Summary of Key Points from the Conference Call on the Engineering Machinery Industry Industry Overview - The domestic engineering machinery market is experiencing a rebound, primarily driven by replacement demand, with a notable increase in the share of small excavators. It is expected that annual excavator sales will double from 100,000 units to 200,000-300,000 units over the next 3-5 years [1][4] - Non-excavator categories such as cranes and concrete equipment are following a similar logic, having seen significant declines previously and currently being at low levels with an existing replacement cycle. The growth in excavators is anticipated to drive growth in non-excavator categories, marking the beginning of an upward cycle in the domestic engineering machinery sector [1][5] Core Insights and Arguments - The overseas market has become a major source of revenue and profit for engineering machinery companies, with companies like SANY and XCMG reporting overseas revenue contributions of 40%-60% and profit contributions of 80%-100% [1][6] - The global engineering machinery market is projected to show cyclical recovery in 2026, with strong growth in markets such as Russia, Indonesia, the Middle East, South America, and Africa, while the US and European markets are also beginning to recover, aided by interest rate cuts stimulating fixed asset investment cycles [1][8][9] - Greenfield investments are highly correlated with engineering machinery growth, leading by about three years. In 2023, greenfield investments reached over $700 billion, indicating a significant increase in demand for engineering machinery in 2025 and 2026 [1][10] Domestic Market Dynamics - Despite a decline in working hours, excavator sales have turned positive due to replacement demand. As of the end of 2023, the excavator ownership in China is approximately 2 million units, with construction accounting for 75% of the demand. If real estate demand declines by 80%, the need for excavators would still be around 178,000 units annually [4] - The current replacement cycle in China is estimated at 8-10 years, but as the market matures, it may shorten to 4-5 years, similar to mature markets in North America and Europe, leading to more frequent replacement cycles and increased new machine sales [4] Non-Excavator Categories - Non-excavator categories are expected to grow as excavator sales increase, with companies reporting positive trends in these segments. The overall upward cycle for domestic engineering machinery is just beginning [5] Overseas Market Importance - The overseas market is crucial for the engineering machinery industry, with significant revenue and profit contributions from international sales. The focus of investment should be on overseas markets rather than solely on domestic performance [6] Regional Performance - Data from January to November 2026 shows positive trends across major regions, with Russia experiencing nearly 24% growth in November and the US and Western Europe also showing recovery. China's exports to North America and Western Europe have seen growth rates of 25% and 28%, respectively [7] Profitability and Future Outlook - Chinese manufacturers have a competitive price advantage in the mid-to-small tonnage segment, achieving over 80% market share in key markets like Russia and Indonesia. The profitability in these regions remains strong, with net profit margins exceeding 10% in Russia and 16% in Indonesia [12][14] - The engineering machinery sector is expected to see significant profit growth due to low domestic market bases, increasing overseas market cycles, and improved operational leverage [16][22] Investment Attractiveness - The engineering machinery sector is currently highly attractive for investment, with the domestic market at a low point and strong replacement demand, alongside favorable overseas market conditions and high profitability potential. Companies like SANY, XCMG, Zoomlion, LiuGong, and Hengli Hydraulic are recommended for investment consideration [22]

Market Overview - The engineering machinery sector experienced a decline of 1.61% on January 8, with Hengli Hydraulic leading the drop [1] - The Shanghai Composite Index closed at 4082.98, down 0.07%, while the Shenzhen Component Index closed at 13959.48, down 0.51% [1] Stock Performance - Notable gainers included: - Shaoyang Hydraulic, which rose by 20.01% to a closing price of 49.60, with a trading volume of 137,300 shares and a turnover of 668 million yuan [1] - Fushite, up 5.22% to 35.47, with a trading volume of 45,500 shares and a turnover of 162 million yuan [1] - Major decliners included: - Hengli Hydraulic, which fell by 3.55% to 112.91, with a trading volume of 143,000 shares and a turnover of 1.629 billion yuan [2] - Xugong Machinery, down 2.98% to 11.38, with a trading volume of 784,200 shares and a turnover of 897 million yuan [2] Capital Flow - The engineering machinery sector saw a net inflow of 177 million yuan from institutional investors, while retail investors experienced a net outflow of 26.017 million yuan [2] - Key stocks in terms of capital flow included: - Shaoyang Hydraulic with a net inflow of 156 million yuan, accounting for 23.40% of its trading volume [3] - Hengli Hydraulic with a net inflow of 12.8 million yuan, representing 7.87% of its trading volume [3]

