The overall listing set sail again, and the leading position in construction machinery is stable. The company's main products cover major categories of construction machinery such as lifting machinery, excavation machinery, concrete machinery, mining machinery, aerial work machinery, road machinery, etc.

The company's sales volume of 16 types of engines, including truck cranes, truck-mounted cranes, and road rollers, ranks first in the domestic industry; pile construction machinery and concrete machinery rank first in the world, third in the world for aerial work platforms, and sixth in the world and second in the country for excavators. In 2022, the company absorbed and merged XCMG Limited to achieve the overall listing of XCMG Group's construction machinery sector, further releasing operating vitality and continuously improving operating efficiency. The company's traditional sector has gradually stabilized, the emerging sector has maintained rapid growth, profitability continues to improve, and the quality of operation has been consolidated and steady.

The inflection point of the industry is getting closer and closer, and demand for construction machinery has ushered in marginal improvements. (1) New demand is expected to stabilize: the growth rate of infrastructure fixed asset investment reached 7.7% in the first half of the year, rural and water projects continued to gain strength, the countercyclical adjustment effect of infrastructure investment continued to be prominent, and the driving effect on the construction machinery industry is expected to gradually become apparent. (2) Renewal demand is expected to gradually start: Based on the 8-year equipment life cycle, the peak period of a new round of renewal in the construction machinery industry is expected to gradually begin in 2024, and renewal demand is beginning to emerge. (3) Overseas exports have maintained steady growth: China has strengthened exports to countries along the “Belt and Road” and gradually improved its layout in developed countries in Europe and the US, and the competitiveness of domestic brands in the global market continues to increase. (4) The machine generation effect is gradually showing: the application field of construction machinery products continues to expand, the trend of machine generation is becoming more obvious, demand for small excavation and other equipment continues to recover. Domestic sales of small excavators increased 35.96% year-on-year in June.

Emerging sectors and overseas exports have opened up room for growth, and state-owned enterprise reforms have unleashed operating vitality. The competitiveness of the company's core sectors such as hoisting machinery and earthmoving machinery continues to improve; emerging sectors such as aerial work machinery and mining machinery are expected to become new engines for the company's performance growth. The company has built a “1+14+N” international operation system, with 39 overseas subsidiaries, 40 large-scale overseas service parts centers, and a marketing network covering 193 countries and regions; the increase in overseas revenue share is expected to further drive the company's business performance and profitability to continue to improve. In 2022, the company absorbed and merged XCMG Limited. After the mixed reform, the company's operating quality reached the next level. In 2023, “XCMG Mixed Reform” was selected as a national typical case, and the company was awarded the national “Double Hundred Action” benchmark enterprise.

Investment advice: The company's leading position in the construction machinery industry is stable, the competitiveness of the core sector continues to increase, the emerging sector continues to gain strength, the global layout continues to advance, and the operating efficiency and profitability continue to improve after the mixed reform. We expect the company's 2024-2026 net profit to be 6.488, 8.571, and 10.954 billion yuan, respectively. The current stock price corresponds to PE of 12.29, 9.31, and 7.28 times, respectively, to maintain the company's “gain” rating.

Risk warning: Investment in infrastructure and real estate falls short of expectations, irrational competition in the market, deterioration in the overseas trade environment, sharp fluctuations in the RMB exchange rate, raw material prices, and shipping prices, the lifting of the ban on restricted shares, and the risk of equity pledges.