On Thursday, BofA Securities upgraded XCMG Construction Machinery Co Ltd (000425:CH) stock from Underperform to Buy, significantly increasing the price target to RMB9.60, up from RMB5.30. This adjustment followed the company's third-quarter financial results, which were disclosed on Sunday.
XCMG reported third-quarter sales of RMB19.1 billion, a decrease of 6% year-over-year and 13% below BofA Securities' estimates. The company has been adjusting its business strategy, which included shedding some low-margin operations and reducing dealer inventory levels. Despite the dip in sales, XCMG's gross profit margin (GPM) improved, reaching 25.5%, which is a 2.5 percentage point increase from the same period last year and a 2.7 percentage point rise from the previous quarter.
The company's operating expenses to sales ratio was reported at 16.0%, showing a slight year-over-year decrease and a 4.5 percentage point increase quarter-over-quarter. XCMG's net profit saw a substantial year-over-year growth of 28%, totaling RMB1.6 billion, which was 21% higher than BofA Securities' forecast. The core net profit also exceeded expectations, registering a 60% year-over-year increase.
XCMG's performance in the international market was particularly strong in the third quarter of 2024, with overseas sales growing by 19% year-over-year, marking an acceleration from the 5% growth seen in the first half of the year. However, domestic sales were down by 25% year-over-year, impacted by weaker demand and the company's strategic shift in its business portfolio. Looking ahead to the fourth quarter of 2024 and into 2025, XCMG anticipates that its overseas sales will continue to exhibit growth, while its domestic business is expected to benefit from a comparatively lower base.
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