Everbright Securities: Performance of listed companies in the construction machinery sector shows steady growth, and the industry maintains a recovery trend

According to the Zhitong Finance APP, Everbright Securities released a research report stating that the sales of the construction machinery industry have maintained a growth trend recently, with good short-term catalysts for the industry; the policies from the Two Sessions provide significant support for the construction machinery industry, ensuring a continuous recovery in mid-term demand; at the same time, as the internationalization and electrification processes of the construction machinery industry continue to advance, leading enterprises in the construction machinery sector are expected to see both volume and profit increase. The firm is optimistic about the long-term performance of the industry and recommends leading manufacturers such as Sany, Zoomlion (A/H), XCMG, LiuGong, and Shantui, as well as component manufacturers like JSHL.

The main points from Everbright Securities are as follows:

In 2024 and Q1 2025, the construction machinery industry is expected to see steady revenue growth, with profit growth outpacing revenue growth.

To analyze the overall performance of the construction machinery industry in 2024 and Q1 2025, the firm selected 18 leading manufacturers in the construction machinery sector, including Sany, XCMG, Zoomlion, LiuGong, and Shantui, as well as 9 component manufacturers such as JSHL and Aidi Precision as industry samples.

In 2024, the overall revenue of listed companies in China's construction machinery industry is expected to reach CNY 355.12 billion, a year-on-year increase of 3.5%; of which, the complete machine segment is expected to achieve revenue of CNY 338.51 billion, a year-on-year increase of 3.2%; the component segment is expected to achieve revenue of CNY 16.60 billion, a year-on-year increase of 10.4%. In Q1 2025, the overall revenue of listed companies in China's construction machinery industry is expected to reach CNY 96.13 billion, a year-on-year increase of 10.4%; of which, the complete machine segment is expected to achieve revenue of CNY 91.55 billion, a year-on-year increase of 10.3%; the component segment is expected to achieve revenue of CNY 4.58 billion, a year-on-year increase of 14.2%.

In 2024, the overall net profit attributable to shareholders of listed companies in China's construction machinery industry is expected to reach CNY 29.77 billion, a year-on-year increase of 16.9%; of which, the complete machine segment is expected to achieve a net profit of CNY 26.55 billion, a year-on-year increase of 18.9%; the component segment is expected to achieve a net profit of CNY 3.22 billion, a year-on-year increase of 3.0%. In Q1 2025, the overall net profit attributable to shareholders of listed companies in China's construction machinery industry is expected to reach CNY 9.72 billion, a year-on-year increase of 30.2%; of which, the complete machine segment is expected to achieve a net profit of CNY 8.88 billion, a year-on-year increase of 33.0%; the component segment is expected to achieve a net profit of CNY 840 million, a year-on-year increase of 6.2%.

Cost reduction and efficiency improvement, along with product structure optimization, continue to show results, leading to a sustained recovery in the profitability of the construction machinery industry.

In 2024, the overall gross margin of listed companies in China's construction machinery industry is expected to be 25.5%, an increase of 0.3 percentage points year-on-year; of which, the gross margin of the complete machine segment is expected to be 25.0%, an increase of 0.3 percentage points year-on-year; the gross margin of the component segment is expected to be 35.7%, remaining basically stable year-on-year. In Q1 2025, the overall gross margin of listed companies in China's construction machinery industry is expected to be 25.1%, a decrease of 0.4 percentage points year-on-year; of which, the gross margin of the complete machine segment is expected to be 24.7%, a decrease of 0.3 percentage points year-on-year; the gross margin of the component segment is expected to be 31.9%, a decrease of 2.6 percentage points year-on-year.

In 2024, the overall net profit margin of listed companies in China's construction machinery industry is expected to be 8.7%, an increase of 1.1 percentage points year-on-year; of which, the net profit margin of the complete machine segment is expected to be 8.1%, an increase of 1.2 percentage points year-on-year; the net profit margin of the component segment is expected to be 19.7%, a decrease of 1.2 percentage points year-on-year In Q1 2025, the overall net profit margin of listed companies in China's construction machinery industry was 10.3%, an increase of 1.5 percentage points year-on-year; among them, the net profit margin for complete machines was 9.9%, an increase of 1.6 percentage points year-on-year; the net profit margin for components was 18.8%, a decrease of 1.2 percentage points year-on-year.

