2025-07-02 01:24Summary of Conference Call on Engineering Machinery Industry Industry Overview - The engineering machinery industry is experiencing fluctuations in domestic market performance, particularly in excavator sales, which saw a decline in growth rate since April 2025. The expected growth rate for June is projected to be within ±5% [1][2] - Despite short-term volatility, the long-term outlook for the domestic excavator market remains positive, with strong production schedules for medium and large excavators [1][2] Company Performance Expectations - Annual net profit forecasts for key companies in the engineering machinery sector are optimistic: - SANY Heavy Industry: ¥8.5 billion - XCMG: ¥7.5 billion - Zoomlion: ¥4.8-5 billion - LiuGong: ¥1.8-1.9 billion - The second quarter is expected to show significant year-on-year growth for these companies [1][3] Market Dynamics - The domestic market has a high proportion of small excavators (70-80%), which have lower profitability. However, the export market has shown a year-on-year growth of 8-9% from January to May 2025, supporting overall performance [1][5] - Non-excavator products, such as truck cranes, have shown a notable recovery, alleviating some domestic performance pressures [1][5] Valuation and Investment Opportunities - The engineering machinery sector has seen a valuation correction, with P/E ratios for major companies at relatively low levels: - SANY: 17x - XCMG: 12x - Zoomlion: 12-13x - LiuGong: 10-13x - This presents a favorable investment opportunity [1][6] Future Market Outlook - The domestic market is not expected to experience significant declines in the coming months, with strong production data from Hengli Hydraulic and positive feedback from dealers regarding downstream demand [1][7] - If local government funding issues are resolved, the market is anticipated to gradually recover and grow in the second half of the year [1][8] Funding Sources and Government Impact - Funding for the engineering machinery industry primarily comes from two sources: small investors and central government allocations for water conservancy projects, which provide stable cash flow and support excavator demand [1][9] - The issuance of ¥1 trillion in government bonds, with 70-80% directed towards water conservancy projects, is expected to stabilize cash flow and support demand for excavators [1][10] Debt Replacement Effects - Local government debt replacement has led to a temporary decline in operating rates, but new projects are expected to increase in the second half of 2025 and into 2026, boosting excavator sales [1][11][12] Long-term Market Trends - The domestic excavator market is projected to experience an upward trend over the next few years, driven by replacement demand and the export of used equipment [1][13] - Non-excavator equipment markets are also showing signs of recovery, with significant improvements in profitability for companies like SANY [1][14] Export Market Performance - The export market for engineering machinery has remained stable, with excavator exports growing by 8% from January to May 2025, despite some fluctuations due to tariff adjustments [1][15] - Chinese brands have a significant presence in emerging markets, with potential for substantial growth in regions like Southeast Asia, Africa, and South America [1][19][20] Recommendations for Investment - Key companies recommended for investment include: - SANY Heavy Industry: Strong performance and potential for profit release - XCMG: Notable scale advantages, though facing short-term caution due to stock unlock issues - Zoomlion: Focus on tower crane and aerial work platform recovery - LiuGong: Attractive valuation with significant upside potential - Hengli Hydraulic: Strong short-term growth potential and global expansion opportunities [1][25][26]