Soochow: Domestic sales of construction machinery in February exceeded expectations with a strong recovery, optimistic about the release of profit space in the sector.

Soochow released a research report stating that in February 2025, sales of various types of excavators were 19,270 units, a year-on-year increase of 52.8%. In China, 11,640 excavators were sold in February, a year-on-year increase of 99.4%, with domestic sales of loaders reaching 4,505 units, a year-on-year increase of 63%. In addition, domestic sales of non-excavators also performed well. The bank believes that the recovery of non-excavators in 2025 is expected to change from profit drag to positive contribution for domestic mainframe manufacturers, and mainframe profit performance is expected to exceed expectations. Looking ahead to 2025, the bank is optimistic about the resonance of the engineering machinery industry domestically and internationally, with both excavators and non-excavators experiencing a comprehensive recovery. Against the backdrop of a significant recovery in industry capacity utilization, mainframe profit is expected to exceed expectations. The report recommends investing in Sany Heavy Industry (600031.SH), ZOOMLION (000157.SZ), Guangxi Liugong Machinery (000528.SZ), Shantui Construction Machinery (000680.SZ), and Jiangsu Hengli Hydraulic (601100.SH). Main points from Soochow: 1. Excavator domestic sales grew by 51% in January-February, exceeding market expectations for the domestic excavator market recovery According to statistics from the China Construction Machinery Industry Association on major excavator manufacturers, sales of various types of excavators in February 2025 were 19,270 units, a year-on-year increase of 52.8%. In China, 11,640 excavators were sold in February, a year-on-year increase of 99.4%, with loader sales reaching 4,505 units, a year-on-year increase of 63%. Excluding the impact of the Spring Festival, domestic excavator/loader sales in January-February increased by 51.4%/26.2% year-on-year, far exceeding market expectations at the beginning of the year (market expectations for excavator domestic sales growth in 2025 were 5%-10%). The bank believes that the better-than-expected recovery in excavator sales is mainly attributed to: 1) Replacement of existing demand: The previous upcycle of excavators was from 2015 to 2023, and based on an average lifespan of 8-10 years for excavators, the past two years have been focused on the replacement of existing demand with new machines; 2) Improvement in funding: According to the bank's grassroots research, domestic downstream funding started to improve from Q4 2024, providing support for existing and new projects. Looking ahead to the whole year, the bank believes that high-speed investment in water conservancy will support small excavators, stabilization of real estate enterprises and strong infrastructure development will support medium excavators, and stable demand from mines will support sales of large excavators. In addition to the backdrop of replacement of existing demand, the bank expects the domestic sales of excavators for the whole year to be promising. Domestic non-excavator performance was also excellent, and all categories except those directly linked to real estate showed a bottom-up trend According to association data, domestic sales of graders/rollers/pavers in China in January increased by 23.9%/-4.14%/5.66% year-on-year, showing significant improvement compared to 2024, where sales of the three types of machines were +17.6%/-14.4%/-19.0% year-on-year. Despite the impact of the Spring Festival in January, the performance of these three types of machines was excellent, which indirectly confirms the marginal improvement in demand for municipal engineering, infrastructure, and other downstream sectors. According to the bank's grassroots research, in February, apart from tower cranes, products related to real estate such as cranes and concrete have also rebounded significantly. The bank believes that this is mainly due to support from another major downstream sector, wind power, and that industry sales have fallen to a low level. The bank believes that the recovery of non-excavators in 2025 is expected to change from a drag on profits for domestic mainframe manufacturers to a positive contribution, and mainframe profit performance is expected to exceed expectations. Industry exports continued to rebound in February, and the industry is expected to experience resonance domestically and internationally In February, excavator exports reached 7,630 units, a year-on-year increase of 12.7%, and loader exports reached 4,225 units, a year-on-year increase of 13.2%. The cumulative export growth rates for excavators/loaders in January-February were 7.4%/8.3%, showing a continuous rebound in exports. The bank believes that this is mainly due to the high demand from emerging markets such as the Middle East, Southeast Asia, Africa, and South America, as well as the gradual narrowing of declines in the European and American markets. The industry is expected to experience resonance domestically and internationally in 2025. Risk warning: fluctuations in macroeconomic conditions; international political risks; intensification of industry competition.