Fork in the road Profiling the global forklift industry

Transcription

BERENBERG EQUITY RESEARCH
Fork in the road
Profiling the global
forklift industry
Felix Wienen
Analyst
+44 20 3207 7915
felix.wienen@berenberg.com
Benjamin Glaeser
Analyst
+44 20 3207 7918
benjamin.glaeser@berenberg.com
19 September 2013
Capital Goods & Industrial Engineering
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important to informing our forecasts and ratings.
For our disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) and
our disclaimer please see the end of this document.
Please note that the use of this research report is subject to the conditions and restrictions set forth in the disclosures and
the disclaimer at the end of this document.
Table of contents
Fork in the road
4
KION at a glance
5
Jungheinrich at a glance
6
Investment case
7
Valuation and recommendations
11
Market structure, comparing industry leaders
14
Industry outlook and drivers
26
Competitive situation in pictures
31
Competitive situation
32
Contrasting revenue and profits across key players
37
Dividends and leverage
41
KION Group - Near-term risks
43
Jungheinrich - The outperformer
67
Contacts: Investment Banking
88
Disclosures in respect of section 34b of the German Securities
Trading Act (Wertpapierhandelsgesetz – WpHG)
89
3
Fork in the road
•
•
In this note we conduct a detailed top-down and bottom-up analysis
of the EUR27bn global industrial forklift market. We also initiate
coverage of KION Group with a Sell rating, and maintain a Hold for
Jungheinrich. KION is geared to EU volumes, which we do not
expect to recover in the near-term. With our estimates 16%/15%
below a broad range of consensus net profit for 2013/14E, we see
earnings risk. Trading on 19x P/E2013E, this is not reflected in the
stock price and we see 16% downside to our price target of EUR24.
Four global OEMs dominate: At a joint global share of 51%,
Toyota (#1), KION (#2), Jungheinrich (#3) and Hyster-Yale (#4)
dominate the industry. All of these players offer premium trucks and
the relevant after-sales services. At 46%, Jungheinrich’s service share
is best in class while KION achieves 42%.
•
Emerging markets drive new equipment volumes: Forklift truck
volumes grew at 2.4x global GDP in 2002-12, propelled by the
Chinese market, which expanded sixfold in that period. The European
market, on the other hand, is characterised by replacements, growing
at 2.7% CAGR2002-12.
•
Limited growth in Europe: Despite an expected industrial recovery
in Europe, order momentum for industrial trucks is limited in
2014/15. Following a 40% decline in 2009, large markets such as
Germany, France and the UK have rebounded to pre-crisis levels.
Spain, Italy and other smaller countries that accounted for 44% of
volumes pre-crisis continue to lag behind. Declining utilisation has
extended truck lifecycles in these regions, and we see no significant
replacement need before 2015/16.
•
Competition increases: Historically, market shares have been very
stable. However, comments from leading industry players suggest that
competition in Europe is increasing. Toyota is in-sourcing its
distribution network while Jungheinrich is attempting to gain share in
segments where KION has historically been strong. KION’s share
might, therefore, decline in 2014.
•
KION with near-term risks: As a global leader in industrial trucks,
KION operates a sound business model, but we see near-term risks
from: sluggish growth in European truck demand; increasing
competition; and limited room for further margin progression.
•
Jungheinrich will outperform: Jungheinrich will outgrow the
sluggish European market, supported by: production ramp-ups at new
plants; market share gains from an improved product portfolio; and
good prospects for logistics systems. At 8.4% margins in 2015, the
profitability gap to leading peers will narrow. We reflect this in our
model, and therefore lift our 2014/15 EPS estimates by 12%/14%.
We raise our price target to EUR49, but as the stock has re-rated and
gained 50% ytd, upside remains limited for now.
4
KION Group AG
Sell (Initiation)
Current Price
Price Target
EUR 28.60
EUR 24.00
18/09/2013 XETRA Close
Jungheinrich AG
Hold
Current Price
Price Target
EUR 45.08
EUR 49.00
(from 31.00)
Rating system: absolute
19 September 2013
Felix Wienen
Analyst
+44 20 3207 7915
Benjamin Glaeser
Analyst
+44 20 3207 7918
Chris Armstrong
Specialist Sales
+44 20 3207 7809
chris.armstrong@berenberg.com
KION at a glance
KION is a global leader in industrial truck production and after-sales service. With
sales of EUR4.5bn (ex-LHY) and a global market share of 15%, it is the global
number two in industrial trucks, after Toyota Material Handling.
Figure 1: Divisional sales (2012)
Figure 2: Divisional adjusted EBITA
-4%
-13%
11%
30%
65%
37%
LMH
74%
STILL
FS
Others/Consolidation
LMH
STILL
FS
Others/Consolidation
Source: Company data, Berenberg estimates. Note: excluding LHY.
Source: KION Group, Berenberg estimates. Note: excluding LHY.
Figure 3: Sales by product type
Figure 4: Geographic sales
5%
4%
10%
7%
9%
58%
25%
79%
New trucks
Service
Rental
Used equipment
Europe
Other
America
Asia
Source: Company data, Berenberg estimates. Note: excluding LHY.
Source: KION Group, Berenberg estimates
Figure 5: LT sales and margin profile
Figure 6: Margins vs. peers
6,000
12%
12%
5,000
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
4,000
3,000
2,000
1,000
0
0%
0%
-2%
-2%
RoW
-4%
2002
Sales
EBITA adj.
Source: Company data, Berenberg estimates
2004
Jungheinrich
2006
Kion
2008
2010
Toyota MH
5
2012
2014E
Hyster Yale
Jungheinrich at a glance
Jungheinrich is the world’s number-three producer of industrial trucks with a 9%
market share. Operating an integrated intralogistics business model, it is purely
focused on the premium truck segment and achieves a best-in-class service share of
46%.
Figure 7: Divisional sales (2012)
Intralogistics
Figure 8: Divisional EBIT
Intralogistics
Financial Services
Financial Services
Source: Company data, Berenberg estimate
Figure 9: Sales by product type
Figure 10: Geographic sales
30%
54%
8%
9%
New trucks
Rental
Used equipment
Germany
Service
Rest of Europe
RoW
Figure 11: LT sales and margin profile
Figure 12: Margins vs. peers
3,000
10%
2,500
8%
12%
10%
8%
2,000
6%
1,500
6%
4%
4%
500
2%
2%
0
0%
1,000
0%
-2%
-4%
Sales
2002
EBIT
2004
Jungheinrich
2006
Kion
2008
2010
Toyota MH
6
2012
2014E
Hyster Yale
Investment case
Following the recent IPO of KION, we provide a detailed top-down and bottomup analysis of the structure, drivers and competitive situation in the global material
handling equipment market. We summarise our key findings in Figure 13.
Figure 13: Leading industrial truck manufacturers – summary stock views
Market share - EU/Global
Market share momentum
Service as % of sales
End market split
Product portfolio - today vs. 2014/15
Regional exposure
Next move to consensus
Valuation
P/E
EV/Sales vs. EBIT margin
Rating
Jungheinrich
23.7/7.8
positive
46.2%
+++
++/+++
++
up
In-line
Expensive
below peers
Hold
KION
33.8/15
negative
41.8%
++
++/++
+++
down
In-line
expensive
In-line
Sell
Hyster Yale
6.8/8.1
negative
13.0%
+
+/+
++
n/a
n/a
n/a
n/a
n/a
Toyota MHE
18.7/15
positive
n/a
++
++/++
+++
n/a
n/a
n/a
n/a
n/a
Source: Berenberg estimates
We summarise our view on Jungheinrich and KION as follows.

Jungheinrich, Hold, price target EUR49: Jungheinrich operates an
integrated intralogistics business model, covering the full value chain of
premium truck production and also offers entire turnkey warehouse
solutions. We like the group’s best-in-class service share of 46% and see
three near-term catalysts: market-share gains in Europe from new
products, capacity expansion in China and an optimised production setup
in Europe.

KION, Sell, price target EUR24: KION is a global leader in industrial
truck production and after-sales service with a diversified regional
exposure (EM orders at 29% in 2012). However, following the strong
increase in margins from 6.5% in 2006 to 9.3% in 2012 and medium-term
guidance of 10%, we see little room for further improvement. At the same
time, we expect the next move to consensus to be a downward adjustment
and see the 47% shareholding of Goldman Sachs and KKR as an
overhang.
EU momentum remains limited, emerging markets offer growth
While European industrial activity is accelerating, we do not expect a strong nearterm recovery in industrial truck volumes. As European industrial activity starts to
improve with PMIs now above 50, industrial truck demand has stabilised after
declining 7% in 2012. Historically, truck demand has been correlated with GDP
growth; orders in large western European markets such as Germany, France and
the UK (together, 47% of western Europe volumes pre-crisis) have swiftly
recovered to pre-crisis levels. Given the maturity of the western Europe market,
growth in 2002-07 was driven by non-core markets, with volumes rising by 12.6%
pa. These markets as well as Spain remain more than 30% below their peak levels
as truck utilisation declined significantly during the crises; hence there is scope to
expand the useful live of a truck beyond the average of 8-12 years.
In emerging markets, rising labour costs, ongoing industrialisation and increasing
global trade activity remain the key drivers for industrial truck demand. After the
7
impressive 16.4% CAGR of the past decade, we expect the developing countries to
remain the key growth engine, albeit at a somewhat slower 7.3% CAGR for 201215. The growth we expect will be predominantly driven by a stabilisation of growth
in China as the next stage of supply chain development shifts demand towards
electric and warehouse trucks. Our forecast of 8.5% CAGR 2012-15 (versus 20%
in 2002-12) for China also reflects the country’s transition to lower levels of
economic growth as its GDP per capita climbs. Figure 14 shows our estimates for
the global industrial truck market by region.
Figure 14: Growth momentum in EU
limited as emerging markets continue to
drive new equipment demand
Figure 15: New truck sales account for 60%
of industry revenue, but only 15% of profits
1,200
1,000
800
600
400
200
0
2002
2004
Europe
2006
North America
2008
2010
2012
Asia (ex-China)
China
New truck sales
2014E
After sales revenue
RoW
Source: WITS, Berenberg estimates
Source: McKinsey, Berenberg estimates
Jungheinrich – best positioned to outperform
Jungheinrich is set to outperform the market while KION should grow in line. We
think Jungheinrich’s revenues will surprise over the near term on the back of three
factors: i) market share gains in counterbalanced trucks in 2014/15; ii) continued
healthy growth in logistics systems; iii) the ramp-up of its Chinese plant, which is
best placed to benefit from a shift towards E- and warehouse trucks.
Given its 80% exposure to Europe, KION will set to perform in line with overall
market volumes. We forecast a revenue CAGR 2012-15 of 3.3%, resulting from a
mix of price increases and unit development in Europe.
Figure 16: Jungheinrich’s revenue generation is set to outperform
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
2012
2013E
Western Europe
2014E
Jungheinrich
2015E
KION
Source: WITS, Company data, Berenberg estimates
Note: KION 2013 sales estimates adjusted for LHY divestment
8
Competition is on the rise
Recent comments from leading industrial truck producers suggest that competition
for market share is set to increase in Europe and emerging markets. The emergence
of low-cost producers such as Anhui Heli and Hangcha (both Chinese) in the last
few years is well flagged and will only pose a medium-term challenge to premium
producers. However, following the rapid growth of internal combustion trucks in
emerging markets (they currently account for 78% of trucks in China), we believe
that competitive barriers in terms of product know-how could decline at a faster
rate than for other product categories such as warehouse trucks (which account for
12% of trucks in China). Therefore those producers that are largely focused on
internal combustion counterbalanced truck such as Hyster Yale (c80% of trucks are
IC) and KION (c40% of trucks are IC) are more vulnerable to this threat.
More importantly, Toyota and Jungheinrich are in the process of optimising their
distribution and product setup for the European market. In 2014, Jungheinrich will
launch a range of diesel powered trucks which should complete the group’s current
offering. Hence management plans to gain market share in the Automotive and
other industrial end-markets that today are dominated by KION, Toyota and
Hyster Yale. Toyota on the other hand is currently in the process of streamlining its
distribution channels in Europe. In France for example the second-largest market
in the EU), Toyota has ended its distribution agreement with Manitou and replaced
it with a direct sales channel.
Figure 17: Global market share by units
Figure 18: European market share by units
40%
30%
30%
20%
20%
10%
10%
0%
0%
2004
2005
2006
Jungheinrich
2007
2008
KION
2009
Toyota
2010
2011
2004
2012
2005
2006
Jungheinrich
Hyster Yale
2007
2008
KION
Jungheinrich offers upside to margins
An improved production setup, higher profitability of newly introduced products
and the further development of the logistics systems business provide further
margin potential for Jungheinrich. For KION on the other hand, we see limited
scope for further improvements given that operating profitability has increased
significantly over recent years. With the majority of the group-wide restructuring
programme having been completed in 2010-11, these benefits are largely reflected
in current margins. The lack of material upside is also embedded in management’s
guidance, which foresees double-digit margins only in the medium term.
9
2009
Toyota
2010
2011
Hyster Yale
2012
Figure 19: Jungheinrich Intralogistics margins
offer further upside potential
3,000
10.0%
2,500
2,000
1,500
5,000
6.0%
4,000
4.0%
3,000
0.0%
500
-2.0%
0
6,000
8.0%
2.0%
1,000
Figure 20: KION sales and adjusted EBITA
12%
Y/E '06
GS/KKR
M&A
10%
8%
6%
4%
2,000
2%
1,000
0%
0
-2%
-4.0%
2007
2008
2009
2010
2011
sales
2012 2013E 2014E 2015E
EBIT adj. margin
Sales
As Jungheinrich’s margins trend towards 8.4%, the gap between the two players
should converge as it did in 2002-06.
Figure 21: Narrowing the margin gap
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
2002
2004
Jungheinrich
2006
2008
Kion
EBITA adj.
2010
2012
Toyota MH
2014E
Hyster Yale
Non-operational risks weigh on KION
Following the IPO, Goldman Sachs and KKR (Superlift) still hold c47% of KION
– marking a significant stock overhang. With free-float of only 20% and
uncertainty around the timing of a further placing, interest in the stock is likely to
remain limited.
Furthermore, we expect Weichai Power to increase its stake slightly to 33.3% (from
30%), but not beyond. This is in line with the Weichai Power standstill agreement
between Superlift and Weichai Power. The purchase of the remaining 3.3% will be
from Superlift rather than the market and will provide Weichai Power with the
right to propose the chairman of the supervisory board; this could introduce
additional uncertainty. Despite recent speculation, we do not see Weichai Power
taking over KION in full, again in accordance with the standstill agreement.
10
Valuation and recommendations
Following the detailed subsector analysis, we increase our price target for
Jungheinrich to EUR49 but maintain our Hold recommendation after the recent
re-rating of the stock. However, our potential price target of EUR62 (+38%) for
2015 shows the fundamental long-term prospects of Jungheinrich’s business
model. We rate KION as a Sell with a price target of EUR24 and downside of
16%.
Figure 22: Recommendations and price target
Recommendation
Current share
price
Price target
Up/downside
45.3
28.5
49
24
8%
-16%
Jungheinrich
KION
Source: Bloomberg, Berenberg estimates
We derive our price targets from a blended average of four valuation
methodologies as set out in Daring to dream, discounted back to estimate price
targets for 2015 (Figure 23/24).
Figure 23: Jungheinrich – price target
Valuation method
2013E 2015E Assumptions
DCF
55
68
3.5% CAGR; 8.4% TV margin; 8.5% WACC
EV/Sales
54
64
0.8x at 8% op margin
EV/EBIT
46
62
Target multiple of 9x
P/E
42
56
Average
49
62
Figure 24: KION – price target
Valuation method
DCF
EV/Sales
EV/EBITA adj
P/E
Average
2013E
27
26
24
20
24
2015E Assumptions
33
2.5% CAGR; 9% TV margin; 9.5% WACC
32
0.85x EV/Sales at 9% op margin
33
29
31
EV/sales versus operating margin
On our estimates, Jungheinrich is trading at a 20% discount to KION and material
handling peers on our EV/sales versus operating margin metric. Given the
outlined catalysts we expect this valuation gap to close over the mid-term.
11
Figure 25: Recommendations and price target
1.4x
1.2x
Palfinger
1.0x
Konecranes
0.8x
KION
Cargotech
Terex
0.6x
Jungheinrich
Hyster Yale
0.4x
0.2x
2%
4%
6%
8%
10%
12%
14%
Berenberg versus consensus
We are above consensus by 4.4%/13% for Jungheinrich’s 2014/15 EPS estimates,
as a result of higher margin expectations in the Intralogistics segment. While
consensus revenue estimates seem conservative for 2014/15, in our view they also
underestimate the long-term benefit from the various measures that we describe in
detail.
For KION, we are 16% and 15% below a very patchy Bloomberg consensus for
net profit in 2013/14. With a net profit range of EUR108m-202m for 2013, the
data cannot be seen as reliable. While our operating margins remain below
consensus for the entire period, consensus seems to misjudge the group’s financing
costs as we are 8%/11%/17% above the implied values by Bloomberg. We
therefore believe that the next move for KION’s consensus will be down.
Figure 26: Jungheinrich – Berenberg versus Bloomberg consensus
Revenue
growth
EBIT
margin
EPS
growth
Berenberg
2013E 2014E 2015E
2,317
2,463
2,628
4.0%
6.3%
6.7%
175
195
222
7.5%
7.9%
8.4%
3.23
3.71
4.28
-0.4% 14.9% 15.2%
Consensus
2013E 2014E
2,303
2,400
3.3%
4.2%
174
189
7.6%
7.9%
3.22
3.56
-0.8% 10.4%
2015E
2,512
4.7%
201
8.0%
3.79
6.5%
2013E
0.6%
Delta
2014E
2.6%
2015E
4.6%
0.3%
3.3%
10.3%
0.4%
4.4%
12.9%
2013E
-1.1%
Delta
2014E
-1.3%
2015E
-1.8%
-4.0%
-3.5%
-6.5%
Figure 27: KION – Berenberg versus Bloomberg consensus
Revenue
growth
Op profit (EBITA adj)
margin
Net profit
growth
Berenberg
2013E 2014E 2015E
4,575
4,789
5,032
0.3%
4.7%
5.1%
415
453
484
9.1%
9.4%
9.6%
149
188
218
n/a 26.1% 16.1%
Consensus
2013E 2014E
4,624
4,851
1.4%
4.9%
432
469
9.3%
9.7%
177
220
n/a 24.4%
2015E
5,122
5.6%
518
10.1%
257
16.7%
-15.7% -14.6% -15.0%
Note: 2013 estimates adjusted for LHY; Consensus 2013 operating profit excludes outlier value.
12
Jungheinrich seems fairly valued after its re-rating; KION at 5% premium
Trading on 13x P/E’13E and 12x 2014E compared to a historic median of 10.4x
the stock has re-rated. We believe that the current P/E level also constitutes a fair
level going forward given that Jungheinrich will outperform peers in the industrial
truck market.
Figure 28: Reaching all-time highs, the share
closes the gap to earnings estimates
50
3.75
40
3
30
2.25
20
1.5
10
0.75
Figure 29: 1yr forward consensus P/E shows the
re-rating of the stock; given the fundamental
improvements a 13x P/E multiple seems fair
20
18
16
14
12
10
8
6
4
0
01/06
0
01/07
01/08
01/09
01/10
PX
01/11
01/12
2
01/06
01/13
1yr forward EPS
01/07
01/08
01/09
1yr forward PE
01/10
01/11
01/12
01/13
Median P/E
KION’s stock on the other hand already trades in line with the sector at 15x EPS
2014E compared to 14.2x for the SXNP index. In light of consensus earnings
downgrades, the lower service share and the described non-operational risks,
downside risks dominate.
Figure 30: Share price vs. SXNP
Figure 31: Performance since IPO vs. close peers
400
32
50%
390
30
40%
380
28
370
26
360
24
350
22
30%
20%
10%
340
28/06/2013
0%
20
12/07/2013
26/07/2013
SXNP
09/08/2013
23/08/2013
KION
13
Market structure, comparing industry leaders
Emerging-market volumes driven by new investment, developed
markets by replacement
1200
1000
800
600
Since 2009, industrial truck volumes have been supercharged by unit
growth in emerging markets, in particular China as increasing trade activity
and labour cost inflation drive automation needs. Sales volumes in mature
markets such as Europe are predominantly driven by regular replacements
of premium truck fleets after a useful life of 8-10 years.
400
200
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
DM
EM
Source: WITS
Profits are generated in after-sales services
NE
While accounting for only 40% of the industry’s turnover, we estimate
after-sales service generates 85% of profits. This is due to the high margins
for repair, rental and maintenance activities which we estimate to be above
10%, compared to below 5% for new equipment sales – somewhat akin to
the razor-razorblade model.
China demand characterised by low-cost trucks
Despite the Chinese market being the growth engine of new equipment
sales, it predominantly demands low-cost trucks with correspondingly low
profitability. As the industry matures and supply chains are optimised, we
expect the share of the value and premium segments to rise, providing
growth opportunities for global OEMs such as KION and Jungheinrich.
Service
Source: Berenberg estimate
Segment
Volume
Premium
253
(27%)
Value
459
(49%)
Low Cost
232
(24%)
North America
Source: McKinsey
The global material handling truck industry amounts to approximately EUR27bn
and is dominated by four global players with a combined market share of 50% in
volume terms. KION and Jungheinrich are the number two and three players with
15% and 8% global market shares respectively while Toyota holds 19%. Hyster
Yale is number four. Given the relative stability of market shares over the past
decade, these players have generated very similar sales CAGRs of 4.7%, 4.5% and
4.8% – broadly in line with unit growth in the industry at 5.3%. This is a
remarkable result for Jungheinrich and KION given their background in Europe
and the fact that the majority of incremental units have been added in emerging
markets, in particular China.
Industrial trucks have a range of uses including the movement of pallets within a
warehouse or the loading and unloading of trucks; they therefore form an essential
part of the global supply chain. While new trucks are available in three distinct
price segments, they can generally be divided into two categories.