Group 1 - The engineering machinery sector increased by 0.72% on January 7, with Shaoyang Hydraulic leading the gains at 20.01% [1] - The Shanghai Composite Index closed at 4085.77, up 0.05%, while the Shenzhen Component Index closed at 14030.56, up 0.06% [1] - Key stocks in the engineering machinery sector showed significant price movements, with Shaoyang Hydraulic closing at 41.33 and a trading volume of 340,600 shares, resulting in a transaction value of 1.284 billion yuan [1] Group 2 - The engineering machinery sector experienced a net inflow of 251 million yuan from main funds, while retail investors saw a net outflow of 165 million yuan [2] - Major stocks like Shaoyang Hydraulic had a net inflow of 25.2 million yuan from main funds, indicating strong institutional interest [3] - Conversely, stocks like LiuGong and Zhonglian Heavy Industry faced declines of 3.24% and 2.27%, respectively, reflecting a mixed performance within the sector [2][3]

Investment Rating - The report provides a "Buy" rating for several key stocks in the financial and manufacturing sectors, including China Resources Land and Nanjing Bank, among others [12][19][53]. Core Insights - The report highlights the financial and manufacturing industries' investment outlook for January 2026, emphasizing the need to focus on companies with strong fundamentals and growth potential amid economic pressures [6][8][10]. - It identifies specific sectors such as real estate, non-bank financials, banking, new energy, machinery, military industry, light industry, and environmental protection as areas of interest for investment [8][10][21][32][36][43]. Summary by Sector Real Estate - The real estate sector faces increasing downward pressure, necessitating policy easing. Key companies like China Resources Land are highlighted for their strong operational capabilities and cash flow stability [11][12][53]. Non-Bank Financials - The non-bank financial sector is expected to benefit from policy support and high market trading volumes, with companies like New China Life Insurance showing strong growth potential [16][17][53]. Banking - The banking sector is viewed positively, with a focus on large banks and city commercial banks, particularly Jiangsu Bank, which is noted for its attractive valuation and growth prospects [18][19][53]. New Energy - The new energy sector is at a turning point, with companies like Sungrow Power Supply and Slin Smart Drive recommended for their growth potential in solar and energy storage technologies [21][23][53]. Machinery - The machinery sector is encouraged to focus on AI and robotics, with companies like Hengli Hydraulic and Ding Tai High-Tech identified for their growth opportunities in traditional and emerging markets [25][30][31][53]. Military Industry - The military sector is expected to see growth from military-to-civilian transitions and military trade, with AVIC Xi'an Aircraft Industry Company highlighted for its potential in the domestic and international markets [32][34][53]. Light Industry - The light industry is advised to focus on overseas manufacturing and new consumer opportunities, with companies like Yingke Medical and Meiyin Sen noted for their growth in international markets [36][40][53]. Environmental Protection - The environmental sector is poised for growth through overseas expansion and rising metal prices, with companies like Weiming Environmental and Ice Wheel Environment recommended for their strong market positions [43][48][51][53].

