Summary of Conference Call Records Industry Overview - The excavator market in July exceeded expectations for both domestic and international sales, with a strong upward cycle observed in both markets [1] - The domestic excavator market is experiencing structural optimization, with an increased demand for medium and large excavators, leading to enhanced profit elasticity [1][2] - The overall engineering machinery sector is characterized by a robust profit pool, presenting high investment value [2] Key Insights - **Domestic Market Dynamics**: - The demand for small excavators is supported by central government funding for water conservancy projects and high-standard farmland construction, with a significant increase in fixed asset investment in the water management sector [1][7] - Medium and large excavators are affected by the slow issuance of local government special bonds, leading to a cautious outlook for the next 3-5 years [1][8] - The relationship between excavator sales and stock prices is significant, with stock prices influenced by sales trends despite the limited impact of sales on overall profits [3] - **Sales and Inventory Trends**: - There is a notable divergence between sales and operating hours, primarily due to the increased share of small excavators and low operating rates for medium and large excavators [4] - Dealer inventory levels have been low, around 1.5 to 2 months, leading to a replenishment phenomenon in July, which supported sales [6] - **Future Demand Projections**: - The demand for small excavators is expected to remain strong as long as government policies are clear and funding is in place [7] - The medium and large excavator market may rely heavily on policy guidance and support in the coming years [8] Export Performance - Excavator exports are projected to grow by 10%-15% for the year, with strong performance noted in Africa, Indonesia, and the Middle East [1][10] - The total export value for excavators is expected to reach approximately 7-8 billion RMB, with a year-on-year growth of 60% [11] - The demand structure in key regions has improved, with medium and large excavators making up a significant portion of exports [11] Non-Excavator Segment - The non-excavator segment has shown good profit release, with improvements in export structure and a narrowing decline in certain product categories [9] - The overall trend for cranes and other lifting equipment remains positive, with a significant market share held by Chinese brands [13] Investment Recommendations - The focus for stock selection this year is on leading companies such as SANY and XCMG, which are expected to have greater profit elasticity in an upward cycle [15] - Other recommended companies include Liugong, Zoomlion, and Shantui, which are seen as having potential for growth but may not match the profit realization of the leading firms [15]

Summary of the Conference Call on Engineering Machinery Industry Industry Overview - The conference focused on the engineering machinery industry, particularly in China and its overseas markets, discussing sales trends, demand forecasts, and market dynamics for 2025 [1][3][9]. Key Points and Arguments Sales Growth and Demand - In the first half of 2025, sales of excavators and loaders are expected to grow by 20%-30% year-on-year, driven by policy goals [1][3]. - However, from January to July 2025, excavator demand remained flat compared to the previous year, with an estimated total sales of approximately 85,000 units, lower than industry association statistics [1][3]. - A slowdown in sales is anticipated from August to October, with a potential slight increase in November and December [1][3]. Equipment Utilization Rates - Domestic equipment utilization rates are low, with small equipment at about 70%, large equipment between 60%-70%, and medium equipment at 45% [1][4]. - Overall, China's engineering machinery equipment utilization remains in the 50%-60% range, with many new devices still in inventory or exported [1][4]. Replacement Cycle Trends - The replacement cycle for engineering machinery is evolving, with mining equipment typically replaced every 2.5-3.5 years and road and municipal equipment every 6-8 years [1][5]. - The impact of the Ministry of Housing and Urban-Rural Development's scrapping policy is minimal due to high inventory levels and sufficient production capacity [1][5][6]. Export Performance - In July 2025, China's engineering machinery exports exceeded expectations, with a year-on-year increase of over 30%, driven by strong demand in emerging markets [1][9]. - The overseas sales accounted for 54.7% of total sales from January to July 2025, with significant contributions from regions like South Asia, the Middle East, and Latin America [1][10]. Regional Market Dynamics - North America, Asia-Pacific, the Middle East, South Asia, and South America showed strong year-on-year growth rates, with South Asia exceeding 70% [1][11]. - Conversely, markets in Australia, Russia, and Indonesia experienced declines, with Indonesia's demand affected by policy changes and project delays [1][12][11]. Challenges for Chinese Brands - Chinese brands face challenges in overseas markets, including inadequate service and inconsistent dealer quality, which complicates after-sales service and product quality control [1][19]. - The aftermarket for original parts is weak, with about 90% of customers opting for aftermarket parts instead of original ones, impacting profitability [1][15]. Future Outlook - Large domestic projects like the Yalong River Hydropower Station and the New Tibet Railway are expected to positively impact the engineering machinery industry, although project initiation may take time [1][17][18]. - The overall outlook for the overseas market remains optimistic, particularly in emerging regions, despite challenges in mature markets like Europe and North America [1][21]. Additional Important Insights - The second-hand market for machinery is active, with many customers upgrading to larger equipment rather than replacing due to age or failure [1][7]. - The engineering machinery market in Southeast Asia is competitive, with varying market shares for Chinese brands across different countries [1][13][14]. - The demand for engineering machinery in the Russian market has not shown significant recovery, and the market share of Chinese brands remains low [1][22].

Core Viewpoint - The report from China Galaxy Securities indicates that while there is a short-term fluctuation in demand for construction machinery due to seasonal factors, the medium to long-term outlook remains positive driven by replacement demand, government special bonds, urban renewal initiatives, and support for rural housing improvements [1][4]. Group 1: Domestic Sales and Exports - In May, domestic sales of excavators decreased by 1.48%, while exports showed a positive growth of 5.4% [1]. - Total excavator sales from January to May reached 101,716 units, marking a year-on-year increase of 17.4%, with domestic sales up by 25.7% [1]. - In May, the sales of loaders reached 10,535 units, a year-on-year growth of 7.24%, with domestic sales increasing by 16.7% [1]. Group 2: Market Trends and Performance - The overall export value of China's construction machinery in April was $5.152 billion, reflecting a year-on-year growth of 12.7% [3]. - From January to April, the total export value reached $18.07 billion, an increase of 9.0% year-on-year [3]. - Exports to Africa and South America maintained high growth rates, with increases of 45% and 15% respectively, while exports to Europe saw a significant decline of 15% [3]. Group 3: Equipment Types and Utilization Rates - The small excavators continue to show higher growth rates compared to medium and large excavators in domestic sales, although the gap narrowed in April [1]. - The average working hours for major construction machinery in May were 84.5 hours, a decrease of 3.86% year-on-year [2]. - The electrification rate for forklifts reached 77% in April, with domestic sales showing a slight decline [2].