Counterbalanced trucks are used to load heavy goods onto vehicles or
block-storage; they have a lifting capacity of up to 46 tons and lifting
height of seven metres. These trucks can either be powered by an internal
combustion (IC) engine or an electric motor (E-trucks). Historically,
KION has had a strong foothold in this segment but Jungheinrich will
gain market share with an enhanced product portfolio from next year.

Warehouse trucks are narrow, electric-powered trucks that are mostly
used indoors in warehouses or retail facilities. These trucks have lower
14
Europe
China
Rest of Asia /
RoW
World
lifting capacity of up to four tons and can lift goods up to 17 metres.
Jungheinrich holds the leading position in this area, claiming roughly 35%
of the market in Europe.
Following the segmentation by truck type, we profile the differences in new
equipment and after-sales business in terms of profits, cycles and key players.
After-sales business accounts for majority of global profits
At roughly EUR11bn, the after-sales market accounts for approximately 40% of
industry revenues but generates roughly 85% of its profit pool. This is due to the
high margins of repair, rental and maintenance activities, which we estimate to be
above 10% compared to margins of less than 5% for new equipment sales. While
the after-sales service revenue is split 50-50 between OEMs and third-party
suppliers as Figure 33 depicts, the OEM share accounts for a larger part of the
spare part market. This can be explained by three factors: i) warranty
considerations for branded spare parts; ii) the availability of in-house service
engineers, for example at large industrial companies; and iii) smaller fleets being
serviced by independent service suppliers.
Figure 32: Industry segmentation
Figure 33: Global after-sales split
3rd
party
New truck sales
Spare parts
After sales revenue
OEM
Maintenance
The after-sales business provides a defensive, stable stream of profits. Besides
being margin accretive, the after-sales business also balances the considerable
cyclicality of new equipment demand and generates customer loyalty. Figure 34
(below) illustrates this by contrasting the top-line development of Jungheinrich’s
new equipment and service businesses since 2003. The chart highlights two key
features of the after-sales business.

Service revenues increased in nine of the ten years. Although new
equipment turnover only contracted in two years, it fluctuated significantly,
with the two extremes being a 24% rise in 2011 and a 36% drop in 2009.

Growth rates have been similar in the two businesses. Despite the
different volatility profile, growth rates have proven to be similar with
service slightly outperforming new equipment sales at 4.6% CAGR
compared to 4.4% for the period 2002-12.
15
Maintenance
Spare parts
Figure 34: Jungheinrich service business sales (EURm)
30%
20%
10%
0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-10%
-20%
-30%
-40%
ST hire, used equipment and after sales
New truck sales
Source: Jungheinrich AG, Berenberg estimates. *Includes short-term hire, used equipment, after sales service and
spare parts sales
A large installed truck base ensures stable profits, particularly during times
of economic weakness. KION and Jungheinrich both benefit from a large
installed truck base of approximately 1m units and 950,000 units respectively. This
fleet provides the backbone for defensive after-sales revenues, especially during a
crisis period when customers’ attention shifts to extending the life of existing
vehicles rather than replacing older equipment with new trucks, which carry higher
one-off expenses. Besides pure spare parts and repair solutions, OEMs also offer
rental solutions and the sale of used equipment. Despite these being smaller
operations with rental accounting for 9% of sales for both players and used
equipment for 9% at Jungheinrich and 5% at KION, both are higher-margin
businesses and hence accounted for in the service business.
Figure 35 below illustrates the similarity in service revenue between the players,
with Jungheinrich’s service share at 46% being slightly higher than 42% for KION
(excluding LHY). This is particularly driven by Jungheinrich’s sole focus on
premium trucks, which are expected to have a higher service take-up; stronger
leasing business (leased trucks automatically come with service contracts); and own
direct distribution network.
Figure 35: Sales split of Jungheinrich (left) and Kion, year-end 2012
5%
9%
30%
58%
25%
54%
8%
9%
New trucks
Rental
Used equipment
Service
New trucks
Source: Jungheinrich AG, KION Group AG, Berenberg estimates. *excluding LHY
16
Service
Rental
Used equipment
Other
Emerging-market demand fuels new equipment orders
With a 5.3% CAGR over the past decade, the global material handling new truck
market amounted to EUR16bn in 2011. Despite a dramatic decline of 37% in 2009,
the industry grew roughly 2.4 times faster than real world GDP (Figure 36)
between 2002 and 2012, propelled by the Chinese market. Here volumes increased
six-fold over the period – from 36,000 units in 2002 to 217,000 in 2012. Despite
this high growth, the European market remains the centre of gravity with a take-up
of 311,000 units in 2012 for a market share of 33% (Figure 36).
Figure 36: World GDP growth and the global new truck market (units)
1,200
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
1,000
800
600
400
200
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
World GDP growth
0
2002
Truck volume growth
Europe
2004
2006
North America
2008
2010
Asia (ex-China)
2012
2014E
China
RoW
Source: IMF, WITS, Berenberg estimates
Developed and emerging markets have unique dynamics. Given the
significant regional and product-specific variations in new truck sales, we split the
new truck market into developed and emerging markets, accounting for 60% and
40% of global orders respectively.
New equipment demand in developed markets is characterised by the regular
replacement of premium truck fleets. The market is highly mature and based on an
average replacement cycle of 8-10 years; we estimate a replacement share of 85%.
The relatively low through-the-cycle CAGR of 2% and the sharp, v-shaped
recovery following a 40% volume drop in 2009 confirm our estimate. Incremental
demand as observed during 2004-07 is largely driven by periods of above-average
economic activity and structural trends such as additional warehousing space for an
increased number of online retailers or supply chain improvements.
Despite a continued focus on warehouse and product flow optimisation, we do not
expect the European market to recover to pre-crisis levels in the near term. Figure
38 provides insight into the willingness of companies to upgrade warehouse
infrastructure; this continues to be high, centring on improved work processes and
inventory control as well as further reductions in employee costs.
17
DM
EM
Source: WITS, Berenberg
Figure 37: Developed market volumes
800
Figure 38: Willingness to upgrade warehouse
systems
Taking any action (net)
CAGR: +1.9%
700
Improving warehouse processes
-10%
600
77
Improving inventory control
+23%
500
95
60
Changing rack and layout configuration
-40% +31%
48
Improving information technology
400
40
43
Reducing staff
300
Renegotiating leases
200
27
Using 3 PL
100
14
Other
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
20
40
60
80
100
Willingness to upgrade warehouse systems in %
Source: WITS, Aberdeen Group, Berenberg estimates. Note: Developed markets include western Europe, North America and Asia (ex-China).
The western European market requires particular attention: This is not only
because of its size, at 27% global market share, but more importantly because
Jungheinrich and KION have a combined market share of more than 50% and
therefore generate the majority of revenue in this region. European volumes
showed healthy growth during the 2002-07 period, with volumes rising by 40% to
peak at 337,000 units. This development was largely driven by smaller non-core
countries as well as Spain and Germany.

In the non-core region, truck volumes increased at 12.6% pa, doubling
between 2002 and 2007 to 100,000. Following a 48% drop in 2009, the
market only recovered in 2011 (+30%) but remains 35% below its peak.
This region includes all western European countries except for the large
five – Germany, France, Italy, the UK and Spain.

Volumes in Spain reached 32,000 trucks in 2007, growing by an average of
10% annually from 10,000 trucks in 2002. While unit sales dropped as low
as 8,000 in 2009, the market was little stronger at 13,000 in 2012.

At 7.6% pa, the German market had the highest average growth rate.
Despite a 40% fall in 2009, units quickly recovered to pre-crisis peaks in
2011, albeit declining somewhat in 2012.
While historically truck demand has been closely correlated with GDP growth,
orders in large western European markets such as Germany, France and the UK
(together, 47% of western European volumes pre-crisis) have swiftly recovered to
pre-crisis levels. We do not expect a marked uptick in orders from Spain or the
“other” countries, where volumes remain more than 30% below peak-levels. This
can be explained by reduced utilisation during the crisis, which offers scope to
extend the useful live of a truck beyond the average of 8-12 years. Replacement
demand and pent-up demand is therefore unlikely to become a growth driver
before 2015/16 and we forecast flat development in western Europe in 2013
followed by 2.5%/3% growth in 2014/15.
An earlier-than-expected recovery would be a positive for both Jungheinrich and
KION given their 90%/80% respective exposure to Europe.
18
2010
3
0
2012
2011
Germany, France and Italy
account for c60% of Western
European demand
European units 24% below precrisis levels; we do not expect a –
pickup in demand in the short
term
Figure 39: Western Europe split by country
Figure 40: Jungheinrich and KION sales split
(2012)
120
100%
100
80%
80
60
60%
40
40%
20
RoW
Asia
America
Rest of Europe
20%
0
Germany
0%
GER
Uk
FRA
SP
Jungheinrich
IT
other EU
KION
Emerging markets offer dynamic growth
Over the past decade, orders from China, Eastern Europe and Brazil increased at a
CAGR of 16.4%, propelling the overall new equipment market and more than
doubling emerging markets’ share from 14% in 2002 to 39% in 2012 (Figure 41).
This strong growth was predominantly driven by Chinese demand with unit orders
in that country climbing to 217,000, six times their level in 2002. Over the same
period, volumes in the Eastern Europe and Rest of World (which includes Brazil)
regions roughly doubled.
We believe the globalisation of supply chains and the resulting fragmentation of
production and logistics represent a key driver of the strong growth rates. The past
decade of industrial production can be characterised by the structural trend towards
low-cost sourcing as manufacturing costs in developed countries have increased.
As a consequence, supply chains are being broken up into multiple stages, with
component manufacturing and assembly being outsourced to lower-cost areas such
as China or eastern Europe.
The resulting requirement to transport semi-finished goods between various
destinations in the chain has acted as a catalyst for internal combustion trucks in
particular, fuelling KION’s growth in these markets. Although Jungheinrich has
also grown in these markets, its stronger position in warehouse equipment and
premium orientation have limited its exposure to these markets to date. The key
catalyst for Jungheinrich will therefore be when emerging-market supply chains
reach the stage of development where they focus on warehouse storage. At present,
Chinese warehouse trucks only represent 12% of the market compared to 60% in
Europe – signalling significant growth opportunities for Jungheinrich in coming
years.
19
EM unit split 2012
DM
China
E EU
RoW
Figure 41: Emerging-market volumes
500
Figure 42: Emerging market share of c40% in
2012
CAGR: +16.4%
400
300
39%
14%
200
2002
86%
100
2002
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
61%
2012
2012
Source: WITS, Berenberg estimates. Note: Emerging markets include Eastern Europe, China, RoW.
China demand rests on two main factors
Sustained double-digit GDP growth and an industrial revolution have been key
drivers for incremental truck volumes. During the period 2003-12, Chinese real
GDP expanded by 10.5% on average with even higher rates until 2007 (Figure 43).
This compares to 1% for the eurozone and 3.7% globally. China’s unrivalled
growth was largely achieved by developing the nation’s industry into a reliable, lowcost production partner for industrial companies in developed countries. As a
consequence, export activity grew at 20-40% pa between 2002 and 2008. In order
to facilitate the high incremental volumes, the local supply chain required
significant new investment in warehouses, ports and industrial trucks.
Chinese export growth
100%
80%
60%
40%
20%
-40%
Source: Bloomberg
Besides increased trade activity, wage inflation and rising living standards are also
stoking demand for logistics automation. As China’s GDP has risen so have labour
costs, increasing by 14% pa on average over recent years (Figure 44). In order to
keep costs under control while increasing the speed and efficiency of the supply
chain, human labour has been replaced with equipment such as industrial trucks.
As Chinese GDP growth settles at 7-8% and the first stage of automation is
completed – some 1.3bn trucks have been added over the past decade – we expect
unit growth of 8.5% pa until 2015.
Figure 43: China real GDP growth…
Figure 44: …and labour price inflation (in CNY)
16%
50,000
14%
40,000
12%
10%
30,000
8%
20,000
6%
10,000
4%
2%
0
0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2004
2012
2005
2006
2007
Source: IMF, Datastream, Berenberg estimates
Russia, the growing force in eastern Europe
A sharp rise in added warehouse capacity and efficiency improvements are spurring
demand in Russia, the largest market in the Eastern Europe region. Unit sales in
20
2008
2009
2010
2011
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1991
0%
-20%
the region increased from 21,000 in 2003 to 54,000 in 2012, a CAGR of 11%.
Growth has been driven by new unit sales in Russia, which in 2012 accounted for
45% of Eastern Europe, compared to 24% in 2003 with just 5,000 units.
Alongside overall logistics upgrades in Russia, countries such as Slovakia, Poland
and Czech Republic have over the past decade developed into assembly partners
for the automotive industry. As such, Toyota and Peugeot jointly opened a plant in
the Czech Republic in 2002, VW a plant in the Ukraine in 2005 and Toyota a plant
in Russia in 2007. While such developments have led to a sharp rise in new
warehouse facilities, rents have risen consistently over the last few years (Figure 45
and 46). This in turn forces companies to maximise utilisation of existing
warehousing and storage space by investing in sophisticated storage systems.
Despite the large amount of warehouse capacity added over the past five years,
approximately 1.2m square feet are currently under construction in Eastern
Europe, a similar level to Italy, the UK and Netherlands put together. This bodes
well for industrial truck demand in that region.
Figure 45: Warehouse development in Europe
Figure 46: European warehouse rent comparison
%
2000
10
1600
5
1200
0
800
-5
400
-10
Under construction
Russia
5-year annual completions average
Eastern Europe
As a result of high growth rates in emerging markets, Jungheinrich and KION have
recorded good growth outside their home markets. For Jungheinrich, sales to the
RoW category have increased by a CAGR of 18% since 2003, accounting for 8% in
2012 versus 2.6% in 2003, with sales to Eastern Europe representing 13% of 2012
revenue. Similarly KION generated 15% and 9.3% CAGR in 2004-12 from Asia
and the RoW category respectively, with the latter including other countries and the
US. Asia and RoW sales accounted for 10% and 11% of group sales in 2012,
respectively.
Technologies and price points
Stable segmentation but high variance in drive technologies
Industrial trucks can be divided into two segments – warehouse trucks and
counterbalanced trucks – depending on the area of application. Counterbalanced
trucks are used to carry heavy loads (up to 46 tons) and are powered by internal
combustion (IC) or electric engines. Warehouse (WH) trucks are smaller, batterydriven trucks and are typically used in indoor applications such as warehouses or
distribution centres with a reach of 17 metres in height.
The global split between warehouse and counterbalanced trucks has been
remarkably stable over the past decade, moving from 40%/60% in 2002 to
38%/62% in 2012. With a strong background in WH trucks, Jungheinrich was able
to expand its market share in Europe from c30% to 35% over the period.
Q4 2011
Q3 2011
Q1 2011
Q2 2011
Q4 2010
Q2 2010
Western Europe
Source: Jones Lang LaSalle, Berenberg estimates
21
Q3 2010
Q4 2009
Q1 2010
Q3 2009
Q1 2009
Q2 2009
Q3 2008
Q4 2008
Q2 2008
-15
Q1 2008
Poland
Czech
Republic
Hungary
Germany
France
Italy
UK
Netherlands
Spain
Belgium
0
The resilience of the WH segment also explains the stability of the group’s financial
performance, with WH truck sales in Europe declining by 32% in 2009 compared
to a 42% drop for IC trucks. This is due to the different application areas of the
equipment. IC trucks are generally used in more cyclical industries while WH truck
orders are usually part of longer-cycle capex programmes (Figure 47).
Figure 47: IC and WH truck split
Figure 48: Decline in production volumes (2009;
units)
100%
Europe
-33%
80%
-50%
-67%
-46%
Asia
60%
-22%
-29%
-19%
-22%
40%
-33%
-29%
20%
-48%
-38%
North
America
World
-32%
0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
WH equipment
WH equipment
-39%
Electrical MHE
CB trucks
The drive technology of counterbalanced trucks varies significantly, depending on
the economic development within regions. Generally, the relative share of E- and
warehouse trucks is positively correlated with the stage of development of a
geographic region. This is clearly reflected by the low percentage of IC trucks in
western Europe at c19% in 2012 compared to China at 78% for example (Figure
49). The difference in truck type can be explained by a number of factors.

Price sensitivity: Internal combustion trucks have lower price points than
electric trucks.

Regulation: Stricter exhaust emission standards prevent IC trucks from
being used indoors in Europe, for example.

Area of application: Product type varies by end-market application with
IC trucks being used in the beverage, brewery and steel industries for
example.

