CITIC Construction Investment: Large market, stable demand, and high-quality business models drive domestic mining machine companies to accelerate overseas expansion

According to the Zhitong Finance APP, CITIC Construction Investment has released a research report stating that with the upward trend of capital expenditure in the global mining industry, the mining machinery industry is experiencing improved prosperity, and overseas mining machinery companies continue to maintain high levels of revenue and orders. Chinese mining machinery companies are accelerating their catch-up efforts by actively responding to the upward wave of mining capital expenditure through overseas service teams, supporting warehousing and logistics, and capacity expansion. With the continuous enhancement of their product competitiveness, they are accelerating the acquisition of overseas market share, breaking through the development bottleneck caused by the limited domestic mining resource endowment, and securing a place in the high-end market that was originally monopolized by overseas mining machinery. Looking ahead, the trend of mining machinery going overseas is on the rise, and with sufficient market space, Chinese mining machinery companies are expected to align their scale with overseas mining machinery companies and achieve rapid growth.

CITIC Construction Investment's main viewpoints are as follows:

Main ore prices are stable with an upward trend, and mining capital expenditure continues to rise

From the perspective of prosperity, the prices of major minerals such as copper and aluminum are currently stable with an upward trend, while gold and silver prices continue to rise. Future mining demand is expected to grow steadily, leading to a relatively high level of capital expenditure by mining companies in the medium to long term. The capital expenditure of mining companies consists of both maintenance and new capital expenditures. Under stable production levels, maintenance capital expenditure is expected to remain stable, thereby driving steady demand in the mining machinery industry. In addition, the continuous increase in mining extraction costs and the long-term decline in ore grades also support the mining machinery to achieve excess growth relative to the mines themselves. Therefore, under stable and upward trends in mining prosperity, mining machinery companies are expected to maintain high prosperity.

The mining machinery market is large and broad, and Chinese companies' potential can be seen from the current supply pattern

Due to the complexity of the process and the importance of after-sales service, the mining machinery sector has developed a multi-category new machinery market and a significant aftermarket, with a combined global market size exceeding $120 billion, of which the aftermarket accounts for 60%-70%. By category, the value proportion of front-end mining and transportation equipment is expected to be higher than that of back-end crushing and grinding processes. In the nurturing of this billion-dollar market, mining machinery companies with revenues exceeding $10 billion have emerged, represented by global giants such as Caterpillar and Komatsu; additionally, overseas companies like Liebherr, Sandvik, Metso, Will, and Smith also have considerable scale. Due to the uneven distribution of global resources, Chinese mining machinery companies started relatively late, but they are expected to establish benchmark projects by following mining companies overseas, enhancing product competitiveness, and developing high-cost performance products, thereby exploring the vast overseas market along the chain of product export, sales team export, warehousing export, and capacity export, gradually aligning with overseas mining machinery companies.

Investment Recommendations

The firm selects targets based on the current product portfolio completeness, overseas progress, and product innovation. It recommends XCMG, which has a large scale and continues to secure key customer orders; SHANTUI, which has a high global market share in large bulldozers; SANY INT'L, which promotes both wide-body trucks and rigid mining trucks; and Tongli Co., Ltd., a leader in wide-body trucks benefiting from autonomous driving and accelerated overseas business.

Risk Analysis: 1) Risk of macroeconomic fluctuations; 2) Overseas geopolitical risks; 3) Risk of cyclical fluctuations in mining; 4) Risk of raw material price fluctuations