Affected by factors such as declining industry cycles and insufficient operating rates. In 2023, the domestic construction machinery industry experienced a cyclical trough. However, thanks to the growth in export business, the trend of recovering the performance of enterprises in the construction machinery industry continued, showing an overall increase in both revenue and net profit to mother.

According to the 2022 ranking of the top 50 global construction machinery manufacturers published by KHL, the Zhitong Finance App divides construction machinery industry companies into three echelons, with Xugong Machinery (000425.SZ), Sany Heavy Industries (600031.SH), and Zhonglian Heavy Industry (01157) as the first tier; Liugong (000528.SZ) as the second tier; Shantui (000680.SZ) and China Longgong (03339) as the third competitive tier.

As of April 10, Xugong Machinery and Sany Heavy Industries have not released their 2023 annual reports. Therefore, Zhitong Finance selected the remaining four companies, Weichai Power (02338) and Anhui Heli (600761.SH). A total of 6 companies were selected as samples to analyze the development situation of construction machinery industry enterprises in 2023.

The performance of industry companies has clearly recovered. As an echo, the Wind Construction Machinery Index has performed well since this year. The cumulative increase so far is close to 20%, and it shows a pattern of “the stronger the stronger the stronger”.

Recently, seven departments including the Ministry of Industry and Information Technology jointly issued the “Implementation Plan to Promote Equipment Renewal in the Industrial Sector”, which proposes that by 2027, the scale of investment in industrial equipment will increase by more than 25% compared to 2023. Accelerating equipment replacement to offset backwardness is a major benefit for the construction machinery industry.

Revenue is under pressure, profits recover, and overseas business becomes a winner or loser

With the continuous increase and implementation of the domestic “steady growth” policy, infrastructure investment will still be an important factor supporting the demand of the construction machinery industry in the future, but the real estate industry is still in the adjustment stage, boosting the demand for construction machinery is insufficient, and demand in the domestic sales market for construction machinery is still low in 2023.

Against the backdrop of last year's low base, the construction machinery industry's profit level and profitability recovered in 2023, but revenue is still under pressure.

Specifically, the revenue increases of Weichai Power, Zoomlion Heavy Industries, and Anhui Heli were all double digits, 13.08%, 22.15%, and 10.76% respectively; the revenue increases of Liugong and Shantui shares were only single digits, of 3.93% and 5.43% respectively, which was basically the same as last year; China Longgong's revenue even showed a downward trend, down 5.63% year on year. It is worth noting that Zoomlion Heavy Industries and Weichai Power, which have larger business scales, are more resilient in terms of revenue.

Compared with unsurprising revenue, major companies' profits recovered significantly, and net profit to mother increased strongly year-on-year. China Longgong, which saw a decline in revenue, saw a year-on-year increase of 61.26% in net profit, leading the growth rate in the industry. In addition, Zoomlion Heavy Industries followed suit, and net profit to mother increased by 58.13% year on year, which can be described as achieving a high increase in both revenue and profit. The profit side of Shantui Co., Ltd. increased by 21.16%, lower than Liugong (44.80%) and Anhui Heli (40.96%).

The Zhitong Finance App believes that low production and sales are putting pressure on the revenue of enterprises in the construction machinery industry, but falling steel prices are helping to pressure costs. Coupled with the continued high growth in high-margin overseas business, the profit growth rate is significantly higher than the revenue growth rate.

By business, overseas business contributed to increased performance and became the company's winner or loser.

Overseas revenue of Zhonglian Heavy Industries rose 79.20% year on year to 17.905 billion yuan; Liugong, Shantui Co., Ltd. and Anhui Heli's overseas revenue was 11.462 billion yuan, 5.888 billion yuan and 6.113 billion yuan respectively, up 41.18%, 33.73% and 31.97% year-on-year respectively; Weichai Power's increase was weaker than that of its peers, reaching 19.67%.

