Soochow: Optimistic about the resonance of construction machinery both domestically and internationally in 2025, with mining and electrification contributing to new growth points.

Soochow released a research report stating that domestic earthmoving machinery is expected to lead the recovery by 2024, with a year-on-year growth rate of around 20% for the 24M1-9 period. Against the backdrop of debt reduction and policies leaning towards stabilizing the real estate market, Soochow is optimistic about the marginal recovery of real estate infrastructure construction in 2025, leading to increased sales volumes in the medium and large excavator sectors, which have strong profit-making capabilities, providing significant profit elasticity for the main engineering machinery manufacturers. Soochow believes that due to the high carbon emission requirements in mining scenarios and the availability of charging conditions, mining trucks, with technology similar to passenger vehicles, may become the next popular electric product. Looking ahead, with continuous breakthroughs in domestic battery and electric drive technologies, electric construction machinery is expected to become the core leverage for domestic engineering machinery manufacturers to surpass overseas industry leaders. Domestic market: Excavators are beginning an upward cycle, while non-excavators are expected to hit bottom and rebound in 2025. Specifically, the issuance of trillion yuan national bonds at the end of 2023 significantly boosted the domestic market for small excavators, gradually transitioning to medium and large excavators. Since June, domestic sales of medium and large excavators have significantly rebounded. In addition, the lifting machinery & concrete sectors of non-excavator segment have declined by more than 85% from their peak in 2021, with a year-on-year decline of 40%-60% still expected for the 24M1-9 period. Exports: The decline in overseas demand in 2025 is expected to narrow, with Chinese brands continuing to increase their market share. Regionally, Indonesia, Africa, South America, the Middle East, and other regions are expected to see a resonance in industry betas moving upwards, and an increase in market share for Chinese brands; while demand in Europe and the United States in 2024 may be weak due to election impacts, with a continued narrowing of the decline. In terms of products, Chinese brands have a higher market share in overseas excavators, mainly benefiting from increased demand after the end of elections; the base for lifting machinery is not large, making market expansion relatively easy, resulting in fast growth with new product launches and market development; apart from excavators and lifting machinery, other Chinese brand engineering machinery in overseas markets are still in the stage of market development, with significant growth potential. New direction: Focus on new demands in the mining market and the progress of electrification industry. (1) Mining machinery: The global open-pit mining equipment market is approximately $24 billion. With the steady growth of Chinese investment in foreign mining, Chinese open-pit mining machinery brands are gradually gaining global recognition, and have entered major global mining giants such as Rio Tinto, Vale, etc. Mining customers have high requirements for product stability and reliability, with strong brand loyalty, deep market barriers, and stable demand expected after breakthroughs. Additionally, mining customers have a large demand for spare parts, are not sensitive to prices, and offer large profit margins in the aftermarket. (2) Electrification: Electrified engineering machinery combines environmental friendliness, cost-effectiveness, and comfort, with its advantages already sufficiently verified in the high-lift, forklift, and loader sectors. Investment recommendation: During this current downturn in the engineering machinery industry, companies should focus on reducing costs, increasing efficiency, and controlling risks, in order to enhance profitability through cost optimization and structural improvements. Soochow predicts that the profit growth rate of core machinery manufacturers in 2025 will be around 30%, with current valuation positions relatively low, making them a high-value asset for stable portfolio allocation. Recommended stocks are Sany Heavy Industry (600031.SH), ZOOMLION (000157.SZ), Guangxi Liugong Machinery (000528.SZ), Shantui Construction Machinery (000680.SZ), Jiangsu Hengli Hydraulic (601100.SH). Risk factors: Industry cyclical fluctuations, delays in infrastructure and real estate projects, unexpected policy changes, and geopolitical risks.