Events: the standing meeting of the State Council in July 23rd was held to maintain macro policy stability, adhere to the strong irrigate of "large water irrigation", support the expansion of internal demand structure to promote the development of the real economy, and determine the measures to promote effective investment around the short board, the increase of strength and the benefit of the people's livelihood.
Positive macroeconomic policy to enhance demand expectations, engineering machinery sector is expected to usher in valuation repair.
In the first half of the year, the sales volume of the excavators was expected to exceed the market expectations, but the stock price of the leading enterprises deviated from the fundamentals, mainly in the background of tight credit, deleveraging, strict supervision and the uncertainty of Sino US trade war. The market was pessimistic about the macroeconomic expectations and the sustainability of the engineering machinery, and thought that this year would be the peak of the industry cycle and therefore not far overestimated. The stock price has fully reflected the pessimistic expectations of the market. The regular monetary policy should be more active and prudent, moderate and moderate monetary policy should be tighten and moderate, and the national financing guarantee funds are put in place, fiscal policy and monetary policy are adjusted in a positive direction. The investment in infrastructure construction will be improved in the second half of the year. The new demand for small and medium dug is expected to boost sales in the second half of the year. It is expected to exceed 190 thousand in the whole year.
Update the demand for the bottom, tighten the environmental policy, and accelerate the replacement of stock equipment.
Unlike the previous boom cycle, which is driven by real estate and infrastructure investment, the recovery of this round is dominated by renewal, and the proportion of the renewal demand is up to 60%-70%. The driving force of the renewal is mainly the coming of the product life cycle, the strictness of the environmental policy and the improvement of the technical level. By the end of 2017, the number of excavators in China was about 1 million 180 thousand in eight years, of which nearly 80% were machines of the two standards of the first country and the country. The three emission standards of construction machinery have been implemented in April 2016, and the four standard of the country is expected to be introduced before and after 2020. The future industry will be developing towards energy saving, intelligent and informational. Therefore, there will be a large number of renewal and replacement demand, and the cycle of the whole industry will be lengthened.
The historical burden is clear, and financial report repair brings huge profit elasticity.
The leading enterprises of construction machinery take the initiative to deal with the historical burden when the demand is good, and the risk of accounts receivable has been fully released. Unlike the last round of radical sales model, the local engineering machinery enterprises are more rational, pay more attention to the quality of sales, and the cash flow and the quality of assets are better. 31 in 2017, the operating cash flow reached 8 billion 570 million yuan, creating a new high. At present, the trend of industry profitability has not changed. 31 in the first quarter of 2018, gross interest rate and net interest rate were further increased to 30%, 12.8%, but there was a certain gap with 36.5% and 18.4% in 2011. From the competition pattern, sales scale, production efficiency and many other dimensions, the profitability of the principal cycle leading enterprises should be better, so the flexibility of the profit margin is still larger. The growth slowdown in the second half of the year we feel that there is no need for excessive concern. Although the growth rate of sales will be the next step, it is not an industry inflection point, but a new normal growth in a long period of time, and the income side will weaken the profit of the leading enterprise.
Investment proposal: in the uncertainty of internal and external suffering, we believe that the leading enterprises of engineering machinery will have higher performance in the next 2-3 years, and we are firmly optimistic about the investment opportunities for the next half of the year. We recommend Sany, Liugong, Xugong machinery, Anhui Heli and Hangzhou fork group.
Risk warning: macro-economic boom has dropped sharply, trade wars have been out of control, and exchange rate has fluctuated greatly.
