Sany eyes more deals in emerging markets

A recent products promotion by Sany Heavy Industry Co Ltd in Moscow, Russia. The company is planning to increase its investments in emerging markets, as the heavy machinery maker seeks ways to sustain growth amid tough market conditions at home. [Photo/Xinhua]

Sany Heavy Industry Co Ltd is planning to increase investments in emerging markets like Venezuela, as the heavy machinery maker seeks ways to sustain growth amid tough market conditions at home.

The company said on Thursday that its auto unit has bagged a $200 million supply order for heavy machinery, including crawler cranes and excavators, in Venezuela. It said it has received half of the advance payment from Corpovex, the South American country's national trading company.

Sany said it expects to sign more such deals with companies in overseas markets that are undergoing rapid urbanization and have huge demand for infrastructure construction.

Currently, overseas business accounts for more than 30 percent of Sany Heavy's revenue. Going forward, the company wants overseas business to account for more than half of its total revenue, with the focus being largely on markets in South America, the Middle East and Africa.

"Though China accounts for most of the sales, Sany will look to expand its presence in all major international markets," said a company statement.

China's heavy machinery sector has been facing tough times since 2011, as domestic demand nose-dived due to the excess capacity triggered by the economic stimulus. To offset dwindling demand, many Chinese heavy machinery makers shifted focus to emerging overseas markets, with an eye on business from big-ticket infrastructure projects like construction of high-rise buildings and roads.

In July, during President Xi Jinping's state visit to Brazil, Sany signed a contract to invest about $300 million on a plant in the country, marking another major deal signed by China in the South American market.

According to industry experts, Chinese companies will soon have a much bigger market share of the global construction machinery industry.

Pan Chao, a senior analyst at PC Investment Co, an investment firm, said Chinese construction machinery companies have started to upgrade their technology either through buying or setting up joint ventures with foreign partners and suppliers, to garner more business.

In 2012 Sany Heavy acquired two German firms, Putzmeister and Intermix, and also formed a joint venture with Palfinger in Austria.

Earlier this year, Zoomlion Heavy Industry Science and Technology Co, Sany's major rival in China and Guangxi-based Liugong Group Co Ltd said they were planning mergers and acquisitions in Europe to gain global distribution networks and technology know-how.

"European firms are usually easier targets than big United States-based companies as they are small in size, but strong in manufacturing techniques," said Zeng Guang'an, president of Liugong Group.

Heavy machinery products from China also enjoy considerable cost and quality advantages over their counterparts from the US, Europe and Japan, said industry sources.

Sany said in September that it would list its subsidiary Shanghai Sany Heavy Machinery Co on the Hong Kong Stock Exchange and divest up to 30 percent of its equity. "Sany is likely to capitalize on the booming stock market and use the money for more M&A deals," Pan said.

Profits decline 48%

The company posted a net profit drop of 48.34 percent from the same period last year in the first half of 2014.

With a net profit of 1.37 billion yuan ($222.9 million), the company registered a business revenue of 19.72 billion yuan in the first six months, according to a statement it filed to the Shanghai Stock Exchange on Sunday.

The revenue was a 10.7-percent decline from the same period last year, said SANY.

It attributed the profit and revenue drops to "market adjustment," without giving detailed reasons.

The performance could also be attributed to a surge in "financing expenditures," which jumped 156.58 percent year on year in the first half.

However, Sany is optimistic about its growth prospects in the medium-to-long term thanks to "continuous improvement in the country's regional, industrial and urban-rural structure."

The company also cited "increased infrastructure demand in railways, urban mass transit and water conservancy projects, and opportunities brought about by the development of other emerging economies" as reasons for optimism.

In the first six months of this year, SANY sold more concreting machinery than any other competitor worldwide and more excavating machinery than anyone else in China. These sales were worth 10.12 billion yuan and 4.88 billion yuan, respectively.