Excavator sales in May were the month of negative growth again since February 2020 (-50.5%) year-on-year. On the one hand, the sales volume of excavators has declined year-on-year, and on the other hand, the raw material costs of OEMs remain high. What changes will happen to the construction machinery industry represented by excavators?
Recently, the reporter visited the Hunan Excavator Parts Wholesale Market and communicated with relevant people in the upstream and downstream of the industry chain. The consensus view is that the decline in domestic sales of OEMs in the past two months is related to a variety of factors. One is that the peak sales season of the Spring Festival this year is advanced, and the market potential in April and May is advanced, and the base figure in the same period last year is higher; the second is the start of some terminal markets. All have decreased, and downstream market demand has begun to cool; third, the construction machinery industry has experienced three rounds of price increases this year, which will also restrain the enthusiasm for purchasing machines to a certain extent.
Regarding the judgment of the industry’s prosperity in the second half of the year, some brokerages and private equity institutions held a cautious view, believing that a total of 200,000 excavators were sold in the first five months of this year, a year-on-year increase of about 38%, but the growth rate in the second half of the year will see a big "downgrade" , The annual excavator is expected to maintain double-digit growth, and sales are expected to exceed 380,000 units.
Behind the decline in excavator sales, the market business has faded
After a lapse of 15 months, there was again a month of negative growth for large, medium and small excavators. Statistics from the China Construction Machinery Industry Association show that in May 2021, a total of 27,220 sets of various excavation machinery products were sold, a year-on-year decrease of 14.3%. The domestic market showed negative growth for two consecutive months.
Regarding the "cooling" of the excavator sales data of the OEM, an insider from an upstream domestic main excavator special cylinder told reporters that the entire industry will undergo periodic changes and the company's operations will be affected to a certain extent, which cannot be completely avoided.
She said that the company must be relatively early as an upstream transmission. In fact, the industry has low peak seasons every year, usually the second and third quarters (the market) will be relatively weak, and the first and fourth quarters will be more prosperous. The first quarter of this year was still relatively prosperous. As the base figure for the same period last year was relatively high, if you look at the year-on-year data, the previous high growth is now showing a diminished situation.
In addition to upstream supporting manufacturers, the business of excavator parts stores has also been much lighter than in the first quarter. On June 21, the reporter visited the wholesale market of excavator parts in Hunan, and there were few visitors at the door of each store. Boss Liu, who specializes in excavator parts such as Sany and Liugong, told reporters: "The business in the entire market is now poor because there are fewer excavators that need repairs and maintenance."
A project manager engaged in the construction industry told reporters that there are indeed fewer infrastructure projects than last year. Some planned projects have not yet started, and the demand for excavators and muck trucks will also decrease accordingly. According to his personal knowledge, some people who "own cars" have nothing to do now, but the start of key urban infrastructure projects and other projects is not bad.
The brokerage agency believes that in 2021, with the flattening of the overall growth rate of infrastructure construction, the steady development of real estate, and the continuous promotion of the construction of new rural areas in cities and towns, the domestic market will still be the main market for excavators. The domestic market sales are expected to remain generally positive in the second half of 2021. Growth, but the growth rate will likely drop.
What is the reason for the price increase after the sales volume drops, besides the cost?
According to the practice of previous years, the excavator market will gradually enter the off-season in May. The "cake" of the excavator market will no longer "expand", and the rising cost of raw materials has become a "barrier" that major OEMs cannot avoid.
A few days ago, the four major domestic excavator brands-Sany, Xugong, Lingong, and Liugong have issued price increases announcements, deciding to raise the price of small digging by 10% and 5% for medium digging from June 16. The reason is that the overseas industrial chain has been hit by the epidemic, and suppliers are facing tremendous pressure, and the overall production cost has risen sharply.
Regarding the reasons for the price increase and the different increases of each model, a staff member of one of the above-mentioned brand manufacturers told reporters that it may be that the early price war was too fierce. (Sales) The growth rate is very rapid, so everyone has to grab the market. Both big digging and medium digging are profitable, and every company in the industry has fierce competition in small digging. This collective price increase may also be an internal initiative of the industry, and the company will also make certain adjustments to prices.
According to common sense, prices increase during peak seasons; prices decrease during off-seasons. In this regard, another person in the industry has given the opinion that there is a reason for not raising prices before. Domestic leading manufacturers such as Sany and Xugong, relying on technological advantages and industrial chain supply advantages, can reduce dimensionality and crack down on small and medium-sized enterprises. , Thereby further increasing the market share.
Judging from the timing of price increases, the recent continuous surge in prices of bulk commodities such as steel has become the "fuse" for OEMs to increase prices. The reporter was informed that, in fact, in addition to the OEMs, upstream manufacturers and parts wholesale markets have all increased their prices. The above-mentioned upstream manufacturer insiders said, "The company will also be affected by the rise in raw materials such as steel, and most of the product costs are steel, which will also rise a little. Faced with these objective factors, it will respond through measures such as cost reduction and process improvement."
Boss Liu, who is in the business of excavator parts, also said that the prices of all kinds of excavator parts that he manages will rise.
As the top of the four major brands of excavators mentioned above, SANY Heavy Industry will occupy 15% of the global excavator market in 2020, and will be the first in the world in terms of sales, according to authoritative statistics. The reporter asked the company: Can this price increase fully cover the impact of the increase in raw materials on the company's gross profit? In May of this year, the domestic sales of excavators declined year-on-year. Will it affect the company's sales in the second half of the year? Three aspects did not respond on the grounds that it was inconvenient to respond individually.
Machinery stocks enter the "discount season", or need time to repair
2. March is the "highlight" moment for listed construction machinery companies mainly excavators. For institutional funds, allocations have been reduced. From the perspective of trend, the share prices of Sany Heavy Industry (600031.SH), Liugong (000528.SZ), Xugong Machinery (000425.SZ), Hengli Hydraulics (601100.SH) have all peaked and declined in stages.
Take Sany Heavy Industry, which has the highest market share of excavators, as an example. According to the high price of 50.3 yuan per share at the closing price on February 18, the largest retracement so far is 47.56%. Last year, Sany Heavy Industry's excavation machinery sales revenue was 37.528 billion yuan, a year-on-year increase of 35.85%, which is the key core of the company's business income. The product's gross profit margin was 34.67%, which was lower than the previous year's 38.64%.
Regarding the recent correction of construction machinery stocks, especially the companies with a high proportion of excavators entering the "discount season", some market participants believe that the main reason is that the competition for excavators is very fierce. It is the Red Sea market, and the dealers themselves have very thin profits and will be sold. Make some profit concessions, which is a negative impact on gross profit margin. Coupled with a year-on-year decline in off-season sales and a combination of factors such as rising steel costs, the outflow of funds in this sector is obvious.
A local private equity manager told reporters bluntly, "Judging from the data in May, the cycle has peaked." In recent years, as the application scenarios of excavators have become more extensive, leading companies have shared the industry's high-growth dividend. From the perspective of the replacement cycle, the replacement cycle of excavators is 8-9 years, and the peak of the previous round of infrastructure investment was in 2011 and 2021. The demand for replacement will also gradually decrease, and domestic sales of equipment should peak Up. According to its information from research institutions, the order data of some manufacturers in June and July may be down compared to the previous month.
The latest view of CICC believes that the start of domestic projects and the sales of excavators in the second quarter were suppressed by factors such as demand pre-deployment, environmental protection inspections, funding levels, and steel prices. The above factors are expected to be suppressed in the short term. The excavator utilization index is expected to improve marginally in June, and the trend in the third quarter will be positive. The current industry company valuation is at a relatively low level.
