The world is undeniably moving towards electrification, and this trend is becoming increasingly evident across various industries. While companies like BYD and CATL have significantly contributed to the electrification of the automotive sector, similar advancements are taking place within the realm of construction machinery. A remarkable highlight is the high-altitude working platforms segment, driven primarily by Zhejiang Dingli and XGMA, where the electrification penetration rate has astonishingly reached 90%. This rapid adoption signifies a profound transformation happening within the industry, reflecting a broader global shift towards sustainable practices.

The forklift industry is not lagging either; as of 2023, the degree of electrification in this sector has soared to an impressive 67.95%. This figure surpasses that of traditional excavators and loaders, demonstrating that forklifts are emerging as more efficient and modern solutions for industrial needs. This surge in electrification points towards a pivotal moment of growth, particularly for companies positioned strategically in the market. The question remains, which player within the forklift sector stands poised to capitalize on this growth, exhibiting the highest degree of resilience and innovation?

The aphorism “times create heroes” seems particularly apt in this context. With the momentum of electrification driving the industry, the leading companies in the forklift market, especially those with a focus on electric models, are emerging as the key players to watch. Among these, the upcoming listing of Zhongli Holdings stands out. The company’s core strategy aligns seamlessly with the electrification trend, marking it as a front-runner in this highly competitive landscape.

Zhongli Holdings has consistently positioned itself at the forefront of the electric forklift movement since its inception. Embracing lightweight design and electric technology from the beginning, Zhongli has built a solid reputation in the sector. As an early mover, it has developed a comprehensive range of electric forklift models, dominating class III forklift sales in China with over 60% market share. Its pioneering status has solidified its competitive edge, allowing the company to maintain a substantial lead within the electric forklift arena.

Since 2013, Zhongli has held the distinction of being the top seller of Class II and Class III forklifts in China for 11 consecutive years. Although the overall sales figures may position Zhongli behind competitors like Hangcha Group and Anhui Heli in terms of total numbers, its unwavering shift towards electric models highlights a visionary approach that resonates with current demands and future trends.

Furthermore, Zhongli is strategically positioning itself for future growth by embracing the next phase of automotive innovation: intelligent automation. With increasing advancements in AI and robotics, the integration of smart technologies into electric forklifts is seen as the next significant leap forward. Leading the charge in this space is Nuo Li Holdings, and Zhongli is accelerating its ventures into robotics through strategic investments in companies like Ruixin Hang, KAIT AI, Shenzhen Youguang, and THORO. An impressive development plan is underway, as Zhongli aims to establish a manufacturing base capable of producing 1 million intelligent robots annually, with an investment of 533 million yuan to enhance its competitive advantage.

As Zhongli Holdings prepares for its market debut, its financial performance is of paramount interest. Navigating the cyclical nature of the construction machinery sector, Zhongli has benefitted from the resurgence in orders among major OEMs such as SANY, Zoomlion, and XCMG. This recovery, coupled with the upward trend in forklift sales in 2023, suggests a promising horizon for Zhongli’s financial outlook.

With priority given to electric models, Zhongli has demonstrated notable resilience during market fluctuations. The company has achieved a compound annual growth rate of 30% in revenue and an impressive 45% in net profit from 2019 to 2023, exhibiting robust growth accompanied by increased profitability. Projecting into 2024, Zhongli anticipates revenues of 4.827 billion yuan with net profits of 650 million yuan, underpinned by a substantial potential for future growth.

Long-term financial health is essential; thus, Zhongli has made significant improvements in profitability metrics over the years. Between 2021 and the third quarter of 2024, the company's gross margin rose from 22.65% to 29.69%, while net margins surged from 8.42% to 13.69%. A significant contributing factor to this growth has been the decline in raw material costs. With steel and lithium battery prices decreasing, Zhongli has managed to maintain or even increase product pricing despite the cost reductions. This combination has created a favorable environment for profit generation.

Additionally, Zhongli’s focus on international markets has proven beneficial. The adage “No going global, no future” underlines the necessity for companies in the construction machinery sector to break through domestic boundaries. Zhongli’s international revenue has consistently represented over 50% of total sales, outpacing its peers Hangcha Group and Anhui Heli in global expansion efforts. This international presence not only boosts Zhongli's revenue but also enhances its gross margins compared to competitors.

Another indicator of Zhongli's profitability is its return on equity (ROE), which is significantly high within the industry. Generally, a return above 15% indicates robust profitability, and companies like Gree Electric, Pianzihuang, and Haitian Flavoring have led with impressive ROE figures. In the machinery sector, only a handful of companies have surpassed this mark, including Zhejiang Dingli, Hangcha Group, Hengli Hydraulic, and Anhui Heli. Following its IPO, Zhongli is projected to achieve an ROE of 32.86%, aligning it with premium players like Moutai in terms of financial performance.

Looking forward, despite potential changes in funding structures post-IPO, the core profitability drivers for Zhongli remain intact, suggesting a favorable outlook for earnings generation in the future.

However, challenges loom, particularly concerning cash flows and the complexities of relationships with major clients. By the end of the third quarter of 2024, Zhongli's accounts payable had reached an alarming 895 million yuan. When factoring in both short-term and long-term borrowings, the company is looking at a minimum external payment obligation of 1.286 billion yuan. But with only 592 million yuan in liquid assets, Zhongli has determined a pressing need for an additional 250 million yuan in working capital from its IPO to ease this cash flow pinch.

In an intriguing twist, Zhongli finds itself entangled in a multifaceted relationship with its largest debtor, Linde Forklift. As the company’s leading client, sales to Linde accounted for 12.97% of Zhongli's revenue in 2021, although this percentage has declined in subsequent years. Compounding matters, Linde is not only a customer but is also a significant stakeholder in Zhongli, holding a 4.67% equity stake, with its chairman also sitting on Zhongli’s board. Moreover, Linde Forklift’s parent company, KION Group, stands as one of Zhongli's international competitors, adding layers of complexity and potential risk to their operations.

In conclusion, as a leading player in the electric forklift market with robust profitability metrics, Zhongli Holdings is well-positioned to thrive amidst the dual stimulants of electrification and globalization. Yet, it must navigate the risks associated with cash flow management and the intricate dynamics of its major client relationships. With an anticipated fundraising effort of 1.336 billion yuan set for December 13, valued at 13 billion yuan, the market eagerly awaits to see how Zhongli will maneuver its path forward in this burgeoning industry.