Warehouse infrastructure: E-trucks require access to recharging
equipment as well as a connection to the power grid or a generator.
Furthermore, developed markets are characterised by a high share of
indoor storage while emerging markets often use outdoor areas –
favouring IC trucks.
22
-42%
IC
-37%
Total
Figure 49: Truck split by type and region (in %, 2012)
Truck type Volume
IC trucks
438
E-trucks
152
WH trucks
354
Region
North
America
Western
Europe
Japan
WH trucks
Eastern
Europe
E-trucks
China
Rest of
Asia
RoW
World
IC trucks
Price points also vary by region, with a higher share of premium equipment in
developed markets. Figure 50 visualises this relationship with the share of premium
trucks at roughly 60% in Europe, compared to 30% globally and below 10% in
China and other developing countries. While price is the most important criterion
in emerging markets, considerations such as the total cost of ownership, handling
accuracy and drive ergonomics are more important in developed markets.
Interestingly, and in contrast to Europe, the share of the value segment is
significantly higher in North America at roughly 70%.
Figure 50: Varying price segments by region (units, 2012)
Segment
Volume
Premium
253
(27%)
Value
459
(49%)
Low Cost
232
(24%)
North America
Europe
China
Rest of Asia /
RoW
World
Stable end-market split
The overall end-market characteristics have been fairly stable for the industry over
the past few years. While during the crisis of 2008/2009 the share of more cyclical
industries (eg metals, chemicals and automotive) declined, retail, logistics and food
and beverage were largely unchanged at around 50%.
While Jungheinrich’s exposure shows a higher concentration with
retail/wholesale/logistics accounting for 60% of orders, it is focused on less
cyclical industries. With large customers such as DHL, Metro, Lidl and Tesco, the
group benefits from the medium-to-long-term capex plans of large customers while
23
being underrepresented in the automotive area for example. This is likely to change
next year, as Jungheinrich launches an improved range of IC trucks with the goal of
gaining market share.
KION is more diversified and has higher exposure to more cyclical markets such
as the metals, chemicals and automotive industries, which together represent one
third of orders. It is therefore better placed for a strong recovery or capacity
expansion in cyclical industries while suffering the most in economic downturns,
when customers cut capex spending and reduce the usage intensity of equipment.
Figure 51: End-market split: Jungheinrich, industry average, KION (2012, units)
General retail
Retail/ Wholesale
Transport and logistics
Logistics
Food and Beverages
Mechanical, Auto,
Electricals
Logistics
Food
Metals
Chemicals
Automotive
Other
Food
Chemicals
Services
Timber, paper, print
Food Industry
Other
Chemical Industry
Wholesale
Beverage
Construction
Paper, print
Public Service
Source: Jungheinrich AG, KION Group AG, Berenberg estimates
24
Other
Figure 52: KION product overview
Source: Company data
Figure 53: Jungheinrich product overview
25
Industry outlook and drivers
Stable replacement demand in Europe
As European industrial activity starts to recover with PMIs now trending
above 50, industrial truck demand has stabilised after declining 7% in 2012.
We do not expect a strong near-term recovery in European truck volumes
as large markets have already rebounded since the crisis. The EU market
should therefore see stable replacement until 2015, with southern European
demand improving only from 2016.
Continued automation in emerging countries
Demand for new equipment in emerging markets should remain strong
with automation capex traded off against rising labour costs. Following a
weaker Q1, Chinese truck orders surged 17% in Q2; we expect a 7.5%
CAGR for orders until 2015. For Eastern Europe, which accounts for
c10% of emerging-market orders, we assume steady growth of 5.5% pa
until 2015.
Chinese demand shifts to warehouse and E-trucks
Warehouse and E-trucks are underrepresented in China at 12%/10%,
compared to 62%/41% in western Europe. Over the next few years,
Chinese logistics infrastructure will develop towards the next level, making
increased use of warehouses and adhering to tighter emission regulations.
Jungheinrich is well placed to take advantage of the shifting demand in
product mix.
Stable replacement demand in Europe
Developed economies are sluggish with European industrial production recovering
only slowly after troughing last year and the US economy growing steadily but not
rapidly. Following more than a year of falling industrial output in Europe,
indicators have started to improve with PMIs now trending above 50. This is also
reflected in industrial truck demand: following a 7% unit decline in 2012, volumes
have been improving this year. In Q1 2013 orders were down 6% yoy but Q2 saw
only a 3% decline. We expect this positive trend to continue over the remainder of
the year, resulting in flat development in western Europe. As overall GDP growth
in the region accelerates in 2014/2015 (+1.6% in 2014, according to our
economists), stable replacement demand in large markets should drive market
growth of 2.5%/2.8% in 2014/2015.
We do not expect a marked uptick in orders from Spain or the “other” countries,
where volumes remain more than 30% below peak levels. This can be explained by
reduced utilisation during the crisis, which allows the useful life of a truck to be
extended beyond the usual average of 8-12 years. Replacement demand and pentup demand are therefore unlikely to become a growth driver before 2015/16.
26
Figure 54: Regional manufacturing PMIs
Figure 55: Regional industrial production (yoy)
70
65
60
55
50
45
40
35
30
30 %
20 %
10 %
0%
(10 %)
(20 %)
US
Europe
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
(30 %)
China
US
Europe
China
In the US, industrial activity is stable and companies are investing in order to
upgrade production and logistics facilities. The US industry has proved highly
resilient over the past two years with production growth steady at 2-4%. GDP has
grown by roughly 2% in each of the past three years and should accelerate to 2.7%
in 2014. Demand for industrial trucks increased by 7% in 2012 and was up 10%
yoy in January-June 2013. As we expect some normalisation in the second half of
the year, we forecast 8% volume growth for FY 2013 and 7.5%/7% growth in
2014/2015.
Aggregating our regional forecasts, we expect developed market volumes to
increase at a 4.3% CAGR in 2012-15.
Figure 56: Industrial truck unit growth…
Figure 57: …and real GDP estimates
1,200
Eurozone
USA
Japan
China
Russia
India
World
1,000
800
600
400
200
2010
1.9%
2.4%
4.7%
10.4%
4.5%
11.2%
5.0%
2011
1.5%
1.8%
-0.6%
9.3%
4.3%
7.7%
3.8%
2012
-0.4%
2.2%
2.0%
7.8%
3.4%
4.0%
3.0%
2013E
-0.3%
2.0%
1.8%
7.4%
2.3%
5.2%
2.4%
2014E
1.6%
2.7%
1.8%
7.3%
2.5%
5.5%
3.1%
0
2002
Europe
2004
2006
2008
North America
2010
Asia (ex-China)
2012
China
2014E
RoW
Source: IMF, Berenberg estimates
Continued automation in emerging markets
Rising labour costs, ongoing industrialisation and increasing global trade activity are
expected to remain the key drivers for industrial truck demand in emerging
markets. After the impressive 16.4% CAGR of the past decade, we expect the
developing countries to remain the key growth engine, albeit at a somewhat slower
7.3% CAGR for 2012-15.
After averaging 20% unit growth pa over the past decade, Chinese growth rates are
likely to settle. Given that trend GDP growth appears to have slowed to c7% from
10% in 2003-10 (Figure 67), the industrial truck market should grow at a slower
pace. Still, we forecast a 8.5% CAGR for 2012-15, on the back of structural factors
27
EM unit split 2012
DM
China
E EU
RoW
such as rising labour costs and further upgrades to local supply chains. The Chinese
Industrial Truck Association (CITA) for example argues that the country’s logistics
industry is still in the developing phase, suffering from low efficiency and high
costs. Given that the logistics industry is a vital support function to overall
economic prosperity, we expect Chinese truck unit sales to significantly exceed
their 2011 peak in the coming years.
Truck penetration in other emerging markets such as Russia, India and Brazil is
expected to increase steadily, although from a considerably lower level than China.
While demand will be driven by similar trends of industrialisation and automation,
the impact on global volumes will be significantly less severe, given that the
Chinese market accounts for 60% of emerging-market volumes. In comparison,
Brazil and Russia account for 5%/7% of emerging-market units respectively. For
Eastern Europe and the Rest of World countries we assume unit growth of 6%,
and 5% respectively.
Figure 58: Emerging-market unit growth
Figure 59: China real GDP growth
300
16%
250
14%
200
12%
10%
150
8%
100
6%
50
4%
0
2003
2005
2007
China
2009
Eastern Europe
2011
2013E
2%
2015E
0%
RoW
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E
Source: WITS, IMF, Berenberg estimates
Chinese demand shifts to wholesale and E-trucks
As developing countries adopt stricter emission standards the share of E-Trucks
will grow disproportionately, benefitting premium suppliers. The strong emergingmarket volume growth of recent years reflects the first stage of supply chain
automation with the need to replace labour with an alternative, low-cost solution.
Given that internal combustion trucks have the lowest price point and are simple
to operate and refuel, demand is skewed towards low-cost IC trucks. These
account for c80% of volume compared to 22% for the mature, European market.
However, most striking is the low share of warehouse trucks at 12% compared to
60% in Europe. As leader in warehouse equipment, Jungheinrich is well placed to
benefit from a gradual shift towards WH trucks. We estimate that a 1% increase in
the relative share of WH trucks increases volumes by 8%, a structural driver for
Jungheinrich’s new equipment sales given its strong positioning in this product
category.
28
Figure 60: Chinese market (left) shifting to a EU standard (right)
Warehouse trucks
E trucks
IC trucks
Warehouse trucks
E trucks
Over the medium term, the product mix will shift towards more sophisticated
electric and warehouse trucks on the back of two key drivers.

Emission regulation: Political pressure for reduced CO2 emissions is
rising in emerging as well as developed markets. While OEMs and
particularly the suppliers of IC truck engines adjust to ever-tightening
standards, the broad-based requirement for low emission equipment also
constitutes a driver for E-trucks.

Development of sophisticated logistic hubs: Following the jumpstart
of China’s logistics structure in 2002-12, the country targets a meaningful
upgrade to its logistics network by 2020. To this end, sophisticated
national and regional distribution centres are to be established according to
the CITA. Assuming that China adopts similar regulations to Europe,
where internal combustion systems are not permitted in warehouses, this
should constitute a key growth driver for E- and WH trucks alike.
Reliable energy supply as limiting factor
The limiting factor for E-trucks besides the higher initial capital outlay is the
requirement for a point of recharge as well as a reliable energy source. Unlike
diesel-powered IC trucks, which can easily be refuelled, E-trucks are battery
powered and therefore require regular recharging. While this is not an issue in
developed markets, the lack of consistent energy supply is a limiting factor in some
emerging countries.
We expect power supply issues to be resolved over the medium term as countries
upgrade their grid infrastructure and logistic centres. At the same time, price
sensitivity is likely to decline as wealth increases and the middle class expands.
Hence we do not anticipate a radical shift in product mix in the near term;
however, a gradual adjustment entails significant leverage in terms of volume. On
our estimates, every 1% increase in warehouse/E-trucks entails 2,100 additional
units (+8%/10%), leaving significant opportunities for players geared to electric
and warehouse trucks – Jungheinrich in particular.
29
IC trucks
Figure 61: Jungheinrich and KION truck product mix
100%
80%
60%
IC trucks
E trucks
40%
Warehouse trucks
20%
0%
Jungheinrich
Market
KION
Source: Jungheinrich AG, KION Group AG, WITS, Berenberg estimates
30
Competitive situation in pictures
Figure 62: Global top 15 industrial truck players
Company
HQ
Toyota
KION
Jungheinrich
Hyster Yale
Crown
Manitou
Kalmar
Komatsu
Mits. Cat. Fork
Nissan
Anhui Heli
Hangcha
Nichiyu
Clark
TCM
JP
GER
GER
USA
USA
FR
SWE
JP
JP
JP
CN
CN
JP
KR
JP
Rank
2011
2010
1
1
2
2
3
3
4
4
5
5
6
8
7
6
8
10
9
7
10
9
11
11
12
13
13
12
14
14
15
15
First tertile
Second tertile
Third tertile
Top 15
World units
Sales (EURm)
2011
share of top 15
5,236
21.9%
4,368
18.3%
2,116
8.9%
1,825
7.6%
1,509
6.3%
1,131
4.7%
1,020
4.3%
751
3.1%
749
3.1%
738
3.1%
727
3.0%
617
2.6%
616
2.6%
486
2.0%
477
2.0%
15,054
4,389
2,923
23,881
63%
18%
12%
94%
2011
184
145
76
80
3
18
43
25
71
68
16
16
17
Units (in 1,000)
2010
153
122
60
60
2
17
32
23
58
15
13
14
49.7%
9.1%
19.3%
78.1%
975
49.8%
9.3%
12.5%
71.5%
795
yoy
20.1%
19.2%
25.3%
32.8%
12.4%
6.9%
32.8%
11.6%
18.2%
8.6%
24.4%
24.8%
Global share Comment
18.9%
14.9%
7.8%
8.2%
6.0%
Focus on E-trucks
0.3%
1.8%
4.4%
2.6%
7.3%
7.0%
1.6%
1.6%
1.8%
Focus on Port trucks
JV of Mitsubishi, CAT and Jungheinrich
Source: Logistikjournal, WITS, Berenberg estimates
Figure 63: Global (left) and European (right) market shares
30%
40%
30%
20%
20%
10%
10%
0%
0%
2004
2005
2006
Jungheinrich
2007
2008
KION
2009
2010
Toyota
2011
2012
2004
2005
2006
Jungheinrich
Hyster Yale
2007
KION
2008
2009
Toyota
2010
2011
2012
Hyster Yale
Figure 64: Long-term sales growth and margin comparison
50%
14%
40%
12%
30%
10%
20%
8%
10%
6%
0%
4%
-10%
2%
-20%
-30%
0%
-40%
-2%
-50%
-4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-60%
2002
2003
2004
2005
Jungheinrich
2006
Kion
2007
2008
Toyota MH
2009
2010
2011
2012
Jungheinrich
Hyster Yale
31
Kion
Toyota
Hyster Yale
Competitive situation
Developed markets are highly concentrated
Five global OEMs dominate the developed material handling markets with
a global share of c56%. Particularly in the premium segment, these players
have established high barriers to entry in the form of dense after-sales
networks, strong customer relationships and technological edge through
R&D.
Top 5
Others
Oligopolistic structure in EU unlikely to change
With Crown focused on the US market, the European market is split
between four players which have a 92% share. This market is highly mature,
mostly demanding premium products as well as reliable and timely aftersales support. Despite market shares overall being highly stable,
Jungheinrich as the only European premium pure play increased its share
from 20% in 2004 to 24% in 2012.
Premium
Value
Low cost
Emerging markets are highly fragmented
Following their strong growth in recent years, the Asian and Eastern
European markets are relatively fragmented. In China, the share of global
players is below 10%, with large low-cost producers Heli and Hangcha
claiming c60% of the market. We believe that global OEMs are well placed
to gain share but assume that this will happen only gradually, driven by a
shifting product mix and increased focus on total cost of ownership.
A concentrated market with little room for differentiation
The material handling industry is a highly competitive environment offering little
room for differentiation. The industry landscape has been broadly stable for its
top-five players over the past decade. This is because of high barriers to entry –
particularly for the premium segment – arising from the important after-sales
network (which creates brand awareness and loyalty), understanding of customer
needs and sustained investment in R&D at 2-3% of annual sales.
KION is more oriented to emerging-market new equipment growth but
Jungheinrich is catching up. Having entered the Chinese market in 1993, KION is
the largest non-domestic player and has significantly greater exposure than
Jungheinrich. With a specialisation in warehouse trucks and its new factory
ramping up production, Jungheinrich’s China sales are set to increase significantly
in coming years.
Figure 74 provides an overview of the key players in the industry with the five
largest accounting for an estimated 56% of the global market in terms of units.
Besides KION at 15% and Jungheinrich at 8%, there are three other significant
players: Toyota Industries (19%), Hyster Yale (8%) and Crown (6%).
32
Heli
Hangcha
KION
Jungheinrich
Others
Figure 65: Top five global players in industrial trucks (units, 2012)
Company
Sales 2012
(EURm)
EBIT 2012
(EURm;
margin)
Headquarter
Toyota Material
Handling
5,653
367
(6.5%)
Japan
Regional split*
Product split
APAC
n/a
RoW
KION
4,727
Europe
438
(9.3%)
Germany
2,229
150
(6.7%)
Germany
Hyster Yale
1,922
87
(4.5%)
USA
n/a
USA
1,730
Service
APAC
Jungheinrich
Crown
NE
America
n/a
Branding strategy
Shareholders
Toyota Industries,
Multiple; Toyota,
listed; 48% JP
Raymon, BT, Cesab corporates, 22% foreign
corporates
Europe
America
Global mkt share
Europe
NE
RoW
Service
Americas
NE
Europe
Service
APAC
Other
n/a
Multiple; Linde,
Still, Fenwick, OM
Still, Baoli, Voltas
Listed; 20% freefloat,
49% GS/KKR, 30%
Weichai Power
100% of ords. family
Single; Jungheinrich Lange and Wolf; 100%
freefloat for pref. shares
Multiple; Hyster,
Yale, Utilev
Listed; 100% freefloat
Multiple; Crown,
Hamech
Private
Jungheinrich is the only pure European premium play. Addressing the premium
and low cost/value segment at the same time, most OEMs with the exception of
Jungheinrich use a multi-brand strategy. KION for example positions its Linde,
OM STILL, STILL and Fenwick brands as premium while Voltas and Baoli are
low-cost products aimed at growth markets (Figure 75). Jungheinrich on the other
hand merged its three brands in 2001 and has since then positioned the
Jungheinrich brand as premium across all markets.
Hyster Vale and Crown generate the majority of their revenues in the US. As
reflected by the low service share, Hyster Yale focuses on the value segment while
Crown has a robust position in the premium segment due to a strong E-truck
product in particular.
Figure 66: KION’s brands vary by region and price point
Brand
Linde
STILL
Fenwick
OM STILL
Baoli
VOLTAS
Distribution
Global
Global
Regional
Regional
Regional
Regional
Segment
Premium
Premium
Premium
Premium
Low cost
Low cost
Focus
Global #2 at c.9.5% share; largest non-domestic brand in China
EU and LatAm, #2 in Brazil
#1 in France
#1 in Italy
Top #10 domestic brand in China; targeting LatAm and Eastern EU
#2 in India
Source: KION Group AG
Chinese players ramp up volume but are no threat at this stage
As a result of the high unit growth rates in emerging markets, new players have
entered the industry, predominantly from China. Given their focus on the low end
of the product range, they have not yet succeeded in establishing a foothold in
developed markets, most importantly Europe. We see two important barriers to
entry.

Technological leadership: Given the maturity of the market, European
customers demand highly sophisticated technology. Catching up with the
product range of established players will take time in the form of sustained
investment in R&D as well as in-depth understanding of customers’ needs.
33

Strong after-sales support: In order to maximise the operating time of
customer fleets, OEMs offer dense after-sales service and spare parts
networks. Jungheinrich and KION have both established highly
sophisticated service and support functions in their core markets, catering
to all needs of the customer.
Figure 76 shows the evolution of the global and European market shares of the
four key players since 2004. Their cumulative global share declined from 60% in
2004 to 51% in 2012. This decline was led by Toyota (-4%) and Hyster Yale (-3%)
while KION’s and Jungheinrich’s shares were stable. Given that production
volumes have increased at all producers since 2004 (with the exception of Hyster
Yale at -1%), the lower market shares largely reflect strong unit growth in emerging
markets.
Figure 67: Global (left) and Europe (right) market share estimates (units)
40%
30%
30%
20%
20%
10%
10%
0%
0%
2004
2005
2006
Jungheinrich
2007
KION
2008
2009
Toyota
2010
2011
2004
2012
2005
2006
Jungheinrich
Hyster Yale
2007
KION
Oligopolistic European structure unlikely to change
Despite the large number of truck manufacturers, the important EU market is
dominated by four players with a stable joint market share of c90%. In their home
region, KION and Jungheinrich are historically dominant at c34% and 24% of
market volumes respectively. The structure of the EU market, which is shown in
Figure 77, can be explained by three factors.

Focus on premium products: Jungheinrich in particular and KION are
geared towards premium products, which account for roughly 58% of the
EU market; the value segment represents 38% (Figure 78). Demand for
technologically sophisticated trucks stems from high labour costs and
warehouse rents, which can be minimised by making use of the most
efficient equipment.

Total cost of ownership: European customers have a strong focus on the
truck’s total cost of ownership, including energy/fuel consumption,
accuracy and reliability, rather than purely deciding on the initial purchase
price. Given that premium producers invest significant resources in R&D,
these products score highest on the aforementioned aspects.

Reliable after-sales support: Large fleet operators from the logistics and
retail end-markets (61%/25% for Jungheinrich/KION) particularly value
the dense service network of premium providers, which allows high truck
utilisation rates. Through features such as overnight delivery of spare parts
and rental offerings during peak periods (eg Christmas), premium suppliers
offer incremental value.
34
2008
2009
Toyota
2010
2011
Hyster Yale
2012
Figure 68: EU truck segments by
price
Premium
Value
Low cost
Figure 69: EU truck segmentation
IC trucks
E trucks
WH trucks
Emerging markets are relatively fragmented
In contrast to the highly consolidated nature of developed regions, the Asian,
Eastern European and Latin American markets are more fragmented. The smaller
share of global OEMs such as KION and Jungheinrich (Figure 79) results from the
regions’ rapid volume growth during the past decade as well as the high share of
value- and low-cost products. While we expect the share of global players to rise,
this will be a steady, long-term process driven by tighter emission standards and an
increased focus on total cost of ownership.
China’s 20% unit CAGR since 2002 attracted local producers such as Anhui Heli
and Hangcha as well as numerous smaller players with a background in adjacent
industries like construction equipment or automotive. However, due to the demand
for very basic automated material handling solutions, these players solely supply
internal combustion trucks, which account for c80% of the market. Premium and
value products currently make up only c8% and 12% of units respectively, and are
largely supplied by western OEMs such as Jungheinrich and KION.
Despite the strong growth of local players, we do not see a significant competitive
threat for western OEMs in these regions in the near term. While Chinese
producer Hangcha boosted output by 18% to 68,000 units in 2011 and Anhui Heli
reached 71,000, these are largely basic products in the low-cost segment. In
addition to extensive experience in equipment development, design and
production, consistent R&D investment in the range of 2-3% provides sustainable
barriers to competition for Jungheinrich and KION alike.
Given the low share of premium products and price sensitivity among customers,
the highly profitable after-sales market is still small but should grow over the
medium term. This is particularly true for warehouse and E-trucks, which currently
account for only 11%/10% of the Chinese market compared to 60%/22% in
Europe. In order to benefit from the long-term potential in the market, OEMs are
expanding their local distribution networks albeit through different strategies.

Entering the Chinese market in 1993, KION has been a first mover,
further strengthening its position with the acquisition of local low-cost
manufacturer Baoli. Following the integration of Baoli, KION’s AsiaPacific distribution network increased to roughly 270 locations, of which
150 pertain to Baoli. Through a strategic partnership with Weichai Power,
KION will gain access to Weichai’s 500 sales and service locations.

