China Construction Machinery_2025 Outlook_ Opportunity Emerging

Key Points Industry Overview 1. Export Demand: Export demand remains strong, particularly in the Belt and Road (B&R) regions, contributing to higher margins. However, tariffs pose a downside risk. 2. Domestic Market: The domestic market is expected to see limited downside and some signs of recovery in 2025, driven by mild growth and potential stimulus measures. 3. Sector Performance: The construction machinery sector has seen a surge in stock prices YTD, driven by sustained export growth and domestic stimulus measures. Company Analysis 1. Sany: Sany is preferred due to its higher contribution from export and excavators. The target price for Sany is adjusted to HKD22.00 (RMB22.00) with a Buy rating. 2. Zoomlion-H: Zoomlion-H is also preferred due to its higher contribution from export and excavators. The target price for Zoomlion-H is adjusted to HKD6.20 (RMB7.90) with a Buy rating. 3. Zoomlion-A: Zoomlion-A is downgraded to Hold due to weaker-than-expected domestic sales and export growth moderation. The target price is adjusted to RMB7.90 (HKD6.20) with a Hold rating. Market Outlook 1. Export Growth: Export growth is expected to sustain at 10-20% in 2025, normalizing from the high base of 30-50% growth in 2024e. 2. Domestic Growth: Domestic sales growth is expected to turn positive in 2025, driven by easy comparisons and potential stimulus measures. 3. Valuation: The sector trades at a 2.0x 1-year forward PB, below the historical average of 2.3x since 2012. Additional Considerations 1. Tariffs: Tariffs remain a downside risk for export businesses. 2. Domestic Weakness: Domestic weakness in property-related machinery could impact overall sector performance. 3. Replacement Demand: Replacement demand is expected to be the main driver of domestic excavator sales in 2025e.