Core Viewpoint - The domestic excavator demand is expected to grow at an average annual rate of over 30% from 2025 to 2028, with peak sales projected to reach 250,000 units by 2028, although actual sales in 2025 may fall short due to funding availability issues [1][2] Domestic Market Summary - In the first ten months of 2025, domestic excavator sales increased by 19.6% year-on-year, indicating a significant improvement compared to 2024, marking a comprehensive recovery in the domestic construction machinery sector [1] - The sales of small excavators are expected to dominate in 2025, driven by ample central special government bonds, while the performance of medium and large excavators is hindered by poor local bond funding [1][2] - The overall trend indicates a mild recovery phase characterized by a lower slope but a longer cycle due to funding disruptions [2] Export Market Summary - Overseas excavator sales have been in decline since peaking in 2021, with a continuous drop expected from 2022 to 2025, primarily influenced by the Federal Reserve's interest rate cycle [1][2] - A new upward cycle in overseas demand is anticipated to begin in 2026 as the Federal Reserve enters a rate-cutting phase, potentially creating a resonance effect with domestic demand [2] Profitability and Cost Efficiency - The construction machinery sector is experiencing improved profitability due to increased capacity utilization and ongoing cost reduction efforts, with notable increases in net profit margins for major companies like Sany Heavy Industry and XCMG [2] - For instance, in the first three quarters of 2025, Sany Heavy Industry's net profit margin increased by 2.4 percentage points year-on-year [2] Investment Recommendations - The construction machinery sector is identified as being at the beginning of an upward cycle, with projected profit growth of over 20% in the next 2-3 years, and core stocks are currently valued at only 10-16 times their projected profits for 2026, suggesting a strong investment opportunity [3]

Investment Rating - The investment rating for the company is "Buy" and is maintained [9]. Core Views - The company reported a revenue of 21.207 billion yuan for Q3 2025, representing a year-on-year increase of 10.73%, and a net profit attributable to shareholders of 1.919 billion yuan, up 48.18% year-on-year [2][6]. - The domestic industry is recovering from excavators to non-excavators, with Q3 domestic revenue expected to maintain good growth. The overseas emerging markets continue to show strong demand, and European markets may improve, leading to rapid growth in overseas revenue [2][12]. - The company's gross margin for the first three quarters of 2025 is 28.01%, an increase of 0.51 percentage points year-on-year, indicating an upward trend in profitability [2][12]. - The successful listing on the Hong Kong stock exchange is expected to enhance the company's global competitiveness, with a positive outlook for market share growth and breakthroughs in high-end markets [2][12]. Summary by Sections Financial Performance - For the first three quarters of 2025, the company achieved a total revenue of 65.741 billion yuan, a year-on-year increase of 13.56%, and a net profit of 7.136 billion yuan, up 46.58% year-on-year [6]. - The Q3 performance specifically showed a revenue of 21.207 billion yuan and a net profit of 1.919 billion yuan [6]. Domestic Market Analysis - The domestic excavator industry saw a year-on-year sales increase of 18% in Q3 2025, driven by equipment upgrades and policy catalysts. Non-excavator equipment also showed significant recovery, with sales of truck cranes, crawler cranes, and truck-mounted cranes increasing by 24.4%, 62.5%, and 20.7% respectively [12]. International Market Analysis - The overall export value of China's construction machinery industry increased by 21.2% year-on-year in Q3 2025, with emerging markets like Africa and Central Asia showing growth rates of 64% and 60% respectively. The company is expected to maintain good growth in emerging markets while European demand is anticipated to improve due to infrastructure spending [12]. Profitability and Cash Flow - The company's net profit margin for Q3 2025 is 9.05%, an increase of 2.29 percentage points year-on-year. The operating cash flow for the first three quarters reached 14.5 billion yuan, up 18% year-on-year, indicating strong cash flow performance [12]. Future Outlook - The company is expected to benefit from the ongoing recovery in the domestic construction machinery industry and the anticipated growth in overseas markets. The forecasted net profits for 2025 and 2026 are 8.571 billion yuan and 11.086 billion yuan respectively, with corresponding price-to-earnings ratios of 24 times and 18 times [12].