According to data from China Construction Machinery Industry Association on July 5th, in June 2024, the sales of all types of excavators were 16,603 units, a year-on-year increase of 5.31%. In June 2024, the sales of various types of loaders were 10,794 units, a year-on-year increase of 26.2%. Shanghai Securities believes that the equipment update subsidy policy is expected to promote the recovery of domestic market demand, and the bottom signal is constantly clear. With the promotion of the equipment update policy and the gradual landing of national debt projects, the domestic demand for construction machinery market may enter the bottom-up stage. Stocks related to this concept: Zoomlion (01157), First Tractor (00038), Sany International (00631), Zhengzhou Coal Mining Machinery Group (00564).

Since the fourth meeting of the Central Finance and Economic Commission proposed to implement large-scale equipment renewal and the replacement of consumer goods with old ones on February 23, relevant policies and financial support have been gradually implemented.

On June 25th, the Ministry of Finance and four other departments issued a notice on the implementation of the equipment update loan financial subsidy policy. The notice shows that if the loan issued by the bank to the operating entity meets the reimbursement conditions for re-loans, the central finance will provide a 1% interest rate subsidy for the principal of the operating entity's bank loan. The interest rate subsidy shall be given from the date of payment of the relevant loan funds to the supplier account, and the interest rate subsidy period shall not exceed 2 years. Shanghai Securities believes that the implementation of the equipment update loan discount policy is expected to reduce the capital cost of purchasers and may drive the demand for equipment update in the domestic manufacturing industry.

On April 28th, Shanghai released a draft consultation paper on subsidies for the replacement of "National II" non-road mobile machinery, which had a strong impact and detailed content, including mainstream mechanical categories such as forklifts, excavators, loaders, high-altitude operation vehicles, port machinery, and airport ground service equipment. The subsidy amount is roughly 10% of the purchase price.

In early April, the Ministry of Housing and Urban-Rural Development issued a notice on the implementation plan for the renewal of construction and municipal infrastructure equipment, which specifically mentioned construction equipment and required the renewal and elimination of construction machinery and equipment, including excavators, cranes, loaders, concrete mixers, elevators, bulldozers and other equipment (vehicles) that have been used for more than 10 years, are highly polluting, have high energy consumption, serious aging and wear, and have outdated technology.

At the same time, domestic real estate policies continue to be favorable, trillion-yuan government bonds increase infrastructure investment, and domestic demand is expected to gradually improve by 2024. From January to April 2024, the cumulative year-on-year growth rates of new housing construction area, infrastructure investment, mining investment, and water conservancy management investment were -24.6%, 7.8%, 21.3%, and 16.1%, respectively. The favorable real estate policy is conducive to the improvement of domestic demand for engineering machinery. The central bank's policies are working on both supply and demand sides to stabilize the real estate market, which will help push forward the destocking of real estate and to some extent boost the upstream and downstream industrial chains. From March to April 2024, domestic excavator sales continued to grow year-on-year.

In terms of exports, the international platform published the 2023 global aerial platform enterprise ranking, with XCMG/Dingli/Zoomlion ranked 3rd/5th/7th respectively. From January to April 2024, China's engineering machinery cumulative export volume was USD 16.577 billion, a year-on-year increase of 1.9%. From January to April 2024, China's engineering machinery cumulative export volume was CNY 117.746 billion, a year-on-year increase of 7.5%. Taking Sany Heavy Industry as an example, its overseas market share of excavators was about 4%, 6%, and 8% respectively from 2020 to 2022.

Zhou Ershuang of Soochow Securities pointed out that looking towards the second half of the year, downstream infrastructure investment in China will continue to improve, coupled with upward demand for updates, the domestic sales of construction machinery have clearly turned upwards and are expected to usher in a new cycle of growth. In terms of overseas markets, due to the high base number and high short-term inventory last year, the export growth rate is under pressure in stages, but in the second half of 2024, the overseas growth rate is expected to rebound as the high base number effect disappears and dealers go through inventory.

Guolian Securities released a report stating that after the action plan for promoting large-scale equipment updates and consumer goods trade-in was introduced, various departments and regions have recently issued detailed plans, which continue to catalyze the corresponding topics. Guolian Securities predicts that the sales of excavators in China will be 0.18/0.2/0.25 million units from 2024-2026, and the sales of excavators in China in 2024 may be in a weak recovery phase.

Related concept stocks:

Zoomlion (01157): In early April, Citigroup released a research report, slightly raising its profit forecast for Zoomlion this year by 1% and raising its target price from HKD 6.4 to HKD 6.6, with a Buy rating, to reflect Zoomlion's continued optimistic business prospects. However, it is expected that this year's accounts receivable and inventory impairment amounts will be similar to or even lower than last year's RMB 884 million. The report states that the company's management expects that demand for China's construction machinery may remain flat year-on-year or achieve low single-digit growth. However, at the same time, they reiterate their confidence in maintaining strong growth in export revenue, mainly benefiting from more mature direct sales channels, and that smart digital systems can better capture end-user demand. Given the stable fundamentals and high dividend yield, Zoomlion remains Citigroup's top pick in the engineering machinery industry.

First Tractor (00038): The first quarter revenue was about CNY 4.656 billion, a year-on-year increase of 11.11%; the net income attributed to shareholders of listed companies was about CNY 599 million, a year-on-year increase of 23.4%; and the basic earnings per share were CNY 0.5334.

Sany International (00631): In 2023, the mining equipment business sector of Sany International achieved revenue of 11.8 billion yuan, a year-on-year increase of 19%. The company has always insisted on leading research and development and has increased investment in fields such as intelligent mining, smart ports, unmanned driving, robots, new industry equipment, and oil and gas equipment, with R&D expenses of 1.682 billion yuan in 2023, a year-on-year increase of 95.5%.

Zhengzhou Coal Mining Machinery Group(00564): The industry upgrading and digitalization and intelligent transformation of the coal mining machinery industry are still ongoing. In 2023, the coal machinery business achieved revenue of 18.854 billion yuan, a year-on-year increase of 12.51%, and achieved a net profit attributable to the mother of 3.052 billion yuan, a year-on-year increase of 21.48%. The company's coal mining machinery business is engaged in research and development, design, production, sales, and services of coal mining comprehensive mining equipment and its parts, coal mining intelligence mining control systems, providing first-class coal mining comprehensive mining technology, complete equipment solutions, and services for global coal customers. The company is an absolute leader in the coal mining hydraulic support industry and is in a leading position in the industry in terms of intelligent coal mining comprehensive mining.