Continuous high input achievement of hydraulic parts localization star.

Hengli hydraulic company's main oil cylinder, pump valve - based hydraulic parts, the annual research and development investment in the high 4%, higher than kawasaki, KYB and other international leaders. The company dares to go against the market layout. In 2015, when the industry was depressed, the company's r&d investment intensity reached far more than 8% of the industry average. From 2012 to 2016, the company's fixed assets increased by 89.6% to improve its own capacity and technical level. With the recovery of the prosperity of the excavator industry, the company's revenue and profitability have improved rapidly. From 2015 to 2018, the company's operating revenue CAGR was 75.3%, and the net profit CAGR was 85.01%. At present, the company's production scale and technical level has been among the forefront of the world's hydraulic field, is expected to become the world's leading hydraulic parts.

The market space of excavator hydraulic parts is more than 10 billion yuan. According to engineering machinery association and our estimates, we expect the excavator sales was 25.2 in 2020-2021, 257000 units, up 6.6% from a year earlier, 2.0%, and the steady growth of excavator sales promoting the stability of the excavator hydraulic parts demand growth, is expected to 2020-2021 years of mining the market space of the oil cylinder is 41, 4.2 billion yuan, pump valve market space is 55, 5.6 billion yuan. Mining has basic domestic oil cylinder, but the localization rate of the pump valve is still less than 20%, the future of the pump valve and other hydraulic parts localization process is expected to accelerate, the main reasons are as follows: 1) the excavator makers of price competition, accelerate the localization process of the hydraulic parts, under the accused of this strategic policies prevailing worldwide, the excavator makers very strong demand for high cost performance of local parts; 2) good supply cycle and service capacity, direct attack on the main excavator factory “ Pain points throughout the &; Compared with the strict supply conditions of foreign hydraulic parts manufacturers and poor after-sales service, the company's short supply cycle and perfect after-sales service perfectly meet the demand of the main engine factory of excavator.

The market share of oil cylinder continues to increase, non - standard cylinder demand is strong. We estimate that the market share of oil cylinder excavated by the company is expected to reach 55% in 2019, increasing by 4.18% compared with 2018, with the market share steadily increasing. In addition, with the gradual localization of zhongda diao, the market share of zhongda diao oil cylinder has also been steadily increased, bringing about the enhancement of the profitability of the diao oil cylinder. In addition, thanks to the strong demand of high-altitude work platform, shield machine and Marine industry, the company's non-standard oil cylinder sales growth is stable, and the profit margin continues to rise.

The pump valve of the excavator has been verified successfully and the initial volume has been released. At present, the domestic and foreign main engine factory to hengli zhongda pump valve verification is going on steadily, the verification period is 1-2 years, after the verification is expected to show a jump growth in the pump valve business. In addition, the company has also made progress in the fields of high-altitude work platform, automobile crane and pump truck, laying a good foundation for balancing the fluctuation of single market and the growth of industrial field in the future.

Investment advice: we expect the revenue growth rate of the company from 2019 to 2021 to be 34.6%, 17.9% and 10.8%, and the net profit growth rate to be 53.7%, 25.4% and 17.1%, respectively. With an investment rating of buy-a, the six-month target price is 62.7 yuan, equivalent to the dynamic p/e ratio of 35X in 2020.

Risk reminder: excavator demand declines, raw material prices rise, industry competition intensifies.