China Specialist, Auto and Industrial Specialist

Victoria Li

Thematic (Sector/Industry)

We estimate China's heavy machinery sector sales turn weaker in 2019E because<ul>
<li>Incremental demand on main machines, excavators, loaders, heavy duty trucks, etc, would remain weak given the leading indicator - yoy growth of China's planned investment on newly started projects in Infrastructure sector - remain negative at -28.1% in 8M2018. Recent positive policy tone set on infrastructure is not strong enough to change the weakness.</li>
<li>Current up-cycle, which is driven by the replacement demand from machines sold since 2008, is going to end next year. Considering annual sales in 2018 for excavators might go above 200,000 units, higher than that of 2011.  It is very likely that China's excavator sales volume 2019E would be flattish, without a boost from incremental demand.</li>
</ul>Long-term buyers shall avoid related stocks, although their valuation look attractive after recent market pullback. Zoomlion (1157.HK) has the highest valuation among peers, which could be a short target.

We estimate China's heavy machinery sector sales turn weaker in 2019E because
Incremental demand on main machines, excavators, loaders, heavy duty trucks, etc, would remain weak given the leading indicator - yoy growth of China's planned investment on newly started projects in Infrastructure sector - remain negative at -28.1% in 8M2018. Recent positive policy tone set on infrastructure is not strong enough to change the weakness.
Current up-cycle, which is driven by the replacement demand from machines sold since 2008, is going to end next year. Considering annual sales in 2018 for excavators might go above 200,000 units, higher than that of 2011.  It is very likely that China's excavator sales volume 2019E would be flattish, without a boost from incremental demand.
Long-term buyers shall avoid related stocks, although their valuation look attractive after recent market pullback. Zoomlion (1157.HK) has the highest valuation among peers, which could be a short target.

China Heavy Machinery-Back to Doldrums in 2019

CEO, A. Stotz Investment Research

Dr. Andrew Stotz, CFA

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A. Stotz Investment Research

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Equity Bottom-Up

<ul><li>Improving asset turnover, earnings on an upcycle trend, and strong stock price momentum relative to its sector</li><li>Sinotruk’s heavy-duty trucks segment should drive the sales momentum with the increasing tractor demand. 1H17 saw a remarkable revenue growth of 74% YoY</li><li>Change in regulations by Chinese government to curb overloading and emissions should boost compliant Sintotruk truck sales further</li><li>Trades at 17CE* 14.4x PE versus Asian Capital Goods at 11.8x PE, but Sinotruk offers much better earnings growth and is net cash</li><li>Risks: Heavy-duty truck demand slowdown</li></ul>* Consensus Estimates

Improving asset turnover, earnings on an upcycle trend, and strong stock price momentum relative to its sectorSinotruk’s heavy-duty trucks segment should drive the sales momentum with the increasing tractor demand. 1H17 saw a remarkable revenue growth of 74% YoYChange in regulations by Chinese government to curb overloading and emissions should boost compliant Sintotruk truck sales furtherTrades at 17CE* 14.4x PE versus Asian Capital Goods at 11.8x PE, but Sinotruk offers much better earnings growth and is net cashRisks: Heavy-duty truck demand slowdown* Consensus Estimates

Sinotruk (3808 HK): Heavy Duty Has Yielded Heavy Sales

China

Sinotruk Hong Kong Ltd is a heavy truck manufacturer in China.  The company specializes in the research, development and manufacturing of heavy trucks and related key parts and components, including cabins, engines and axles.

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Sinotruk Hong Kong (3808 HK)

China Heavy Machinery-Back to Doldrums in 2019

We estimate China's heavy machinery sector sales turn weaker in 2019E because Incremental demand on main machines, excavators, loaders, heavy duty...

Victoria Li

Sinotruk (3808 HK): Heavy Duty Has Yielded Heavy Sales

Improving asset turnover, earnings on an upcycle trend, and strong stock price momentum relative to its sector Sinotruk’s heavy-duty trucks...

A. Stotz Investment Research

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