Due to the size of the Chinese market, Jungheinrich employs a dual
strategy, using a direct distribution network as well as third-party dealers.
35
The current network is being expanded by one direct location and two
dealer locations a year.
Figure 70: Market share estimates for China (left) and Eastern Europe (right)
Heli
Hangcha
KION
KION
Jungheinrich
Jungheinrich
Others
Others
Source: Company data, Berenberg estimates. Note: Jungheinrich share estimated based on Eastern Europe sales and units produced relative to Eastern
European market.
36
Contrasting revenue and profits across key players
8%
5.4% avg. growth p.a.
5% through-cycle growth
Over long periods, the four large OEMs achieved annual revenue growth
averaging 5%, with small variation from 4.2% to 6.4% between players.
While Jungheinrich underperformed KION slightly at 4.2% versus 4.8%, its
business model is more resilient: sales declined by 22% in 2009 compared
to -32% at KION.
Jungheinrich and KION margins – no big difference
Despite Jungheinrich being only half the size of KION, the duo’s margins
are similar at 5.5% and 5.9% respectively in 2002-12. Even more strikingly,
Jungheinrich’s gross margin has consistently been superior, reflecting the
group’s higher service share and industry-leading production setup.
6%
4%
2%
0%
Jungheinrich
Kion
Toyota MH
Hyster Yale
Toyota MH
Hyster Yale
10%
Average: 4.6%
8%
6%
4%
2%
Jungheinrich – structural improvements to pay off in 2014/15
Following the optimisation of KION’s production footprint in 2010/2011
and a recovery in new equipment volumes, profitability decoupled from
Jungheinrich’s in 2011-12. We expect the gap between the players to narrow
in 2014-15 as Jungheinrich has implemented similar structural
improvements to enhance its production setup and further standardise its
new IC truck range.
0%
Jungheinrich
Kion
5% through-cycle growth
A long-term revenue and margin comparison of the top four industry players
confirms the similarity of the business models. With average annual growth of
5.4% in 2002-12, Jungheinrich, KION, Hyster Yale and Toyota Industries MH
division show a minimal degree of dispersion at 4.2%, 4.8%, 6.2% and 6.4%
respectively. The high similarity between Jungheinrich’s and KION’s growth
profiles in particular reflects the focus on Europe, which contributed 92% and 80%
respectively to their sales in 2012. Toyota’s strong growth on the other hand shows
its more diversified sales footprint with Asia-Pacific and RoW accounting for 37%
of sales.
At the same time, the limited volatility in Jungheinrich’s and KION’s revenue
profiles reflect the high share of the defensive after-sales business, particularly
compared to Hyster Yale. While Jungheinrich and KION generate roughly 50% of
revenues from after-sales, the proportion is significantly lower for Hyster Yale at
13% in 2012. This difference is an important factor when reflecting on the crisis
year of 2009, when Jungheinrich’s sales proved to be significantly more resilient at
-22% versus KION (-32%), Toyota (-33%) and Hyster Yale (-48%). Also,
Jungheinrich benefits from a higher share of warehouse trucks, a segment that
declined less dramatically than counterbalanced trucks during the crisis – explaining
the less pronounced recovery in 2010 too.
37
2009 yoy growth
Jungheinrich
0%
-10%
-20%
-30%
-40%
-50%
Kion
Toyota MH
Hyster Yale
Figure 71: Annual revenue growth of global OEMs 2002-12 pa (left) and average (right)
8%
5.4% avg. growth p.a.
6%
4%
2%
Top 5
Others
0%
Jungheinrich
Kion
Toyota MH Hyster Yale
Highly comparable margin profiles
Looking at the margins of the big four OEMs, again we find striking similarities. It
is remarkable that despite being only half the size of the two large players,
Jungheinrich’s gross margin is superior to that of its peers. As Figure 82 shows,
Jungheinrich consistently generates margins of around 30%, roughly double those
of similarly sized Hyster Yale. This in particular reflects its different sales split,
benefiting from positive mix effects from the sizeable service business.
Both KION and Jungheinrich enjoy a highly efficient platform production strategy
across their new equipment products, allowing for sizeable economies of scale in
production. Importantly, the similar gross margin level suggests that KION does
not have significant scale advantages in procurement, which is surprising given that
it is nearly double the size of Jungheinrich.
KION’s significant margin uplift during the 2009-12 period was particularly fuelled
by an extensive capacity optimisation programme. As part of this, six production
sites were either closed or replaced with lower-cost facilities in India, China and
Brazil. With the group’s fixed costs considerably reduced, capacity utilisation and
hence cost absorption increased in the 15 remaining plants and pushed up the
gross margin towards Jungheinrich’s best-in-class level.
Focused on strengthening its gross margin in the future, KION aims to increase
the share of components sourced from low-cost countries from 26% in 2012 to
c40% in the long term (Figure 81). While this should support the group’s future
profitability, we do not expect dramatic effects in the near term.
38
Figure 72: KION share of low-cost sourcing (as % of
total purchasing volumes)
50%
40%
30%
20%
10%
0%
2008
2012
LT targets
Lastly, the stability of gross margins highlights the bargaining power across OEMs
with the ability to pass through input cost inflation via annual price increases to
customers in the range of 1-3%.
Figure 73: Gross margin comparison (local currency, unless stated otherwise)
2005
2006
2007
2008
2009
2010
2011
2012
Sales
Jungheinrich
KION
Hyster Yale
1,645
3,628
2,400
1,748
3,909
2,489
2,001
4,312
2,720
2,145
4,554
2,824
1,677
3,084
1,475
1,816
3,534
1,802
2,116
4,368
2,541
2,289
4,727
2,469
Gross profit
Jungheinrich
KION
Hyster Yale
443
0
345
519
0
347
580
0
375
592
0
310
386
600
185
536
850
280
634
1,112
384
671
1,297
403
26.9%
14.4%
29.7%
14.0%
29.0%
13.8%
27.6%
11.0%
23.0%
19.5%
12.5%
29.5%
24.1%
15.5%
30.0%
25.5%
15.1%
29.3%
27.4%
16.3%
Gross margin
Jungheinrich
KION
Hyster Yale
Source: Company data, Berenberg estimates. Note: Toyota Industrial does not split out divisional gross profit.
Having executed its cost reduction programme, KION’s gross margin
improvement also lifted its EBIT margin, which rose to slightly above the industry
average in 2011/2012. Analysing through-cycle margins across the key players, we
can make two fundamental observations.
1. European OEM EBIT margins expanded in tandem during 2002-07 driven
by operating leverage. Jungheinrich and KION’s margin rose by 200300bp to 7% and 8%, respectively. We believe that this was in part due to
a healthy pick-up in production volumes, which expanded at an annual rate
of 7.5% for Jungheinrich and 11% for KION in 2004-07.
2. Over long periods, profitability among premium producers trends in
narrow bands. Figure 83 shows that average through-cycle margins only
vary modestly between players with KION at c6%, Jungheinrich and
Toyota MH at 5.5% and 5% and Hyster Yale at 2%.
39
Figure 74: EBIT margins*
12%
10%
10%
8%
Average: 4.6%
8%
6%
6%
4%
2%
4%
0%
2%
-2%
-4%
2002
2004
Jungheinrich
2006
2008
Kion
2010
2012
Toyota MH
2014E
0%
Jungheinrich
Hyster Yale
Kion
Toyota MH
Hyster Yale
Source: Company data, Berenberg estimates. Note: Jungheinrich 2009 adjusted for 1-offs, Hyster Yale 2008 adjusted for impairments;
Jungheinrich to narrow the gap in 2014/15
In line with the second observation, we expect Jungheinrich’s operating margins to
trend towards 8.4% in 2015 (2013E: 7.5%). This will be driven by structural
measures such as an enhanced production setup as well as increased profitability of
its new product range.
Aiming to increase its comparatively low market share of c6% in European IC
trucks towards 10% in the medium term, Jungheinrich has invested considerably in
R&D while the sales force is receiving intensive training to sell the product
effectively. Importantly, products’ profitability should increase markedly (previous
generations suffered from very low margins) due to a higher share of standardised
components and rationalisation of the assembly process.
At the same time, the production of warehouse trucks is being relocated to a
purpose-built plant while IC truck assembly is being centralised at the group’s
Moosburg plant (Figure 84). As a result of the combination of higher production
volumes, increased truck standardisation and centralised assembly, the margin gap
to KION is likely to narrow.
Figure 75: Jungheinrich’s optimised production footprint in Europe
Today
Previous
Location
Type
Truck
Moosburg
Production
IC/WH
Norderstedt I
Production
Lueneburg
Profitability Location
Type
Truck
Moosburg
Production
IC
WH
Degernpoint
Production
WH
Production
WH
Kaltenkirchen
Spare parts center
Landsberg
Production
WH
Norderstedt I
Production
WH
Dresden
Used equipment
Lueneburg
Production
WH
Norderstedt II
Components/ Spare parts
Landsberg
Production
WH
Dresden
Used equipment
Norderstedt II
Components
40
Profitability
Dividends and leverage
Dividends
Looking at dividend history as an indicator for the quality of the business model,
we find that Jungheinrich benefits from a rock-solid dividend track record. KION,
because of its ownership structure and history, has no track record. Nevertheless
management communicated a payout target of 25-35% of EPS as of 2013.
Jungheinrich has been a stable dividend payer in the past, with an average payout of
26%; more strikingly, the group maintained a payout on preference shares in 2009
– even as other companies suspended theirs. We estimate a dividend yield of 2%
for Jungheinrich and 1.3% for KION for 2013.
Figure 76: KION (left) and Jungheinrich dividend history
2.5
3%
3%
2.0
2%
1.5
1.0
0.5
0.0
2013E
2014E
DPS
EPS adj.
4.0
40%
3.0
2.0
2%
1.0
1%
0.0
1%
-1.0
0%
-2.0
2015E
30%
20%
10%
0%
2004
2006
2008
DPS
payout ratio
2010
EPS
2012
2014E
payout ratio
Leverage
Jungheinrich’s gearing ratio (net industrial debt/total assets) at the end of FY 2012
stood at -7%, excluding employee benefit liabilities from net debt, and -0.6% when
these are included. At KION, gearing was significantly higher at 29% (year-end
2012) although it should decline to 13% this year as a result of the capital increase.
Including pensions, net industrial gearing stood at 38% at year-end 2012. The
comparison indicates the strength of Jungheinrich’s balance sheet, which provides
significant support in expanding the group’s leasing business given that this is
funded from the balance sheet.
Figure 77: Jungheinrich industrial net gearing
Figure 78: KION industrial net gearing
100
ND
60%
50
0
NC
40%
-50
-100
-150
20%
-200
-250
0%
-300
2010
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
41
2011
2012
2013E
2014E
2015E
Figure 88 (below) provides an overview of the balance sheets of the two players.
Obvious differences are the significant goodwill position at KION and the relative
size of Jungheinrich’s leasing business. KION’s balance sheet is more than double
the size of Jungheinrich’s at cEUR6bn; however, it is also characterised by a high
goodwill position at 39% of total assets arising from the acquisition by GS/KKR in
2006. Adjusting for this, KION’s total assets would be 40% higher than
Jungheinrich’s.
Jungheinrich’s balance sheet on the other hand reflects the group’s significant
direct leasing operations, which accounted for 15% of assets as of year-end 2012,
incremental to the 12% leasing and rental assets.
Figure 79: Jungheinrich and KION asset structure (YE 2012)
100%
90%
80%
Current assets
70%
Others
60%
Financial assets
50%
PPE
40%
30%
39% of assets
intangibles from
GS/KKR M&A
Reflects differences
in FS business
20%
10%
0%
Jungheinrich
KION
42
Lease and rental
Intangibles
KION Group AG
Near-term risks
•
•
•
We initiate coverage of KION Group with a Sell rating and a EUR24
price target. As a global leader in industrial trucks, KION operates a
sound business model but we see the following near-term risks:
sluggish growth in European truck demand; increasing competition;
and limited room for further margin progression. The 47%
shareholding of KKR/Goldman Sachs also provides an overhang.
Weak demand in Europe: With a market share of 34% in the EU
(80% of sales), KION is geared to a recovery in the European truck
market where volumes are trending 25% below pre-crisis peaks. While
large markets have rebounded, Spain, Italy and other smaller countries
continue to lag. Low utilisation has extended truck lifecycles in these
markets and we see no significant replacement need before 2015/16.
Competition is set to increase: Comments from leading industry
players suggest that competition in Europe is increasing. Toyota is insourcing its distribution network while Jungheinrich is attempting to
gain share in segments where KION has historically been strong.
Market shares have been stable but this could change in 2014/15.
Sell (Initiation)
Rating system
Absolute
Current price
Price target
EUR 28.15
EUR 24.00
Market cap EUR 2,824 m
Reuters
KGX.DE
Bloomberg
KGX G R
Share data
Shares outstanding (m)
Enterprise value (EUR m)
Daily trading volume
99
4,173
160,000
Performance data
High 52 weeks (EUR)
Low 52 weeks (EUR)
Relative performance to SXXP
1 month
-2.4 %
3 months
12 months
-
30
24
MDAX
-1.5 %
-
Key data
Price/book value
Net gearing
CAGR sales 2012-2015
CAGR EPS 2012-2015
1.7
51.9 %
2.1%
-
•
Limited scope for margin expansion: After significant restructuring
in 2010-11, profitability jumped to 9.3% in 2012 from 6.5% in 2006.
Management guides for double-digit margins only in the medium
term, limiting the near-term upside potential.
•
Non-operational uncertainties: KKR/Goldman Sachs continue to
hold a 47% stake in KION. We believe that the uncertainty around a
placement creates an overhang for the stock. In addition, we assume
that Weichai Power – which holds 30% of KION – will increase its
stake to 33.3% in order to propose the next chairman of the board.
Business activities:
16%/15% below consensus: Our estimates for 2013/14 net profits
are 16%/15% below the very broad Bloomberg consensus range of
EUR108m-202m. We see downside risk to consensus.
Non-institutional shareholders:
•
•
Since its IPO, the stock has performed broadly in line with its peers
although it is now trading at a 6% premium to the sector on 15x EPS
2014E. Given the outlined near-term risks and the stock overhang, we
have a Sell recommendation. Our price target of EUR24 is based on
an average of DCF and target-multiple-implied fair values.
Y/E 31.12., EUR m
Sales
EBITDA adj.
EBITA adj.
EBIT
Net profit (ex-minorities)
Y/E net debt (net cash)
EPS (reported)
EPS (WA shares)
DPS
Gross margin
EBITDA adj margin
EBITA adj margin
EBIT margin
Dividend yield
ROCE
EV/sales
EV/EBITDA adj
EV/EBITA adj
P/E
Source: Company data, Berenberg
2011
2012
2013E
2014E
2015E
4,368
665
364
212
-96
3,274
25.4%
15.2%
8.3%
4.9%
9.6%
-
4,727
747
438
550
159
1,790
27.4%
15.8%
9.3%
11.6%
11.4%
-
4,575
767
415
368
149
844
1.51
1.86
0.38
27.6%
16.8%
9.1%
8.0%
1.3%
10.3%
0.9
5.4
10.1
19.0
4,789
830
453
431
188
743
1.90
1.90
0.57
28.3%
17.3%
9.4%
9.0%
2.0%
10.7%
0.9
4.9
9.0
15.0
5,032
879
484
472
218
642
2.21
2.21
0.77
28.5%
17.5%
9.6%
9.4%
2.7%
11.0%
0.8
4.5
8.2
12.9
43
Leading global producer of forklift trucks
and other material handling equipment
(15% global market share).
GS/KKR 47%
Weichai Power 30%
Management 5%
19 September 2013
Felix Wienen
Analyst
+44 20 3207 7915
Benjamin Glaeser
Analyst
+44 20 3207 7918
KION Group AG
Investment case
Short-term risks outweigh solid operating model
As a leading provider of industrial trucks, KION benefits from a solid operational
setup but we expect near-term risks to weigh on the stock’s performance. Sluggish
demand for industrial trucks in Europe caps KION’s growth potential while other
large players are vying to gain market share. Margins have limited room for further
improvements after extensive restructuring and we see 15% downside to current
Bloomberg consensus estimates. At 15x P/E’ 2014E, the stock is trading at a
premium to the sector; we initiate with a Sell recommendation and a price target of
EUR24.
Absence of recovery in the EU weighs on growth momentum
KION is geared to a strong recovery in the European truck market (80% of sales)
which we do not anticipate before 2015/16. As European industrial activity is
recovering, with PMIs now trending above 50, industrial truck demand has
stabilised after declining 7% in 2012. This holds true for the largest markets in
Europe, with volumes in the top three countries of Germany, France and UK now
close to pre-crisis levels. Due to the high maturity of these markets, we expect
continued volume growth in the range of 1-2.5% p.a.
Volumes in Italy and Spain – jointly c25% of western Europe volumes before the
crisis – will on the other hand likely remain at 50% of pre-crisis levels until
2015/16. As units reached a record high in 2007 and truck utilisation rates dropped
in tandem with industrial production in 2009-12, we do not expect a resurgence in
demand. Rather, we see a grinding recovery in Italy (3% CAGR 2012-15E) and
Spain (3.6% CAGR2012-15E). As the average useful truck life has been prolonged
by lower utilisation during the crisis, we do not expect pent-up demand to lift
volumes significantly before 2015/16 at the earliest. For western Europe, we
estimate unit growth of 2.5%/2.8% after a flat 2013.
Emerging markets on the other hand continue to propel demand, driven by
increasing industrial production, the need for automation and demand shifting to
warehouse and E-trucks. After an impressive CAGR of 16.5% over the past
decade, we expect unit growth of 7.3% pa in 2012-15 as the initial stage of
replacing human labour with machines seems to be complete.
While KION’s exposure to emerging markets is sizeable at c25% of sales, orders
underperformed the broader market by 7.5% in H1 2013 (orders were down 3.6%
versus the market at +3.8%). The underperformance was also apparent in China
(60% of emerging-market volumes) where order intake increased by 5.2%,
compared to the market at +7.7%. Management also expects somewhat slower
growth in China over the remainder of the year following 17% market growth in
Q2.
44
KION Group AG
Figure 80: Industrial truck unit growth
Figure 81: KION revenue development
1,200
100%
1,000
80%
800
60%
600
40%
400
20%
200
0%
2009
Germany
0
2002
Europe
2004
2006
2008
North America
2010
Asia (ex-China)
2012
China
2010
EU excl. Germany
2014E
RoW
Limited scope for further margin expansion
Following the significant increase in margin in recent years, we see little room for
further improvements. Following the acquisition by KKR and Goldman Sachs in
2006, the efficiency of KION’s operating model increased significantly. As the
result of a group-wide restructuring programme, profitability jumped from 6.5% in
2006 to 9.3% in 2012. With the majority of the restructuring having been
completed in 2010-11, these benefits seem to be reflected in the group’s current
margin profile. The lack of material upside is also reflected in management’s
guidance, which envisages double-digit margins only in the medium term.
Figure 82: Sales and EBITA adjusted development
(EURm)
6,000
5,000
12%
Y/E '06
GS/KKR
M&A
10%
8%
4,000
6%
3,000
4%
2,000
2%
1,000
0%
0
-2%
Sales
2011
Rest of Europe
EBITA adj.
Industrial truck competition is on the rise
Recent comments from leading industrial truck producers suggest that competition
for market share is set to increase in Europe as well as in emerging markets. The
emergence of value producers such as Anhui Heli and Hangcha (both Chinese) in
the last few years is well flagged and should pose only a medium-term challenge to
premium producers. With low-cost producers focused on IC counterbalanced
trucks (c46% of the market), we believe that players such as KION (c40% of its
truck portfolio) and Hyster Yale (c80%) are more vulnerable to this threat.
Following the rapid growth of this product category in emerging markets, we
45
2012
America
Asia
RoW
KION Group AG
believe that competitive barriers in terms of product know-how could decline over
the medium term. At the same time, the share of warehouse trucks in emerging
markets is still low, bestowing a competitive advantage on producers in this
segment (60% of Jungheinrich; 35% of KION). With increasing emission
regulation and more sophisticated demand in emerging markets, we believe that the
quality gap between low-cost and premium IC counterbalanced trucks should
narrow.
More importantly, Toyota and Jungheinrich are in the process of optimising their
distribution and product setups for the European market. In 2014, Jungheinrich
will launch a range of diesel-powered trucks, which should complete the group’s
current offering. As a consequence, management aims to gain share in the
automotive and other industrial end-markets that today are dominated by KION,
Toyota and Hyster Yale. Toyota for its part is currently in the process of
streamlining its distribution channels in Europe. In France for example (the
second-largest market in the EU), Toyota has ended its distribution agreement with
Manitou and replaced it with a direct sales channel.
Non-operational uncertainties
Following the IPO, Goldman Sachs and KKR (Superlift) still hold c47% of KION
– marking a significant stock-overhang. With freefloat of only 20% and uncertainty
around the timing of a further placing, interest in the stock is likely to remain
limited.
Furthermore, we expect Weichai Power to increase its stake to 33.3% (from 30%
currently) but not beyond. This is in line with the Weichai Power standstill
agreement between Superlift and Weichai Power. The purchase of the remaining
3% will be from Superlift rather than the market and will provide Weichai Power
with the right to propose the head of the supervisory board; this could introduce
additional uncertainty. Despite recent speculation, we do not see Weichai Power
taking over KION in full, which is in accordance with the Weichai Power standstill
agreement.
Valuation
Since its listing, KION’s shares have performed in line with its peer group at
+21%. The stock now trades at a 6% premium to the sector at 15x EPS 2014E
versus 14.2x but we see downside risk to Bloomberg consensus earnings estimates
and limited upside in terms of growth and profitability. We are 16%/15% below
consensus net profit estimates and 4-7% below on operating profits. This implies
that consensus is misjudging the high financing costs that persist in the coming
years.
Furthermore, the group’s ownership structure entails an overhang given that
Goldman Sachs and KKR are likely to place their holding in the market over the
medium term. With current free float of only cEUR560m, interest from
institutional investors is likely to be limited. Lastly, we expect Weichai Power to
increase its shareholding from 30% to 33.3% and propose the head of the board of
directors; this could introduce additional uncertainty.
46
KION Group AG
Figure 83: KION – price target derivation
Valuation method
DCF
EV/Sales
EV/EBITA adj
P/E
Average
2013E
27
26
24
20
24
2015E Assumptions
33
32
33
29
31
47
KION Group AG
Estimates and financials
KION operates through four principal divisions: Linde Material Handling (LMH),
STILL, Financial Services (FS) and Other. The LMH and STILL divisions
consolidate the operating activities while FS provides leasing and financing
solutions. The Other division comprises IT, logistics and head-office functions as
well as the Indian operations (Voltas; consolidated since May 2011). We present
below our assumptions for the divisions as well as a brief analysis of the group’s
balance sheet.
Linde Material Handling
In the LMH segment, KION consolidates new equipment sales and related aftersales services for the premium brands Linde and Fenwick as well as the low-cost
brand Baoli. The Linde brand is the number-two industrial truck brand globally in
unit terms and the main driver of the LMH segment, accounting for 79% of
orders. Fenwick is purely focused on the French market, accounting for c15,000
trucks or 16% of orders at LMH. Baoli is KION’s low-cost brand targeting
emerging markets and contributing 5% of LMH orders.
Order intake by brand (2012)
Carve-out of Linde Hydraulics
In relation to the group’s strategic cooperation with Weichai Power, the Linde
Hydraulics (LHY) business was carved out of LMH at the end of 2012. LHY
produces hydraulic and electric drive technology (eg hydraulic pumps and axles),
generating EUR371m in revenue at an adjusted EBITA margin of 7.8%. At internal
sales of EUR204m in 2012 (c55% of LHY), the former sub-segment is a critical
engine component supplier to the group’s counterbalanced trucks. This is
particularly important given that the hydrostatic drive engine technology created a
sustainable competitive advantage for Linde trucks. Similar technology has only
recently been introduced by Jungheinrich while Toyota and Hyster Yale do not yet
possess such a drive system.
In order to forecast the operating performance of LMH, Figure 93 (below) outlines
the pro-forma result for LMH excluding LHY. We expect steady margins in the
Linde Material Handling division.
Figure 84: LMH sales and adjusted EBITA estimates
Sales
LMH
o/w LHY
Other/consolidation
Total
growth
LMH
Total
EBITA adjusted
LMH
Others/consolidation
Total EBITA adj.
margins
LMH
Total EBITA adj.
2010
2011
2012 2012PF
2013E
2014E
2015E
2,247
264
-475
3,534
2,854
369
-632
4,368
3,132
371
-591
4,727
2,965
0
-591
4,560
2,906
0
-600
4,575
3,022
0
-600
4,789
3,158
0
-600
5,032
-
27.0%
23.6%
9.8%
8.2%
-
-2.0%
0.3%
4.0%
4.7%
4.5%
5.1%
137
-18
139
279
-18
365
330
-16
438
302
-16
409
307
-20
415
335
-20
453
357
-20
484
6.1%
3.9%
9.8%
8.3%
10.5%
9.3%
10.2%
9.0%
10.6%
9.1%
11.1%
9.4%
11.3%
9.6%
48
Linde
Fenwick
Baoli
KION Group AG
Sales and orders expected to decline by 2% in 2013
Following a flat underlying sales performance in H1 2013 and an order decline of
8%, we estimate full-year sales and order declines of 2%. Given the lead time of 36 months for orders, we assume the lower order intake will be reflected in the
segment’s Q3/Q4 sales performance. This will in particular be driven by weaker
order intake in western Europe and China. While KION’s order intake in western
Europe underperformed the market by c7%, management expects the Chinese
market to normalise further in H2, following a strong Q2 at +17%.
Figure 85: LMH quarterly sales and orders
950
850
750
650
550
450
350
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013
Orders
Sales
Plant closure supports margins in 2013/14
Following the spin-off of the slightly dilutive Hydraulics business in 2012, the
closure of a UK site will benefit LMH margins in 2013 and 2014. After profitability
in LMH increased from 1.3% in 2009 to 10.9% in 2012 (adjusted for LHY),
margins in 2013/14 will largely be driven by the closure of the Merthyr Tydfill site
in Wales. The plant, which produces heavy trucks in low volumes (2012: 310 units),
has generated annual losses of EUR10m. Plant closure is expected for Q4 2013 and
we assume EUR2m/EUR8m in savings for 2013 and 2014, respectively.
Contribution margins are stable at c15%, given the high share of new equipment
and we expect a 110bp margin increase over the next three years.
Figure 86: LMH sales and adjusted EBITA estimates
4,000
12%
3,000
10%
2,000
8%
1,000
6%
0
4%
2010
2011
2012 2013E 2014E 2015E
Sales
EBITA adj. margin
49
KION Group AG
STILL
In its STILL segment, KION manufactures industrial trucks under the premium
brands STILL and OM STILL and provides the related after-sales service. In 2012,
the division accounted for 37% of group revenue (adjusted for LHY) and 30% of
adjusted EBITA. The segment is focused on the European and South American
markets with the OM STILL brand among the market leaders in Italy and the
number-two player in Brazil.
After generating roughly EUR1.9bn in revenue in 2008, sales plunged in 2009 to
EUR1.3bn before gradually recovering to EUR1.67bn in 2012. While we expect
continued recovery in the division’s top line of 2.5%/3.5%/4% in 2013/14/15, we
do not expect it to return to pre-crisis levels in the near future. This is mostly due
to our view that new equipment volumes in southern European countries are
highly unlikely to reach pre-crisis levels anytime soon. We forecast unit sales of
42,000 trucks in 2015 in Italy and Spain combined compared to 78,000 in 2007 and
38,000 in 2012. Hence we estimate STILL will perform in line with the broader
European market at a 3.3% CAGR 2012-15 compared to volume growth of 1.7%
in volumes.
The division’s profitability has accelerated markedly since 2010 due to the group’s
major restructuring programme. This is reflected in non-recurring charges of
EUR40m pa in 2009/10 and EUR97m in 2012, to optimise STILL’s production
processes. As part of the Footprint programme, six production plants have been
relocated or closed. As a result of higher production efficiency and lower fixed
costs, operating profitability improved to 7.3% in 2012 from -2.1% in 2009.
Although the majority of these adjustments were concluded in 2012, we expect
further spill-over benefits and operating leverage to drive up the adjusted EBITA
margin to 7.9% in 2015 from 7.3% in 2012.
Figure 87: STILL sales and adjusted EBITA estimates
2,000
10%
1,600
8%
1,200
6%
800
4%
400
2%
0
0%
2010
2011
2012 2013E 2014E 2015E
Sales
EBITA adj. margin
Financial Services
KION’s Financial Services (FS) division offers long-term leasing solutions to
external customers to support new equipment sales and secure service revenue.
The following are the key aspects of the Financial Services division.