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: The report covers the **China Industrials** sector, specifically focusing on **Automation & Robotics**, **Construction Machinery**, **Heavy-duty Trucks**, and **New Energy** stocks that may influence share prices in the near future [1][2]. Core Insights and Arguments - **Automation Sector**: - Monthly new order intake growth and industrial robot production are expected to be reported at the beginning and mid-month respectively [5][6]. - Shenzhen Inovance Technology anticipates approximately **20% year-on-year growth** in new orders for January-February 2026, driven by a modest capital expenditure recovery and market share gains [8][9]. - **Heavy-duty Trucks (HDT)**: - Monthly sales volume data will be released at the beginning of each month [5]. - Negative growth is expected in the domestic HDT market for 1Q26 due to front-loading in 2025 and a **5% increase in NEV purchase tax** in 2026, although export growth is projected to remain resilient [9][11]. - **Construction Machinery**: - Monthly excavator sales volume will be reported at the beginning of each month, with expectations that export growth will offset high base pressure from domestic sales in January-February [8][9]. Company-Specific Catalysts - **Beijing Geekplus Technology Co., Ltd. (2590.HK)**: - Inclusion in the Southbound Stock Connect program is expected in **February 2026**, following its addition to the Hang Seng Composite Index [7]. - Launch of a wheel-based humanoid robot is anticipated, which could enhance its position as an unmanned warehouse solution provider [7]. - **Jiangsu Hengli Hydraulic Co., Ltd. (601100.SS)**: - Anticipated updates on Tesla's Optimus Gen 3 in 1Q26, which may lead to a revision of sales outlook for 2026 [7][8]. - **Wuxi Lead Intelligent (300450.SZ)**: - Expected improvement in liquid LiB equipment orders in 1Q26, driven by strong demand for energy storage systems [7]. - **Sany Heavy Industry Co., Ltd. (600031.SS)**: - Expected growth in excavator sales, with export growth anticipated to mitigate domestic sales pressures [8]. - **Zoomlion Heavy Industry (000157.SZ)**: - Anticipated cyclical recovery in non-excavator machinery sales, supported by solid export growth [8]. Additional Important Insights - **Market Conditions**: - Concerns remain regarding growth momentum amid an anti-involution and deflationary environment, alongside margin pressures from the NEV powertrain business [9]. - **Chinese Hyperscalers**: - Potential acceleration in AI capital expenditure for Chinese hyperscalers is expected, which should support demand for cooling solutions [11]. - **Profit Alerts**: - Estun Automation is expected to issue a profit alert in January, indicating a return to profitability after a net loss in 2024 [9]. Conclusion The conference call highlights significant catalysts and trends within the China Industrials sector, with a focus on automation, heavy-duty trucks, and construction machinery. Key companies are positioned to leverage upcoming developments, although challenges such as market conditions and regulatory changes remain pertinent.

Market Performance - The engineering machinery sector increased by 1.06% on January 6, with Weiman Sealing leading the gains [1] - The Shanghai Composite Index closed at 4083.67, up 1.5%, while the Shenzhen Component Index closed at 14022.55, up 1.4% [1] Individual Stock Performance - Weiman Sealing (301161) closed at 37.97, up 5.97% with a trading volume of 145,900 shares and a transaction value of 541 million [1] - Shaoyang Hydraulic (301079) closed at 34.44, up 4.81% with a trading volume of 240,700 shares and a transaction value of 79.56 million [1] - Wanto Hydraulic (920839) closed at 44.38, up 4.60% with a trading volume of 20,000 shares and a transaction value of 87.53 million [1] - Other notable performers include Hengli Drilling Tools (920942) up 4.49%, Zhejiang Dingli (603338) up 3.24%, and Sany Heavy Industry (600031) up 2.92% [1] Capital Flow Analysis - The engineering machinery sector experienced a net outflow of 16.66 million from institutional investors, while retail investors saw a net inflow of 22.87 million [2] - The overall capital flow indicates a mixed sentiment, with institutional investors withdrawing funds while retail investors are actively buying [2] Detailed Capital Flow for Selected Stocks - Sany Heavy Industry (600031) had a net inflow of 15.14 million from institutional investors, but a net outflow of 35.55 million from retail investors [3] - Shaoyang Hydraulic (301079) saw a net inflow of 52.48 million from institutional investors, with retail investors withdrawing 27.04 million [3] - Weiman Sealing (301161) had a net inflow of 45.66 million from institutional investors, but a significant net outflow of 60.31 million from retail investors [3]

