Zhifin Finance APP learned that Soochow Securities released a research report stating that previously, due to the financial constraints of local governments, large-scale infrastructure projects were postponed. However, debt-for-equity swaps will reduce local government interest payments, extend repayment periods, transform local implicit debt into explicit debt, and significantly enhance the liquidity of local governments. This round of substitution is expected to help improve the start of infrastructure construction and continue the urban renewal. In the long term, the machine tool sector in the field of general automation is a key sector supported by national policies, with large-scale equipment upgrades + multiple deductions of value-added tax input tax credits stimulating demand for machine tools. In addition, subsidies for agricultural machinery purchases are an important pro-agriculture policy in China that significantly affects agricultural machinery sales.

The main viewpoints of soochow securities are as follows:

Construction machinery - the most direct beneficiary.

Debt-for-equity swaps are expected to restore real estate and infrastructure investment, directly benefiting infrastructure investment and indirectly benefiting real estate. Infrastructure: Previously, due to the financial constraints of local governments, large-scale infrastructure projects were postponed. However, debt-for-equity swaps will reduce local government interest payments, extend repayment periods, transform local implicit debt into explicit debt, and significantly enhance the liquidity of local governments. This round of substitution is expected to help improve the start of infrastructure construction and continue the urban renewal. Moreover, current sales of construction machinery in infrastructure projects are historically at their lowest level, with significant room for revenue recovery.

Real estate: Reduced financial pressure on the government helps slow down the pace of "land finance", optimizing the supply side; Construction machinery is recommended with a high proportion of concrete business, such as Sany Heavy Industry (600031.SH), XCMG Construction Machinery (000425.SZ), and Zoomlion (000157.SZ).

Companies in the testing sector with local governments as important customers will significantly benefit.

Local governments are the main clients of inspection and testing institutions, with procurement concentrated in the food and environmental sectors. Due to the different downstream business layouts and global strategies of China's third-party testing listed companies, the government customer ratio varies. Among them, puny test, grg metrology, and centre testing international group have relatively high government customer ratios: puny test and centre testing international group's revenue from the food and environmental sector accounts for approximately 70% and 45% respectively, with puny test's government customers ratio at around 40% and centre testing international group at around 30%. Grg metrology's revenue from the food and environmental sector accounts for approximately 15%, but it is mostly comprised of government clients. In recent years, local financial pressure has been high, resulting in a decrease in the turnover rate of accounts receivable for testing institutions and an increase in bad debt provisions. This debt restructuring is expected to accelerate the collection speed of accounts receivable, improve operational efficiency, and enhance profitability. Recommended stocks include Centre Testing International Group (300012.SZ), GRG Metrology & Test Group (002967.SZ), and Puny Test (300887.SZ).

Government subsidies are strongly related to machine tools and agricultural machinery, providing long-term benefits.

Machine tools: The machine tool sector in the general automation field is a key sector supported by national policies, with large-scale equipment upgrades and value-added tax deductions stimulating demand for machine tools. In terms of funding sources, it is generally mainly funded by the national government with local government support. Debt restructuring can effectively alleviate the financial pressure of local governments, benefiting the healthy development of the industry from a medium to long-term perspective. Recommended stocks include Wuhan Huazhong Numerical Control (300161.SZ), Ningbo Haitian Precision Machinery (601882.SH), Newell Brands (688697.SH), and Techleader Numerical Control (688305.SH).

Agricultural machinery: Agricultural machinery purchase subsidies are an important policy for promoting agriculture in China, and they significantly impact agricultural machinery sales. Since 2018, the subsidy policy has clearly shifted towards larger-scale transformation, leading to significant changes in the tractor product structure. The proportion of medium and large tractors has increased significantly, from 43% in 2018 to nearly 70% by 2023. In 2024, China will initiate a new round of agricultural machinery purchase subsidies, emphasizing the selection of excellent machinery and subsidies for high-end, large-scale, and intelligent tractors, benefiting leading tractor companies. The sources of funds for agricultural machinery subsidies mainly include central and local finances. This debt restructuring can effectively alleviate the financial pressure of local governments, greatly enhance the liquidity of local governments, and benefit the stable development of the agricultural machinery industry. Key recommendation: First Tractor (601038.SH).

Risk Alert: Policy changes below expectations; macroeconomic fluctuations; intensified industry competition risks.