Equity Research | Construction Machinery Oct 17, 2017 Lonking (3339 HK) Buy (initiation) Beneficiary of the upcycle in China’s construction machinery industry; Target price: HK$4.30 initiate at Buy Initiate at Buy with TP of HK$4.30 We like Lonking for three main reasons: 1) it stands to benefit from the current upcycle in China’s construction machinery sector; 2) product price Dominic Chan, CFA, FRM increases should spur further business momentum; 3) market share gains demonstrate its SFC CE No. APP609 competiveness. We forecast net profit will rise 81% and 24% respectively in 2017/18, and
[email protected] that net profit will see a CAGR of 37% during 2016-19. We initiate our coverage with a Buy +852 3719 1218 rating and target price of HK$4.30, based on 15x 2018E P/E and 2.0x 2018E P/B, its historical averages since 2006, and a 10% discount to the average 2018E P/E of its international peers. GF Securities (Hong Kong) Brokerage Limited 29-30/F, Li Po Chun Chambers Upcycle in China’s construction machinery industry Construction machinery sales 189 Des Voeux Road Central volume in China has been on the rise since 2H16. In 9M17, loader sales volume came in at Hong Kong 67,786 units, up 48% YoY, while excavator sales volume was 101,934units, up a substantial 100% YoY. This strong sales volume has been driven by steady FAI in China’s infrastructure, property and mining sectors, and replacements of machines sold during 2010-2012, after 6-8 years’ use.