Long-term leasing provides long-term leasing contracts with an average
duration of 4.5 years. Most leases include an after-sales service component.
50
KION Group AG

Short-term lease: Financial Services also finances the rental fleets of the
operating segments LMH and STILL.

EBT: The division targets slightly positive EBT and a reasonable RoE.
Furthermore, KION’s FS makes use of two forms of refinancing for long-term or
short-term leases.

Sale and leaseback (SALB) transactions account for c80% of the
leasing portfolio. The Financial Services segment sells the truck to a leasing
company, leases the truck back and then subleases it to the end customer.

In a single step lease, the lease is directly funded by the group’s balance
sheet via debt.
Figure 88: KION’s leasing structure
ST rental
ST lease
SALB
3rd party partner
80%
FS
External customer
LT lease
Single
step
KION BS
20%
• Top six third party leasing partners: Societe Generale, IKB Leasing, De Lage Landen (Rabobank),
Deutsche Leasing, BNP Paribas, Linde Leasing (45% owned by KION)
• Financial Services assets: EUR1bn (2012)
• After-sales: Financial Services facilitates equipment sale, after sales revenue generated by LMH/STILL
• All brands: KION’s FS segment operates across all brands
As Figure 97 (above) shows, KION heavily relies on funding from external leasing
providers. Given the increasing capital requirements for banks and other financial
institutions, this setup inherits entails considerable risks for KION should the
leasing partners need to scale back their financing operations. This would have
significant negative implications for KION’s new equipment and after-sales
revenue generation.
Credit and residual value risks
Credit risk has remained below 1%, according to the company. This can be
explained by the critical task performed by the truck. If the lessor seizes the asset,
the lessee’s supply chain comes to a standstill. It is therefore in the interests of the
customer not to default on his lease payments. As leased trucks have service
contracts attached, residual value risk is also relatively low. Managing the residual
value risk, the used-equipment department provides valuable insights for
equipment valuation and provides direct market access.
51
KION Group AG
Lastly, long-term customer leases are funded for terms that match those of the
lease with an average term of 4-5 years and an estimated useful truck life of 5-7
years for accounting purposes. As a result of the stable nature of the Financial
Services division, we estimate a sales CAGR of 7% for 2012-15 and an operating
margin of 0.2% for the coming years.
Figure 89: Financial Services sales and adjusted EBITA
2012
509
6.2%
2013E
550
8.0%
2014E
589
7.0%
2015E
624
6.0%
EBITA adj.
2.7
1.4
margin
0.6%
0.3%
0.8
0.2%
0.9
0.2%
0.9
0.2%
Sales
yoy
2011
480
Other
The Other segment provides internal support activities such as IT, logistics services
and head-office functions. It also comprises the Voltas brand, which targets the
low-cost market in India with estimated sales of EUR50m. Due to the nonoperational nature of this segment, we combine it with the consolidation line item
for forecasting purposes.
Figure 99 summarises our estimates for KION’s divisions.
Figure 90: Key divisional estimates
Sales
LMH
o/w LHY
STILL
Financial Services
Other/consolidation
Total
growth
LMH
STILL
Fin Services
Total
EBITA adjusted
LMH
STILL
Fin Services
Others/consolidation
Total EBITA adj.
margins
LMH
STILL
Fin Services
Total EBITA adj.
2010
2011
2012 2012PF
2013E
2014E
2015E
2,247
264
1,409
354
-475
3,534
2,854
369
1,666
480
-632
4,368
3,132
371
1,677
509
-591
4,727
2,965
0
1,677
509
-591
4,560
2,906
0
1,719
550
-600
4,575
3,022
0
1,779
589
-600
4,789
3,158
0
1,850
624
-600
5,032
-
27.0%
18.3%
35.7%
23.6%
9.8%
0.6%
6.2%
8.2%
-
-2.0%
2.5%
8.0%
0.3%
4.0%
3.5%
7.0%
4.7%
4.5%
4.0%
6.0%
5.1%
137
18
2
-18
139
279
100
3
-18
365
330
123
1
-16
438
302
123
1
-16
409
307
127
1
-20
415
335
137
1
-20
453
357
146
1
-20
484
6.1%
1.3%
0.6%
3.9%
9.8%
6.0%
0.6%
8.3%
10.5%
7.3%
0.3%
9.3%
10.2%
7.3%
0.3%
9.0%
10.6%
7.4%
0.2%
9.1%
11.1%
7.7%
0.2%
9.4%
11.3%
7.9%
0.2%
9.6%
Bridging reported EBIT and adjusted EBIT(A)
KION’s most important profitability indicator is adjusted EBIT or adjusted
EBITA (on our definition), given that the latter includes the PPA effect of the
KION acquisition. Reconciling operating profitability, adjusted EBITA corrects for
52
KION Group AG
various non-recurring and non-operating charges. Figure 100 below provides a
detailed overview of these for 2010-12 and illustrates that most costs relate to the
“Footprint” restructuring programme.
As part of the plan, KION’s production footprint was optimised by closing or
relocating employees and plants in 2009-12. We believe that the majority of this
process had been concluded by year-end 2012 and only expect minor charges of
EUR15m for FY 2013. EUR8.5m was booked in this respect in H1 2013.
However, it is worth pointing out that the non-recurring charges also include rampup costs for plants in Brazil and India. Strictly speaking, these should be classified
as operational costs.
In 2012, a significant one-off gain of EUR212m was recorded. This relates to the
sale of 70% of Linde Hydraulics to Weichai Power. We assume PPA from the
acquisition by Goldman Sachs and KKR will decline gradually towards EUR12m in
2015.
As Figure 100 illustrates, we do not expect significant one-off expenses in 2014/15
and reported EBITA and adjusted EBITA should converge over time. Having said
that, we forecast flat sales development compared to the pro-forma (ie excluding
Linde Hydraulics) result of 2012, and an adjusted EBITA margin of 9.1%.
Figure 91: EBITA adjusted bridge
2010
3,534
264
2011
4,368
369
23.6%
35
1.0%
212
4.9%
550
11.6%
Adjustments
Footprint
Still/OM combination
Other Restructuring
Consulting
Tax, FX and Customs
Remeasurements due to IFRS
Capital market transactions
76
27
19
14
14
2
115
96
3
7
26
-1
-15
0
PPA
29
139
3.9%
Sales
o/w LHY
yoy
Reported EBIT (P&L)
margin
Adj EBITA
margin
2012 2012PF*
4,727
4,560
371
0
8.2%
-3.5%
2013E
4,575
0
0.3%
2014E
4,789
0
4.7%
2015E Comment
5,032
0
5.1%
338
7.4%
368
8.0%
431
9.0%
472
9.4%
-153
47
0
8
15
0
-13
-212
58
47
0
8
15
0
-13
0
15
15
0
0
36
41
41
32
22
364
8.3%
438
9.3%
409
9.0%
415
9.1%
453
9.4%
Restructuring: plant closures/relocations; ramp-up costs of BRA/IND plants
Combination of STILL and OM segments into STILL
Additional redundancy costs i.e. retirement payments
Legal, Consulting and advisory fees related to Footprint
Gain on remeasurements of equity investments with control
Weichai transaction, largely cash in from LHY spin off
12 PPA related to acquisition of KKR/GS from Linde
484
9.6%
Source: Company data, Berenberg estimates. Note: 2012 PF* marks pro-forma estimate excluding LHY.
Balance sheet and IPO proceeds
KION’s balance sheet will delever significantly in 2013 after being highly geared in
2010-12. Net industrial debt/adjusted EBITDA will stabilise at 1.1x in 2013, after
reaching 7x in 2010. Similarly, total net gearing (ie including leasing-related debt) is
set to decline to 22% from 37% in 2012 and 61% in 2011. Two non-recurring
effects restructured the group’s balance sheet in 2012/13 are as follows.

Debt to equity swap: As part of the strategic industrial cooperation with
Weichai Power, a shareholder loan with a principal amount of EUR500m
plus accrued interest of EUR271m was converted into equity as of yearend 2012.

Initial public offering: From KION’s IPO in June 2013, we assume
proceeds of roughly EUR860m. This has been used to repay existing credit
facilities and is expected to reduce net industrial debt/adjusted EBITDA
to 1.1x from 2.4x in 2012.
53
KION Group AG
Figure 92: Net industrial debt/adjusted EBITDA
8.0
Figure 93: Total net gearing
80%
7.0
7.0
6.0
4.9
5.0
D/E swap of
EUR671m;
Weichai
transaction
EUR860m est.
IPO proceeds
4.0
2.4
3.0
60%
2.0
40%
EUR860m est.
IPO proceeds
1.1
0.9
0.7
2013E
2014E
2015E
1.0
D/E swap of
EUR671m;
Weichai
transaction
20%
0%
0.0
2010
2011
2012
2010
2011
2012
We assume that KION will pay a dividend per share of EUR0.38 for 2013. At
25%, the payout ratio marks the low end of the dividend policy range of 25-35%.
At EUR0.77 in 2015E, we forecast a swift increase in payout to 35%, as shown in
Figure 103.
Figure 94: Dividend forecasts
2.5
40%
2.0
30%
1.5
20%
1.0
10%
0.5
0.0
0%
2013E
EPS adj.
2014E
DPS
2015E
Payout ratio
54
2013E
2014E
2015E
KION Group AG
Berenberg versus consensus
We are 16%/15% below 2013/14 consensus net profit
Our estimates are significantly below a very patchy Bloomberg net profit consensus
for 2013/2014. With a range of EUR108m-202m for 2013, the data are not reliable
and are likely to change. At the operating level we are 4-6% below consensus. This
implies to us that analysts misjudge the group’s financing costs: Our net financing
costs are 8% and 11% above the implied values from Bloomberg for 2013/14. We
therefore believe that the next move in consensus will be down.
Given the wide range of operating profit forecasts, from EUR360m-436m, we
excluded the lowest value to increase the reliability of the data. The difference
between PBT and EBIT as well as the wide range for the former (EUR168m275m) implies that some analysts updated their numbers following the IPO while
others seem not to have done so.
In addition to the above, EPS estimates could be affected by the number of shares
used in the calculation. We make use of the year-end share count for 2013E, while
other analysts might have based their calculations on H1 or weighted average data.
At EUR2.10 for 2013E, consensus currently expects EUR1.4 in EPS for H2
compared to EUR0.7 in H1. This is unrealistic.
Addressing this issue, KION will collect and distribute an adjusted and hence more
reliable consensus ahead of the Q3 results on 14 November. This could result in
earnings downgrades.
Figure 95: KION – Berenberg versus Bloomberg consensus
Revenue
growth
Op profit (EBITA adj)
margin
Net profit
growth
Berenberg
2013E 2014E 2015E
4,575
4,789
5,032
0.3%
4.7%
5.1%
415
453
484
9.1%
9.4%
9.6%
149
188
218
n/a 26.1% 16.1%
55
Consensus
2013E 2014E
4,624
4,851
1.4%
4.9%
432
469
9.3%
9.7%
177
220
n/a 24.4%
2015E
5,122
5.6%
518
10.1%
257
16.7%
2013E
-1.1%
Delta
2014E
-1.3%
2015E
-1.8%
-4.0%
-3.5%
-6.5%
-15.7% -14.6% -15.0%
KION Group AG
Valuation

16% downside based on a blended average of absolute and relative
valuation

Trading on 15x Berenberg EPS 2014E versus the sector at 14.2x and
downside risk to Bloomberg consensus

