Policy and market resonance construction machinery industry boom to improve

Courtesy of Zoomlion excavator products

Recently, the secondary market construction machinery sector continued to strengthen, a number of stocks hit a new high; in March, the main product of construction machinery excavator domestic sales ushered in a long-lost positive growth. All kinds of signals indicate that the construction machinery industry has signs of recovery.

With the catalysis of multiple favorable policies, the downward cycle of the construction machinery industry has ushered in an inflection point? Industry insiders told the China Securities Journal that it is not an inflection point, and it can only be said that it is getting closer and closer to the inflection point. In 2024, with the gradual emergence of policy effects and the continuous growth of domestic demand, the industry is expected to enter a stage of stable recovery.

Signs of a cycle inflection point are emerging

Since April 2021, the mainland construction machinery industry has entered a downward cycle, and this round of downward cycle has lasted for three years.

As the vane of the construction machinery industry, excavator sales have been negative year-on-year growth for several months, especially domestic sales, in the 36 months from April 2021 to March 2024, domestic sales have 32 months of negative growth. During this period, the export market of construction machinery in China maintained a good growth trend, and the proportion of international revenue in the total income of enterprises continued to increase.

However, the recent recovery trend of the mainland construction machinery industry has become stronger, and domestic sales have seen a long-lost positive year-on-year growth, and in the four months from December 2023 to March 2024, there are three months of positive growth in domestic sales growth.

According to the statistics of major excavator manufacturers by the China Construction Machinery Industry Association, 24,980 excavators of various types will be sold in March 2024, a year-on-year decrease of 2.34%. Among them, 15,188 units were domestic, a year-on-year increase of 9.27%, and 9,792 units were exported, a year-on-year decrease of 16.2%.

At the same time, in the first quarter of this year, the mainland sold 49,964 excavators, a year-on-year decrease of 13.1%. Among them, 26,446 units were in China, a year-on-year decrease of 8.26%. The reporter noted that compared with the first quarter of 2023 and 2022, the overall sales volume and domestic sales decline of mainland excavators have narrowed significantly, and the decline in domestic sales has narrowed to single digits.

The growth rate of domestic sales of excavators has returned to positive growth, which is expected to boost the confidence of the development of the industry to a certain extent. Since the beginning of this year, the construction machinery sector has performed well in the secondary market. Among them, Liugong's share price has risen by more than 50% since the beginning of this year, and the stock price has hit a new high in many years, and the share price of XCMG Machinery has risen by nearly 30%.

For the recent construction machinery market trend, China Construction Machinery Industry Association Deputy Secretary-General Lv Ying believes that in the near future, the development of the construction machinery industry has been introduced, catalyzing market expectations, boosting the growth of the sector;

With the recovery of the construction machinery sector, the overall sales decline of excavators has narrowed, and the year-on-year growth rate of domestic sales has turned positive, does it mean that this round of downward cycle has ushered in an inflection point?

"It's not an inflection point yet, we can only say that we are getting closer and closer to it. A senior analyst in the machinery industry told reporters. Huang Hualin, secretary of the board of directors of Liugong, said frankly in an interview with reporters: "At present, there are a little signs, but the recovery is not so fast. ”

For the current signal of the recovery of the construction machinery industry, Lv Ying prefers to call it the epitome of the long-term stable development of China's construction machinery industry.

The domestic market is expected to be better

At present, it is the disclosure period of annual reports and quarterly reports, and the performance of most construction machinery enterprises is very bright, conveying the warmth of the construction machinery industry.

In 2023, the overseas market demand will continue to increase, the competitiveness of Chinese brands in overseas markets will be enhanced, and the export sales of the construction machinery industry will maintain high growth. The outstanding performance of overseas business has become an important factor in the performance growth of construction machinery enterprises last year.

In 2023, Zoomlion will achieve operating income of 47.075 billion yuan, a year-on-year increase of 13.08%, net profit attributable to the parent company of 3.506 billion yuan, a year-on-year increase of 52.04%, and gross profit margin increased by 5.7 percentage points year-on-year. During the reporting period, the company's overseas revenue increased by more than 79.2% year-on-year.

Entering 2024, policies conducive to the development of the construction machinery industry will continue to be introduced, and the domestic market demand is expected to gradually improve.

"Judging from the current downstream demand, we are concerned that the demand for water conservancy, mining, highways, railways and other aspects has improved. Huang Hualin said.

Recently, many construction machinery companies have disclosed their first-quarter results, reflecting the warming trend of the construction machinery industry.

Liugong expects that the performance in the first quarter of this year will increase significantly, and the net profit attributable to the parent company will be 457 million yuan to 536 million yuan, a year-on-year increase of 45%-70%. Liugong said that in the first quarter, the revenue growth rate of the international and domestic markets outperformed the industry, especially the proportion of revenue in the international market further increased to about 50%, and the profitability grew steadily, promoting the substantial growth of the company's operating performance.