However, in terms of domestic revenue, with the exception of Weichai Power, which maintained a year-on-year increase of 25.10%, all other companies showed a downward trend. In particular, the domestic revenue of Shantui Co., Ltd. was drastically refined by 20.07% year on year, and Anhui Heli and Zhonglian Heavy Industries declined slightly, at 1.4% and 7.81%, respectively.

In short, overseas export sales continued to grow at a high level, which supported the performance. Leading companies such as Zoomlion Heavy Industries rely on stronger product development and sales layouts, and their export performance and profitability are superior to the industry average.

The domestic market is expected to rebound and is optimistic about long-term opportunities in overseas markets

From a cyclical perspective, in 2024, construction machinery and equipment will usher in a new cycle of renewal, which is expected to become an important gripper for the recovery of the construction machinery industry.

According to data from the Construction Machinery Association, construction machinery has obvious strong cycle properties. Normally, the service life of construction machinery equipment is about 8 years. In 2016, the domestic construction machinery industry began a new round of recovery, and sales reached the peak of the cycle by 2020. From 2021 to 2023, domestic construction machinery sales experienced a continuous decline. In 2023, sales of excavators, concrete machinery and hoisting machinery have all fallen by nearly 40% from their peak. In terms of cycle calculation, in 2024, domestic construction machinery renewal demand is expected to correspond to 2017 sales volume, and a large number of equipment will enter the replacement period.

Zhongtai Securities expects demand for the natural renewal cycle of excavators to enter an upward cycle in 2024. The demand for natural renewal is expected to be 86,000 units, 103,000 units, and 146,000 units from 2023 to 2025.

It is worth noting that in a single month of December 2023, domestic excavator sales reached 7,625 units, an increase of 24% over the previous year, turning negative in a single month. Huaan Securities pointed out in the research report that the year-on-year increase and correction of excavator sales indicates that industry demand is expected to usher in a marginal improvement.

CITIC Construction Investment believes that in 2024, the “three major projects” are expected to support the real estate and infrastructure investment side. The latter two data are expected to bottom out, driving a further recovery in demand for construction machinery.

Looking at overseas markets, according to the latest data from the Construction Machinery Industry Association, in 2023, China's total import and export trade volume of construction machinery was about US$51,063 billion, an increase of 8.57% over the previous year. Among them, the cumulative export value was US$48.552 billion, an increase of 9.59% over the previous year. So far, China's construction machinery export value has maintained a rapid growth trend for three consecutive years. Looking at the subregion, in 2023, countries along the “Belt and Road” will become important exporters of construction machinery. According to data, in 2023, China's total export value to countries along the “Belt and Road” was about US$9,919 billion, an increase of 53.3% over the previous year.

Dongwu Securities believes that the structural external demand explosion will be the most noteworthy boom direction in 2024. The decline in interest rates combined with the continued digestion of inventories will continue to be digested, and overseas demand is expected to be released, leading to a better export market.

The global trillion-dollar construction machinery market size. The short-term focus is on the increase in market share in Southeast Asia and the Belt and Road. The medium-term focus is on the Western European and Russian markets, and the long-term focus is on localization construction to increase the North American market share.

Specifically, when it comes to the development of racetrack enterprises, each major enterprise has its own focus on overseas layout. In the short term, companies with a higher share of the new market or export growth rate are greater, such as Shantui Co., Ltd., Zoomlion Heavy Industries, etc. In the medium to long term, Sany Heavy Industries has the best channel layout in Europe and the US, and there is more room for long-term growth.

Overall, in 2024, industry exports are expected to maintain a high level of prosperity, driven by the growth of overseas infrastructure and mining investment; in terms of domestic sales, infrastructure investment is still an important factor supporting the demand in the construction machinery industry. Coupled with the incremental demand for equipment for short-term upgrading and electrification upgrades, it is expected to drive the industry to start a new cycle.

Newly released statistics show that domestic sales performance of construction machinery in March also exceeded expectations. Analysis indicates that domestic market recovery is expected in the second half of the year. The market is returning to positive growth, the industry beta is approaching, individual stock performance has improved ahead of industry fundamentals, and companies with greater operating flexibility will attract more attention from the market.