Construction Machinery Industry: Profit Flexibility Year and Reconstruction of Competitive Landscap

Date: 2018-04-04
Times of browsing: 116

工程机械行业:利润弹性大年 竞争格局重构


    The year of profit flexibility, restructuring of the competitive landscape, and structural investment opportunities and Liugong group is special example.


In March 2018, we visited 9 provinces in eastern, central and western China for research. According to the survey, sales during the peak season (May-May) may exceed expectations. We expect the growth rate of excavator sales in March to be 30% to 50%. We are cautiously optimistic about the overall demand of the excavator industry. It is expected that the annual growth rate in 2018 will be 10% to 20%. On the other hand, we believe that in 2018, or in the year of profitability of the construction machinery industry, the industry may reshuffle, and the sales growth of domestically-made outstanding manufacturers is expected to outperform the industry. From the viewpoint of performance elasticity and valuation, Liugong is the first to focus on, Sanyi Heavy Industry and Hengli Hydraulics are next.


Grassroots Research Feedback: Excavator sales are expected to exceed expectations in peak season

We expect the sales growth of the excavator industry in March to be between 30% and 50% year-on-year, far faster than the 14% increase in January and February. We believe that the reasons for the strong sales in March: 1) The time for the downstream resumption of work in this year is generally early, and the rate of machine utilization remains high, which is better than the same period of last year. The downstream demand mainly comes from new rural construction, railway and highway investment; 2) In addition, the replacement ratio of old to new is generally between 40 and 50%, and in some regions more than 70%, mainly from 2010 to 2012. 3) This year, the company has increased its market share, and dealers hope to take more orders in the sales season in March and ensure the sales target for the whole year.

Our Judgment on the Whole Year's Demand for the extravator Machine Industry: Steady Growth

We maintain the growth rate of 10%~20% of the annual sales of the excavator industry. The premise of this judgment is that in 2018, the growth rate of infrastructure investment will be between 14% and 15%, and that of real estate investment will be between 3.5% and 4.5%. This is consistent with our conclusions on dealer grassroots research. The year's excavation industry is expected to show steady growth. From the trend point of view, it is expected that the growth rate in the first half of the year will be faster than the growth rate in the second half of the year.

2018 is expected to become a profitable year for construction machinery.

We believe that the construction machinery revenue will grow steadily this year, the pressure on the cost side will ease, the gross profit margin will remain stable, and the asset burden will be basically cleared up last year. Overall, we believe that this year is expected to become a big year for the profitability of construction machinery.

Restructuring the industry competition structure, bringing structural investment opportunities, highlighting Liugong

    We expect that the 2018 meeting will be a year for the industry to reshuffle, and the market share of domestic manufacturers will further increase. In the new round of competition, the sales growth of some outstanding manufacturers is expected to outperform the industry. We continue to recommend LiuGong with the highest performance elasticity in 2018 and the lowest valuation (180% predicted net profit of RMB 800 million/yoy in 2018, and PE of 11.9 times). The big drop is a good buying opportunity.

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