Core Viewpoint - Chinese enterprises are embracing a new global upcycle in the excavator market, with overseas excavator sales recovering from -15% in January 2025 to +14% in October 2025, indicating a synchronized global demand recovery [1] Group 1: Market Insights - Japan's construction machinery demand remains resilient despite a significant drop in downstream demand post-bubble economy, with excavator ownership only declining by 30% [2] - In Japan, domestic sales are decoupling from real estate, leading to a stable sales volume, with a shift towards rental and second-hand export models [2] - China's excavator operating hours are still at a high level, providing a buffer for demand, supported by replacement needs and decoupling from real estate [2] Group 2: U.S. Market Dynamics - The U.S. market faces a long-term shortage of excavator ownership, with stock replacement driving demand, supported by both residential and non-residential investments [3] - Future growth drivers include structural support from AI data center infrastructure, the return of U.S. manufacturing boosting large-scale infrastructure growth, and potential stimulation of the housing market following Federal Reserve interest rate cuts [3] - Historical insights from Komatsu's entry into the U.S. market highlight the importance of macro factors, quality, company culture, and localization in overcoming market barriers [3] - Chinese manufacturers are positioned to capitalize on the shift of U.S. construction machinery from premium brands to more general industrial products, leveraging their supply chain advantages and manufacturing efficiency [3] Group 3: Asia, Africa, and Latin America Market - The Asia, Africa, and Latin America markets are primarily driven by mining and energy sectors, with Chinese brands capturing over 40% of the excavator market share in these regions by 2023 [4] - China's infrastructure investment is effectively replacing energy imports from these regions, indicating a strategic link between excavator exports and infrastructure development [4] - The potential for new excavator markets to grow by 60% exists if the share of second-hand excavators from Europe and the U.S. in these regions decreases from 50% to 20% [4] - Chinese enterprises are transitioning from commodity exports to capital exports, establishing local manufacturing in Indonesia to enhance market share and create new pathways into developed countries [4] Group 4: Investment Recommendations - Recommended stocks include SANY Heavy Industry (600031), XCMG Machinery (000425), Zoomlion Heavy Industry (000157), LiuGong Machinery (000528), and Hengli Hydraulic (601100) [4]

Core Insights - The report emphasizes a positive outlook for the mechanical industry in 2026, driven by structural transformation and a rebound in external demand [3][4] - The report introduces a "risk排雷" manual to proactively identify potential market misjudgments and challenges within various sectors [3][4] Industry Overview - The mechanical industry is expected to experience a cyclical reversal, with growth in engineering machinery, industrial gases, shipbuilding, photovoltaic equipment, and lithium battery equipment [6][8] - Key assumptions include continued government support for emerging technology industries and a stable macroeconomic recovery [11][16] Engineering Machinery - The engineering machinery sector is witnessing a cyclical upturn, with increased overseas market share and a gradual domestic renewal cycle [17] - Key growth drivers include global market expansion, improved domestic demand due to favorable macro policies, and a stabilizing domestic infrastructure and real estate market [17] Shipbuilding - The shipbuilding industry is on an upward trend, with demand supported by a variety of vessel types and improving profitability for shipyards [19] - The sector is expected to benefit from supply constraints driving up ship prices and a focus on high-end, large-scale, dual-fuel vessels [20] Export Chain - The export chain is optimistic about demand recovery, particularly in the U.S. market, with a focus on strategic exports and emerging markets [22] - Key assumptions include a favorable trade environment and ongoing industrial shifts towards resource-rich countries [22] Industrial Gases - The industrial gases sector is viewed positively, with expectations of volume and price increases leading to improved valuations [27] - The report highlights the importance of leading companies in the sector and recommends focusing on those with operational highlights in niche markets [30] Lithium Battery Equipment - The lithium battery equipment sector is expected to emerge from a downturn, with solid-state battery technology creating significant market opportunities [51] - The report anticipates a substantial increase in market size, projecting a growth from 2.06 billion in 2025 to 33.62 billion by 2030 [51] Wind Power Equipment - The wind power industry is projected to maintain high growth, particularly in offshore wind projects, with significant investments expected [63] - The report recommends focusing on leading manufacturers and components that support the offshore wind market [64] Testing and Inspection - The testing and inspection sector is expected to see upward momentum, driven by increasing demand and a trend towards consolidation among leading firms [71] - The report emphasizes the importance of focusing on emerging fields and the long-term growth potential of comprehensive testing companies [71] Rail Transit Equipment - The rail transit equipment sector is expected to benefit from steady investment in fixed assets and high demand for passenger and freight transport [75] - The report highlights the potential for continued growth in the high-speed train sector and recommends key players in the industry [76] Oil Service Equipment - The oil service equipment sector is anticipated to thrive due to sustained demand driven by oil prices and energy security concerns [79] - The report suggests focusing on companies with strong technical barriers and those benefiting from domestic and international market opportunities [80]

