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2020

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04

Excavator sales increased, construction machinery sector soared, infrastructure "wind up again"?

In 2019, the share prices of leading enterprises in A-shares, pharmaceutical stocks, liquor stocks, and technology stocks all recorded more gratifying gains, and the topics around the relevant sectors in the market are also endless.


Abstract:

In 2019, the share prices of leading enterprises in A-shares, pharmaceutical stocks, liquor stocks, and technology stocks all recorded more gratifying gains, and the topics around the relevant sectors in the market are also endless.

On the other hand, excavator stocks in the traditional manufacturing industry failed to attract market attention. However, on December 9, a record high sales data of excavators once again made the capital market focus on this industry which is closely related to the macro economy.

According to data released by the China Construction Machinery Industry Association, in November 2019, the 25 excavator manufacturing enterprises included in the statistics sold a total of 19,316 excavators of various types, an increase of 21.7%. The sales volume in the domestic market was 17,159 units, an increase of 21.2%. Exports of 2,157 units, an increase of 25.6 percent. At the same time, the annual sales of excavators reached a record high, and the sales of excavators in the first November of this year exceeded 210,000 units, which has exceeded the annual sales of 203,000 units last year.

Today, Xugong Machinery (000425.SZ) and Zoomlion (000157.SZ) closed up 6.14% and 5.98%, respectively.

Industry analysts said to the first financial, "at present, the head of several good construction machinery listed companies are at a historically low valuation, combined with the policy of infrastructure investment planning, the prosperity of the sector in the next 1 to 2 years or will increase."

The industry is recovering at a fast pace

Excavators, a fairly cyclical industry, are often seen as a bellwether for macroeconomic development. In fact, the machinery sector index and the leading stocks in the industry have shown good performance this year. Wind data show that this year, the machinery index once rose to 5694.72 points, a new high since March 2018. The index is up more than 25 per cent so far this year.

As of the close of the 11th, Xugong Machinery and Zoomlion share prices have hit a new high since August. Leading shares of Sany Heavy Industry (600031.SH) have risen 12.45% this month and more than 110% this year.

Looking back on the development of the excavator industry in recent years, sales from the peak to fall, and reached a new high this year, a mechanical industry analyst who did not want to be named to the first financial industry that excavator sales this year hit a record high, is the continuation of the performance of the industry recovery after 2016.

"In terms of the overall long time, in 2014, excavators entered a period of decline after experiencing rapid sales growth in previous years." In 2015, after the introduction of relevant policies, the real estate in third - and fourth-tier cities developed rapidly, and led the excavator industry to achieve positive growth in April 2016, and since then, the increase has been on the way." "The person said.

Wind data show that in December 2017, the sector had a one-month year-on-year rise of nearly 90%, the largest single-month increase in history.

The above analysts also pointed out that the strengthening of the government's counter-cyclical policy, the expansion of the industry's leading overseas market share, and the need to replace old machines are also important factors to promote the sales of excavators.

The reporter noted that some research institutions take the service life of the machine as a reference, pointing out that the update of new and old machines is expected to continue to promote the recovery of excavators in 2020.

Dongxing Securities research report said that the average boot hours of the stock excavator reached 8281 hours, and the boot hours of more than 8,000 excavators accounted for 50% of the stock. At present, the average start-up hours of second-hand excavators produced in 2011 are 9417.25 hours. If 11,000 hours is taken as the average elimination limit of stock excavators, according to the current working intensity of a single excavator is 1500 hours/year, the second-hand excavators in 2011 will reach the theoretical elimination value in mid-2020.

In this regard, the above-mentioned people believe that, "In general, the excavator industry itself has a certain resilience." However, the industry is still in the recovery stage, in terms of signs of recovery, the recovery is fast, but it is not enough to conclude that the sector is getting better."

Excavators also look at infrastructure

Excavators involve three major sub-sectors: infrastructure, real estate, and mining. An analyst pointed out that the upward trend of the infrastructure industry does reflect the stability of the overall economic growth rate to some extent.

Looking forward to next year, he believes that the long-term trend of stable economic growth, counter-cyclical adjustment efforts to strengthen, infrastructure or will continue to drive the demand for construction machinery to maintain growth.

"Excavators must also look at infrastructure. We have noted that some special debt limits of 1 trillion yuan in 2020 have been issued in advance and the capital ratio of fixed asset investment projects has been lowered, which is aimed at accurately making up for weak areas of infrastructure. At the same time, environmental protection, replacement of manpower, and replacement of new and old equipment can stimulate the recovery of the industry in all aspects, "he said," It should be noted that, considering the overall economic growth trend, such a rise of 90% excavator in a single month should not have the opportunity to appear in the next 1-2 years."

In addition, the overall recovery of the industry will also be mainly reflected in the performance of leading stocks. Data show that the current market share of the industry's leading enterprises continues to increase. In 2019, all six companies with a market share greater than 5% achieved positive growth, while seven of the nine companies with a market share less than 1% experienced negative growth.

The aforementioned person pointed out that "the structural opportunities of engineering equipment are mainly concentrated in the head enterprises, such as Sany Heavy Industry." The leading companies with stable growth in performance will be able to maintain product sales by swallowing the market share of other small and medium-sized enterprises, even if they face an overall downturn in the industry in the future."

From the three quarterly reports of industry giants, leading stocks have achieved stable growth in performance during the year. In the first three quarters of 2019, Sany Heavy Industry achieved net profit of 9.159 billion yuan, an increase of nearly 90%. Xugong Machinery third quarterly report shows that the third quarter net profit margin of 6.1%, an increase of 2.11 percentage points, and the first three quarters of the company's operating activities generated a net cash flow of 3.102 billion yuan, an increase of 61.48%.

Shanghai Securities investment consultant Zhao Xiaoli believes that the key to infrastructure is two points - project and capital. He pointed out that neither direct nor indirect financing will be difficult. However, considering the maturity of the existing high-speed rail development in the country, a large-scale project may be needed to boost infrastructure demand.

"Engineering equipment needs infrastructure, and so does the economy. From the perspective of building a powerful transportation country, nationwide, the construction of maglev trains in some key provinces and cities is expected to become the main force driving infrastructure."

At present, local governments, Sichuan, Shandong, Hainan and other provinces have proposed maglev related plans. Chengdu, Sichuan province, recently proposed a plan to reserve 600 to 800 kilometers per hour of Chengdu-Chongqing ultra-high-speed maglev construction corridor; Shandong Province has proposed a preliminary plan to build a maglev line between Qingdao and Yantai. In addition, Zhuzhou, Urumqi, Huangshan and other more than 10 cities are also in the maglev rail transit planning and construction.