Industry Update
Recently, we conducted research on the current state of the construction machinery industry, visiting 10 dealers across 8 provinces: Jiangsu, Jiangxi, Shanghai, Hubei, Henan, Sichuan, Hebei, and Jilin. Key points are as follows:
1) Sales: Most dealers reported year-on-year sales declines in April, with no signs of recovery in the first week of May; in isolated cases, a Caterpillar dealer in Hebei achieved positive year-on-year sales growth in April; the Jilin region maintained rapid growth from a low base since the beginning of the year.
2) Full-year outlook: Most dealers have become more conservative about full-year industry sales, shifting from earlier expectations of slight positive growth to flat or slightly declining year-on-year; Komatsu in Sichuan, Caterpillar in Hebei, and Komatsu in Jilin remain cautiously optimistic, believing slight growth is still achievable for the full year.
3) Equipment utilization hours: Dealers in Jiangxi and Hubei reported utilization hours of 150-160 hours due to recent heavy rainfall, showing a declining trend; dealers elsewhere reported utilization hours between 170-200 hours, flat or slightly up year-on-year.
4) Payment collection: Caterpillar and Komatsu agents reported good payment collection, with overdue amounts around 3-5%; domestic and Korean-brand dealers generally face increased collection pressure, with overdue rates commonly above 10%, and some dealers reduce overdue rates by repossessing machines.
5) Industry competition: Overall commercial terms in the industry remain unchanged, and some brands have kept prices stable after Spring Festival price cuts, but some brands in Jiangxi, Shanghai, and Henan have introduced promotional policies such as lower down payment ratios or interest-free and insurance-free installment plans.
Comments
March-May is the traditional peak season for excavator sales, but based on the dealer feedback above, we believe April excavator sales will continue the year-on-year decline seen in March. This year's excavator sales show a "weak peak season," and demand recovery in the construction machinery industry has yet to arrive.
Valuation and Recommendation
At current share prices, the A-share construction machinery sector trades at 11.7x and 10.2x 2014/15e P/E, respectively, while Hong Kong-listed Zoomlion trades at 7.2x and 6.4x 2014/15e P/E, respectively.
We maintain our previous view that the construction machinery sector still needs to wait for macroeconomic recovery. We are relatively positive on Anhui Heli, which stands to benefit from potential state-owned enterprise reform; Liugong, whose management efficiency improvements are driving restorative earnings growth; and Zoomlion-A/H, which is actively transforming into environmental industries and agricultural machinery.
Risks
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