2021 annual report & Analysis of the first quarter report of 2022: the industry has entered a downward cycle, and the short-term performance is under pressure
We select the following listed companies in the construction machinery industry as a whole to analyze the construction machinery sector: (1) main engine plants, including Sany Heavy Industry, XCMG machinery, Zoomlion, Liugong, Anhui Heli, Hangcha group, Shanhe intelligence, Shantui, Hanma technology, Noli, Zhejiang Dingli and Xiagong; (2) Core parts enterprises, including Hengli hydraulic and Aidi precision; (3) Construction machinery leasing enterprises, including construction machinery and Huatie emergency.
Annual report of 2021 & Analysis of the first quarterly report of 2022
In 2021, the revenue growth rate of the construction machinery sector fell and the net profit increased negatively. In 2021, the total operating revenue of the sector was 374.53 billion yuan, a year-on-year increase of 12.2%; The net profit attributable to the parent company was 30.754 billion yuan, a year-on-year decrease of 9.8%. In 2021, the construction machinery sector showed a situation of first high and then low. At the beginning of 2021, the demand for engineering construction was high, driving the hot demand for construction machinery from January to April. However, after May, due to the lower than expected infrastructure investment and the downturn of real estate investment, combined with the impact of switching from five to six countries of road machinery, the demand of the construction machinery industry was low, and the growth rate continued to fall. After entering the third quarter, the industry began to decline sharply, resulting in the year-on-year growth rate of annual revenue. In 2022q1, the revenue and net profit of construction machinery sector entered negative growth. 2022q1 achieved a total operating revenue of 76.96 billion yuan, a year-on-year decrease of 28.9%; The net profit attributable to the parent company was 5.61 billion yuan, a year-on-year decrease of 52.8%. In February 2022, the epidemic broke out in the national distribution areas. The commencement of projects in various regions was affected to varying degrees, which exacerbated the decline of the industry, resulting in negative growth in the revenue and net profit of construction machinery sector.
In terms of profitability, both gross profit margin and net profit margin have declined. In 2021, the overall gross profit margin and net profit margin of the sector were 21.8% and 8.4% respectively, with a year-on-year decline of 3.1 and 2.0 PCT respectively, mainly due to the sharp rise in the price of raw materials. Steel prices rose sharply in 2021. Taking hot rolled coil (Q235, 9.5mm) as an example, it rose from the lowest point of about 4500 yuan / ton in 2021q1 to the highest point of about 6700 yuan / ton in 2021q2, fluctuated at a high level of 5500-6000 yuan / ton in 2021q3, and dropped to about 4700 yuan / ton in 2021q4, squeezing the profits of the enterprise. The overall gross profit margin and net profit margin of 2022q1 block were 18.9% and 7.5% respectively, which continued to decline, mainly due to the weakening of enterprise scale effect due to the cyclical fluctuation of the industry. In addition, the steel price continued to rise from the end of 2021, and the price of 2022q1 hot rolled coil (Q235, 9.5mm) gradually rose to more than 5000 yuan / ton. However, from the perspective of growth rate, the year-on-year growth rate of hot rolled coil price began to decline from the second half of 2021, and the year-on-year growth rate turned negative in April 2022, It is expected to remain stable in the future.
During the period, the cost rate remained stable and the structure was optimized. In 2021, the rates of sales, management, finance and R & D expenses of construction machinery were 5.2%, 2.6%, 0.3% and 4.6% respectively, with a year-on-year increase of + 0.06, + 0.01, - 0.50 and + 0.43pct respectively; The overall cost rate during the period was 12.7%, unchanged year-on-year and stable, but the structure was optimized, mainly due to the increase of R & D cost rate. The reason: enterprises continued to promote quality improvement, cost reduction and efficiency increase, and increased R & D investment in intelligence and electrification, reflecting the trend of continuous transformation and upgrading of the industry. During 2022q1, the cost rate was 12.2%, with a year-on-year increase of 1.3pct, mainly due to the year-on-year increase of 1.1pct in the R & D cost rate, and the cost control is still good.
Net operating cash flow decreased. In 2021, the net operating cash flow of construction machinery sector was 29.56 billion yuan, a year-on-year decrease of 12.2%, mainly due to the decline of industry prosperity and the decrease of cash flow inflow.
Impairment losses remained low. Construction machinery enterprises learned from the lessons of the previous cycle, strictly adhered to the proportion of down payment, screened customer groups, and received good accounts receivable. In 2021, the overall impairment loss / operating revenue of the industry was 1.2%, a year-on-year decrease of 0.5pct and remained low.
Trend judgment: the domestic market is expected to pick up in the second half of the year, and the export market continues to grow rapidly
1. Domestic: the macro counter cyclical adjustment has not yet been transferred to the construction machinery end, and it is optimistic about the recovery of the industry in the second half of the year
Since May 2021, the sales volume of excavator in the domestic market has entered a negative growth. According to the statistics of China Construction Machinery Industry Association, the sales volume of excavators in the domestic market from January to December 2021 was 274357, a year-on-year decrease of 6.3%; From January to March 2022, the sales of excavators in the domestic market were 8282, 17052 and 26556 units respectively, with a year-on-year decrease of 47.0%, 30.6% and 63.6% respectively. From January to March, 51886 units were sold, with a year-on-year decrease of 54.3%, mainly due to the weakening of infrastructure and real estate investment since the second half of 2021, the construction machinery industry also entered a downward cycle, and the equipment sales fell sharply year-on-year.
