Event: Announcement released recently that National Development and Reform Commission and Ministry of Commerce had approved to cooperate with Hony Capital in Aug to acquire Italy CIFA equity; on Sep 3, the proposal received assent from Securities Regulatory Commission.
Our analysis and estimation: 1) Progress of the CIFA acquisition was faster than market expectation and was significant viewed from mid-long term run despite some uncertainties in integration and management. It achieved distribution in concrete equipment and network global layout, moreover, manufacture level and technology will likely position high level and shape competitiveness in domestic and overseas market.
2) Profitability of CIFA was lower than that of the company, thus its earning increment was limited. 2008 earning increment was ~Rmb0.05 and we forecast 2009-2010E earnings increment to be Rmb0.08 and Rmb0.12.
3) In 1H2008, the company’s concrete equipment, auto crane and environmental sanitation equipment increased 56%, 87% and 88% yoy respectively and continued climbing trend consequently. Composite gross margin went up and drove the company‘s overall profitability, net profit advanced 74.9% yoy.
4) We forecast acceleration of concrete equipment increment will decline to some degree in the second half while auto crane will likely stay stable. On the whole, revenue growth will likely see a slight slowdown; however, steel price is likely to decline and make a support to gross margin, thus sharp drop will not take place in the second half year.
Earnings forecast and rating: We forecast 2008-2010E EPS to be Rmb1.08, Rmb1.13 and Rmb1.28 respectively with fair estimation of Rmb12.96. Risks rest with two aspects: 1) uncertainties in concrete mechanics; 2）management and integration risks and ventures in new fields. Maintain “Cautious” rating intact.