Policy guides a new round of large-scale equipment updates, and a new round of Zhu Gela cycle is expected to begin, undertaking new production capacities.
Zhongguo Yinhe Securities released a research report stating that policy guides a new round of large-scale equipment updates, and a new round of Zhu Gela cycle is expected to begin, undertaking new production capacities. With the continuous implementation of relevant national and local support policies, cyclical general equipment sectors represented by general machine tools and tool holders are expected to usher in turning points. In terms of high-speed rail, passenger flow has recovered beyond expectations, and the daily passenger volume during holidays has repeatedly hit new highs; due to the low travel demand in the past three years due to the epidemic, the purchase volume of new cars is low, and there is a large shortage of EMUs in the future. It is expected to gradually release newly added operating mileage and vehicle purchases. In addition, the central bank's policies to stabilize the real estate market from both supply and demand sides are conducive to promoting the clearance of real estate inventory, to a certain extent boosting the upstream and downstream industry chains, and it is conducive to improving the domestic demand for construction machinery.
China Galaxy Securities' main points are as follows:
May Manufacturing PMI: Business conditions have fallen slightly, and continuous focus on cyclical general automation turning points.
National Bureau of Statistics data shows that the May manufacturing PMI was 49.5%, a decrease of 0.9 percentage points from the previous month and a fall below the boom and bust line. Among them, the new order index was 49.6%, a month-on-month decrease of 1.5 percentage points; the production index was 50.8%, a month-on-month decrease of 2.1 percentage points; reflecting the downstream demand remains in a state of weak recovery. According to the output data, in May 2024, the production of metal cutting machine tools was 60,000 units, a year-on-year increase of 11.1%; from January to April, the cumulative production of metal cutting machine tools was 211,000 units, a cumulative year-on-year increase of 6.0%. The output of industrial robots in April was 50,000 units, a year-on-year increase of 25.9%; from January to April, the cumulative output was 171,000 units, a year-on-year increase of 9.9%; demand has improved since this year. Since the fourth meeting of the Central Finance and Economics Committee on Feb. 23 proposed to carry out large-scale equipment updates and the replacement of consumer goods with old ones, relevant policies and financial support have been launched one after another.
Zhongguo Yinhe Securities believes that policy guides a new round of large-scale equipment updates, and a new round of Zhu Gela cycle is expected to begin, undertaking new production capacities. With the continuous implementation of relevant national and local support policies, cyclical general equipment sectors represented by general machine tools and tool holders are expected to usher in turning points. It is recommended to pay attention to the bottom recovery opportunities of machine tools and tool holders, and pay attention to general machine tools targets such as Ningbo Haitian Precision Machinery (601882.SH), Newell Brands (688697.SH), Guangdong Create Century Intelligent Equipment Group Corporation (300083.SZ), and five-axis linkage CNC machine tool target Keda CNC (688305.SH), core components target Wuhan Huazhong Numerical Control (300161.SZ), tool target Beijing Worldia Diamond Tools (688028.SH), Huari Precision (688059.SH), and cutting tools target Oke Precision Cutting Tools (688308.SH).
The first bid of China National Railway Group in 2024 was released, and EMUs exceeded expectations, while locomotives and train sets were lower than expected. Pay attention to the release of railway equipment demand under the recovery + equipment renewal.
On May 10th, China National Railway Group released the bidding announcement for the purchase of the intelligent configuration EMU of the CRH 350 km/h. The number of standard EMUs amounted to 166.25 groups, exceeding the bidding quantity of 164 groups for 350km/h EMUs throughout 2023.
In terms of high-speed rail, passenger flow has recovered beyond expectations, and the daily passenger volume during holidays has repeatedly hit new highs; due to the low travel demand in the past three years affected by the epidemic, the purchase volume of new cars is low, and there is a large shortage of EMUs in the future. It is expected to gradually release newly added operating mileage and vehicle purchases. Under the push of a new round of large-scale equipment updates, the elimination time of old locomotives has been advanced, and the huge stock of railway vehicles has brought about updating and maintenance needs. For some models of harmony train, 6 years have entered the overhaul period, and maintenance needs have also decreased and postponed due to the impact of the epidemic, and it is expected to gradually release it in the future, and the first bid for major repairs in 24 reached 323 trains, exceeding expectations; the fourth meeting of the Central Finance and Economics Committee proposed to reduce the cost of logistics in the whole society, again emphasizing “turning goods from road to rail”, which is expected to drive demand for railway locomotives and freight cars. It is recommended to pay attention to related targets such as CRRC Corporation (601766.SH) and Times Electric (688187.SH).
The favorable policy for real estate is conducive to the improvement of the domestic demand for construction machinery.
The central bank's policies to stabilize the real estate market from both supply and demand sides are conducive to promoting the clearance of real estate inventory, to a certain extent boosting the upstream and downstream industry chains, and it is conducive to improving the domestic demand for construction machinery. From March to April 2024, the year-on-year growth rate of domestic excavator sales remained positive. According to the statistics of the China Construction Machinery Industry Association on the major excavator manufacturers, sales of various types of excavators were 18,822 units in April 2024, a year-on-year increase of 0.27%, of which 10,782 units were sold domestically, a year-on-year increase of 13.3%; exports were 8,040 units, a year-on-year decrease of 13.2%. From January to April 2024, excavator sales totaled 68,778 units, a year-on-year decrease of 9.78%; of which 372,28 units were sold domestically, a year-on-year decrease of 2.9%; and exports were 31,558 units, a year-on-year decrease of 16.7%.
Zhongguo Yinhe Securities believes that from the perspective of cyclical fluctuations, the excavator market has entered a downturn cycle since 2022, and it is expected to still be in the grinding bottom period at present, and the decline in 2024 is expected to narrow. A new round of upward cycles will be gradually launched in 2025.
Investment recommendations: It is recommended to focus on (1) investment opportunities brought by large-scale equipment updates in 2024, including rail equipment, machine tools, construction machinery, and ships, (2) equipment going abroad, including consumer machinery, forklifts, construction machinery, lithium battery equipment, etc., (3) investment opportunities driven by the landing of AI+ applications, including humanoid robots and 3C automation driven by AI hardware landing, and (4) equipment investment opportunities driven by the improvement of new technology penetration direction and new quality productivity direction.
Core symbols: Guangdong Create Century Intelligent Equipment Group Corporation (300083.SZ), Times Electric (688187.SH), Leader Harmonious Drive Systems (688017.SH), Jiangsu Hengli Hydraulic (601100.SH), China CSSC (600150.SH).
Risk reminder: The risk of policy advancement being less than expected; the risk of manufacturing investment growth being less than expected; and the risk of intensified industry competition.