The Zhitong Finance App learned that Dongwu Securities released a research report saying that in the current downturn cycle of construction machinery, companies focus on reducing costs and increasing efficiency, controlling risks, and improving profitability through cost optimization and structural improvements. Currently, the domestic excavator opening cycle is rising, and non-excavation is expected to bottom up in 2025. In overseas markets, the share of domestic brands will also continue to increase. Looking ahead, the bank believes that the mining market will drive new demand, while the electrification of construction machinery is also expected to provide new impetus. The bank predicts that the profit growth rate of core OEMs will be about 30% in 2025, corresponding to the low current valuation position, which is relatively cost-effective as a prudent asset allocation. We recommend Sany Heavy Industries (600031.SH), Zhonglian Heavy Industries (000157.SZ), Liugong (000528.SZ), Shantui (000680.SZ), and Hengli Hydraulic (601100.SH).

The main views of Dongwu Securities are as follows:

Domestic: The opening cycle of excavators is increasing, and non-excavation is expected to bottom up in 2025

Domestic earthmoving machinery took the lead in recovering in 2024, and 24M1-9 continued to maintain a year-on-year growth rate of around 20%. Specifically, at the end of '23, the trillion treasury bonds boosted the domestic small-scale mining boom to a large extent, and gradually transferred to CUHK. Domestic sales of CUHK have picked up markedly since June. In addition, non-excavator cranes & concrete have declined by more than 85% since the 2021 high, and 24M1-9 still declined by 40%-60% year-on-year. Looking forward to the future, in the context of debt and policy bias towards stabilizing the property market, we are optimistic about the marginal recovery of real estate infrastructure in 2025, which will respond to the recovery in sales in the medium and large excavation & non-excavation sector with strong profitability, bringing greater profit flexibility to construction machinery OEMs.

Exports: The decline in overseas demand is expected to narrow in 2025, highlighting the competitiveness of Chinese brands and continuing to increase their share

Looking at the subregion, Indonesia, Africa, South America, the Middle East and other regions are expected to resonate with an increase in the industry beta and rising market share of Chinese brands; in 2024, Europe and the US are affected by weak demand due to the general election, and there is strong resistance to breaking through, but the decline continues to narrow. By product, Chinese brands have a high market share of overseas excavators. The current growth is mainly benefiting from the recovery in demand brought about by the end of the general election; the crane base is small, market development is relatively difficult, and growth is faster under new product launch+new market development; with the exception of excavators and cranes, construction machinery from Chinese brands is in the market development stage and has a lot of room for growth.

New direction: focus on the new needs of the mining market and focus on the progress of the electrification industry

(1) Mining machinery: In 2023, the global open pit mining equipment market will be about 24 billion US dollars. With the steady growth of Chinese companies' investment in foreign mining, the global brand power of domestic open pit mining machinery has gradually been established, and it has now gradually entered world-renowned mining leaders such as Investment Development Group and Vale. Mining customers have high requirements for product stability and reliability, strong brand stickiness, and deep barriers in the front-end market. It is expected that stable demand will form after breaking through. At the same time, mine customers are in high demand for spare parts, prices are not sensitive, and there are large profit margins in the aftermarket.

(2) Electrification: Electrified construction machinery also has the three characteristics of environmental protection, economy, and comfort, and its advantages have been fully verified in the high machinery, forklift, and loader sectors. We believe that since the mining scenario requires high carbon emissions, has charging conditions, and mining card technology is highly similar to passenger cars, mining cards may become the next electrified explosion product. Looking forward to the future, with continued breakthroughs in domestic battery and electric drive technology, electric construction machinery is expected to become the core gripper for domestic construction machinery OEMs to switch lanes and overtake overseas leaders.

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