What is behind the rapid growth of construction machinery in 2011?

Since 2010, under the background of rapid growth in domestic fixed asset investment and real estate development, the annual sales of construction machinery have increased by more than 48% year-on-year, ranking first in the entire machinery industry.

Policy Encouragement and Development Prosperity under Rapid Background According to statistics from China Construction Machinery Industry Association, in 2010, the sales revenue of China's construction machinery industry was around 400 billion yuan, ranking fourth in the Chinese machinery industry and in the world construction machinery industry. The sales revenue is second only to the United States, ranking second, and the existing market has already accounted for one-sixth of the world market.

From the listed companies that have announced the annual report, the growth rate is rapid.

Liugong released its 2010 results on March 21, with an operating income of RMB 12.02 billion, an increase of 74.2% year-on-year, and a net profit attributable to owners of the parent company of RMB 1.77 billion, an increase of 120.7% year-on-year; Sany Heavy Industry released on March 18th 2010. Annual report, operating income of 33.96 billion yuan, an increase of 78.9%, net profit attributable to owners of the parent company 5.62 billion yuan, an increase of 112.7%; Anhui Heili released the 2010 annual report on March 22, operating income of 5.08 billion yuan, The growth rate was 63.4% year-on-year, and the net profit attributable to owners of the parent company was 360 million yuan, an increase of 224.5% year-on-year.

However, behind the high growth rate, it is difficult to hide the high valuation.

On March 12, Liu Rong, mechanical analyst of China Merchants Securities, released a research report called "Sany Heavy Industry: Strategic Globalization, Internationalization of Valuation" and conducted a "strong recommendation." The report believes that: Caterpillar's market value of about 437 billion yuan, Japan's Komatsu city value of 208 billion yuan, about 20 times this year's PE. According to 20 times of PE calculated by the global comparable company, the valuation center of Sany Heavy Industry in the internationalization process is 36 yuan.

In response, the manager of a joint venture fund company in Shanghai told reporters that “the problems faced by the machinery industry, including Sany, is that everyone’s disputes over valuations have become heated and many people believe that the valuation of machinery stocks is already in place, and even some are overestimated. The work done by the seller at this time is to see if he can find a reason to continue to increase the valuation."

China Merchants Securities Liu Rong also stated in the report why the report was issued. “In the past, construction machinery has been used as a strong cyclical industry and its valuation has been very low. The high growth of Sany is a representative of China’s high-end equipment manufacturing, issuing H shares. Is it possible to give the company a chance to re-prioritize?”

Controversy: whether it is high-speed growth or slowing down in the market performance, the general situation of construction machinery stocks is heavy volume stagflation and even falling. Xugong Machinery's heavy volume fell 9.24% this week; Sany Heavy Industry has accumulated turnover of RMB 5.6 billion this week, but its share price has fallen by 0.11%, closing at 27.92 yuan on the 31st, and it has not advanced to “national valuation”; , Cumulative decline of nearly 8%; Shantui shares fell 10.44% this week, signs of institutional sales.

"We have basically emptied the construction machinery stocks. The reason is very simple. We think that the best time for construction machinery has passed." On the 31st, the fund manager of the Shanghai joint venture fund company stated to reporters frankly.

In his view, since the configuration of the construction machinery industry has originated from the higher fixed asset investment growth since last year, once the slowdown is found, it is the time to honor the exit.

The data released on March 31 showed that in January-February, the country’s investment in fixed assets was 1744.4 billion yuan, a year-on-year increase of 24.9%, and the growth rate slowed down by 1.7 percentage points year-on-year.

The industry generally believes that under the pressure of the country to strengthen macro-control and real estate regulation, the growth rate of the construction machinery industry in 2011 will drop significantly. It is expected that the industry growth rate will fall to 18% to 20% this year.

The excavation of mechanical stocks by various agencies began in July and August 2010. At the time, some of the mechanical sales were hot and caused institutional attention, while the mechanical industry's 10 times dynamic price-to-earnings ratio gave them the opportunity to repair.

The construction machinery industry is a typical short-cycle industry. 3-4 years a boom cycle. High-speed fixed-asset investment is the intrinsic driving force for domestic demand for construction machinery; short-term macroeconomic policies and credit regulation determine the short-term effective demand for construction machinery. The driving force of the short-term boom mainly comes from the macroeconomic control. Loosening and tightening of credit are the direct driving points of effective demand for construction machinery.

At present, the low-end products in the construction machinery market in China, such as bulldozers and loaders, are basically in a state of overcapacity.

The reporter noticed that the weight of organizations investigating listed companies going to the construction machinery industry is a common issue. Is the recent data showing that sales growth has slowed down?

“The reaction of the construction machinery industry to the macroeconomic period lags from March to June. When you configure, you can look at the sales data. Because stocks will rise, there will not be many, but when it comes out, it is the industry’s judgment.” The fund manager said.

The other part of the organization is still optimistic about the machinery stocks in 2011 for the same reason.

Although the decline in the growth rate of fixed asset investment will inhibit the growth rate of sales of construction machinery, the construction of affordable housing, water conservancy, and high-speed railways will ensure that the sales volume will remain high. Among these, the biggest difference from previous years is the investment in water conservancy construction. This year, the Central Document No. 1 proposed that China will invest 4 trillion yuan in Daxing water conservancy projects in the next 10 years. Water conservancy construction is an important market for construction machinery. This will directly boost the demand for construction machinery such as excavators, loaders, bulldozers, and cranes. This year's vigorous construction of affordable housing is unprecedented.

The third point of view is optimistic about the leading companies in the industry. The reason is that the competitiveness of high-end products is increasingly prominent.

As opposed to the production companies of excavators and large-tonnage cranes,. Excavator is one of the most profitable products in all types of construction machinery, and is also considered to be the most growth segment in the future. From the perspective of market competition, excavator industry has a higher market concentration and foreign brands dominate the market. Among domestic brands, Sany Heavy Industry and Liugong's excavator product lines are relatively complete and the market sales volume grows rapidly. Sanhe Intelligent focuses on the development of small digging markets.

For cranes, China’s self-manufactured cranes are mostly small to medium-sized tonnage cranes due to technical limitations. The development of large-tonnage cranes started late. At present, only a few leading companies such as Xugong Machinery, Zoomlion, and Sany Heavy Industry have certain Manufacturing capacity.