Zhejiang Dingli (Dingli) announced over the weekend that it plans to spend RMB1.7bn to build a new production base for 20k units of new energy aerial work platform (AWP). We understand that the entire capacity will be for scissors lifts, given the rising demand for electric and advanced models in the overseas. We estimate the new capacity will add 30% capacity in 2026-27E. With net cash of ~RMB3bn based on our estimate, Dingli has sufficient internal resources to finance the capex without the need to go for equity financing. While there will be no earnings contribution before 2026E, we believe the expansion plan will help further enhance Dingli’s global competitiveness. Maintain BUY with unchanged target price of RMB70 (18x 2024E P/E, 1SD below the historical average of 31x). Meanwhile, we believe Jiangsu Hengli (601100 CH, BUY), the major supplier of hydraulic components and motors, will also benefit from Dingli’s capacity expansion over the medium term.

New capacity and sales contribution: Dingli’s board of directors approved on 22 Mar a plan to construct a new production base for 20k units of new energy AWP. Dingli estimates it will take 36 months to complete the construction. We see chance that the capacity will commence earlier than planned, given the previous capacity expansion experience. Dingli estimates that, under normal circumstances, the annual sales contribution from the new capacity could reach ~RMB2.5bn.

Location of the new capacity: Dingli currently has five production bases in Deqing, Zhejiang. The site area has been fully utilized. Therefore, Dingli will need to acquire a piece of new land in Deqing for the planned new capacity.

Capex: The total budget is estimated at RMB1.7bn, which include the acquisition of land, construction work and equipment procurement.

Key risks: (1) Further intensified competition in China’s AWP market; (2) slowdown of overseas demand; and (3) sharp rebound of RMB rate.