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Construction Machinery: Extended Industry Recovery Combined with Enhanced Earnings Flexibility—Sector Outlook Expected to Improve
Release date:
2018-06-26
Source:
Progressive updates are helping the market maintain rationality amid overlapping dynamics, strengthening industry resilience and extending the current economic cycle. Last year’s already robust sales base has shifted to a more moderate growth trajectory for excavators. In the first five months, total sales reached 105,900 units, with full-year projections suggesting a potential close to 180,000 units. Currently, market concerns about an upcoming cyclical downturn—and growing investor分歧—are intensifying. As a result, sector stock prices have begun to "decouple" from both company performance and actual sales figures. However, based on our recent field visits and discussions with leading equipment manufacturers, we believe this cycle is demonstrating greater resilience, paving the way for a potentially longer-lasting upswing. The key reason behind this resilience lies in two factors: 1) The industry has entered an era focused on existing assets, with a massive installed base driving demand for replacements—accounting for roughly 60% of overall needs.
Progressive updates unlock overlapping market dynamics while maintaining rationality, strengthening industry resilience and extending the economic cycle.
Excavator sales have shifted to moderate growth from last year's already high base. In the first five months, total sales reached 105,900 units, and full-year sales are expected to edge close to 180,000 units. Currently, market concerns about an upcoming cyclical downturn—and resulting divergences—are intensifying, leading to a disconnect between sector stock prices and actual performance metrics as well as sales trends. However, based on our recent visits and discussions with major equipment manufacturers, we believe this round of industry cycle is demonstrating greater resilience, potentially extending the current upturn. The key reasons behind this resilience include: 1) The industry has entered an "stock-based" era, characterized by a massive installed base, where replacement demand—accounting for roughly 60% of total needs—is now the dominant driver. This gradual, well-paced renewal process is firmly supporting the sustainability of industry growth. 2) Market participants are becoming more rational, with equipment manufacturers implementing stricter customer credit assessments and managing credit risks more prudently. Sales 1) Condition and risk management: In 2018, industry-wide installment down payment ratios were generally increased. 2) Construction activity hours remained robustly high, bolstering expectations of a real estate market recovery and unlocking new growth drivers in rural development.
Crane And Pump truck Construction activity continues to reach new highs, with strong growth extending into the later-cycle crane sector and beyond. Concrete machinery Conduction
According to industry chain research, currently cranes and Concrete pump truck Construction equipment utilization continues to hit new highs, with May marking the highest single-month figures in 16 years for both crane and concrete pump truck operating hours. Overall, demand for construction equipment remains on a steady upward trajectory. Meanwhile, sales… Data Looking at the situation, after excavators, high industry growth is now spreading to back-end construction equipment—such as lifting machinery and concrete machines. In the first five months, sales of concrete pump trucks doubled, with growth continuing to accelerate.
Domestic brands are gaining stronger competitiveness, with excavators now accounting for more than half of the market share—but there’s still significant room for further growth.
Domestic brands have been gaining momentum in recent years. Technology In recent years, we’ve seen multi-dimensional enhancements in areas such as products, brands, and distribution channels. As competitiveness continues to strengthen, domestic brands have steadily gained market share, while Japanese and Korean brands have experienced relative decline. By May 2018, the market share of domestic brands had surged from 22.2% in 2008 to 53.7%. Notably, their presence has also been growing in the medium- to large-scale excavator segment—where the technological barriers are higher and product value is significantly greater. However, despite this progress, domestic brands still lag far behind European, American, and Japanese competitors in the medium- to large-scale excavator market, particularly in the high-end "large excavator" segment. Meanwhile, while the localization rates for concrete machinery and cranes have already exceeded 90%, there remains considerable room for improvement in the localization of excavators themselves.
Operating quality has improved significantly, accelerating profit flexibility as financial statements are restored.
Amid the backdrop of cyclical recovery and balance sheet repairs, the sector Going public Company performance has broadly rebounded sharply: 1) On the asset side, historical issues with accounts receivable are gradually being resolved. After listed companies in the sector collectively set aside significant impairment charges in 2017, the erosion of profits caused by asset impairment losses has now entered a downward trajectory. 2) Cash flow conditions for companies in the sector continue to improve steadily. We believe that the industry is demonstrating increased resilience, potentially extending its current growth cycle. Moreover, high-growth trends are already beginning to trickle down from key segments like excavators and concrete machinery. Building on this robust market environment, coupled with ongoing financial statement improvements, we expect companies in the sector to unlock their earnings potential at an accelerated pace. Currently, valuations for leading companies in the sector remain relatively low, offering substantial margin of safety while still retaining strong upside potential.
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