The Pacific Securities 2025 Annual Report on the Machinery Industry Strategy: Great Power Strengthening, Manufacturing Leading

Pacific Securities issued a research report stating that from the perspective of demand environment, both domestic and foreign demands are at the bottoming stage. The overall performance of the machinery industry in 2024 is not ideal, but structural positives are still accumulating. Pay attention to the following three structural changes: China is in the process of transitioning from a manufacturing power to a manufacturing powerhouse, the Matthew effect is evident; the domestication of high-end equipment at the complete machine end is rapidly advancing, and equipment companies are accelerating the replacement of foreign brands in both domestic and overseas markets; under the backdrop of the AI industry revolution, technological innovation is flourishing, and if ShenZhen New Industries Biomedical Engineering reaches a significant turning point, it will generate strong demand for equipment. The main points of Pacific Securities are as follows: Review of the machinery industry in 2024 The machinery industry saw a 18.04% increase in 2024, ranking 15th out of 31 primary industries, at a moderate level. Looking at specific sub-sectors, the top three sub-sectors experiencing growth in 2024 were rail transit equipment, export chains, and core components, with increases of 38.6%, 34.6%, and 29.5% respectively. In terms of financial statements, as of the third quarter of 2024, a total of 602 listed machinery companies showed a 5.34% year-on-year increase in revenue but a 2.83% year-on-year decrease in net profit attributable to shareholders. Despite the overall performance not being ideal, structural positives are still accumulating. Based on three structural changes, an investment strategy for 2025 has been formulated. Demand environment: both domestic and foreign demands are at the bottoming stage Due to negative factors such as geopolitical conflicts and trade frictions, the global manufacturing demand environment in 2024 was relatively sluggish, and countries have introduced policies to address this. Domestic demand stabilized first under strong government support, with the manufacturing PMI staying above the breakeven line for three consecutive months. In 2025, with the implementation of more proactive fiscal policies, a steady improvement in the demand environment is expected. Foreign economies face more complex environments, with relatively less risk due to demand being at a lower base. Specific areas to focus on include (1) the pace of rate cuts by the Federal Reserve; (2) the impact of rate cuts by the European Central Bank on the real economy. Manufacturing industry transformation and upgradation, the Matthew effect is evident China is currently undergoing a transformation and upgrade from a manufacturing power to a manufacturing powerhouse, with low-end industries gradually being phased out and social resources concentrating towards high-end industries. High-end equipment and leading enterprises on the manufacturing side are displaying stronger competitive advantages, benefiting from the trend of manufacturing industry transformation and upgradation. Industries such as injection molding machines, printing equipment, and industrial automation are already showing this trend. With the support of national and industry policies, as well as coordination between supply and demand, it is expected that more equipment companies will emerge victorious. This is one of the structural changes. Localization of core components, internationalization of leading enterprises In recent years, the rapid localization of high-end equipment at the complete machine end has focused more on fundamental components, basic components, and basic processes at the lower levels, laying a solid foundation for China's manufacturing powerhouse status. Industries such as machine tools, complete machine and components, Siasun Robot & Automation, and core components of the semiconductor equipment industry are expected to benefit. After strengthening industrial competitiveness, many equipment companies are making a mark in the international market. Currently, industries such as construction machinery, forklifts, and power tools have already generated substantial overseas revenue, and are expected to maintain a good growth momentum. Equipment companies are accelerating the replacement of foreign brands in both domestic and overseas markets. This is the second structural change. Rapid technological innovation offers vast opportunities for equipment companies Under the backdrop of the AI industry revolution, Siasun Robot & Automation's capabilities in motion, action, and perception have significantly improved. The humanoid Siasun Robot & Automation industry at home and abroad is rapidly developing, and primary market financing is extremely active. After experiencing large-scale capacity expansion in the past two years, downstream enterprises in the new energy industry are placing greater emphasis on new technologies that reduce costs and increase efficiency, seeking differentiated development. New energy equipment companies are holding cash flows generated during the capacity expansion period, waiting for new technologies to emerge. Technological innovation is driving the development of humanoid Siasun Robot & Automation, new energy technologies, and corresponding core components and production equipment are continuously developing downstream rapidly. If ShenZhen New Industries Biomedical Engineering reaches a significant turning point, it will generate strong demand for equipment. This is the third structural change. Risk warnings: Increased industry competition leading to a decline in profitability of companies; Upsurge in the price of upstream raw materials, squeezing the profits of midstream machinery industry; Risks from exchange rate fluctuations; Risks due to slow progress in the development of new technologies; Risks of unsuccessful expansion in overseas markets.