Soochow: Overseas market share boosts forklift industry leader's performance growthsteady.

Soochow releases research report stating that the performance of the forklift sector will maintain steady growth in the first half of 2024. On the income side, the demand for large vehicles is decreasing due to the downturn in the domestic manufacturing industry, leading to a slowdown in growth. On the profit side, benefiting from high gross profit margin overseas business and an increase in the proportion of electric vehicles, the growth rate is significantly stronger than revenue. Forklifts have a different logic from traditional engineering machinery, with greater growth potential than cyclicality. In the short term, the domestic industry is bottoming out, with the 700,000 units annual sales volume mainly driven by replacement demand; overseas distributor inventory is in a digestion phase, with order growth slowing for over a year. In the medium to long term, there is still room for improvement in the lithium electrification rate both domestically and abroad, aiding in structural optimization and going international. Benefiting from the overseas expansion of lithium battery products, the sector's performance growth remains robust in the first half of 2024. On the income side, due to the downturn in the domestic manufacturing sector and reduced demand for large vehicles, growth is slowing down. On the profit side, benefiting from high gross profit margin overseas business, an increase in the proportion of electric vehicles, and a decrease in raw material prices, the profitability of the forklift sector continues to improve. In the first half of 2024, the forklift sector achieved revenue of 21 billion yuan, a year-on-year growth of 4%, and a net profit attributable to the parent company of 2.1 billion yuan, a year-on-year growth of 23%. The sector's sales gross margin was 21.5% in the first half of 2024, an increase of 1.6 percentage points year-on-year, and the sales net margin was 10.3%, an increase of 1.5 percentage points year-on-year. With the domestic and international economic conditions bottoming out, we can expect demand recovery after the digestion of overseas channels following policies implemented domestically. Forklifts have different logic from traditional engineering machinery, with their growth potential greater than their cyclicality. Industry demand comes from (1) the growth in investment in the manufacturing and logistics sectors, leading to an increase in demand for handling tools, and (2) the increase in labor costs, with a higher demand for efficiency in factories and warehouses, leading to a trend towards machines replacing people. The global forklift sales volume CAGR from 2014 to 2023 was 7%, with domestic and international growth rates of 13% and 4%, respectively. In the short term, the domestic industry is bottoming out, with the 700,000 units annual sales volume mainly driven by replacement demand; overseas distributor inventory is in a digestion phase, with order growth slowing for over a year (2022-2023). In the second quarter, leading companies such as Toyota and KION saw a 9% increase in orders on hand, reflecting inventory digestion and marginal improvement in new orders. In the second half of the year, with raw material prices still at low levels and overseas income growing, the forklift industry is expected to maintain a relatively high profit margin. In the medium to long term, there is still room for improvement in the domestic and international lithium electrification rates, aiding in structural optimization and going international. In 2023, the domestic and international lithium electrification rates (the proportion of lithium batteries in total forklifts) were 19% and 13%, respectively, with a broad scope for improvement. The market is concerned about risks in the United States, but Soochow estimates that the U.S. market accounts for approximately 12% of global sales volume and 18% of market share, and the demand for electric vehicles is weaker than in the core European market. The two leading companies in the United States account for less than 10% of income, with a controllable actual impact. In addition, as forklifts sold overseas since 2021 grow older, aftermarket services will drive new machine sales to create new growth points.