According to East Securities, engineering machinery has many categories, with excavators as the core product. Influenced by the downturn in real estate and excluding spring festival and other holiday factors, domestic sales of excavators have continued to decline, but since April of this year, domestic sales have shown continuous positive growth, and the excavator industry is expected to build up energy at the bottom of the cycle. Policy stimulus combined with a relatively large stock and old market is expected to stabilize the domestic sales of excavators this year. With the release of updated demand, the domestic excavator market is expected to reach a turning point in the cycle, while the overseas market is expected to accelerate its penetration with the improvement of product new energy and brand power.

Engineering machinery has many categories, with excavators as the core product. Engineering machinery is mainly used in transportation construction, industrial construction and production, raw materials industry such as mines, water conservancy construction, civil architecture, urban construction, environmental protection and development and other fields. The products can be mainly divided into: (1) Excavating machinery (2) Lifting machinery (3) Earthmoving and transportation machinery (4) Compaction machinery (5) Pilework machinery (6) Reinforcement and prestressing machinery (7) Concrete machinery (8) Road machinery (9) Decoration machinery (10) Rock drilling machinery and pneumatic tools (11) Forklifts (12) Railway line machinery. Excavators and lifting work platforms occupy the main share. In 2023, the total sales of the top 50 global engineering machinery manufacturers was $223.806 billion, of which the total sales of the excavator sector of the top 20 enterprises in the excavator business was $65.047 billion, accounting for 29.06% of the total sales of the top 50 global engineering machinery manufacturers, close to one-third. In 2023, the total sales volume of engineering machinery products in China is 601,151 units, mainly composed of lifting work platforms, excavators, and loaders. The sales volume of the three major categories in 2023 accounted for 34%, 33%, and 17%, respectively, accounting for a total proportion of 84%. Among them, the sales of excavators accounted for about 1/3, and excavators are one of the key varieties of engineering machinery.

Power is accumulating at the bottom of the cycle, and the release of updated demand is helping to stabilize domestic sales. Taking excavators as an example, influenced by the downturn in real estate and excluding spring festival and other holiday factors, domestic sales of excavators have continued to decline, but since April of this year, domestic sales have shown continuous positive growth, and the excavator industry is expected to build up energy at the bottom of the cycle. According to excavator sub-association data, the 10-year ownership of excavators reached about 1.9 million by the end of 2023. According to Northeast Securities' estimates, the updated demand from 2024 to 2026 will be about 0.053 million, 0.061 million, and 0.095 million units, respectively. According to data on engineering machinery leasing and operational management, the first and second-generation domestic stock excavators account for about half, with ample space for stock replacement. At present, Shanghai has issued a relevant draft solicitation of opinions, implementing subsidies ranging from several tens of thousands of yuan to various types of excavators. Policy stimulus combined with a relatively large stock and old market is expected to stabilize domestic sales of excavators this year. With the continuous promotion of excavator replacement and new energy, it is expected that the overall domestic sales growth rate of excavators in 2024-2026 will be 8%, 12%, and 15%, respectively, corresponding to sales of approximately 0.097 million units, 0.109 million units, and 0.125 million units.

The overseas market share is still low and has ample room for long-term development. According to excavator sub-association data, the market capacity in 2022 was about 0.491 million units, including 0.211 million micro excavators, 0.145 million small excavators, 0.087 million medium excavators, and 0.049 million large excavators. China's export share is only 14% of the global market. From the demand side, mature markets in Europe, America, and Asia are mainly composed of micro excavators (municipal and farm use); the South Asian, Indonesian, and Latin American markets are mainly composed of medium excavators (infrastructure use); and the Central African and Russian-speaking areas are mainly composed of large excavators (mining use). Looking at the five-year period, the Russian market has become the largest, accounting for about 11.5% of the total market, while Europe and the United States have declined slightly. In the short term, domestic enterprises have some gaps with smaller non-domestic enterprises such as Caterpillar, but Northeast Securities believes that with the continuous improvement of domestic enterprises' overseas layout, production and manufacturing, new energy, and brand after-sales service, the competitiveness of domestic enterprises will continue to strengthen. Although short-term factors such as global economic turbulence have affected overseas excavator market capacity, China's excavator exports are expected to accelerate in the medium and long term. Northeast Securities predicts that the overall growth rate of excavator exports from 2024 to 2026 will be -5%, 5%, and 10%, respectively, corresponding to sales of approximately 0.1 million units, 0.105 million units, and 0.115 million units.

Investment advice: The domestic excavator market is expected to reach the bottom of the cycle with the release of updated demand, and the overseas market is expected to accelerate its penetration with the improvement of product new energy and brand power. We recommend focusing on Sany Heavy Industry, XCMG Construction Machinery, Zoomlion, and Guangxi Liugong Machinery.

Risk warning: Risks in overseas trade policy; price war risk; risk of electricification falling short of expectations.