On August 11th, Caixin Financial (Reporter: Huang Lu) reported that the period from June to September has entered the traditional off-season for sales in the industry, but the demand for excavators has remained in a state of recovery in July this year. The off-season is not so light, and the monthly sales volume increased slightly compared to the same period last year, signaling a positive trend. According to industry sources in the construction machinery industry chain interviewed by Caixin, the overseas market is still the main growth engine for the second half of this year and even next year, while the domestic demand market is expected to accelerate its recovery in the second half of the year due to the recovery of project start-up rates and the acceleration of equipment updates.

According to the statistics of excavator manufacturers by the China Construction Machinery Industry Association, in July 2024, sales of various types of excavators reached 13,690 units, an increase of 8.6% year-on-year, of which 6,234 were sold domestically, an increase of 21.9% year-on-year, while exports decreased by 0.51% to 7,456 units. Loader sales in July increased by 27.1%, with a domestic increase of 24.7%.

From the downstream perspective, the domestic real estate market is quite volatile and still under pressure. Infrastructure investment, as a stabilizer of the economy, is affected by many factors that affect its growth rate, and some industry insiders have reported that there is no significant improvement in the current domestic demand side. However, due to the low base period, the gradual opening of the equipment replacement cycle, and other factors, the small and medium-sized excavator market is beginning to recover its growth. Due to the low base for excavator exports in the second half of last year, it is expected that excavator exports will achieve a positive growth in the second half of this year.

According to the statistical data released by the Yellow Table in 2022, after excluding the Chinese market, Chinese manufacturers' market share overseas is only about 7%. Relevant personnel of Zoomlion (000157.SZ) told Caixin that the profit margin of overseas market is relatively high. Chinese construction machinery brands still have a lot of potential for market growth in overseas markets, especially in countries along the "Belt and Road" initiative concept. In the long term, the overall market share is likely to increase to around 20%. It is expected that business growth in the next two years will mainly come from overseas markets and will maintain a relatively high growth rate.

"Has the bottoming out of domestic demand stabilized?"

"What can be determined is that the worst is over." An industry insider told Caixin bluntly: since last year, including the issuance of trillions of yuan in national debt, it is expected to help push local projects to start construction, including some basic infrastructure construction such as farmland, water conservancy, and hydropower. These will be reflected in future data such as project start-up rates and completion rates. In addition, the last upward cycle of construction machinery was from 2016 to 2020. According to an 8-year service life, the previously sold equipment is in a period of large-scale life replacement. Combined with a series of policies introduced this year, the clearance and replacement of backward equipment will be accelerated.

The aforementioned Zoomlion relevant personnel told Caixin that with the rise of new businesses such as excavators and aerial work platforms, the two major sectors of concrete and construction hoisting machinery, which are more closely related to the real estate sector, accounted for a significantly lower proportion of the company's total revenue in the first quarter than in previous years. In the future, the company will focus on agricultural machinery, mining machinery, and other fields to balance the industry cycle through diversified layout. It is reported that for open-pit mining equipment, the global market size is in the hundred billion dollar range, the domestic market size is in the hundred billion dollar range, and this sub-segment has a large market volume and a small cycle impact, and has good room for growth.

Personnel from the securities department of Jiangsu Hengli Hydraulic also believe that with the stability and recovery of project engineering volume and the traction of equipment update policies, industry recovery may be accelerated to a certain extent. The company's focus this year is to develop overseas customers and markets.

According to XCMG Construction Machinery, the export market is expected to continue to maintain a good trend, and internationalized income is still able to maintain a good growth rate. There have been some positive signs of domestic sales in the industry, especially in the continuous positive growth of earthwork and stonework machinery for several months. The issuance of trillions of yuan in national debt projects and the "large-scale equipment update" policy may not change much in the short term, but it will help industry recovery in the medium and long term.

Combined with the performance forecast of construction machinery companies that have published semi-annual reports, the reasons for the increase in net profit mainly come from two aspects: one is the increase in overseas income, and the other is the increase in product gross margin brought by cost reduction and efficiency improvement.