Zoomlion’s 2024 results were weaker than our expectation, due to a slowdown of overseas revenue growth (14%) in 4Q24, reduction of other income, and increase in inventory turnover days. While we revise down our 2025E/26E earnings forecast by 7%/8%, after incorporating lower sales volume growth and higher distribution expenses due to overseas expansion, we remain positive on Zoomlion’s structural overseas growth strategy with priorities on emerging economies. On inventory, management is confident of a reduction of the inventory level in 2025E. Our TP for Zoomlion A/H is revised down/up to RMB9.9/HK$7.4, based on 2025E target P/E multiple of 19.5x for A-share and 30% discount for H-share. We see buying opportunities following the post- results pullback. Maintain BUY.

4Q24 earnings highlight. Revenue in 4Q24 dropped 4% YoY to RMB11.1bn, as the decline in China revenue (-18% YoY to RMB5.36bn) offset the growth overseas (+14% YoY to RMB5.74bn). Overseas revenue accounted for 52% of total revenue in 4Q24, slightly down from 57% in 3Q24. Blended gross margin expanded 0.6ppt YoY to 27.5%, as overseas markets commanded a higher margin. Given the decline of non-operating income (-89% YoY to RMB61mn), EBIT dropped 19% YoY to RMB519mn.

Net profit declined 45% YoY to RMB382mn, as a result of higher minority interest due to higher growth of non-wholly owned AWP business. For the full year in 2024, revenue/net profit dropped 1.2%/0.8% YoY to RMB53bn/RMB3.5bn. Zoomlion proposed a dividend of RMB0.3/shr, representing a pay-out ratio of 74%.

Low exposure to domestic property sector. Domestic property relatedproducts such as concrete machinery and cranes sales accounted for only 13% of Zoomlion’s total sales in 2024. For tower cranes, management revealed that only 30-40% are related to property, with the balance related to infrastructure, wind power installation and chemical plants construction.

For truck cranes, only 10% of the demand comes from property, with the balance related to infrastructure, energy and municipal projects.

2025 outlook. Management did not provide much quantitative guidance in the post-results call, but provided some key directions: (1) overseas market expansion will be accelerated; (2) earth-working, mining, and agricultural machinery will continue to be growth drivers; (3) share-based expenses, which surged 2.1x YoY to RMB866mn, is expected to drop >50% in 2025; (4) other operating expenses are expected to be on a downtrend.

Valuation

We roll over our target valuation to 2025E, based on 19.5x 2025E P/E, to reach our new TP for A-share of RMB9.9 (previously RMB10.5). Our target P/E is based on the five-year average historical P/E of 15x plus 1SD (previously based on 22x 2024E P/E, equivalent to the peak valuation in 2021). We maintain our view that overseas expansion story will serve as a structural driver.

Our new TP for H-share (HK$7.4, previously HK$6.8) is based on a 30% H/A discount (previously 40%). Our narrowed target discount is to reflect the recent improvement in Hong Kong market appetite.

Major risk factors: (1) further weakness of property investment in China; (2) a slowdown of overseas demand; (3) increase in freight rates due to uncertain US tariff policy.