Share overhang and ownership structure warrant a discount
16% downside – Sell
Based on a blended average of four valuation methods (Figure 105), we derive a
price target of EUR24 for the stock, pointing to 16% downside. Also, we apply the
methodology set out in Daring to dream in order to estimate a price target for 2015
discounted back.
Figure 96: Price target derivation
Valuation method
DCF
EV/Sales
EV/EBITA adj
P/E
Average
2013E
27
26
24
20
24
2015E Assumptions
33
32
33
29
31
Our DCF-based valuation leads to a price target of EUR26.6 for KION. We
perform a three-stage valuation with our explicit forecast extending to 2015,
followed by a seven-year fade period and a terminal value thereafter. We derive the
value of the 30% stake in Linde Hydraulics from the valuation of the Weichai
Power deal, using a terminal growth rate of 2% and a 9.5% WACC.
Figure 97: DCF valuation
2012
4,727
2013
4,575
-3.2%
2014
4,789
4.7%
2015
5,032
5.1%
2016
5,208
3.5%
2017
5,364
3.0%
2018
5,525
3.0%
2019
5,636
2.0%
2020
5,748
2.0%
2021
5,863
2.0%
2022
5,981
2.0%
adj. EBITA
margin %
Tax rate %
438
9.3%
48.1%
415
9.1%
28.5%
453
9.4%
28.5%
484
9.6%
28.5%
501
9.6%
28.5%
516
9.6%
28.5%
531
9.6%
28.5%
542
9.6%
28.5%
553
9.6%
28.5%
564
9.6%
28.5%
538
9.0%
28.5%
538
NOPAT
Depreciation
% of sales
Capex
% of sales
Capex/depreciation
Change in working capital
WC/sales
227
163
3.4%
-155
-3.3%
-95%
73
1.6%
297
169
3.7%
-164
-3.6%
-97%
10
0.2%
324
176
3.7%
-164
-3.4%
-93%
-52
-1.1%
346
184
3.7%
-164
-3.2%
-89%
-92
-1.8%
358
182
3.5%
-187
-3.6%
-103%
-35
-0.7%
369
188
3.5%
-193
-3.6%
-103%
-31
-0.6%
380
199
3.6%
-199
-3.6%
-100%
-32
-0.6%
388
209
3.7%
-203
-3.6%
-97%
-22
-0.4%
395
213
3.7%
-207
-3.6%
-97%
-23
-0.4%
403
217
3.7%
-211
-3.6%
-97%
-23
-0.4%
385
221
3.7%
-221
-3.6%
-100%
-23
-0.4%
385
312
0.91
285
285
0.83
237
274
0.76
209
318
0.70
221
332
0.64
211
348
0.58
202
371
0.53
197
378
0.48
183
386
0.44
171
361
0.40
146
361
0.40
Sales
growth
Free op CF
Discount factor
Discounted CF
TV
Cumulative discounted CF
Terminal value
Total
2,062
1,983
4,045
2,062
Investments
Net debt
Net pensions
Minorities
Net adjustments
Financial Services
Linde Hydraulics - 30% stake
155
844
547
27
1,572
42
116
155
844
547
27
1,572
42
116
Equity value
Shares
Share price
2,630
98.7
26.6
2,630
98.7
26.6
WACC
Growth rate
9.5%
2.0%
1,983
4,045
56
KION Group AG
15x EPS 2014E versus sector on 14.3x with downside risk to earnings
KION’s stock currently trades in line with the sector at 15x EPS 2014E compared
to the SXNP at 14.2x. In light of consensus earnings downgrades (we are
16%/15% below consensus for 2013E/14) as well as limited upside in terms of
growth and margins and non-operational risks, downside risk dominates.
We also look at the performance of KION’s stock since the group’s IPO
compared to the broader industrial index and close peers. Figure 1047 and 108
show that after opening at the lower end of the trading range, KION’s stock has
performed in line with its peers in the materials handling universe at a median of
+21% with Hyster Yale outperforming significantly at +41%.
Figure 98: Share price vs. SXNP
Figure 99: Performance since IPO vs. close peers
400
32
50%
390
30
40%
380
28
370
26
360
24
350
22
30%
20%
10%
340
28/06/2013
0%
20
12/07/2013
26/07/2013
09/08/2013
SXNP
23/08/2013
KION
Based on the EV/sales versus operating margin metric, the stock currently looks
fairly valued, in line with its closest peers.
Figure 100: KION trades in line on 2014E EV/sales vs. op margin
1.4x
1.2x
Palfinger
1.0x
Konecranes
0.8x
KION
Cargotech
Terex
0.6x
Jungheinrich
Hyster Yale
0.4x
0.2x
2%
4%
6%
8%
10%
12%
14%
Note: EV/sales multiple and expected operating margin are based on Bloomberg consensus data for
peers and our data for Jungheinrich and KION. Generally, companies above the diagonal line and
further to the upper left are considered more expensive while those below the line are considered cheaper.
Adjusting the enterprise value appropriately
Applying the EV/sales methodology, we believe consensus/Bloomberg does not
adjust the group’s EV calculation for the Financial Services business. We believe
that this is incorrect given that the group’s main focus is on generating an operating
profit in the LMH and STILL divisions. This is therefore similar to other industrial
groups with a financing arm such as Volvo or Fiat Industrial.
57
KION Group AG
Isolating the Financial Services division from the EV calculation, we exclude its
equity (EUR42m) and only take into account the industrial debt of EUR1.7bn for
2013E. This yields an enterprise value of EUR4.1bn, 18% below the value of
EUR5bn as calculated by Bloomberg which includes EUR475m of Financial
Services debt.
KION’s true EV/sales multiple hence stands at 0.9x, 17% below the 1.09x as
calculated by Bloomberg (Figure 110).
Figure 101: Estimating KION’s enterprise value
Diluted share count
Current price
Market value
(-) Equity from Fin Services
Net market value
2013
99
28.2
2,778
42
2,737
2014
99
28.2
2,778
42
2,737
2015
99
28.2
2,778
42
2,737
Industrial Debt
Cash
Net debt
Pensions
Total adj.
1,697
853
844
547
1,390
1,697
954
743
547
1,290
1,697
1,055
642
547
1,188
EV
4,127
4,026
3,925
EV/Sales (BeGo)
EV/Sales (Bloomberg)
0.90x
1.09x
0.84x
1.03x
0.78x
0.98x
Group op. margin (BeGo)
Group op. margin (Bloomberg)
9.1%
9.3%
9.4%
9.7%
9.6%
10.1%
EV/Sales vs. op margin (BeGo)
EV/Sales vs. op margin (Bloomberg)
9.9x
11.7x
8.9x
10.6x
8.1x
9.7x
Share overhang warrants a discount
Superlift continues to hold c47% of KION’s shares, which represents a significant
overhang in our view. We believe that KKR and Goldman Sachs will place their
shares in the market at some point rather than selling their stakes to Weichai Power
or any other strategic investor. Until that time, KION’s freefloat remains small at
c20%, roughly EUR560m – making it barely investable for institutional investors.
58
KION Group AG
Risks
Selected risks to our investment case and valuation include the following.
Industry and macroeconomic risks

Despite a high service share of 40%, KION operates in a cyclical industry.
New equipment order volumes in particular depend on economic activity,
especially in Europe. Given KION’s focus on this region, which accounts
for 78% of sales, a significant slowdown in industrial production is a key
risk for the company.

The industrial truck industry is highly competitive. Following years of
strong unit growth in Asia, large local players have emerged that mainly
compete on price. As these producers are focused on the low-cost
segment, these players pose a risk to KION’s Baoli and Voltas brands in
particular.
Company-specific risks

Weichai Power is likely to increase its shareholding in KION to 33.3% by
the end of this year. While Weichai is unable to raise its shareholding
above 50%, the increase to 33.3% could spur speculation of KION being
acquired, posing upside risk to our case.

The carve-out of Linde Hydraulics (LHY), which supplies critical drive
components to KION, creates a dependency on Weichai. This is
compounded by an exclusive sourcing agreement between KION and
Weichai which makes KION’s operating model vulnerable to pricing,
product quality and volumes.

At 39% of total assets, KION’s balance sheet is characterised by a large
amount of goodwill. Deteriorating operating performance, a prolonged
decline in industrial truck volumes or disposals of group assets could
trigger impairments.

Management aims to increase the share of low-cost procurement from
c28% to 40%. This target entails certain risks for the new equipment
business such as quality and warranty issues, timing and delivery volumes.

Low-cost competitors from Asia could expand more aggressively into
other emerging markets such as those in South America for example. This
would negatively affect KION’s growth strategy.

In Financial Services, the group’s funding availability is dependent on
external leasing partners and banks. Financial institutions face increasing
capital requirements for their financing activities and may therefore reduce
these operations. That scenario would have marked negative implications
for KION’s leasing business.
59
KION Group AG
Business review
Shareholders and IPO
Prior to its IPO in June 2013, KION had been owned by private equity funds from
KKR and Goldman Sachs (jointly Superlift Holding) as well as the Chinese stateowned Weichai Power and KION’s management team. Figure 111 compares the
shareholder structure before and after the IPO on the Frankfurt stock exchange,
which established a free float of 20%.
Figure 102: Shareholder structure before and after the IPO (right)
Free Float,
20.0%
Superlift,
46.3%
Weichai Power
Holding, 30.0%
Source: KION Group, Berenberg
Weichai Power set to increase its stake to 33.3% but not above 50%
After increasing its shareholding in KION to 30%, Goldman Sachs/KKR granted
Weichai Power the “Superlift Option”. This offers Weichai the right to increase its
shareholding in KION to 33.3% starting six months after the IPO. We expect
Weichai to exercise its right with the 3.3% directly acquired from Goldman
Sachs/KKR.
GS/KKR granted Weichai
Power the “Superlift
Option”
Goldman Sachs/KKR and Weichai Power also hold a right of first offer. If
Weichai secures 33.3% of the shares (our base-case scenario), Goldman
Sachs/KKR will only be able to sell shares to third parties if these had firstly been
offered to the other party. This right expires either if Weichai holds 49.9% or more
of the voting rights or if Superlift owns less than 25% of the rights.
Expect Weichai Power to propose the chairman of the supervisory board
As part of the shareholder agreement between Goldman Sachs/KKR and Weichai
Power, the former party will second the election of the chairman of the board as
proposed by Weichai. This agreement holds as long as Weichai’s shareholding is
either 33.3% or 30% in the event of dilution during the IPO.
Weichai Power is unlikely to acquire a majority stake in KION
We do not believe that Weichai will acquire a majority stake in KION for three
reasons.
-
Weichai Power Standstill: Under the KION shareholders’ agreement,
Weichai Power and Goldman Sachs/KKR agreed that Weichai will not
control more than 49.9% of the group’s voting rights until five years after
the IPO. The agreement can however be terminated in the event that
Goldman Sachs/KKR and Weichai Power together no longer hold a
controlling stake of 50% plus one vote or if either party ceases to hold at
least 15% of the votes. In order for this to materialise, Goldman
Sachs/KKR would need to reduce their stake by c28% (assuming 3.3% are
sold to Weichai as part of the Superlift option).
60
The Weichai Power
Standstill
KION Group AG
-
Weichai’s focus: Weichai’s recent communication suggests that
expanding in forklift trucks is not in focus. Rather Weichai targets to grow
the market share in its engines product by using the acquired hydraulics
technology. The strategic fit of KION’s industrial truck business therefore
seems limited at this point in time.
-
KION’s background: Founded more than 50 years ago, we believe that
the businesses model has a strong European history and corporate culture.
With c80% of revenue from Europe and local service engineers forming
the backbone of the business a full Chinese ownership could pose a risk to
operating performance. Although we acknowledge that cultures can adapt
over time, various mergers have proven the risks of cultural differences.
Strategic collaboration with Weichai Power
In addition to Weichai Power’s 30% stake in KION, the two companies
established a strategic collaboration in 2012. Aiming to extend the collaboration
over time, eight near-term projects were identified (Figure 112). The most
important aspects in our view are the following.

Distribution partnership: Weichai grants KION the right to market its
forklift trucks through the group’s 500 sales and service outlets in China.
While this increases the breadth of the group’s network significantly, we
are cautious about the cross-selling potential with Weichai, given its
specialisation in diesel-engine manufacturing for heavy-duty vehicles.

Sharing of supply chains: KION will gain access to Weichai Power’s
local supply chain, thereby helping it to increase KION’s low-cost sourcing
share to c40% from 28%.

Engine partnership: As part of the engine partnership, Weichai Power
agreed to supply internal combustion engines to KION for a selection of
the latter’s products. We would expect this partnership to start for trucks
at the lower end of the range eg KION’s Baoli/Voltas brands and to
expand if it proves successful.
Furthermore, Linde Material Handling (LMH) and Linde Hydraulics (LHY; now
70% owned by Weichai Power) entered into a 10-year framework agreement for
the supply of critical hydraulics products to LMH. LHY is the exclusive supplier of
these products for the initial five years, while at least 80% of the total supply needs
to be taken from LHY from year six onwards.
Besides the obvious advantages from the cooperation with Weichai Power, which
include cost savings in procurement and cross-selling opportunities, we see a
number of risks. Importantly, the collaboration has increased KION’s dependency
on Weichai Power given that LHY products accounted for EUR204m or c6% of
KION’s COGS. While this is a small value in percentage terms, the true value
increases with the exclusive nature of the supply agreement as well as the start of
the engine partnership.
The positive effects on new equipment sales from the distribution partnership are
difficult to judge. The partnership certainly expands the geographic presence of
KION’s brand in China. However, we question to what extent customers at these
outlets will want industrial trucks given their initial need for Weichai’s engine
services. On the other hand, it is likely that KION will be able to sell products to
companies related to Weichai which do not yet use Linde forklift trucks. We are
therefore cautious about the implications of this partnership for KION’s sales
potential in China.
61
KION Group AG
Figure 103: Relationship between KION and Weichai Power and initial collaboration projects
d
Collaboration projects KION-Weichai Power
75%
EUR467m; 25%
30%
EUR271m; 70%
62
1
Sharing of best practices
2
Weichai develops engines for KION trucks
3
KION supplies Weichai with certain components
4
Sharing of distribution network
5
Sharing of supply chain
6
Consolidation of forklift businesses in China
7
Collaboration in electric mobility
8
Exploring new business opportunities
KION Group AG
The management team
Gordon Riske, CEO (born 1957 in Detroit, US): Before joining Linde’s material
handling division as CEO in 2007, Mr Riske chaired the executive board of Deutz
AG (2000-07). Between 1982 and 2000, Mr Riske held various positions in
Germany and the US at KUKA AG. Mr Riske holds a Master of Business
Administration degree from GSBA, Zurich (Switzerland), in collaboration with
State University New York (US).
Dr Thomas Toepfer, CFO (born 1972 in Hamburg, Germany): Dr Toepfer
joined KION in 2011 as a member of the management board of STILL before
becoming CFO of KION in 2012. Prior to that, he was CFO at Karstadt
Warenhaus GmbH (2008-11) and held senior positions in the finance departments
of Arcandor AG (2005-08) and Hapag Lloyd AG (2004-05). Dr Toepfer holds a
doctorate from WHU – Otto Beisheim Graduate School of Management, Koblenz.
Bert-Jan Knoef, CEO STILL (born 1960 in Hengelo, Netherlands): Mr Knoef
this year became a member of the executive board of KION Group. During 19992010, Mr Knoef held several positions at Linde AG and became CEO of STILL in
2010. He studied economics and business administration at HEAO–BE, Enschede,
Netherlands.
Theodor Maurer, CEO LMH (born 1959 in Constance, Germany): Before
joining KION in 2013, Mr Maurer held several positions at Daimler AG (1984-07).
Since 2008, he has been chairman of the management board of Linde Material
Handling GmbH in Aschaffenburg (Germany). Mr Maurer studied business
management and holds a degree in industrial engineering from the University of
Applied Sciences in Karlsruhe (Germany).
Ching Pong Quek, Chief Asia Pacific Officer (born 1967 in Batu Johor,
Malaysia): Mr Quek holds a Master of Business Administration degree from the
Royal Melbourne Institute of Technology University (Australia). In 2006, he joined
Linde (China) Forklift Truck Corp., Ltd. and became president and CEO of KION
Asia Ltd. He has been a member of the executive board since June 2013.
Company history
Figure 104: KION Group history
63
KION Group AG
Financials
Profit and loss account
Year-end December (EUR m)
Sales
Cost of goods sold
Selling and general
Research and development
Other result
EBIT
Non operating items
EBITA adj.
Financial result
EBT
Taxes
Net profit
Minority interest
Net profit (net of minority interest)
2011
4,368
3,256
804
120
25
212
151
364
272
-60
34
-94
2
-96
64
2012
4,727
3,430
876
124
253
550
-112
438
239
311
150
161
2
159
2013E
4,575
3,312
851
121
78
368
47
415
207
161
10
151
2
149
2014E
4,789
3,434
856
125
56
431
22
453
165
266
76
190
2
188
2015E
5,032
3,598
889
128
56
472
12
484
164
308
88
220
2
218
KION Group AG
Balance sheet
Intangible assets
Property, plant and equipment
Lease and rental assets and liab
Financial assets
Deferred taxes
Fixed Assets
Inventories
Accounts receivable
Acc receivable from leasing
Liquid assets
Other current assets
Current assets
TOTAL
Shareholders' equity
Minority interest
Long-term debt
Pensions provisions
Other provisions
Deferred taxes
Liabilities from leasing
Non-current liabilities
Short-term debt
Accounts payable
Other liabilities
Deferred taxes
Current liabilities
TOTAL
2011
2,516
554
767
169
262
4,268
625
677
118
373
5
1,799
6,066
-495
7
3,420
383
280
15
447
4,545
227
634
808
339
2,008
6,066
2012
2,407
500
854
312
265
4,338
550
625
132
562
6
1,875
6,213
654
6
2,301
547
227
85
475
3,634
52
646
912
309
1,919
6,213
2013E
2,391
486
939
312
287
4,414
558
627
128
853
6
2,171
6,586
1,626
7
1,645
547
227
85
475
2,979
52
627
987
309
1,974
6,586
2014E
2,371
493
989
312
287
4,452
575
632
134
954
6
2,300
6,752
1,758
7
1,645
547
227
85
475
2,979
52
656
993
309
2,010
6,752
2015E
2,348
496
1,018
312
287
4,461
594
672
141
1,055
6
2,467
6,927
1,899
7
1,645
547
227
85
475
2,979
52
689
993
309
2,043
6,927
2011
212
356
-209
3
87
-21
-43
386
-133
-33
10
3
-153
75
0
0
0
-172
-17
-115
119
1
373
2012
550
365
-246
73
-251
-23
-54
414
-155
-10
2
267
104
-660
0
466
0
-144
8
-330
188
1
562
2013E
368
352
-274
10
0
-25
-46
385
-164
0
0
0
-164
-656
0
860
0
-136
0
69
291
0
853
2014E
431
377
-239
-52
0
-25
-76
417
-164
0
0
0
-164
0
0
0
-37
-116
0
-153
101
0
954
2015E
472
395
-226
-92
0
-25
-88
437
-164
0
0
0
-164
0
0
0
-56
-116
0
-172
101
0
1,055
Cash flow statement
EUR m
EBIT
Depreciation of PPA and trucks
Change in lease and rental assets
Change in WC
Others
Change in LT provisions and accrued
Taxes
Cash flow from operations
Capex
Payments for acquisitions
Financial investments
Income from asset disposals
Cash flow from investing activities
Increase/decrease in debt position
Purchase of own shares
Capital measures
Dividends paid
Interest paid
Others
Cash flow from financing activities
Increase/decrease in liquid assets
Effects of exchange rate changes on cash
Liquid assets at end of period
65
KION Group AG
Growth rates yoy
(%)
Sales
EBITDA adj.
EBITA adj.
EPS reported
2011
23.6 %
43.9 %
161.0 %
-
2012
8.2 %
12.3 %
20.5 %
-
2013E
-3.2 %
2.7 %
-5.3 %
-
2014E
4.7 %
8.2 %
9.1 %
2.2 %
2015E
5.1 %
5.9 %
6.9 %
16.1 %
2011
3,494
281
435
160
4,370
2012
3,726
324
486
191
4,727
2013E
3,625
301
457
191
4,575
2014E
3,778
315
491
205
4,789
2015E
3,943
334
533
223
5,032
80.0%
6.4%
10.0%
3.7%
100.0%
78.8%
6.9%
10.3%
4.0%
100.0%
79.3%
6.6%
10.0%
4.2%
100.0%
78.9%
6.6%
10.3%
4.3%
100.0%
78.4%
6.6%
10.6%
4.4%
100.0%
Regional sales
Regional Sales (EUR m)
Europe
America
Asia
RoW
TTL
Regional sales shares
Europe
America
Asia
RoW
TTL
66
Jungheinrich AG
Small/Mid-Cap: Capital Goods & Industrial Engineering
The outperformer
•
•
•
•
We believe three factors will enable Jungheinrich to outperform a
sluggish European industrial truck industry in 2014/15: production
increases at new plants; market share gains from an improved product
portfolio; and the good prospects for logistics systems. We reflect
these in our model, lifting our 2014/15 EPS estimates by 12%/24%
and placing us 4%/13% ahead of consensus. We raise our price target
to EUR49 but, given the stock’s strong performance (up 50% ytd) and
that it is now trading at 14x EPS 2013E, upside is limited. Hold.
More capacity in structurally growing markets: The recently
opened industrial truck plant in China is expanding capacity to c10k
units from 2.5k. On the back of the ramp-up in production volumes,
we estimate sales in China will double to EUR120m by 2015. As
capacity becomes fully utilised, sales could reach EUR200m in the
medium term.
Gaining market share in diesel trucks: In 2014, a new series of
diesel-powered trucks will fill the gap in the group’s product portfolio.
With a more complete product range, Jungheinrich should gain
market share in currently underpenetrated end-markets (eg automotive
and metals processing) from other European players.
Promising logistics systems: After years of double-digit growth, the
systems business has reached critical mass, now contributing 25% to
new equipment sales. Cross-selling benefits and a sustainable
competitive advantage over peers will support revenues even in a
stagnant European truck market. This is underlined by management’s
ambition to double the segment’s revenue in the medium term.
•
8.4% margins in 2015: The group’s optimised production setup
combined with higher utilisation rates will push up group profitability
by 90bp over the next three years on our estimates. The margin gap to
other leading industrial truck producers will thus narrow. At 8%
margin in 2015E (vs. 7.5% in 2012), consensus underestimates these
impacts.
•
Our price target is based on an average of DCF and target-multipleimplied fair values. Given the encouraging growth outlook and
structural margin improvements, we see further long-term potential in
the business case but at present the stock seems fairly valued.
Y/E 31.12., EUR m
Order intake
Order backlog
Sales
EBITDA
EBIT
Net profit
Y/E net industrial debt (net cash)
EPS (reported)
DPS
Gross margin
EBITDA margin
EBIT margin
Dividend yield
ROCE
EV/sales
EV/EBITDA
EV/EBIT
P/E
Hold
Rating system
Absolute
Current price
Price target
EUR 45.08
EUR 49.00
Market cap EUR 1,533 m
Reuters
JUNG_p.DE
Bloomberg
JUN3 GY
Changes made in this note
Rating
Hold (no change)
Price target EUR 49.00 (31.00)
Chg
2013E
2014E
2015E
old Δ% old Δ% old Δ%
2,341 -1.0 2,422 1.7 2,518 4.3
Sales
177 -1.0 181
7.8
187 18.6
EBIT
3.19 1.1 3.31 12.2 3.44 24.4
EPS
Share data
Shares outstanding (m)
Enterprise value (EUR m)
Daily trading volume
34
1,528
40,000
Performance data
High 52 weeks (EUR)
Low 52 weeks (EUR)
Relative performance to SXXP
1 month
6.1 %
3 months
16.5 %
12 months
61.0 %
45
25
SDAX
5.5 %
18.4 %
50.9 %
Key data
Price/book value
Net gearing
CAGR sales 2012-2015
CAGR EPS 2012-2015
1.7
-5.9 %
5.6%
9.7%
Business activities:
European leader of industrial trucks,
warehouse technology and services with
a market share of 24%.
2011
2012
2013E
2014E
2015E
Non-institutional shareholders:
2,178
298
2,116
298
146
106
-162
3.10
0.76
30.0%
14.1%
6.9%
3.0%
10.6%
0.4
2.7
5.6
8.2
2,251
323
2,229
325
150
110
-183
3.24
0.86
30.1%
14.6%
6.7%
3.5%
10.3%
0.4
2.6
5.6
7.7
2,317
349
2,317
362
175
110
-177
3.23
0.96
31.1%
15.6%
7.5%
2.1%
11.2%
0.7
4.2
8.7
14.0
2,488
323
2,463
397
195
126
-219
3.71
1.12
31.5%
16.1%
7.9%
2.5%
11.7%
0.6
3.7
7.6
12.1
2,654
349
2,628
430
222
145
-270
4.28
1.30
31.9%
16.4%
8.4%
2.9%
12.5%
0.5
3.3
6.5
10.5
Ordinary shares:
Lange and Wolf families 100%
67
Preference shares
Free-float of 100%
19 September 2013
Felix Wienen
Analyst
+44 20 3207 7915
Benjamin Glaeser
Analyst
+44 20 3207 7918
Jungheinrich AG
Investment case
Positioned for growth
Jungheinrich combines a proven and focused operating model with consistent
growth and profitability, a track record of shareholder returns and a rock-solid
balance sheet. We see considerable earnings momentum with revenue generation
outperforming the industry. Structural margin improvements will lead to an EPS
CAGR 2012-15E of 9.7% on our estimates. The stock however has already rerated
from its long-term average P/E multiple of 10 to around 13x which appears fair
given the positive fundamental outlook. After gaining 50% ytd and marking all time
highs, we see limited upside for now and reiterate our Hold recommendation with
an increased price target of EUR49.
Over the past few years, the management team has invested significantly in
expanding and optimising the operations of the group. We believe most of the
benefits will become visible in 2014/15, leading to positive momentum for the
stock as earnings surprise. The investment case offers three catalysts.
1. Quadrupling production capacities in China
The new China plant is expected to propel sales to EUR120m in 2015 from
EUR50m today. When full capacity is reached, this offers sales potential of
EUR200m or 9% organic sales growth from 2012. The plant specialises in the
production of warehouse equipment, a segment that is set to significantly outgrow
the market. This is particularly likely because growth in recent years has been
driven by counterbalanced trucks, with significant pent-up demand for
Jungheinrich’s core products in the warehouse equipment segment.
2. Gaining market share with an improved product portfolio
Jungheinrich will launch an enhanced range of diesel-powered counterbalanced
trucks in 2014. The new products will enable the group to gain a stronger foothold
in end-markets that are currently underpenetrated, such as the automotive and
metals processing industries. We believe that the group has suffered from an
incomplete product offering, making Linde the default premium brand for
customers from these end-markets. With the complementary products and intense
training of its sales force, Jungheinrich should gain market share in Europe in the
next few years.
Furthermore, the group’s production setup has been significantly improved. Due to
their relatively low contribution margin, internal combustion trucks require high
production volumes which Jungheinrich did not achieve with its previous
production footprint. However, the new product range together with a focused
selling effort will result in critical mass for IC trucks. Production has therefore been
concentrated in the group’s large Moosburg plant. Moreover, the streamlined
production processes and internal logistics at the plant level will boost the
contribution margin of the overall internal combustion product range.
3. Logistics Systems: double-digit growth and accretive margins
After years of double-digit growth, Jungheinrich’s Logistics Systems business has
reached critical mass and we see continued high growth potential. The acquisition
of ISA in 2012 and the organic expansion of project capabilities have lifted the subsegment to the next level, with the medium-term goal being to double revenues. At
25% of new equipment sales, the integrated Logistics Systems marks a sustainable
competitive advantage in the form of superior pricing and cross-selling
opportunities. It will be an essential contributor to outperform a stagnant industrial
truck market in Europe.
68
Jungheinrich AG
Intralogistics margins trending towards 8.4%
As a result of the outlined factors, operating margins in the Intralogistics division
should trend towards 8.4% in 2015, from 7.2% in 2012. Jungheinrich will therefore
also reduce the margin gap to KION, in line with the developments observed in
2002-07 (Figure 114).
Figure 105: Intralogistics margins (200715E)
Figure 106: Narrowing the margin gap
3,000
10.0%
12%
2,500
8.0%
10%
6.0%
2,000
4.0%
1,500
2.0%
1,000
0.0%
500
-2.0%
0
-4.0%
2007
2008
2009
2010
2011
sales
2012 2013E 2014E 2015E
EBIT adj. margin
8%
6%
4%
2%
0%
-2%
-4%
2002
2004
Jungheinrich
2006
2008
2010
Kion
2012
Toyota MH
2014E
Hyster Yale
10% upside on revised estimates
Adjustments to our Intralogistics forecasts are the principal driver to the increase in
our 2014/15 EPS estimates of 12%/22%. Based on these, we increase our price
target to EUR49 (from EUR31), which represents upside potential of 10% from
current levels (12% including dividends). Our price target is based on a blended
average of DCF, P/E, EV/sales and EV/EBIT. However, the stock has rerated
from its long-term average P/E multiple of 10 to around 14x which appears a fair
level going forward given the strong fundamental outlook. After gaining 50% ytd
and marking all time highs, we see limited upside for now and reiterate our Hold
recommendation.
Figure 107: Jungheinrich 1yr forward P/E
Figure 108: LT stock performance
20
450
50
18
400
45
16
350
40
14
300
12
250
10
200
8
150
6
100
4
50
2
01/06
01/07
01/08
01/09
01/10
1yr forward PE
01/11
01/12
01/13
35
30
25
20
15
10
5
0
01/06
0
01/07
01/08
01/09
SXNP
Median P/E
01/10
Jungheinrich
69
01/11
01/12
01/13
Jungheinrich AG
Drivers
Driver one: quadrupling production capacity in China
In August 2013, Jungheinrich inaugurated its new plant in China, thereby
increasing its production capacity from 2,500 to 10,000 trucks pa. This purposebuilt plant replaces the group’s previous location, which has been running at full
capacity and covers a broader product range. We assume that production will
gradually increase to c6,000 units by 2015, depending on product mix.
On the back of higher production volumes, we estimate that the group’s China
revenue could double by 2015. In 2012, sales to China contributed roughly
EUR55m or 49% of sales in the RoW category on our estimates. While
Jungheinrich’s local plant produces exclusively for the Asian market, selected
products are also exported directly from Germany. We therefore assume that
EUR50m of sales are directly attributable to the China plant. Assessing the
incremental sales potential from the added production capacity, we use an average
selling price of EUR20,000 based on EUR50m sales with 2,500 units produced in
2012.
As Figure 118 displays, a ramp-up over the next two years to 6,000 units by 2015
could more than double Jungheinrich’s Chinese sales to EUR120m, assuming a
similar product mix and ASP to 2012. As the plant reaches its full capacity of
10,000 units in the long term, revenue generation could peak at EUR200m pa.
The plant is also likely to improve the group’s cost structure. Besides generating
additional sales revenue, we believe that the plant offers the opportunity to transfer
less technologically advanced and lower-margin products out of higher-cost plants
in Germany. While the implications are difficult to assess in absolute terms, we
regard this as upside potential for the group’s operating margin.
Figure 109: New plant capacity evolution
Figure 110: Blue-sky revenue implications
12,000
160
10,000
Gradual increase in
volumes to 6,000
units p.a.
140
8,000
120
Achieve 6k units
in 2-3 years
100
6,000
Inauguration 08/13,
assume production
trials only
80
Current plant
at full capacity
4,000
2,000
Production
reaches 8k
units p.a.
180
60
Production ramp-up
to 4k units from
2.5k in 2013
40
Ramp-up
20
0
0
2006 2008 2010 2012 2013 2014 2016
2012
LT
2013
2014
In ramping up the new plant, Jungheinrich can also broaden its sales network.
While the group’s products are in most countries distributed via its own sales and
service outlets, Jungheinrich has amended its strategy for the Chinese market to
expedite the expansion of its network: own direct dealerships will be established in
cities with more than 10m inhabitants while two exclusive distributors should cover
cities with more than 5m people. This setup will in our view provide the necessary
platform to enable the incremental unit sales from the new plant.
70
2015
2016
Jungheinrich AG
Driver two: gaining share with an enhanced product range
Jungheinrich’s diesel-powered truck offering will receive a major revamp in 2014.
This will have a significant impact on market penetration, which is currently low
and will broaden the group’s end-market exposure. Given its low share of internal
combustion trucks at c25%, Jungheinrich is currently underrepresented in typical
internal combustion industries such as automotive and metals processing (Figure
120).
Figure 111: Jungheinrich end-market split
Figure 112: Industry end-market split
Retail/ Wholesale
General retail
Logistics
Transport and logistics
Mechanical, Auto,
Electricals
Food and Beverages
Food
Other
Chemicals
Services
Timber, paper, print
Food Industry
Other
Chemical Industry
Aiming to increase its comparably low market share of c6% in European IC trucks
towards 10% in the medium term, Jungheinrich has invested considerably in R&D.
The launch of the new product range, expected in H1 2014, represents a milestone
for the company. Preparing its sales force for the product introduction to ensure a
good take-up and positioning in the market, the group’s distributors are undergoing
extensive training. We therefore expect a continued push for market share with an
optimised product being a driver for new equipment sales in 2014-16.
More important, however, we understand that the product’s profitability will
increase markedly compared to previous generations that suffered from very low
margins. This will be achieved through higher truck standardisation and platform
production as well as economies of scale from greater volumes. The latest news on
the group’s optimised production footprint is as follows.

