Guotai Junan: The machinery and equipment industry is expected to see resonance between domestic and foreign demand

Guotai Junan's research report stated that many countries and regions are still in the peak period of infrastructure construction, providing opportunities for China's equipment manufacturing industry with competitive advantages to equip the world. The report is optimistic about industries and companies with the ability to go global. Furthermore, it mentioned that some industries with excess production capacity are expected to slowly clear out in the next 3-5 years, which will benefit leading high-quality companies in terms of profit recovery. Guotai Junan's main viewpoints are as follows: Three main investment themes in the machinery and equipment industry: technology-driven, global equipment, clearing excess production capacity. The report believes that the development of China's machinery and equipment manufacturing industry has gone through stages of labor-driven, investment-driven, and resource-driven, and has now entered the stage of technology-driven development. Technological advancements will disrupt traditional manufacturing methods and improve efficiency, making the outlook positive for industries driven by technology. Additionally, due to the uneven global economic development, many countries and regions are still in the peak period of infrastructure construction, providing opportunities for China's equipment manufacturing industry with competitive advantages to equip the world. The report is optimistic about industries and companies with globalizing capabilities. Lastly, some industries with excess production capacity are expected to slowly clear out in the next 3-5 years, which will benefit leading high-quality companies in terms of profit recovery. Technology-driven: optimistic about the AISiasun Robot&Automation industry chain. 2025 will be the first year of industrialization for AISiasun Robot&Automation, and domestic car companies and internet giants have also entered the AISiasun Robot&Automation sector. The domestic robot dog industry is expected to industrialize first. The report sees investment opportunities in Tesla's industrial chain and domestic industrial chains that are likely to succeed in the long term. Key areas in the AISiasun Robot&Automation industry chain include the brain, dexterity, screw systems, etc. Global equipment: optimistic about construction machinery. In 2024, overseas demand for construction machinery is significantly better than domestic demand, supporting the fundamentals of the main machinery manufacturers. In Q3 of 2024, exports further accelerated, combined with the recovery of domestic infrastructure demand and the stabilization of real estate demand. The report predicts that in 2025, the industry is expected to experience resonance in both domestic and foreign demand, with improving fundamentals. The increment demand brought by the central finance has played a crucial supportive role for the domestic demand of the construction machinery industry. Looking at the data of excavators, the prosperity has gradually shifted from small to large excavators. Broad infrastructure sectors such as mining, water conservancy, and railways have started to exert more efforts, with general fiscal expenditure becoming the core drive of demand for construction machinery. From a data perspective, earthmoving machinery, which is most closely related to infrastructure, is performing well. In terms of policy, stock prices, and fundamental transmission, it usually takes about 3-6 months for changes to reflect in sales volumes of construction machinery. It is important to continue monitoring leading indicators such as interest rates and the implementation of central and local fiscal funds. Cyclical changes: focus on the recovery of fixed asset investment in manufacturing industry, and the rebound of core data such as PMI. The overall production and sales growth rates of industries such as machine tools, industrial robots, and automation in the general equipment industry are strongly correlated with macroeconomic indicators such as PMI. Currently, the PMI has long been below the prosperity line, with the PMI of small enterprises staying below 50% for the past year. In December 2024, the overall PMI was 50.1%, with new orders and production PMI at 51.0% and 52.1% respectively, above the prosperity line. Additionally, since 2024, the year-on-year growth rate of fixed asset investment in manufacturing has shown signs of recovery. It is important to continue monitoring core manufacturing indicators such as PMI for any significant signs of recovery. Risk factors: slow technological progress, overseas policy risks, sluggish investment in the manufacturing industry.