SANY Heavy (SANY) net profit in 2024 came in at RMB5.97bn (+32% YoY), which is 0%/-2% versus our/Bloomberg consensus estimates. The proposed dividend implies a 51% pay-out ratio (up from 41% in 2023), which is the highest since 2017. During the post-results call, SANY revealed that emerging markets such as Asia Pacific, Africa, the Middle East and South America will be the key focus, while it remained cautious on the US & Europe market due to geopolitics.

Management also highlighted the potential of large-size/mining excavators going forward. We maintain our view that SANY remains the best proxy to play the upcycle of excavators. We slightly revise up our 2025E/26E earnings forecast by 5/7%. Accordingly, we revise up our TP to RMB22 (from RMB21), based on an unchanged target P/E of 24x (equivalent to 0.5SD above the average of 20x since 2017). Our above-average multiple is to reflect the earnings upcycle. Maintain BUY.

4Q24 results highlights. Revenue grew 12% YoY to RMB20bn. Gross margin slightly contracted 4.2ppt YoY to 21.4%, while S&D expense ratio fell 5.4ppt YoY to 3.9%, largely due to a change in accounting treatment (warranty expense was included in COGS instead of S&D expenses).

Administrative expense ratio increased 1.1ppt YoY to 5.1%, while R&D expense ratio dropped 1.5ppt YoY to 7.6% (a continuous YoY reduction trend since late 2022). EBIT grew 9% YoY to RMB760mn. Net profit surged 1.3x to RMB1.1bn, helped by other income and FX gains. For the full year in 2024, net profit grew 32% YoY to RMB5.97bn. Operating cash inflow surged 1.6x YoY to RMB14.8bn.

Overseas revenue grew 12% in 2024 (64% of total revenue). In terms of

region, Africa surged 44% YoY to RMB5.3bn (11% of overseas revenue); Asia Pacific (ex-China) grew 15% YoY to RMB20.6bn (42%); Europe grew 2% YoY to RMB2.3bn (25%); America grew 7% YoY to RMB10.3bn (21%).

Overseas gross margin was 29.7%, higher than the 21% in China.

Outlook: SANY will continue to expand the overseas sales network and after-sales service capability. SANY sees potential sales growth of 20% in markets such as the Middle East, Asia Pacific and Africa. South America is another key market with potential sales growth of 25%. In terms of capacity, SANY is considering capacity expansion in Brazil.