Summary of China Machinery 3Q25 Preview Industry Overview - The report focuses on the **China machinery industry**, specifically construction machinery and trucks, with an emphasis on sales volume and profitability trends for 3Q25 [1][7][16]. Key Points Sales Volume Trends - **Domestic Sales Growth**: - Domestic sales volume for heavy-duty trucks (HDTs) increased by **81% year-over-year (yoy)** at the wholesale level and **65% yoy** at the retail level, indicating strong channel inventory health [5]. - Excavator sales volume also saw a surprising increase of **18% yoy**, surpassing earlier expectations of **5-10%** growth [5][14]. - Small machines drove the growth in excavators, with a **26% yoy** increase, while medium-to-large machines faced a **2% yoy** decline [5][14]. - **Export Trends**: - Export sales for HDTs grew by **23% yoy**, with strong performance in regions like Africa, the Middle East, and Southeast Asia [9][14]. - Overall export growth remained strong across most machinery categories, except for mobile cranes and aerial work platforms (AWPs) [14]. Profitability Insights - Despite solid top-line growth, profitability is expected to be under pressure due to: - Unfavorable foreign exchange impacts, particularly affecting companies like Hengli and Dingli [7][17]. - A negative product mix impacting Sany Heavy [7][17]. - Increased competition affecting Weichai [7]. Earnings Forecasts - The report anticipates that **4 out of 6** coverage companies will report solid top-line growth, primarily in double digits, led by Hengli [7]. - EPS estimates for the coverage companies have been revised downwards by **-7% to +6%** based on year-to-date developments [1][8]. Stock Ratings and Recommendations - **Buy Ratings**: - Weichai and Dingli are maintained as Buy rated due to their potential from German fiscal expansion and exposure to developed markets [8]. - **Neutral Ratings**: - Most construction machinery stocks, including Sany, Hengli, and Lonking, are rated Neutral as their positive outlooks are already reflected in current valuations [8]. - **Sell Rating**: - Sinotruk is rated Sell due to concerns over overestimated profitability amid pressures from electric HDTs and unfavorable export conditions [8]. Additional Insights - The report highlights a notable shift in the powertrain mix for trucks, with LNG penetration recovering and electrification accelerating, while diesel HDTs reached a historical low share [5]. - The construction machinery sector is experiencing intensified competition, particularly in the rental channel, which may affect future sales dynamics [14]. Conclusion - The China machinery industry is showing robust sales growth, particularly in domestic markets, but faces challenges in profitability due to external factors and competitive pressures. The outlook for individual companies varies, with specific recommendations based on their market positions and expected performance in the upcoming quarter.