In the first quarter, Hangcha Group achieved revenue of 4.172 billion yuan, a year-on-year increase of 6.17%, and net profit attributable to the parent company was about 379 million yuan, a year-on-year increase of 31.16%.

Favorable policies have also continued to be introduced. On April 9, the Ministry of Industry and Information Technology and other seven departments jointly issued the "Implementation Plan for Promoting the Renewal of Equipment in the Industrial Field", proposing that by 2027, the scale of equipment investment in the industrial field will increase by more than 25% compared with 2023. The Ministry of Housing and Urban-Rural Development recently issued the "Notice on Promoting the Implementation Plan for the Renewal of Construction and Municipal Infrastructure Equipment", which clearly requires the renewal and elimination of excavation, lifting, loading, concrete mixing, lifts, bulldozers and other equipment (vehicles) that have been used for more than 10 years, high pollution, high energy consumption, serious aging and wear, and backward technology.

According to the data of HC Construction Machinery Network, the number of excavators, loaders, forklifts, and road rollers of equipment below the national II standard (with a service life of more than 10 years) is 388,000, 362,000, 757,000, and 34,000 respectively, accounting for 19.79%, 37.84%, 13.35%, and 23.78% of the total number in 2023.

The industry expects that 70%-80% of the old equipment will be eliminated in the future, and 20%-30% of the old equipment will produce the demand for trade-in.

"With the implementation of large-scale equipment renewal policies, it is good for the domestic demand for construction machinery and equipment to bottom out. Huaxi Securities said.

Industry insiders said that with the gradual emergence of policy effects and the continuous reflection of renewal needs, leading enterprises are expected to take the lead in stabilizing by virtue of scale advantages, industrial layout advantages, and reform dividends.

Continue to develop overseas markets

"In our new three modernizations strategy, 'internationalization' will be upgraded to 'globalization', China's construction machinery market is part of the global market, the North American market, the European market and other overseas markets are parallel to the Chinese market, as important as the investment. Cai Shenglin, secretary of the board of directors of Sany Heavy Industry, said.

It is understood that Sany Heavy Industry has gotten rid of the simple product export model and carried out the layout of localized manufacturing in the global market. "We have upgraded our factories in the United States, and the next step will be to upgrade our existing factories in Europe and India. In 2024, our plant in South Africa is expected to be completed. Li Qin, head of Sany Heavy Industry's overseas business headquarters, introduced.

Among them, the "Sany South Africa ABP" project has broken ground, the base is positioned as a regional manufacturing center, logistics center and talent center, with an investment of 300 million rand, is expected to be completed by the end of 2024, when it can produce 1,000 excavators and other construction machinery and equipment per year.

Sany has also established R&D centers overseas in order to better develop overseas markets. "We have established global R&D centers in the United States, India and Europe, and used local talents to do product research and development to better serve global customers. Li Qin said.

Zoomlion has also increased the pace of "going to sea". Tao Zhaobo, secretary of the board of directors of Zoomlion, told reporters that in 2024, the company will firmly "go overseas", continue to promote overseas transformation with global village thinking, build an overseas business system based on end-to-end, digitalization and localization, and continue to promote the leapfrog development of overseas business.

"The market share of Zoomlion's products in overseas markets is in a period of high growth, and exports have doubled for two consecutive years. The company's overseas sales areas are mainly countries and regions along the "Belt and Road" and developing countries, and will also actively expand markets such as Western Europe and North America. As of the end of 2023, the company has successively built more than 30 first-class business airports and more than 350 second-level outlets around the world, and the construction of outlets has sunk from regional centers to important cities. The total number of overseas localized employees exceeds 3,000, and its products cover more than 140 countries and regions. Huang Chengya, deputy general manager of Zoomlion Overseas Company, said.

Taking 2023 as an example, Zoomlion's overseas business has shown a strong growth trend from partial breakthroughs to comprehensive efforts and comprehensive results, with effective breakthroughs in key markets, remarkable results in the localization development strategy of key countries, and rapid increase in product market share. Construction hoisting machinery has become the brand with the highest market share in Turkey and Central Asia, and the market share of Saudi Arabia, Malaysia, Vietnam, Kenya and other markets has increased rapidly through localization. In 2023, Zoomlion's overseas revenue will reach 17.905 billion yuan, a year-on-year increase of 79.2%, and the proportion of overseas revenue will further increase to 38.04%, a record high.

Huang Chengya said that Zoomlion will continue to deepen the "end-to-end, digital and localized" overseas business system. "In the future, the large space in overseas markets will continue to provide a solid growth momentum for the company. ”