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Zoomlion Shares Jump on Better-Than-Expected Profit

Zoomlion Jumps on Better-Than-Expected Profit
Zoomlion Heavy Industry Science & Technology Development Co. machinery is parked outside the company's plant in Changsha, Hunan Province, China. Photographer: Nelson Ching/Bloomberg

Zoomlion Heavy Industry Science & Technology Co., China’s second-biggest maker of construction equipment, rose the most in a month after posting a better-than-expected profit on market-share gains and overseas sales.

The machinery-maker rose as much as 4.5 percent, the most since Aug. 1, and was up 2.9 percent at HK$8.51 as of 10:51 a.m. in Hong Kong. The benchmark Hang Seng Index was little changed. Larger rival Sany Heavy Industry Co. fell in Shanghai after posting a 13 percent decline in first-half profit on slumping demand for excavators.

Zoomlion’s net income jumped 21 percent to 5.62 billion yuan ($885 million) as new products, greater customer credit and exports helped it weather a “longer than expected” slowdown in domestic demand, the Changsha, China-based company said in a statement yesterday. The earnings surpassed estimates and exceeded those of Sany’s for the first time, according to Joseph Ho, a Hong Kong-based Daiwa Securities Group Inc. analyst.

“Zoomlion’s first-half business outperformed its domestic peers,” Ho said in a note to clients today. Its “business fundamentals should help it emerge as a stronger player amid the current industry downturn.”

Sany Heavy, also based in Changsha, posted a net income of 5.16 billion yuan, it said in a Shanghai stock exchange filing yesterday, citing domestic accounting. The company, along with Caterpillar Inc. and Hitachi Construction Machinery Co., has cut production of diggers in China as an equipment glut and waning construction damp demand.

The machinery-maker, which is more reliant on excavators than Zoomlion, said sales rose 4.6 percent to 31.8 billion yuan. Revenue from excavators, the second-largest segment, fell 6 percent to 6.6 billion yuan.

Sales Forecast

Zoomlion has cut its sales growth target to 15 percent from 35 percent, Wenjie Ge, an analyst at Nomura Holdings Inc., said in a note yesterday, citing company officials. Nomura rates the company “neutral” and has a target price of HK$11.70.

“The growth of the construction-machinery industry will slow down” in China, Zoomlion said in its earnings statement. “The export of domestic construction-machinery products will continue to increase.”

Zoomlion’s revenue rose to 29.1 billion yuan. Overseas sales jumped 27 percent, helped by the introduction of truck-mounted concrete pumps in Germany and crane sales in Iran. The company didn’t break down sales by region.

Overseas Sales

Sany’s overseas sales more than doubled to 3.3 billion yuan, helped by demand in emerging markets. The company also bought Putzmeister Holding GmbH, Germany’s largest cement-pump maker, for $653 million, including debt, in April.

Zoomlion’s profit from concrete machinery, its biggest unit, rose 52 percent to 6.12 billion yuan. The company’s trade receivables, after provisions for impairments, jumped 63 percent to 18.9 billion yuan.

Current and non-current receivables went up 10.2 billion yuan, 35 percent of total revenue, which shows that Zoomlion had loosened financial terms to gain market share in concrete equipment, Tina Li, an analyst with BNP Paribas Securities Asia, said in a note to clients yesterday.

“We think it is the right strategy, but it’s not sustainable,” Li said. Still, Zoomlion has the best balance sheet and cash holdings in the sector, she said.

Zoomlion is also trying to sell its sanitation-equipment unit to focus on construction machinery. The company this week extended the deadline for bids to as late Dec. 31 in the expectation of finding a buyer.

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