The Zhitong Finance App learned that Northeast Securities released a research report stating that there are many categories of construction machinery, and excavators are the core products. Due to the downturn in real estate, excluding holiday factors such as the Spring Festival, domestic sales of excavators continued to decline. However, starting in April of this year, domestic sales began to improve continuously, and the excavator industry is expected to bottom up the cycle. The policy stimulus is compounded by a sizeable stock of old markets, helping domestic sales of excavators to bottom out and stabilize this year. The domestic excavator market is expected to reach an inflection point at the bottom of the cycle as demand for updates is released, while the penetration rate of overseas markets is expected to increase at an accelerated pace with the conversion of new products and the improvement of brand power.

There are many categories of construction machinery, and excavators are the core products. Construction machinery is mainly used in transportation construction, industrial construction and production, construction and production of raw material industries such as mines, agriculture, forestry and water conservancy construction, civil construction, urban construction, environmental protection and development. The main products can be divided into: (1) excavation machinery (2) lifting machinery (3) earthmoving machinery (4) compaction machinery (5) piling machinery (6) rebar and prestressed machinery (7) concrete machinery (8) pavement machinery (9) decoration machinery (10) rock drilling machinery and pneumatic tools (11) forklifts (12) railway line machinery. Excavators and lift work platforms account for the main share. In 2023, the top 50 global construction machinery manufacturers had total sales of 223.806 billion US dollars. Among them, the top 20 companies in the excavator business had total sales of 65.047 billion US dollars in the excavator sector, accounting for 29.06% of the total sales of the top 50 global construction machinery manufacturers, which is close to one-third. In 2023, the total sales volume of construction machinery products in China was 60,151 units, mainly lifting platforms, excavators and loaders. In 2023, the three major categories accounted for 34%, 33% and 17% respectively, accounting for 84% of sales. Among them, excavators account for about 1/3 of sales, and excavators are one of the key types of construction machinery.

Energy was accumulated at the bottom of the cycle, and the release of demand for renewal helped stabilize domestic sales. Taking excavators as an example, due to the downturn in real estate, excluding holiday factors such as the Spring Festival, domestic sales of excavators continued to decline, but starting in April of this year, domestic sales began to improve continuously, and the excavator industry is expected to bottom up the cycle. According to data from the Excavator Branch, the 10-year excavator holdings will reach 1.9 million by 2023. According to Northeast Securities estimates, the 2024-2026 renewal demand is about 0.053 million, 0.061 million, and 0.095 million units. According to construction machinery leasing and operation management data, China's 1/2 excavators account for about half of the stock, and there is plenty of room to replace the stock; currently, Shanghai has issued a relevant draft for comments, imposing subsidies of tens of thousands of yuan on various types of excavators. The policy stimulus is compounded by a sizeable stock of the old market, helping domestic sales of excavators to bottom out and stabilize this year. At the same time, with the continuous advancement of excavator replacements and new energy, the overall domestic sales growth rate of excavators is expected to be 8%/12%/15%, respectively, in 2024-2026, with corresponding sales volume of about 0.097 million/0.109 million/0.125 million units.

Overseas market share is still low, and there is plenty of room for development. According to data from the Excavator Branch, the 2022 market capacity is about 0.491 million units, including 0.211 million micro excavations/0.145 million small units/0.087 million medium units/0.049 million large excavators. China's export share is only 14% of the global market. From the demand side, mature markets in Europe, America, and Asia are mainly micro-excavations (municipalities and farms); the South Asian, Indonesian, and Latin American markets are dominated by medium excavation (infrastructure conditions), and central Africa and Russian-speaking regions are dominated by large-scale excavation (mining conditions). Looking at changes in excavator exports from a five-year perspective: Russia became the largest market, accounting for about 11.5%, and Europe and the US declined slightly. In the short term, there is a certain gap between domestic enterprises and companies such as Komatsu Carter, but Tohoku Securities believes that with the continuous improvement of the overseas layout of domestic enterprises and continuous improvement in manufacturing, new energy, and brand after-sales, domestic competitiveness will continue to strengthen. Although the capacity of the overseas excavator market has declined slightly in the short term due to factors such as global economic shocks, China's excavator exports are expected to accelerate in the medium to long term. Northeast Securities expects the overall excavator export sales growth rate from 2024-2026 to -5%/10%, respectively, with corresponding sales volume of about 0.1 million units/0.105 million units/0.115 million units.

Investment advice: The domestic excavator market is expected to reach an inflection point at the bottom of the cycle as demand for renewal is released. At the same time, the penetration rate of overseas markets is expected to increase at an accelerated pace with the conversion of new products and the improvement of brand power. It is recommended to focus on: Sany Heavy Industries, XCMG Machinery, Zoomlion Heavy Industries, and Liugong.

Risk warning: overseas trade policy risk; price war risk; risk of electrification falling short of expectations