In this paper, “wind” refers to the policy aspect of steady growth, “heart” refers to the stock price fluctuation of construction machinery, and “flag” refers to the fundamental change of construction machinery. By analyzing the changes of policy, historical stock price performance and industrial fundamentals, we try to find the relationship between the three. Since March, the wind of steady growth policy has gradually warmed up, and several times in history, the steady growth policy has shown correlation with the stock price of construction machinery; In 2022, the demand of construction machinery industry is also expected to see marginal improvement.
The “wind” of steady growth policy has come.
1) the steady growth policy is expected to continue. The central economic work conference proposed that the economic work in 2022 should be stable and seek progress while maintaining stability, pointing out the direction for steady industrial growth. In order to implement the decisions and arrangements of the CPC Central Committee and the State Council and give full play to the role of macroeconomic “ballast”, the national development and Reform Commission and the Ministry of industry and information technology jointly issued several policies to promote the steady growth of industrial economy with relevant parties recently, so as to maximize the policy effect, effectively promote the steady operation of industrial economy and strive to stabilize the overall macroeconomic situation. Recently, the interest rate spread of China US 10-year Treasury bonds has been upside down, which may further give birth to the introduction of stable growth policies.
2) the countercyclical regulation of infrastructure investment continues to highlight. On April 7, China Railway Group Limited(601390) released the announcement on the operation data of the first quarter of 2022. The newly signed capital construction contracts of China Railway in the first quarter reached 543.45 billion yuan, an increase of 94.1% year-on-year. The newly signed capital construction contracts in the first quarter reached the highest level in the same period in history. From January to February, the growth rate of infrastructure fixed asset investment increased by 8.6% year-on-year, and the growth rate gradually picked up. From January to February, the amount of special bonds issued by local governments reached 971.9 billion yuan, a year-on-year increase of 452.8%; The issuance progress of local government special bonds is significantly faster than that in previous years, and the commencement of large-scale projects is expected to speed up.
3) marginal relaxation of real estate regulation policies. Since the beginning of the year, the real estate regulation and control policies have continued to be loose. Starting from supporting the reasonable demand for house purchase and expanding the profits of land market projects, we have improved the downward trend of weak supply and demand in the real estate market. From January to February, the completed investment in real estate development increased by 3.7% year-on-year, the new construction area decreased by 12.2% year-on-year, and the new construction area continued to grow negatively. As an important downstream field of the construction machinery industry, the marginal relaxation of the real estate policy is expected to further drive the demand recovery of the construction machinery industry.
How does the “heart” of the share price of the construction machinery sector move?
1) several stable growth policies in history have driven the share price of construction machinery sector to rise. Looking back over the past decade, China has roughly experienced five rounds of steady growth in 20082009, 2012, 20142015, 20182019 and 2020. Taking Sany Heavy Industry Co.Ltd(600031) as an example, the highest rise and fall of Sany’s share price in the above five periods were 89.5%, 22.3%, 118.0%, 60.3% and 148.2% respectively, and the range rise and fall were 49.3%, – 13.9%, – 24.2%, 52.7% and 146.9% respectively. It can be found that the steady growth policy has played a certain role in boosting the share price of the construction machinery sector.
2) construction machinery can still capture a good investment window period in the downward cycle. We focus on analyzing the performance of Sany Heavy Industry Co.Ltd(600031) share price in the downward cycle of construction machinery industry from 2012 to 2016, which may have reference significance for investment at this stage: Historically, the stable growth policy has a positive catalytic effect on Sany Heavy Industry Co.Ltd(600031) share price, and good investment opportunities can still be captured in the downward cycle. We believe that the performance inflection point, order inflection point and order expected inflection point are the key to judge the stock price performance of the construction machinery sector; The expected change of orders may lead to the early response of stock price, and the performance may become a lagging indicator in the downward cycle.
3) this round of sharp correction in the share price of construction machinery sector has fully reflected the pessimistic expectation of the industry. Since 2021, the share prices of Sany, Zoomlion, XCMG, Hengli and other construction machinery enterprises have been significantly adjusted, with declines of 61.9%, 55.1%, 33.0% and 62.0% respectively since the last share price peak. Since the second quarter of 2021, the year-on-year sales data of construction machinery products such as excavators, truck cranes and pump trucks have continued to decline. The market generally believes that the construction machinery industry has ushered in a peak / downward cycle after a five-year upward cycle, and the stock price also reflects this pessimistic expectation. If the industry demand is expected to improve marginally in 2022, we have reason to expect the stock price to stabilize and rebound.
