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Construction machinery industry: choose the market and look forward to going out of the downturn
QUESTION 2019-11-19 1401

Since the beginning of the year, the market has been shocked by the decline of bulldozer and concrete machine sales. Profit taking may lower the price of construction machinery stocks in the short term. It is learned that the slowdown of coal mining activities and the approval or postponement of new railway projects are the main adverse factors facing the industry.

Sales volume of leading enterprises fell

Sales of excavators fell 47% in the first two months of the year, dragged down by the downturn in coal mining activity. Poor sales of excavators also suggest that sales of other types of bulldozers are also weak. In the same period, the excavator sales of Sany Heavy Industry in China fell 28% year on year, but its market share in the industry increased from 13.5% to 16.9%. We remain cautious about the short-term outlook of China Longgong.

Sales volume of Zoomlion's concrete machinery fell by 30%: according to our channel survey, the overall sales volume of concrete machinery industry in the first two months of this year fell by 40% year on year, while sales volume of Sany Heavy Industry, the main competitor of Zoomlion, may fall by more than 40%.

Slow recovery

We expect the slowdown in coal mining activity to continue this year. Moreover, the reorganization of the Ministry of railways may delay the approval of new railway projects and add uncertainty to the financing of existing or new projects. As a result, the strong pace of recovery in the construction industry since the fourth quarter of last year is likely to slow down in the first half of this year.

Choose the market

With the spread of bad news, we think this is a good time to collect industry leaders with a wide range of sales channels, strong R & D capacity and production scale. Zoomlion, currently attractive in valuation, is at 5.5 times

Fy2013eper is 9.6 times of the industry average, with a discount of 42.7%. In addition, the first tractor is immune to the slowdown in coal mining activities and the uncertainty brought about by the restructuring of the Ministry of railways.