Since 2022, steady growth has been put in a more prominent position, but the macro counter cyclical adjustment has not been transferred to the construction machinery end for the time being. The reasons are as follows:
(1) The prosperity of the downstream real estate industry is still low. Due to the pressure on the capital of enterprises, the local land auction rate is high, and the new construction of real estate continues to be curbed in a short time. As of March 2022, the cumulative new construction area of real estate was 298376000 square meters, a year-on-year decrease of 17.5%.
(2) The successive outbreaks in 2022q1 have affected the engineering construction in various places. In the first quarter of 2022, the epidemic broke out in areas across the country, which affected the construction in some areas to varying degrees, stagnated the purchase behavior, and the equipment sales fell sharply.
(3) The social ownership of construction machinery is high, and it still takes time to digest the social stock. The sales volume of construction machinery was relatively high in the first quarter of 2021. Under the high base effect, the year-on-year decline of construction machinery in the first quarter of 2022 increased. The ownership of construction machinery can only be digested by the elimination of old machines, which is expected to take a cycle of 2-3 years.
Looking forward to the whole year, we believe that the domestic market will pick up in the second half of the year for the following reasons:
(1) Counter cyclical regulation is expected to increase, and infrastructure will become an important driving force for equipment investment. Since 2021, the release of special bonds has been accelerated and increased. The amount released in 2021 was 4922.9 billion yuan, a year-on-year increase of 18.9%; As of February 2022, the local government has delegated 971.9 billion yuan of special bonds, with a year-on-year increase of 452.78%. The release of sufficient special bonds has laid a financial support for the recovery of infrastructure. Since 2022, the investment in capital construction fixed assets has been rising. As of March 2022, the completed amount of capital construction fixed assets investment has increased by 10.5% year-on-year, which has significantly warmed up. It is expected that infrastructure investment will still be an important driver of economic growth, and will drive the investment demand of construction machinery and equipment.
(2) The 2022q1 epidemic has delayed some demand. Affected by the epidemic, the start-up and purchase behavior in some areas of 2022q1 has stagnated. With the gradual decline of the impact of the epidemic, the downstream operation rate will gradually rise, and the equipment sales will also have a restorative growth.
(3) Starting from May, the base of 2021 has decreased in the same period. From May 2021, the sales volume of construction machinery in the domestic market began to decline, and the base has decreased. It is expected that the decline rate of the industry will gradually narrow in the second quarter of 2022.
2. Export: there is strong demand in overseas markets, and the export will continue to maintain high growth
The overseas market demand is strong, and the export sales volume of excavator maintains a high growth. As the overseas epidemic subsided and the demand for construction machinery recovered, taking the United States as an example, the shipment of construction machinery in the United States was about 38.5 billion US dollars in 2021, with a year-on-year increase of 19.8%. With the increasing strength of China's construction machinery enterprises, the trend of independent going to sea has become more and more obvious. They have arranged overseas markets and made a series of breakthroughs. Taking excavators as an example, the export sales volume of excavators in 2021 was 68427 units, with a year-on-year increase of 97.0%. The export sales volume of excavators from January to March 2022 were 7325, 7431 and 10529 units, with a year-on-year increase of 84.7%, 98.5% and 73.4% respectively. From January to March, 25289 units were sold, with a year-on-year increase of 88.6%. It is expected that the export sales of excavators will continue to grow at a high speed in 2022.
Investment advice
The strength of domestic leading enterprises has reached the forefront of the world. According to the list of global construction machinery manufacturers in 2021 released by KHL, XCMG, Sany Heavy Industry and Zoomlion rank third, fourth and fifth among global construction machinery enterprises respectively. They are strong and are catching up with Carter and Komatsu.
Domestic leaders are actively deployed overseas, which is expected to smooth the cyclical fluctuations of the domestic industry. With superior product power and brand advantages, domestic leading enterprises enter overseas, constantly strengthen the layout of overseas markets, build overseas R & D and production bases, set up ground forces, strengthen local service capacity, and improve the proportion of overseas revenue. In the future, it is expected to iron out the cyclical fluctuations of the domestic industry through internationalization.
The layout of domestic leaders is electric and intelligent, and build core competition barriers. In addition, domestic leading enterprises are further enhancing their core competitiveness through changes in electrification and intelligence, especially electrification. It is expected that the penetration rate will increase more than expected in the next 3-5 years, and enterprises that layout electrification in advance will take the lead and grow rapidly in the next round of upward cycle.
Generally speaking, through the layout of internationalization, electrification and intelligence, the medium and long-term development route of domestic leading enterprises is clear and can be expected to win the world.
