Zoomlion’s net profit in 2023 grew 51% YoY to RMB3.55bn, in line with the pre- announced profit range of RMB3.38-3.62bn. Zoomlion proposed dividends of RMB0.32/shr, implying a payout ratio of 78%. With successful global growth strategy, overseas revenue contribution in 2H23 increased to 42%, up from 35%/24% in 1H23/2022. In the post-results call, Zoomlion expects the Middle East and Middle Asia will continue to see explosive growth in 2024E. Besides, Zoomlion expects the revenue contribution of property-related machinery such as concrete machinery, tower cranes and truck cranes in China will drop to ~25% by end-2024E. We revise up our 2024E/25E earnings forecast by 12%/28%, due to higher assumptions for overseas sales. Our TP for Zoomlion A/H is revised to RMB8.5/HK$5.5. Maintain HOLD as we think the recent share price rally has partially priced in the overseas story.

Key highlights in 2023 results. Revenue grew 13% YoY to RMB47bn, mainly driven by excavators (+89% YoY to RMB6.6bn) and AWPs (+24% YoY to RMB5.7bn). Blended gross margin expanded 5.7ppt YoY to 27.5%, driven by excavators, cranes and others. Selling & distribution expense ratio increased 1.3ppt YoY to 7.6%, due to more overseas business. R&D expense ratio increased 1.3ppt YoY to 7.3%. Net profit grew 51% YoY to RMB3.55bn. Operating cash inflow grew 17% YoY to RMB2.3bn. In 4Q23, net profit surged 2.9x YoY to RMB696mn, mainly due to the low base effect.

Overseas markets will continue to be key growth driver. Overseas

revenue surged 80% YoY to RMB18bn in 2023, accounting for 38% of total revenue (2H23: 42%), driven by breakthroughs in key markets such as the Middle East (RMB4.5bn, +262% YoY) and Middle Asia (RMB4.2bn, +65% YoY). Gross margin of overseas business (32.8%) exceeded that in China (24.3%) in 2023, the first time ever. Going forward, Zoomlion will continue to beef up its overseas sales team to enhance after-sales services. Besides, Zoomlion will localise production overseas in order to avoid risks of potential tariffs. In terms of region, Zoomlion is confident that the Middle East and Middle Asia will see explosive growth in 2024E.

Valuation. Our new TP for A-share (RMB8.5) is based on 18x 2024E P/E which is the mid-point between the average (14x) and peak level (22x) since the upcycle starting from 2019 (previously we applied 14x). Our new TP for H-share (HK$5.5) is based on 40% H/A discount (3-year historical average).