Sany Heavy's 4Q25 profit missed expectations, but operating quality and cash flow remained solid

Overview

This report is Goldman Sachs' review of Sany Heavy's 2025 and 4Q25 results. The company's 4Q25 revenue and gross margin were better than expected, but net profit missed, mainly due to sales and administrative expenses, impairment losses, and FX losses. In 2025, the company delivered strong revenue growth, profit growth, and cash generation, while overseas business, non-excavator products, and electrification remained the key growth themes. Goldman Sachs maintained a Neutral rating and lowered the 12-month target price to Rmb21.0.

Core views

Goldman Sachs believes that the near-cycle environment for Sany Heavy has improved, including the domestic construction machinery cycle recovery, sustained demand in emerging markets, signs of a bottoming in developed markets' cycles, and the company's overseas share expansion and free cash flow improvement. However, the stock has already re-rated significantly during this cycle and has largely reflected these improvements. Expenses, FX, competition, and valuation factors leave the risk-reward more balanced, so the firm keeps a Neutral stance.

Analysis framework

The report analyzes the results breakdown, regional and product growth, gross margin and expenses, cash flow and balance sheet, management outlook, FX exposure, electrification strategy, earnings forecast revisions, and valuation methodology. Valuation uses a 2026E target EV/GCI of about 1.3x and combines CROCI, EPS, PB, and ROE expectations to assess the target price.

Methodology notes

• Valuation methodsEV/GCI and CROCI framework

  The target EV/GCI multiple is supported by historical trading levels and expected CROCI.

  Goldman Sachs lowered its 2026E target EV/GCI from about 1.5x to about 1.3x to reflect CROCI forecasts declining from about 15% to about 13%, implying a 12-month target price of Rmb21.0.

• Earnings ForecastEPS Revisions

  Revise earnings per share based on FX pressure and the post-H-share IPO increase in share count.

  The report cuts 2026E-27E EPS by 8%-11% and introduces 2028E EPS of Rmb1.64/share, up 16% YoY.

• Factor AnalysisGS Factor Profile

  Compare stock characteristics across growth, financial returns, valuation multiples, and composite indicators.

  This framework uses Goldman Sachs forecasts to standardize rankings for metrics such as sales, EBITDA, EPS, ROE, ROCE, CROCI, and valuation multiples.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 600031.SS

  Covered name

  Strengths

  Overseas revenue growth, strong free cash flow, improved net cash position, stable dividend payout ratio, leading position in construction machinery, and broad electrification product coverage.

  Weaknesses

  4Q25 net profit missed expectations, expenses and FX were a clear drag, domestic gross margin is under pressure, and the stock has already re-rated substantially.

  Comparison

  The company has global leadership in excavator sales, concrete machinery, and other areas; Goldman Sachs believes the valuation already reflects its overseas expansion and cash flow improvement relative to global peers.

  Risks

  Changes in construction activity in China or globally, shifts in market share at home and abroad, volatility in steel and other raw material prices, fluctuations in the renminbi exchange rate, and changes in the global trade environment.

Key data

• 4Q25 revenueRmb23.60bn, up 18% YoY3% above Goldman Sachs' expectations.
• 2025 revenueRmb89.70bn, up 14% YoYabout 1% above Goldman Sachs' expectations, broadly in line.
• 4Q25 net profitRmb1.27bn, up 17% YoY28% below Goldman Sachs' estimate of Rmb1.77bn.
• 2025 net profitRmb8.41bn, up 41% YoY6% below Goldman Sachs' estimate.
• 4Q25 gross margin27.5%, up 2.2ppt YoY1ppt above Goldman Sachs' estimate.
• 2025 gross margin27.7%, up 1.1ppt YoY0.3ppt above Goldman Sachs' estimate.
• 2025 free cash flowRmb17.2bn, up 45% YoYmore than 2x net profit, reflecting operating quality.
• 4Q25 free cash flowRmb4.48bnabove Rmb1.75bn in 4Q24 and Rmb3.59bn in 3Q25.
• Net cash at end-2025Rmb18.15bnvs. net debt of Rmb1.08bn at end-2024, supported by strong cash flow and H-share financing.
• Overseas revenue share64%Overseas revenue grew 15% YoY in 2025, and the revenue share was broadly stable YoY.
• 2025 dividend payout ratio50.7%broadly stable vs. 50.9% in 2024.
• Target priceRmb21.0previously Rmb22.0; rating maintained at Neutral.

Impact & implications

In the near term, FX and expense pressure limit room for earnings upgrades and led Goldman Sachs to lower EPS and the target price; however, strong free cash flow, a net cash position, rising overseas share, and the electrification strategy support the company's quality. Over the medium to long term, key watchpoints are whether overseas gross margin can remain resilient, whether domestic competition spills over, whether FX exposure management is effective, and whether electrification products can convert early investment into scaled revenue and profit.

Risks

• Construction activity in China or globally is stronger or weaker than expected.
• Market share gains in domestic and overseas markets are faster or slower than expected.
• Steel and other raw material prices fall or rise unexpectedly.
• The renminbi unexpectedly depreciates or appreciates against major foreign currencies, affecting overseas gross margin and FX gains or losses.
• The global trade environment improves or worsens, especially affecting local production in the United States, tariffs, and overseas sales.
• Domestic competitive pressure spills over into APAC and Africa and other overseas markets, weighing on pricing and margins.
• FX exposure is large, and if U.S. dollar assets, receivables, and minor-currency risks are not managed properly, profits may continue to be affected.

What to watch

• Whether the company can at least maintain its roughly 15% growth pace in 2026.
• Progress against growth targets in APAC, Europe, the Americas, and Africa.
• Whether overseas gross margin can keep improving off a high base, especially given product mix, regional mix, and customer mix.
• Sustained growth in non-excavator products, including concrete machinery, cranes, road machinery, and pile machinery.
• Penetration, orders, and revenue growth for electric excavators, concrete machinery, electric loaders, electric cranes, and electric road machinery.
• The impact of FX on 1Q26 and full-year profit, and whether the company triggers hedging or settlement thresholds.
• The pace of capex, overseas manufacturing base investment, and sales/service network investment.
• Whether the dividend payout ratio can be maintained above 50%.