CNH工业：2030计划……宏大的目标，缺乏细节

Nicholas J. Green+44 207 676 6826nick.green@bernsteinsg.com Alasdair Leslie+44 20 7762 4952alasdair.leslie@bernsteinsg.com RatingOutperform Nicholas Witting+44 20 7762 1411nicholas.witting@bernsteinsg.com Price Target CNH Specialist Sales James Brady+44 207 762 5272james.brady@bernsteinsg.com CNH Industrial: The 2030 Plan... Long ambition, short on detail At its recent CMD CNH Industrial laid out a new 2030 Business Plan. Is it credible? What? Structurally-higher margins.CNH’s 2025 CMD introduced a new business plan,for 16-17% Ag margins by 2030 (vs prior peak of 14.5% in 2023 and 10.5% in 2024). Usingan innovative “@100% of mid-cycle volume” concept, CNH argues it will achieve ~400bpshigher margin at every/any activity level, a structural uplift in the margin profile (Exhibit 8).Similarly for Construction, they see a 7-8% margin target with ~200bps structural gain. How? Four drivers of Ag.(i)100-150bps from growth (dual-branded dealerships, productlaunches and pricing);(ii)200-250bps from operational efficencies (better procurement,lean manufacturing and footprint trims);(iii)200-250bps quality improvements (reducingrecalls, non-quality costs); offset by(iv)~175bps investment in SG&A and R&D (Exhibit 7). Credible? In theory, but scarcely convincing. (1)The underlying concept - higher marginat any volume - relies on higher gross margin and fewer fixed costs. Yet the four drivers abovedo not have a specific commitment, or quantifiable datapoint, to substantiate the efficacyof their translation into either driver.// (2)On this point, management suggests ‘pro-formasimulated’ gross margin has already improved 530bps between 2021-24 (Exhibit 6), vs50bps reported (22.4% in 2021 and 22.9% in 2024). The implication is that the Plan willdeliver more of the same. Yet when we asked for the specific gross margin underpinningthe 2021 and 2024 simulations and in particular, the2030 target, management wasunwilling to share these. This matters because our analysis has shown that to date, themost reliable driver of Ag gross-margin is the price-cost spread (Exhibit 19), over whichCNH has limited control. Any strategy to boost gross margin therefore requires evidenceit is more than just the operation of price-cost spread.// (3)In terms of evidence, to ourunderstanding structural margin change at the same level of industry activity canonlybe the result of: a) higher market share; and/or b) higher gross margin, via higher pricingpower, improved mix etc; and/or c) a lower fixed cost base, via fewer workforce, smallerfootprint etc. Management’s Plan may indeed achieve some of these gains. Yet when wespecifically asked, management was unwilling to acknowledge any market share change, anyspecific headcount cut or productivity gain, or commit to any specific footprint cut. As labourproductivity is the single largest driver of profitability after contribution margin, we hoped formore details. DETAILS Investment Implications The idea of structurally higher margin at every stage of activity level is compelling. Cruel as it may sound, however, this aspirationfor market-neutral margin expansion is ultimately no different than as set out by previous CNH Industrial management inthe 2022 CMD (Exhibit 16 and Exhibit 17), which failed. One hopes (and we believe) the delivery will be different this timearound under a new CEO. Yet as an introductory comment to the (also new) CFO Jim Nikolas, we urge him to disclose sufficientinformation to permit investors to understand and get behind the structural improvement story. From our perspective, as themargin aspiration is neither proven nor explained, at present we are unable get behind it. Accordingly our updated financialforecast assumes Ag margins only improve to around 12% (vs 2019-24 average of 11.1%), but at present go no higher. The investment impact of our statements above is that wedo not yetnecessarily believe CNH has a strong idiosyncratic self-help story ahead. We do, however, believe it has cyclical upside, will defend its market share and sits at cyclically depressedvaluation. For this reason we see exciting upside and recommend investors buy the stock. If it turns out management’s marginaspirations are well-founded, and specifically, that labour-productivity can improve, this will beupsideto our case. Picking entry point on a cyclical stock is always difficult, but we would rather be early than too late. Our buy case puts peakvaluation onto trough earnings - our ~21x forward PE (Exhibit 64) is admittedly high, but justifiable, we believe, when lookingthrough 2025’s trough EPS and toward’s CNH’s recovered position. Near-term catalysts include evidence of cyclical recovery in Ag and healthy earnings. Longer term catalysts include strategicreview of the construction business, upside from potential peace and return to agriculture in Ukraine, and the long-term growthof precision agriculture. We rate CNH Industrial Outperform with a PT of $17, ~37% potential upside. Key l