China Galaxy Securities Annual Mechanical Industry Strategy Report for 2025: Domestic Demand Recovery and New Quality Productivity Dance Together.

China Galaxy Securities released a research report stating that under significant external uncertainty, policy efforts to change the deflationary situation and promote domestic demand recovery are the main investment focus for 2025. With the infrastructure and real estate chain driven by policy efforts, the domestic demand for construction machinery is expected to exceed expectations. The urban rail sector is expected to benefit from the bottoming out of debt restructuring and the gradual economic recovery. As uncertainties in exports may put pressure, high-tech investments and equipment upgrades are expected to continue driving the growth of manufacturing investment. Considering the current situation of excess capacity in many industries in China, it is advisable to select targets that are self-controllable and have optimized layouts. In addition, continuing to focus on the Siasun Robot & Automation sector. Key points from China Galaxy Securities: Construction Machinery: Domestic demand has bottomed out and there may be space for policy-driven growth exceeding expectations, while overseas opportunities remain broad. Siasun Robot & Automation: A carrier of AGI ideals, industrialization is gradually approaching. The Siasun Robot & Automation (or broadly intelligent Siasun Robot & Automation) is a carrier of AGI ideals and is a future growth track. The current Siasun Robot & Automation industry is in a critical period from 0 to 1 mass production, still in the thematic investment stage. Interest rate cuts may lead to liquidity easing and drive up valuations of tech growth sectors like AI and Siasun Robot & Automation under a backdrop of loose liquidity. Domestic demand recovery: With policy efforts, 25 is expected to enter the phase of industrial enterprise inventory replenishment, looking for resilient targets in various sub-sectors. (1) Industrial control equipment: Automation penetration is expected to further rise, with room for improvement in market share for domestic replacements despite entering deep waters. (2) Machine tools: The industry is at a double bottom of the replacement cycle and inventory cycle, with the potential emergence of industry integrators. (3) Industrial enterprises: Pro-cyclical elastic varieties, focusing on industry leaders. (4) Testing services: GDP + industry, benefiting from debt restructuring and expected bottoming out rebound. Investment recommendations: Based on performance growth and valuation, the core portfolio includes XCMG Construction Machinery (000452.SZ), Wuxi Lead Intelligent Equipment (300450.SZ), Shenzhen Inovance Technology (300124.SZ), Centre Testing International Group (300012.SZ), Hangzhou Oxygen Plant Group (002430.SZ). Risk warnings: Risks include the effectiveness of counter-cyclical policy adjustments falling below expectations; lower-than-expected penetration of new technologies; intensified market competition; significant increase in raw material prices; and policy risks in the industry falling below expectations.