Moosburg: The group’s internal combustion truck production is to be
centralised in Jungheinrich’s big Moosburg plant. Previously this was a
combined plant for IC and warehouse trucks, thereby weighing on
production processes and product flow. Further economies of scale will
result from higher output given the aim of gaining market share as well as
increasing standardisation in the product range.

Degernpoint (operational Q4 2013): The plant in Degernpoint is the
new production hub for warehouse trucks, with product-specific
production processes reducing assembly time and therefore the cost per
truck.

Kaltenkirchen (operational Q3 2013): A new, state-of-the-art spare-parts
centre in Kaltenkirchen improves the group’s spare-parts logistics concept.
71
Jungheinrich AG
Figure 113: Jungheinrich’s optimised production footprint (Europe)
Previous
Today
Location
Type
Truck
Moosburg
Production
IC/WH
Norderstedt I
Production
Lueneburg
Profitability Location
Type
Truck
Moosburg
Production
IC
WH
Degernpoint
Production
WH
Production
WH
Kaltenkirchen
Spare parts center
Landsberg
Production
WH
Norderstedt I
Production
WH
Dresden
Used equipment
Lueneburg
Production
WH
Norderstedt II
Components/ Spare parts
Landsberg
Production
WH
Dresden
Used equipment
Norderstedt II
Components
Driver three: Logistics Systems – double-digit growth and accretive margins
After years of double-digit growth, Jungheinrich’s Logistics Systems business has
reached critical mass; we believe it still has potential for high growth. The
acquisition of ISA in 2012 as well as the ongoing organic expansion of project
capabilities has lifted the segment to the next level with the medium-term goal
being to double its revenue. Contributing 25% to new equipment sales, the
integrated logistics system has established a sustainable competitive advantage over
pure industrial truck OEMs around four factors.

Single source: Jungheinrich acts as a single point for its customers during
all stages of warehouse development, integration and operation. This not
only reduces the complexity of the project but also fulfils OEMs’ need to
rationalise their supplier bases.

Cross-selling opportunities for trucks and service: As trucks and
service contracts are bundled as part of the project, Logistics Systems
opens up new cross-selling opportunities for Jungheinrich’s equipment.
The systems business therefore indirectly generates demand for new
trucks.

Superior pricing: Pricing for new industrial truck equipment is tough,
particularly as customers usually request offers from multiple
manufacturers. By offering the entire warehouse solution including trucks,
Jungheinrich has the opportunity to exclude other truck producers from
placing competitive bids.

High switching costs: Once customers adopt an entire logistics system
from Jungheinrich, switching costs are high. This is not only due to the
integrated equipment but particularly due to the warehouse management
software, which represents the brain of the warehouse.
72
Profitability
Jungheinrich AG
Figure 114: New equipment split
Figure 115: Partner for end-to-end solutions
Planning and Design
75% E-Trucks
Forklift Trucks
Racking and Storage
Equipment
Conveyor Systems
Stacker Cranes
System Integration
CB trucks
WH trucks
Logistics systems
Mail order
Maintenance and Service
Not only has the enhanced product offering of the Logistics Systems business
increased Jungheinrich’s warehouse truck market share in Europe from c30% in
2003 to c38% now, it has also improved the product mix. We estimate operating
margins in the systems operations at 3-5%, which compares to -2% to 3% for new
trucks. In particular, we compare Jungheinrich’s business to Swisslog’s warehouse
distribution segment, which has generated an average margin of 4.6% since 2004.
Other than Swisslog, the systems business has developed consistently over the past
few years with the project size it can cope with increasing to EUR10m-20m from
EUR5m-7m some 3-5 years ago.
Following the ongoing expansion of the group’s logistics systems operations and
the acquisition of ISA in December 2012, we expect further healthy profit
contributions from this business.
Figure 116: Swisslog WHD sales and margins (CHFm)
600
6%
500
5%
400
4%
300
3%
200
2%
100
1%
0
0%
2004
2005
Sales
2006
2007
2008
2009
EBIT adj margin
2010
2011
2012
avg. margin
73
Warehouse
Management Systems:
Warehouse
Administration
Warehouse Control
Radio Data
Transmission,
Terminals, Scanners
Jungheinrich AG
Estimates and financials
New Equipment
We expect Jungheinrich’s New Equipment business to grow at a healthy 4.6%
CAGR in 2012-15. This will be driven by the ramp-up of the new Chinese plant,
market share gains in Europe and continued growth in Logistics Systems. In
particular, we expect Jungheinrich’s counterbalanced truck sales to accelerate by
5% pa in 2014/15 as the group benefits from its strengthened and more
comprehensive product range. Following years of double-digit growth, we
conservatively assume Jungheinrich’s Logistics Systems business will grow 8% in
2014/15. In warehousing equipment, Jungheinrich is expected to maintain its very
strong position (c35% EU market share), while we see incremental growth as
volumes build in China. The combination of these factors will drive New
Equipment revenue up 6.5% and 7.5% in 2014/15 on our estimates,
outperforming the European truck market at 3.2%/4.1% respectively.
Jungheinrich’s Intralogistics margin is expected to trend towards 8.4% in 2015.
After generating a margin of 7.2% in 2012, we see further upside resulting from
optimised production in Europe compounded by rising volumes for
counterbalanced trucks. In addition, the opportunity to shift lower-margin
products to the new Chinese plant provides further potential to optimise profits.
Figure 117: Intralogistics sales and operating margin
(2007-15E)
3,000
10.0%
2,500
8.0%
6.0%
2,000
4.0%
1,500
2.0%
1,000
0.0%
500
-2.0%
0
-4.0%
2007
2008
2009
2010
2011
sales
2012 2013E 2014E 2015E
EBIT adj. margin
After-sales service
The after-sales service business accounts for 30% of the group’s revenue and
generates double-digit margins. It is primarily driven by the group’s installed base
of 977,000 trucks which ensures a steady stream of profits (Figure 127). Following
strong new truck sales in 2011/2012 – 10%/7% above the long-term historic
average – we estimate aggregate after-sales revenue generation will grow by at a
4.5% CAGR in 2012-15.
74
Jungheinrich AG
Figure 118: The installed truck base…
Figure 119: …generates stable service revenue
90,000
30%
80,000
20%
70,000
10%
In service
60,000
50,000
0%
40,000
-10%
2003
30,000
2004
2005
2006
2007
2008
2009
2010
2011
2012
-20%
20,000
-30%
10,000
-40%
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
ST hire, used equipment and after sales
New truck sales
Service share to remain at 47%
We expect the share of services in total Intralogistics revenues to be stable at 47%.
While service revenue should develop at a healthy CAGR of 5.3% in 2012-15, this
is countered by 5% growth in the larger New Equipment segment.
Most importantly, we assume a 4.5% growth CAGR in after-sales services, in line
with historic performance and supported by two further factors. First, the vehicles
produced in 2011/12 will be entering their first service cycle. Second, its sales share
should grow via the leasing business as these trucks have service contracts attached.
Rental and used equipment turnover is set to grow at a 6.7% CAGR over the
period, in line with historical growth rates. The healthy growth in rental stems from
the group’s expansion of its short-term hire fleet, as its size is back to pre-crisis
levels. Utilisation rates are expected to remain at 70-80%. Used equipment sales are
being driven in particular by the capacity expansion at the group’s main
reconditioning centre in Dresden (expected expansion from 4,500 to 8,000 trucks
over the next five years).
Figure 120: Intralogistics sales and profits (2005-15E)
EURm
Intralogistics - sales
New business
Rental & used equipment
After sales
2006
1,748
933
270
545
2007
2,001
1,110
310
581
2008
2,207
1,271
331
604
2009
1,694
811
305
578
2010
1,849
914
328
607
2011
2,133
1,135
349
649
2012
2,288
1,230
378
681
2013E
2,352
1,242
402
708
2014E
2,491
1,323
428
740
growth
New business
After sales
Intralogistics
6.4%
9.5%
4.5%
6.3%
18.9%
14.8%
6.6%
14.4%
14.6%
6.8%
4.1%
10.3%
-36.2%
-8.0%
-4.4%
-23.2%
12.7%
7.4%
5.0%
9.1%
24.1%
6.6%
7.0%
15.4%
8.4%
8.1%
4.9%
7.3%
1.0%
6.5%
4.0%
2.8%
6.5%
6.5%
4.5%
5.9%
share
New business
After sales
53.4%
15.5%
31.2%
55.5%
15.5%
29.0%
57.6%
15.0%
27.4%
47.9%
18.0%
34.1%
49.5%
17.7%
32.8%
53.2%
16.4%
30.4%
53.8%
16.5%
29.7%
52.8%
17.1%
30.1%
53.1%
17.2%
29.7%
53.5% New business growth driven by Chinese ramp-up
17.2%
29.2%
mix
NE
Service
53.4%
46.6%
55.5%
44.5%
57.6%
42.4%
47.9%
52.1%
49.5%
50.5%
53.2%
46.8%
53.8%
46.2%
52.8%
47.2%
53.1%
46.9%
53.5% Enhanced production setup adds to profitability
46.5% Service share remains stable
1,748
n/a
n/a
2,001
-64
-3.2%
2,207
129
5.8%
1,694
24
1.4%
1,849
120
6.5%
2,133
159
7.5%
2,288
166
7.2%
2,352
175
7.4%
2,491
195
7.8%
Total
Sales
EBIT adj.
margin
75
2015E Comment
2,657
1,422
458
777
7.5%
7.0%
5.0%
6.7%
Systems bridges EU weakness; Chinese volumes add from 2014
Strong momentum in H1'13; capacity expansion
Installed base and expansion of leasing
5% 2012-15E CAGR
2,657
222 2009 value adjusted for EUR80 1-off restructuring
8.4% Product mix, improved production process, '13 burdened by 1-offs
Jungheinrich AG
Financial Services
In contrast to KION, Jungheinrich’s Financial Services (FS) division exclusively
offers long-term leasing solutions to external customers (ie no financing of its own
rental fleet). It therefore also supports new equipment sales and secures recurring
service revenue. The following are the key aspects of the Financial Services
division.

Long-term leasing: It provides long-term leasing contracts with an
average lifetime of 4.5 years. Every leasing contract is combined with a full
service and maintenance contract.

EBIT: FS acts as an internal service provider and therefore cost centre.
Nevertheless, the segment has historically contributed a small positive
EBIT margin as profits are not shared with third-party leasing providers.