When will the “flag” of the fundamentals of construction machinery move?
1) the construction machinery industry has obvious periodicity, and the sales of excavators in 2022 may be better than expected. In 2009, the Chinese government issued a “four trillion” investment stimulus policy. The production and sales of construction machinery products represented by excavators increased significantly, and the sales of excavators reached a peak in 2011. In 2012, the industry demand fell sharply, and then entered a five-year period of in-depth adjustment. Due to the continuous force of multiple factors such as the recovery of downstream demand and the renewal peak of old equipment, the industry has continued to pick up since the second half of 2016, and the high boom continues to the first quarter of 2021. Since the second quarter of last year, the industry has gradually entered a downward adjustment period, but the decline in this cycle is expected to be relatively limited.
2) in 2022, the construction machinery industry may show the characteristics of “backward demand and no light off-season”. In the first quarter of 2022, 77000 excavators were sold, a year-on-year decrease of 39.2%; Among them, 37000 units were sold in March, a year-on-year decrease of 53.1%. Excavator sales have obvious seasonality. Generally speaking, February may is the traditional peak season for construction, while July and August are the off-season, and November and December at the end of the year are the new peak seasons. The outbreak of the epidemic in many places across the country delayed the commencement of the traditional peak season this year, and the sales of excavators fell sharply in March. If the epidemic situation is gradually and effectively controlled, the stagnant projects will start in an orderly manner, and the industry demand will move backward. Superimposed on the relatively low base in the same period last year, it is expected that the growth rate of excavator sales at the end of the second quarter or the third quarter of this year is expected to become positive, and the industry may show the characteristics of “demand moves backward and not light in the off-season”.
3) from the perspective of capital expenditure and personnel expansion cycle, the performance of leading enterprises in this cycle is more rational. In 2019, in the wave of Lighthouse factory and smart industry city construction, the fixed asset investment of construction machinery enterprises gradually increased, but the expansion rate of fixed asset investment remained at a low level. In terms of personnel expansion cycle, taking Sany as an example, the number of employees increased from 22000 in 2009 to 52000 in 2011 (the per capita output value increased from 764000 yuan in 2009 to 98000 yuan in 2011), and then entered a five-year downward cycle, with only 14000 people in 2016. The number of employees began to rise in 2017 and increased to 25000 in 2021 (the per capita output value in the first three quarters of 2021 was 3.591 million yuan). The increase in the number of employees is limited, the per capita output value has increased significantly, and the investment in fixed assets has also been controlled at a reasonable level, reflecting that the leading construction machinery enterprises are more rational in this cycle.
4) analysis of growth factors: export overseas and machine generation have become an important force to smooth the cyclical fluctuations of the industry. In the first quarter of 2022, 25000 excavators were exported, with a year-on-year increase of 89.0%, and the proportion of exports increased to 32.8%; Among them, 10529 units were exported in March, with a year-on-year increase of 73.8%, and the monthly export volume exceeded 10000 units for the first time. The rapid growth of excavator export is expected to effectively smooth the decline of excavator sales in China. In addition, the substitution effect of construction machinery on manual workers has gradually become prominent, the application of small and micro excavation and other construction machinery products in the rural market has gradually increased, and the continuous expansion of application fields will also bring new increment to the construction machinery industry.
Maintain the “overweight” rating of the construction machinery industry. We believe that the “wind” of the steady growth policy has come, and the “flag” movement of the fundamentals is a high probability event, so the “heart” movement of the stock price is not far away. It is expected that the sales of excavators in 2022 may be better than expected, and the construction machinery industry may show the characteristics of “backward demand and no light off-season”. After the sharp adjustment of share price, the sector may usher in a good opportunity for layout. It is suggested to pay attention to enterprises such as Sany Heavy Industry Co.Ltd(600031) , Zoomlion Heavy Industry Science And Technology Co.Ltd(000157) , Xcmg Construction Machinery Co.Ltd(000425) , Jiangsu Hengli Hydraulic Co.Ltd(601100) , Sunward Intelligent Equipment Co.Ltd(002097) , Zhejiang Dingli Machinery Co.Ltd(603338) .
Risk warning: capital construction and real estate investment are less than expected risks; Cyclical decline risk of the industry; Market vicious competition risk; Risk of deterioration of overseas trade environment; Historical failure risk law; The samples in the report are mainly selected from the leaders of the construction machinery industry for analysis, and the conclusions can not fully reflect the risks of the overall situation of the industry.
