China Specialist, Auto and Industrial Specialist

Victoria Li

20 years experience as sell side analyst focusing on China's Industrial and Auto sectors

China Tentatively Turns on the Railway Spending Tap Again

Thematic (Sector/Industry)

China Industrials / Thematic (Sector/Industry)

XCMG Construction Machinery A (000425 CH)

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