After benefiting from the real estate, the demand for urban rail transit is growing rapidly, and the inflection point of the industry is expected to appear
Affected by the real estate macro-control & epidemic situation, the elevator industry has been in a downturn since the second half of 2021. In 2021, the cumulative output of elevators, escalators and elevators in China was 1.545 million, a year-on-year increase of + 17.0%. By quarter, the year-on-year growth rates of Q1-Q4 in 2021 were 71%, 24%, 11% and 7% respectively, decreasing quarter by quarter. Since 2022, the real estate demand has not been significantly boosted, and the superposition of the epidemic has affected the installation & delivery. From January to February 2022, the cumulative output of elevators, escalators and elevators in China was only 137000, a year-on-year increase of – 6.2%.
After benefiting from the real estate development cycle, the demand for urban rail transit has increased, and we judge that the inflection point of the elevator industry is expected to appear. 1) Real estate: the real estate industry has entered the third round of easing period, with continuous favorable policies on the supply and demand side, continuous relaxation of house purchase policies in many places, and alleviating the financing difficulties of real estate enterprises. Benefiting from the cyclical effect of real estate, we judge that the demand for elevators in the real estate industry in 2023h1 is expected to pick up. 2) Urban Rail Transit: China continues to increase investment in new infrastructure to further stimulate the growth of urban rail transit elevator demand. Urban rail transit elevators are mostly in the form of bidding, which is a subdivision track with high threshold. With the rapid improvement of the competitiveness of local enterprises in the elevator field of urban rail transit, it is expected to become an important driving force for the growth of the elevator industry.
The profitability of the industry is at the bottom, and we judge that there is little short-term downward space
The rise in the price of raw materials and the double squeeze of product price reduction have significantly reduced the profitability of the elevator industry in 2021. In 2021, the net interest rates of Shanghai Mechanical & Electrical Industry Co.Ltd(600835) and Canny Elevator Co.Ltd(002367) were 4.74% and 7.84% respectively, with a year-on-year decrease of -2.89pct and -3.40pct respectively. The core reason lies in the sharp decline in the gross profit margin of the elevator industry under the background of rising raw material prices and intensified competition. Specifically: 1) rising prices of raw materials: the cost of elevator raw materials accounts for 90% +, of which steel accounts for about 20% of raw materials. Taking the stainless steel sector (2b) used more in elevators as an example, the average distribution price in 2021 was 16100 yuan / ton (12800 yuan / ton in 2020), reaching the highest point since 2012, which was the main factor in the decline of the profitability of the industry. 2) Decline in average product price: in order to increase market share, local elevator enterprises generally take price reduction measures. In 2021 Shanghai Mechanical & Electrical Industry Co.Ltd(600835) the average price of elevator products was – 2.2% year-on-year; In 2021, Canny Elevator Co.Ltd(002367) the average price of vertical elevators and escalators was – 5.5% and – 8.0% year-on-year respectively.
In the short term, we judge that the profitability of the elevator industry is at the bottom, and there is little downward space in 2022. The main reasons are: 1) although the steel price remains high, it has dropped from the peak in 2021. Similarly, taking stainless steel sector (2b) as an example, the latest distribution price is 18800 yuan / ton (April 8), which is lower than the peak in 2021 (20000 yuan / ton). Compared with 2021, the impact of raw material prices on the industry’s gross profit margin in 2022 is in a moderation period. 2) Under the background of high raw material prices, the price reduction space of the industry is limited, and no enterprise has launched a fierce price war for the time being.
The post service market is an important growth point of the industry and will open up long-term growth space
Globally, elevators have entered a “post market” era. Compared with overseas leaders, the post service business of local elevator enterprises is still in its infancy and has a large growth space. 1) Looking at overseas leaders, service-oriented business has become the main business. In 2021, KONE elevator service business revenue accounted for 46%; In 2021, Otis’s service-oriented business revenue accounted for 55% and contributed 79% of its operating profit. 2) As the world’s largest elevator market, the scale of China’s post service business market will be close to 100 billion yuan in 2025. However, in the broad blue ocean market, the post service business of Chinese elevator enterprises is still in its infancy, the scale of maintenance and installation income is generally low, and most of the profitability is even lower than that of the whole elevator. Looking forward to the future, with the implementation of elevator maintenance standard policy, the maintenance market pattern is expected to be optimized; Superimposed with the concentration effect brought by the scale expansion of local enterprises, the maintenance business is expected to become an important growth point of the industry.
Investment suggestion: in the short term, driven by the post cyclical effect of real estate, we judge that the inflection point of the industry is expected to appear in 2023h1; In the medium term, the decline of bulk prices will improve the profitability of the industry; In the long run, the post service market will further open up room for growth. The elevator industry has long-term growth. It is suggested to pay attention to a domestic elevator leader, Ife Elevators Co.Ltd(002774) , Guangzhou Guangri Stock Co.Ltd(600894) , Shanghai Mechanical & Electrical Industry Co.Ltd(600835) , Zhejiang Meilun Elevator Co.Ltd(603321) .
Risk tip: the investment in the real estate industry is lower than expected, the price of raw materials rises, and the market competition intensifies.
