Affected by the financial crisis, in the first five months, the total sales volume of the construction machinery industry fell sharply. The growth in industry sales revenue was only 1.3% year-on-year, and net profit growth was -6.2%. The poor performance of the industry was rare in recent years. In the first five months, with the stimulation of large-scale infrastructure investment in China, the industry has basically recovered from month to month. We maintain our judgment on the industry at the beginning of the year: The industry gradually recovers throughout the year and there may be a turning point in the third quarter.
With a compound annual growth rate of 20.9% in 09-11, and the valuation of the sector has been slightly higher, we have calculated the revenue growth rate of the industry in 2009-11 as 20.9%. Due to the large price reduction of products, the benefits of cost reduction have been engulfed. We expect the compound annual growth rate of net profit in the industry in 09-11 may also be around 20%. We believe that the reasonable valuation of the industry at least in 2009 should be around 20 times (PEG=1), and the current valuation is already slightly higher.
The impact of real estate rebound in the second half of the year: The thunder is louder, and the raindrops are small. We assume that stocks at the beginning of the year are profit forecasts, assuming that real estate investment growth this year will be zero. In the first five months, real estate investment grew at a rate of 6.8%, which is expected to pick up in the second half of the year. The objective is to forecast an annual growth of 10%. If so, the income of the construction machinery industry will increase by 1.3% from the original forecast this year, the income from the concrete machinery sub-industry will increase by 7%, the EPS of Sany Heavy Industry will increase by less than 0.05 yuan, and Zoomlion’s EPS growth will be even smaller.
Industry investment rating: long-term optimistic, short-term valuation is slightly higher, maintaining a "neutral" rating.
Risk factors: Government investment is difficult to sustain in the fourth quarter; real estate investment failed to start as expected.
Rating of individual stocks: Give Sany, Liugong, Shantui, Changlin a "Outperform" rating, XCMG, Heli, Zoomlion, Shanhe, Fangyuan support "Big Market Synchronous" rating, and Xiagong "Super Powerful City" rating.
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