddittotheConvictionBuylistRating12monthtargetpriceadjustmentsNewPreviousNewPreviousTPNewTPRatingRatingTPTPChangeUpsideMachinerySany(A)NeutralNeutral35.125.836%7%Liugong(A)NeutralSell19.915.231%4%Lonking(H)BuyNeutral5

20、.95.410%27%ConstructionCCCC(H)NeutralNeutral8.711.625%3%CRCC(H)NeutralBuy12.316.727%17%CRG(H)BuyBuy7.710.326%20%CRCC(A)NeutralBuy10.112.520%9%CRG(A)BuyBuy7.010.332%11%IndicatesthestockisonourConvictionlist..Source:FactSe

21、tGoldmanSachsResearchestimates.Machinery–LonkingoffersfavableriskrewardtoConvictionBuyWeupgradeLonkingtoBuyfromNeutraladdtoourConvictionlistafterasurprisinglystrongOctobershipmentofover200units(up40%fromSeptember’s143uni

22、ts)whichwedidnotexpectthecompanytodeliveruntil1H10.Lonking’sOctoberperfmancematchedthatofLiugongwhichalsodeliveredabout200units.Givenastrongervolumeoutlookweraiseour2010excavatvolumeassumptionby8%to2800units(althoughthis

23、isshtofmanagement’stargetof4000unitswhichweviewasaggressive).Lonking’ssharepricehaslaggeditspeersoverthepastthreemonthsthestockcurrentlytradesat11X2010EPEa27%discounttoLiugong(A)itsmostdirectcompetit.Wethinklikelystronge

24、rexcavatsalesin1H10willbeakeysharepricecatalyst.WeupgradeLiugongtoNeutralfromSellduetostrongerthanexpectedgrossmarginperfmancebutbelievethesharesarecurrentlyfairlyvalued.Weraiseour200910earningsestimatesfLiugonggivenstro

25、nger3Q09grossmarginthanexpectedwiththecompany’sgrossmarginreachingahisticalhighof21.4%in3Q09.WeexpectLiugong’sgrossmargintoremainfirmnear20%in2010Esupptedbystableinputcostslimitedpricingpressureonloadersintheneartermgive

26、ntheconsolidatedmarketwiththetopfourplayerscontrolling64%ofthemarketasof13Q09versus56%in2004.Thestockcurrentlytradesat15X2010EPEcomparedtoLonking’s11Xbutwefecastits2009E11EEPSCAGRtobe7pptlowerthanthatofLonkingasweexpects