From January to April 2025, domestic construction machinery sales continued to grow, with good short-term catalysts

From January to April 2025, the sales of excavators (including exports) in China reached 83,514 units, a year-on-year increase of 21.4%; among them, domestic sales were 49,109 units, a year-on-year increase of 31.9%. In April 2025 alone, the sales of excavators (including exports) in China were 22,142 units, a year-on-year increase of 17.6%; among them, domestic sales were 12,547 units, a year-on-year increase of 16.4%. From the sales perspective, the domestic construction machinery industry shows a trend of continuous recovery.

From the growth source perspective, the bank is optimistic about the sustained growth of construction machinery upgrades driving sales. The sales of construction machinery such as excavators rapidly increased from the bottom in late 2015 to a peak in early 2021. Considering that the typical lifespan of construction machinery is usually 8-10 years, the bank estimates that there will be a compound growth of about 30% in replacement demand for domestic construction machinery in 2025 and the following years, forming a source of significant growth in recent sales data. In addition, a large number of used construction machinery are exported to developing countries, which objectively reduces the domestic construction machinery inventory and is also a reason for driving new machine sales.

The policy support from the Two Sessions is strong, ensuring sustained recovery of mid-term demand for construction machinery

In terms of funding, the 2025 government work report proposed to issue 1.3 trillion yuan in ultra-long-term special government bonds this year, an increase of 300 billion yuan from the previous year; accelerate the implementation of a number of key projects to promote the smooth completion of major projects in the 14th Five-Year Plan; and arrange 4.4 trillion yuan in local government special bonds, an increase of 500 billion yuan year-on-year, mainly for investment construction, land reserve, acquisition of existing commercial housing, and digesting local government debt. The report proposed to strengthen counter-cyclical adjustments in fiscal policy, especially the issuance of special government bonds and special bonds, as well as the government's "debt reduction," which is expected to stimulate infrastructure investment and subsequently drive downstream equipment demand.

In terms of structure, the 2025 government work report proposed to deeply implement the new urbanization strategy, continuously promote urban renewal and the renovation of old urban communities, accelerate the improvement of urban flood control and drainage systems, as well as the construction of gas, water supply and drainage, heating, and underground utility tunnels; develop digital and intelligent infrastructure, and improve barrier-free and elderly-friendly supporting facilities. The report indicates that the government will continue to strengthen investment in urban infrastructure construction and promote the development of new urbanization; especially in areas such as underground engineering, municipal construction, and water conservancy projects, the demand for construction machinery will continue to grow.

From January to April 2025, domestic construction machinery export sales continued to grow, with significant potential for construction machinery going abroad

From January to April 2025, excavator export sales reached 34,405 units, a year-on-year increase of 9.0%. In April 2025 alone, excavator export sales were 9,595 units, a year-on-year increase of 19.3%. In 2025, China's construction machinery exports face opportunities and challenges due to changes in the Russia-Ukraine situation, increased demand for infrastructure and mining machinery in Southeast Asia, Africa, and the Middle East markets, and improved penetration rates in high-end markets in Europe and the United States, while also facing uncertainties related to tariffs between China and the United States With the leading companies in China's construction machinery industry increasing their overseas expansion efforts, China's construction machinery exports are expected to maintain a growth trend.

Sales of electric loaders significantly increased from January to April 2025, and the electrification of construction machinery is expected to accelerate

From January to April 2025, sales of electric loaders reached 8,139 units, a year-on-year increase of 254.8%; the electrification rate reached 19.3%, an increase of 14.3 percentage points year-on-year. In April 2025 alone, sales of electric loaders were 2,924 units, a year-on-year increase of 211.1%; the electrification rate reached 25.1%, an increase of 15.5 percentage points year-on-year. The government work report for 2025 proposed to accelerate the comprehensive green transformation of economic and social development, promote energy-saving and carbon-reduction transformations in key industries, and advance the development and utilization of new energy; coordinate industrial structure adjustments and promote green and low-carbon development. The bank believes that greening and electrification are among the key development directions for the construction machinery industry in the future. Domestic manufacturers are continuously overtaking by riding the wave of electrification, and the process of electrifying construction machinery is expected to accelerate, leading to further increases in revenue and profits for main engine manufacturers.

Risk Analysis: Infrastructure investment may not meet expectations, overseas exports of construction machinery may fall short of expectations, intensified price competition in the industry, and uncertainties related to China-U.S. tariffs