Increased control: As Jungheinrich has direct access to all leasing
contracts via a powerful software system, residual-value and default risks
are minimised.
Figure 121: Jungheinrich’s leasing structure
3rd party partner
25%
External customer
LT lease
FS
Jungheinrich BS
75%
• Leasing from Jungheinrich’s BS: With 75% of the leasing being directly funded from the group’s
balance sheet, transparency is high and dependency on external providers low
• Direct risk control: All contracts can be directly monitored, residual value/credit risk assessment on a
quarterly basis; avg. lease of 4.5 years
• Conservative accounting: 20-30% of the products BV are depreciated until t+2, significantly reducing
residual value risks
• Financial Services assets: EUR1bn (2012)
• After-sales: Financial Services facilitates equipment sale, after sales revenue generated by Intralogistics
We expect ongoing expansion of Jungheinrich’s leasing operations, with a focus on
Europe. As the group’s financing business has gradually been developed across its
core market, entering the Netherlands and Austria in 2011 and 2012, we see room
for further expansion into countries such as Portugal, Poland and the Czech
Republic.
76
Jungheinrich AG
Figure 122: Cumulative truck units under lease
130
Figure 123: Geographic reach of leasing operations
Continous expansion
in EU targeted
120
110
2011
2006
100
2000
90
2012
2005
80
2004
70
60
2008
50
2009
2010
2011
2012
2013
2014
2015
Our estimates assume Financial Services grows in line with historic trends. In Q1
2013, Jungheinrich reclassified its reporting structure in this division. Interest
income from leases and interest expenses are now classified as operating result;
they were previously reported as part of the financial result. This is in line with
other industrial companies with large leasing operations such as Fiat Industrial, for
example and in our view increases transparency.
Figure 124: Financial Services sales and profits (2008-15E)
EURm
Financial Services - sales
growth
EBIT
margin
2008
369
-6.7
-1.8%
2009
378
2.4%
-8.2
-2.2%
2010
395
4.5%
-6.3
-1.6%
2011
451
14.3%
-2.7
-0.6%
2012
497
10.1%
-7.4
-1.5%
2013E
517
4.0%
9.0
1.7%
2014E
553
7.0%
9.4
1.7%
2015E Comment
595
7.5% Continuous expansion in EU
10.1
1.7% Positive margin since adjusting for leasing income in '13
Balance sheet and dividend
Supporting its leasing activities, Jungheinrich enjoys a very strong balance sheet. As
Figure 135 shows, the balance sheet is characterised by an industrial net cash
position of EUR183m in FY 2012. Including the group’s leasing liabilities, net debt
would have stood at EUR658m. We understand that the solid overall cash position
of EUR555m in FY 2012 is viewed favourably by the Lange and Wolf families,
which hold 100% of the ordinary shares. At the same time, it ensures a reliable and
very stable dividend payout.
Most strikingly the group even paid a dividend in 2009. Based on our forecast
dividend of EUR0.96 for FY 2013, Jungheinrich’s stock offers a dividend yield of
2.1%.
A goodwill position of as little as EUR32m or 1% of total assets in FY 2012 is
another indication of Jungheinrich’s strong balance sheet.
77
Jungheinrich AG
Figure 125: A sustained net cash position
ND
NC
Figure 126: Dividend track record
100
5.0
50
4.0
0
3.0
-50
40%
30%
2.0
-100
20%
1.0
-150
0.0
-200
10%
-1.0
-250
-2.0
-300
0%
2004
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2006
2008
DPS
2010
EPS
78
2012
payout ratio
2014E
Jungheinrich AG
Changes to estimates/Berenberg versus consensus
Revised Intralogistics estimates drive significant change to estimates
Following the group’s Q2 results and our in-depth analysis of the drivers for
2014/15, we have significantly revised our estimates for the Intralogistics division.
Our revenue estimates increase by 2.8%/5.5% for 2014/15 driven by stronger new
equipment sales (eg new China plant, new product line in IC trucks) and rental and
used equipment, which posted a strong result at H1 2013 (+6.6% yoy; capacity
expansion at Dresden plant). We have trimmed our assumptions for the Financial
Services business, where we expect growth to be more gradual than we initially
thought.
For Intralogistics, we have revised our profitability estimates for 2014/15 due to
the impacts o: i) the group’s enhanced production setup in Germany lifting
profitability in New Equipment; ii) the introduction of a more standardised IC
truck product combined with higher production volumes; and iii) the new Chinese
plant, which allows the transfer of lower-margin products to this low-cost
production facility. In consequence, our Intralogistics margin assumption rises by
73/124bp in 2014/15, lifting group margins to 7.9%/8.4% from 7.1%/7.0%.
Figure 127: Changes to estimates by division
EURm, Dec y/e
Revenue
Intralogistics
New equipment
After sales service
Financial Services
Consolidation
Group revenue
Revenue growth
Intralogistics
New equipment
After sales service
Financial Services
Consolidation
Group revenue growth
EBIT
Intralogistics
Financial Services
Consolidation
Group EBIT
EBIT margin
Intralogistics
Financial Services
Group EBIT margin
Old estimates
2013E 2014E 2015E
New estimates
2013E 2014E 2015E
Change (% or bps)
2013E 2014E 2015E
2,341
1,249
385
708
546
(546)
2,341
2,422
1,286
397
740
617
(617)
2,422
2,518
1,331
411
777
668
(668)
2,518
2,352
1,242
402
708
517
(552)
2,317
2,491
1,323
428
740
553
(581)
2,463
2,657
1,422
458
777
595
(624)
2,628
0.5%
2.8%
-0.5%
2.9%
4.4%
8.0%
0.0%
0.0%
-5.4% -10.4%
1.1% -5.9%
-1.0%
1.7%
2.3%
1.5%
2.0%
4.0%
9.9%
3.5%
3.0%
3.0%
4.5%
13.0%
4.0%
3.5%
3.5%
5.0%
8.2%
2.8%
1.0%
6.5%
4.0%
4.0%
5.9%
6.5%
6.5%
4.5%
7.0%
6.7%
7.5%
7.0%
5.0%
7.5%
47
(50)
450
0
(591)
244
350
350
0
(601)
271
400
350
0
(69)
5.1%
3.5%
4.0%
4.0%
6.3%
6.7%
(109)
286
270
166
10
(10)
167
172
9
(10)
171
179
8
(10)
177
175
9
(9)
175
195
9
(9)
195
222
10
(10)
222
5.0%
-10.0%
-10.0%
4.9%
13.4%
4.5%
-6.0%
14.1%
23.9%
24.8%
1.1%
25.3%
7.1%
1.8%
7.1%
7.1%
1.5%
7.1%
7.1%
1.2%
7.0%
7.4%
1.7%
7.5%
7.8%
1.7%
7.9%
8.4%
1.7%
8.4%
32
(9)
43
73
24
86
124
49
141
We are 4%/13% ahead of 2014/15 consensus
Our updated estimates for 2014/15 leave us 4%/13% ahead of consensus at the
EPS level, driven by significantly higher profitability expectations in Intralogistics.
We believe that Jungheinrich’s operating margins will trend towards 8.4% in 2015,
40bp ahead of Bloomberg consensus at 8%. The acceleration in 2014/15 margins
79
5.5%
6.9%
11.6%
0.0%
-11.0%
-6.5%
4.3%
Jungheinrich AG
will in particular be driven by the improved production setup at the main plant in
Moosburg, which will focus on IC trucks only as of 2014 and the purpose-built
Degernpoint plant for WH trucks. In addition, the optimised spare-parts centre in
Kaltenkirchen will provide positive mix effects while the China plant offers further
flexibility. We believe that the implications of these multiple factors are not yet
fully factored into consensus estimates.
Our updated 2013 forecasts for sales of EUR2.32bn and EBIT of EUR175m are at
the upper end of the guidance range and in line with consensus.
Figure 128: Our updated estimates leave us 4%/13% ahead of consensus
expectations for 2014/15, driven by significantly higher profitability
assumptions
Old estimates
2013E 2014E 2015E
2,341
2,422
2,518
5.1%
3.5%
4.0%
EURm, Dec y/e
Revenue
growth
BeGo vs. Consensus
EBIT
margin
BeGo vs. Consensus
EPS
growth
BeGo vs. Consensus
167
7.1%
171
7.1%
177
7.0%
3.19
-1.6%
3.31
3.5%
3.44
4.0%
New estimates
2013E 2014E 2015E
2,317
2,463
2,628
4.0%
6.3%
6.7%
0.6%
2.6%
4.6%
175
195
222
7.5%
7.9%
8.4%
0.3%
3.3% 10.3%
3.23
3.71
4.28
-0.4% 14.9% 15.2%
0.4%
4.4% 12.9%
Change (% or bps)
2013E 2014E 2015E
-1.0%
1.7%
4.3%
(109)
286
270
4.9%
43
14.1%
86
25.3%
141
1.1%
112
12.2%
1,134
24.4%
1,124
Our estimates also assume that Jungheinrich will be able to reduce the margin gap
to KION, in line with developments in 2002-07.
Figure 129: Jungheinrich closes the profitability gap to
KION
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
2002
2004
Jungheinrich
2006
2008
Kion
2010
Toyota MH
2012
2014E
Hyster Yale
80
Jungheinrich AG
Valuation

10% upside to revised price target

20% upside on EV/sales compared to peers

Fairly valued at around 13x P/E’13E vs. LT median of 10.4x
10% upside to revised price target
Adjustments to our Intralogistics forecasts are the principal reason for the increase
in our 2014/15 EPS estimates of 12%/24%. Based on these revised estimates, we
increase our price target to EUR49 (from EUR31) – which represents upside
potential of 10% from current levels (12% including dividends). We derive our
price target using the methodology set out in Daring to dream, a blend of target
multiples and a DCF model (see Figure 140), to calculate a price target based on
2015 discounted back. While near-term upside is therefore limited after gaining
50% ytd, this method shows the mid-term potential for Jungheinrich’s share at
EUR62 (+38%) in 2015.
Figure 130: Price target derivation
Valuation method
DCF
EV/Sales
EV/EBIT
P/E
Average
2013E 2015E Assumptions
55
68
3.5% CAGR; 8.4% TV margin; 8.5% WACC
54
64
0.8x at 8% op margin
46
62
42
56
49
62
Fairly valued at around 13x P/E’13E vs. LT median of 10.4x
Trading just above 13x P/E’13E and 12x 2014E compared to a historic median of
10.4x the stock has re-rated. We believe that the current P/E level also constitutes
a fair level going forward given that Jungheinrich will outperform peers in the
industrial truck market.
Figure 131: Reaching all-time highs, the share
closes the gap to earnings estimates
50
3.75
40
3
30
2.25
20
1.5
10
0.75
Figure 132: 1yr forward consensus P/E shows the
re-rating of the stock; given the fundamental
improvements a 13x P/E multiple seems fair
20
18
16
14
12
10
8
6
4
0
01/06
0
01/07
01/08
01/09
01/10
PX
01/11
01/12
2
01/06
01/13
1yr forward EPS
01/07
01/08
01/09
1yr forward PE
20% upside on EV/sales relative to peers
Based on the group’s EV/sales multiple, Jungheinrich trades at a discount of 20%
to its closest peers. The significant discount to KION and even Hyster Yale seems
81
01/10
01/11
Median P/E
01/12
01/13
Jungheinrich AG
irrational given that Jungheinrich’s operating margins are set to expand significantly
in 2014/2015. Trading at 0.65x/0.59x EV/sales in 2013/14E compared to a
forecast operating margin of 7.4%/7.8% in 2013/14, the stock’s EV should fall in
the range of 0.75-0.8x, providing 20% upside.
Figure 133: Jungheinrich trades at a 20% discount on EV/Sales
1.4x
1.2x
Palfinger
1.0x
Konecranes
0.8x
KION
Cargotech
Terex
0.6x
Jungheinrich
Hyster Yale
0.4x
0.2x
2%
4%
6%
8%
10%
12%
14%
Note: EV/sales multiple and expected operating margin are based on Bloomberg consensus numbers for peers
and our own for Jungheinrich, KION and Palfinger. Generally, companies above the diagonal line and further to
the upper left are considered more expensive while those below the line are considered cheaper.
Adjusting the enterprise value appropriately
Applying the EV/sales methodology, we believe consensus/Bloomberg does not
adjust the group’s EV calculation for the Financial Services business. We believe
that this is incorrect given that the group’s main focus is on generating an operating
profit in the Intralogistics division. This is therefore similar to other industrial
groups with a financing arm such as Fiat Industrial.
Isolating the Financial Services division from the EV calculation, we exclude its
equity (EUR35m) and only take into account the industrial debt of EUR372m for
2013E. This yields an enterprise value of EUR1.5bn, 33% below the value of
EUR2.2bn as calculated by Bloomberg which includes EUR840m of Financial
Services debt.
Jungheinrich’s true EV/sales multiple hence stands at 0.65x, 33% below the 0.91x
as calculated by Bloomberg (Figure 144).
82
Jungheinrich AG
Figure 134: Estimating Jungheinrich’s enterprise value
2013
34
44.3
1,507
35
1,472
2014
34
44.3
1,507
35
1,472
2015
34
44.3
1,507
35
1,472
372
549
-177
208
30
372
590
-219
208
-11
372
642
-270
208
-62
EV
1,502
1,461
1,410
EV/Sales (BeGo)
EV/Sales (Bloomberg)
0.65x
0.96x
0.59x
0.92x
0.54x
0.88x
Group op. margin (BeGo)
Group op. margin (Bloomberg)
7.5%
7.6%
7.9%
7.9%
8.4%
8.0%
EV/Sales vs. op margin (BeGo)
EV/Sales vs. op margin (Bloomberg)
8.6x
12.7x
7.5x
11.7x
6.4x
11.0x
Diluted share count
Current price
Market value
(-) Equity from Fin Services
Net market value
Industrial Debt
Cash
Net debt
Pensions
Total adj.
Preference shares do not warrant a discount
Given Jungheinrich’s shareholder structure, investors are only able to buy the
group’s preference shares. Despite the fact that these shares do not entail voting
rights, we believe that the shareholder-friendly dividend track record (dividend
payment even in 2009) as well as the conservative management approach make up
for this. A significant discount due to the lack of control rights is hence not
warranted for Jungheinrich.
83
Jungheinrich AG
Risks
Selected risks to our investment case and valuation include the following.
Industry and macroeconomic risks

Despite a high service share of 48%, the industrial truck industry is very
cyclical in nature. New equipment order volumes in particular depend on
economic activity and industrial production, especially in Europe. Given
Jungheinrich’s focus on this region, which accounts for 80% of sales, a
significant slowdown in industrial production is a key risk for the
company.

The industrial truck industry is very competitive. Following years of strong
unit growth in Asia, large local players have emerged that mainly compete
on price. Despite these producers generally focusing on the low-cost
segment of the market, it is likely that they will address the mid- and
premium segments over the long term. While we believe this will take a
long time, it could have a material impact on Jungheinrich’s business
model.
Company-specific risks

Risks related to new production facilities: production ramp-up at the new
plants could take longer than expected, in the worst case dragging on
operating margins. In consequence the margin benefits that we have
factored into our model could be too high.

Product introduction risks: a new range of counterbalance trucks will be
introduced in 2014. We assume positive mix effects from these products
which could be too high if take-up falls short of expectations.

Residual value and credit risks: within its Financial Services division
Jungheinrich is subject to residual-value and credit risks. These could result
in write-downs. However, given the efficient risk management system in
place, defaults remained very low even during the crisis.
84
Jungheinrich AG
Business review
The management team
Hans-Georg Frey, CEO (56, German): Mr Frey joined Jungheinrich in 2007 and
launched a significant cost-cutting programme in the face of the global financial
crisis in 2008/2009. Before joining the group, he held various top management
positions including at one of Jungheinrich’s industry peers, Liebherr Werk Ehingen
GmbH.
Dr Volker Hues, CFO (48, German): Dr Hues joined Jungheinrich in 2009. Prior
to this he was CFO at CWS and held leading finance positions at other Haniel
Group companies.
Dr Helmut Limberg, Head of Marketing & Sales (57, German): Dr Limberg
joined Jungheinrich in 2007, following a CEO position at Liebherr-Group. He has
also held leading positions at Mannesmann Demag Baumaschinen and other
companies.
Dr Klaus-Dieter Rosenbach, Head of Engineering (53, German): Dr
Rosenbach has been with Jungheinrich since 1991 and has held several leading
technical positions within the group. Since 2001, Dr Rosenbach has headed
Jungheinrich’s main production site in Norderstedt, Germany.
Due to its conservative management style and swift reaction to the crisis of
2008/09, Jungheinrich’s management team is highly ranked by investors.
Shareholder structure
Jungheinrich’s 16m preference shares are listed on the Frankfurt Stock Exchange
(IPO 1990), with average daily trading volume of EUR1m. The 18m ordinary
shares are all held privately by the two daughters of the company’s founder (the
Lange and Wolf families). The preference shares are obliged to pay a minimum
dividend of EUR0.12, with the payout ratio averaging 25%.
Figure 135: Shareholders’ preference shares
Institutional
Private
Figure 136: Split of ordinary/preferred stock
Others
Ordinary
85
Preferred
Jungheinrich AG
Financials
Profit and loss account
Sales
COGS
Gross profit
Selling and general
Research and development
Other operating result
Other income
EBIT
Net financial result
EBT
Taxes
Minority interest
Net income (net of minorities)
2011
2,116
1,482
634
455
37
2
2
146
-2
148
43
0
106
2012
2,229
1,558
671
483
44
1
6
150
-4
154
44
0
110
2013E
2,317
1,597
720
503
45
2
2
175
20
155
45
0
110
2014E
2,463
1,687
776
538
46
2
2
195
18
178
52
0
126
2015E
2,628
1,789
838
573
47
2
2
222
17
205
59
0
145
2011
32
284
432
81
828
248
950
45
509
1,752
2,580
718
0
983
146
219
13
1,360
132
172
90
108
502
2,580
2012
32
322
467
104
924
254
980
45
555
1,835
2,759
754
0
1,056
208
153
0
1,416
156
158
166
108
589
2,759
2013E
33
455
520
104
1,112
267
1,011
45
549
1,873
2,985
889
0
1,097
208
153
0
1,458
156
164
210
108
638
2,985
2014E
34
570
565
104
1,272
280
1,046
45
590
1,962
3,234
983
0
1,152
208
153
0
1,513
156
174
300
108
738
3,234
2015E
35
677
565
104
1,382
295
1,093
45
642
2,075
3,457
1,092
0
1,179
208
153
0
1,539
156
181
380
108
826
3,457
Balance sheet
Intangible assets
Property, plant and equipment
Trucks for ST Hire and leasing
Financial assets
Fixed assets
Inventories
Accounts receivable
Other current assets
Liquid assets
Current assets
TOTAL
Shareholders' equity
Minority interest
Long-term debt
Pensions provisions
Other provisions
Deferred taxes
Non-current liabilities
Short-term debt
Accounts payable
Other liabilities
Deferred taxes
Current liabilities
TOTAL
86
Jungheinrich AG
Cash flow statement
EUR m
Net profit/loss
Depreciation of fixed assets
Changes in Trucks
Increase/decrease in LT provisions
Other costs
Increase/decrease in WC
Cash flow from operating activities
Capex
Payments for acquisitions
Financial investments
Income from asset disposals
Cash flow from investing activities
Increase/decrease in debt position
Purchase of own shares
Capital measures
Dividends paid
Others
Cash flow from financing activities
Effects of exchange rate changes on cash
Increase/decrease in liquid assets
Liquid assets at end of period
2011
106
152
-167
4
1
-32
65
57
0
26
1
-82
-33
0
0
18
0
-51
0
-68
339
2012
110
174
-134
3
-8
-17
128
82
0
27
0
-109
23
0
0
25
0
-2
1
17
356
2013E
110
187
-160
3
0
-20
121
98
0
0
0
-98
0
0
0
28
0
-28
0
-5
351
2014E
126
201
-165
3
0
-20
146
73
0
0
0
-73
0
0
0
32
0
-32
0
41
392
2015E
145
209
-170
3
0
-36
151
63
0
0
0
-63
0
0
0
37
0
-37
0
51
443
2011
16.5 %
49.4 %
28.2 %
28.2 %
2012
5.3 %
3.1 %
4.5 %
4.5 %
2013E
4.0 %
16.3 %
-0.4 %
-0.4 %
2014E
6.3 %
11.8 %
14.9 %
14.9 %
2015E
6.7 %
13.6 %
15.2 %
15.2 %
2011
571
1,394
151
2,116
2012
598
1,449
182
2,229
2013E
620
1,492
205
2,317
2014E
646
1,567
250
2,463
2015E
678
1,645
305
2,628
27.0%
65.9%
7.1%
100.0%
26.8%
65.0%
8.2%
100.0%
26.8%
64.4%
8.8%
100.0%
26.2%
63.6%
10.1%
100.0%
25.8%
62.6%
11.6%
100.0%
Growth rates yoy
(%)
Sales
EBIT
Net income
EPS
Regional sales
Regional Sales (EUR m)
Germany
Rest of Europe
RoW
TTL
Regional sales shares
Germany
Rest of Europe
RoW
TTL
87
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Company
Jungheinrich AG
KION Group AG
(1)
(2)
(3)
(4)
(5)
Disclosures
no disclosures
no disclosures
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Historical price target and rating changes for Jungheinrich AG in the last 12 months (full coverage)
Date
08 January 13
01 May 13
19 September 13
Price target - EUR
28.00
31.00
49.00
Rating
Hold
Hold
Hold
Initiation of coverage
16 April 03
Historical price target and rating changes for KION Group AG in the last 12 months (full coverage)
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19 September 13
Price target - EUR
24.00
Rating
Sell
Initiation of coverage
19 September 13
Berenberg distribution of ratings and in proportion to investment banking services
Buy
Sell
Hold
41.86 %
18.75 %
39.39 %
53.33 %
10.00 %
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Jungheinrich AG
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Disclosures
Jungheinrich AG
KION Group AG
no disclosures
no disclosures
(1)
(2)
(3)
(4)
(5)
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© May 2013 Joh. Berenberg, Gossler & Co. KG
91

Fork in the road Profiling the global forklift industry

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