We upgrade SANY Heavy to BUY after keeping our HOLD rating for >30 months. We are turning positive as we expect an earnings up-cycle in 2025E- 26E, driven by: (1) a speed-up of overseas growth across all types of machinery driven by emerging markets such as the Middle East and Africa (for details, please see our report “2025 Outlook: Emerging markets the key growth driver; China market to be stabilized” published on 9 Dec), (2) further improvement of domestic excavator demand on the back of the Chinese government’s stepped- up policies and the replacement cycle, (3) effective cost control and capex discipline. We revise up our earnings forecast by 14-21% in 2024E-26E, after incorporating our new industry assumptions. We forecast 70-80% of earnings to be contributed by overseas markets going forward. We revise up our TP to RMB21.0 (from RMB14.8), after rolling over our valuation base to 2025E. Our target P/E is unchanged at 24x, equivalent to 0.5SD above the average of 20x since 2017. Our above-average multiple is to reflect the earnings upcycle.

Emerging markets remain the major source of growth. SANY targets to achieve 15% overseas revenue growth in 2025E and expects 50% overseas growth in three years (according to 3Q24 post-results call). We see Africa, Latin America and the Middle East likely to offer explosive growth potential. We also expect India (pro-growth government policy) and Indonesia (overhang about election removed) to offer sustainable growth over the coming years.

Low exposure in North America; possible to go for localization in US. Revenue from America (including North & South America) accounted for ~10% of SANY’s total machinery revenue in 9M24. Given that SANY has a production plant in the US, we expect SANY can mitigate the impact of potential tariff hikes through expanding production in the US.

Downside risks: Slowdown of overseas demand; further deterioration of China’s machinery demand