The Zhitong Finance App learned that Zheshang Securities released a research report saying that in 2023, the performance of leading construction machinery companies will begin to rise at an inflection point; domestic demand is expected to bottom out in 2024, and overseas can be expected. The bank said it expects the domestic replacement cycle of about 5 years to begin in 2025 and an upward cycle of continuous improvement overseas. China's leading construction machinery company will gradually become a global leader with comprehensive cost performance advantages. Recommended: Xugong Machinery (000425.SZ), Sany Heavy Industries (600031.SH), Zhonglian Heavy Industries (000157.SZ), Liugong (000528.SZ), Follow: Shantui Co., Ltd. (000680.SZ)

The views of Zheshang Securities are as follows:

Industry: Domestic demand will bottom out in 2024, and overseas can be expected; it is expected that overseas market share will increase, and a new round of domestic renewal demand will gradually begin in 2025

In 2023, driven by exports, the performance of leading construction machinery companies began to rise; domestic demand is expected to bottom out in 2024, and overseas can be expected. Looking forward to the start of a domestic replacement cycle of about 5 years and an upward cycle of continuous improvement overseas in 2025, China's leading construction machinery company will gradually become a global leader with comprehensive cost performance advantages.

1) Domestic cycle bottoming out. Based on the 8-10 year peak excavator renewal period, domestic excavator renewal demand bottomed out in 2024, and was mainly based on renewal demand, compounded by higher overseas growth rates, and sales in the excavator industry bottomed out. Cranes and concrete machinery performed better than excavators due to the structural boom in the field of base and downstream applications.

2) Expected marginal improvement in domestic demand. The country's steady growth expectations are constantly being strengthened, and the issuance of an additional 1 trillion yuan in treasury bonds in 2023 is expected to boost infrastructure demand; large-scale equipment replacement will help sales of new machines such as the national four standards for construction machinery. Domestic excavator sales are expected to bottom out in 2024, and cranes and concrete machinery will perform better than excavators.

3) Increased overseas market share. Leading companies generally have a low share of overseas excavators. On the basis of their strong layout in the early stages, overseas companies have the potential to achieve relatively rapid growth.

Leaders: Each has shown ingenuity. Xugong machinery is relatively cost-effective. Sany Heavy Industries has high flexibility in its future upward cycle, and the performance growth rate of Liugong and Zhonglian Heavy Industries is relatively fast

Sany Heavy Industries: The largest share of excavators, the most flexible target in the upward cycle of excavators, strict risk management and control, reduced costs and fees in 2024 to improve profitability, and great future flexibility

Xugong Machinery: The largest revenue and profit scale, leading the ROE from 2022 to 2023 among the three major OEMs; risk exposure such as accounts receivable gradually improved

Zoomlion Heavy Industries: The excavator sector has been strengthened, and the product structural advantages are remarkable. In 2023H1's overseas revenue increased by about 115% year-on-year, with remarkable results in the Middle East and Russian regions

Liugong: Loaders have the highest domestic share, excavator market share has increased, export revenue has grown rapidly, state-owned enterprise reforms have released dividends, and profitability has increased

Shantui Co., Ltd.: Domestic bulldozers account for 60% of the market, and exports of high-horsepower bulldozers combined with Russia and others are growing rapidly

Catalysts: 1) Domestic sales of excavators have reached an inflection point, and export sales have exceeded expectations; 2) Domestic real estate and infrastructure investment, new construction is improving, and policies are favorable; 3) the boom in excavator construction continues to rise; 4) Cost and expense control by industry leaders has shown results; 5) Rapid penetration of electrified products

Risk warning: 1) Real estate infrastructure investment falls short of expectations; 2) Overseas market expansion falls short of expectations and risk of exchange rate fluctuations; 3) Risk of overseas trade friction