Investment Rating - The report maintains a "Buy" rating for the mechanical equipment industry, highlighting strong growth potential in semiconductor equipment and humanoid robots [1][20]. Core Insights - The semiconductor equipment sector is expected to see a significant increase in capital expenditure and domestic equipment localization, with new order growth potentially exceeding 30% and reaching over 50% [2][18]. - The humanoid robot industry is approaching mass production, with key events such as the release of Tesla's V3 robot expected to catalyze order growth and market expansion [3][32]. - The engineering machinery sector is anticipated to experience a seasonal surge in Q1, driven by policy support and increased project initiation, with a projected annual growth rate of over 30% for excavators [3][33]. - The demand for optical modules is expected to rise due to increased shipments of AI servers, necessitating automation in production processes [4][35]. - The gas turbine market is poised for growth as AI data centers expand, with domestic manufacturers likely to benefit from increased demand for reliable power solutions [8][31]. Summary by Sections Semiconductor Equipment - Longxin's IPO plans indicate a total investment of 34.5 billion yuan, primarily for technology upgrades in memory chip production, signaling a robust growth trajectory for the sector [2]. - The domestic semiconductor equipment market is projected to reach 495 billion yuan in 2024, with a localization rate expected to rise to 22% by 2025 [18][19]. Humanoid Robots - The humanoid robot industry is set for significant changes with the upcoming release of Tesla's V3 robot, which is expected to drive orders and market standardization [3][32]. - Key companies to watch include Hengli Hydraulic and Top Group, which are positioned to benefit from the anticipated growth in this sector [3]. Engineering Machinery - The engineering machinery sector is entering a recovery phase, with Q1 typically seeing increased activity due to favorable weather and policy support [3][33]. - Major players such as Sany Heavy Industry and XCMG are expected to lead this recovery, with projected sales growth driven by domestic and international demand [33]. Optical Modules - The demand for optical modules is expected to increase significantly due to the rising shipments of AI servers, with automation becoming essential in production processes [4][35]. - Companies like Robotech and Aotewi are highlighted as key players in this space [4]. Gas Turbines - The expansion of AI data centers is driving demand for gas turbines, with domestic manufacturers like Jereh and Yingliu expected to capture significant market share [8][31]. - The gas turbine market is characterized by a shift towards domestic production, with companies forming partnerships with international leaders to enhance capabilities [8].

Market Overview - The market is expected to experience style differentiation as it approaches the Spring Festival, maintaining a structural trend under narrow fluctuations[4] - Key focus areas include the release of December and annual economic data in late January and a concentrated period of earnings forecasts[4] Investment Strategy - The strategy emphasizes three main lines: 1. High-growth and high-elasticity sectors, including AI hardware (e.g., optical modules), energy storage, lithium batteries, and non-ferrous metals[4] 2. Market hot tracks such as commercial aerospace, robotics, and cultural tourism[4] 3. Low-position large financial sectors, focusing on high-certainty performance in brokerage, insurance, and banks with dividend expectations[4] Recommended Stocks - **Metals**: Yun Aluminum Co., Ltd. (000807.SZ) with a projected EPS of 1.87 in 2025 and a PE of 17.6[28] - **Chemicals**: Yara International (000893.SZ) with a projected EPS of 2.06 in 2025 and a PE of 23.3[28] - **New Energy**: Slin Smart Drive (301550.SZ) with a projected EPS of 1.32 in 2025 and a PE of 105.0[28] - **Machinery**: Hengli Hydraulic (601100.SH) with a projected EPS of 2.19 in 2025 and a PE of 50.2[28] - **Aerospace**: AVIC Xi'an Aircraft Industry Group (000768.SZ) with a projected EPS of 0.42 in 2025 and a PE of 60.3[28] - **Banking**: Jiangsu Bank (600919.SH) with a projected EPS of 1.76 in 2025 and a PE of 5.9[28] - **Non-Banking**: New China Life Insurance (601336.SH) with a projected EPS of 11.82 in 2025 and a PE of 5.9[28] - **Social Services**: Jin Jiang International (600754.SH) with a projected EPS of 0.89 in 2025 and a PE of 28.3[28] - **Electronics**: Dongshan Precision (002384.SZ) with a projected EPS of 0.77 in 2025 and a PE of 109.8[28] - **Telecommunications**: Zhongji Xuchuang (300308.SZ) with a projected EPS of 9.47 in 2025 and a PE of 64.4[28] Risk Factors - Economic recovery may fall short of expectations, leading to slow growth or stagnation[34] - Significant changes in individual stock fundamentals could adversely affect performance[34]