Dongwu Securities released a research report saying that the construction machinery and equipment renewal cycle may be approaching, and a series of large-scale equipment renewal policies are expected to boost the market recovery.
The Zhitong Finance App learned that Dongwu Securities released a research report saying that the construction machinery and equipment renewal cycle may be approaching, and a series of large-scale equipment renewal policies are expected to boost the market recovery. The upward cycle of last-wheel construction machinery is 2016-2020. According to the 8-year service life, the last-round sales equipment is already in a large-scale life replacement period. 2023 is the low life span replacement point. Starting in 2024, the number of updates will begin to rise year by year, and the industry beta will rise marginally. With the increase in demand for updates and the decline in the base figure in the second half of the year, the industry is expected to usher in a new round of renewal cycles. A series of policies such as large-scale equipment updates will boost the industry's recovery, and will resonate with the dual cycle of “large-scale equipment updates+industry self-renewal”.
In terms of individual stocks, the bottom of the construction machinery industry is marginally rising, and investment value is gradually showing. Based on the competitiveness and valuation situation of enterprises, the bank continues to recommend Sany Heavy Industries (600031.SH), Xugong Machinery (000425.SZ), Zhonglian Heavy Industries (000157.SZ), Hengli Hydraulic (601100.SH), and suggests focusing on Liugong (000528.SZ), Shantui (000680.SZ), etc.
The main views of Dongwu Securities are as follows:
The Ministry of Housing and Construction issued a notice to renew and eliminate construction machinery and equipment that has been in use for more than 10 years
The Ministry of Housing, Urban-Rural Development issued the “Notice on the Implementation Plan for Promoting the Renewal of Construction and Municipal Infrastructure Equipment”, which clearly proposes to update and eliminate construction machinery and equipment that has been used for more than 10 years, such as excavation, lifting, loading, and concrete mixing, in accordance with the “Technical Specification for Inspection of Machinery and Equipment at Construction Sites”. Promoting large-scale equipment upgrades is expected to promote the upgrading of construction machinery and equipment, promote the clearance of old country 1 and country 2 models, and speed up the process of cutting the stock into three countries. According to the requirements of the National Environmental Protection Department, the manufacture, import, and sale of complete engines equipped with national 2 engines was stopped on April 1, 2016. This means that excavators sold before 2016 were basically products below China 2. They have a service life of close to 10 years and are in line with the conditions for policy updates and replacement. The country's standard holdings of excavators, loaders, forklifts, and rollers account for 19.79%, 37.84%, 13.35%, and 23.78% of the 2023 holdings. With the implementation of large-scale equipment renewal policies, it is expected that 70%-80% of old equipment will be eliminated, and 20%-30% of old equipment will generate trade-in demand.
Liugong's 24Q1 performance exceeded market expectations, and the performance of the construction machinery sector was improving
In 24Q1, Liugong expects to achieve net profit of 4.57 to 536 billion yuan, an increase of 45% -70% year-on-year, exceeding market expectations. Overall, major construction machinery companies account for about half of overseas revenue. Overseas revenue is expected to grow rapidly by more than double digits in 2024, the domestic growth rate is flat, and revenue is expected to maintain double-digit growth throughout the year. On the profit side, profit margins in overseas markets are generally higher than domestic, scale effects and smart factory cost reduction and efficiency, driving a recovery in bottom profitability, and the performance of the construction machinery sector is improving.
Domestic sales of excavators exceeded expectations by +9% year-on-year in March, and the peak season was corrected
The main sales data for construction machinery in March is as follows: ① Excavators: 24,980 excavators of all types were sold in March, down 2.34% year on year. Of these, 15,188 units were sold in China, up 9.27% year on year, higher than the previous CME forecast of 6% growth. We expect small excavation growth, and recovery from medium to large excavation has yet to begin; 9792 units were exported, down 16.2% year on year. ② Loaders: In March, the industry sold 12324 loaders, a year-on-year decrease of 5.78%. Its sales volume in the Chinese domestic market was 6,629 units, down 15.2% year on year; export sales volume was 5,695 units, up 8.13% year on year. In March, 686 electric loaders were sold, and the electrification rate was 5.57%.
Looking ahead, we think we need to focus on: ① Downstream infrastructure and other construction requirements and funding conditions; ② April sales data: Domestic excavator sales in March-April 2023 accounted for about 30% of domestic sales throughout the year, laying the foundation for sales throughout the year. If the industry achieves positive growth in April 2024, base pressure weakens sharply starting in May, and at the same time, the annual growth rate is expected to rise from a slight decline to flat or growing month by month.
“Large-scale equipment update+industry self-renewal” dual cycle resonance
The construction machinery and equipment renewal cycle may be approaching, and a series of large-scale equipment renewal policies are expected to boost the market recovery. The upward cycle of last-wheel construction machinery is 2016-2020. According to the 8-year service life, the last-round sales equipment is already in a large-scale life replacement period. 2023 is the low life span replacement point. Starting in 2024, the number of updates will begin to rise year by year, and the industry beta will rise marginally. With the increase in demand for updates and the decline in the base figure in the second half of the year, the industry is expected to usher in a new round of renewal cycles. A series of policies such as large-scale equipment updates will boost the industry's recovery, and will resonate with the dual cycle of “large-scale equipment updates+industry self-renewal”.
Investment advice
The bottom of the construction machinery industry is rising marginally, and investment value is gradually showing. Based on the competitiveness and valuation situation of enterprises, we continue to recommend [Sany Heavy Industries], [Xugong Machinery], [Zhonglian Heavy Industries], [Hengli Hydraulic], and we recommend paying attention to [Liugong], [Shantui Co., Ltd.], [Weiwan Seal], [Longage Hydraulic], [Fusite], etc.
Risk warning:
Downstream investment falls short of expectations; industry cycle fluctuations; international trade disputes.