Morgan Stanley: Mainland China's first two months of capital expenditure in manufacturing and construction industries better than expected. Weichai Power (02338) is the preferred choice.

Morgan Stanley released a research report stating that with the support of the mainland government's stimulus policies and some early export support, capital expenditure in mainland manufacturing and construction industries in January and February performed better than expected. Since the beginning of the year, the theme of robotics has mainly boosted the valuation of automation and general machinery stocks, prompting the bank to downgrade its rating on Shenzhen Inovance Technology (300124.SZ) to "in line with the market". In terms of stock selection, the bank currently prefers stocks with exposure to domestic capital expenditure cycles, with Weichai Power (02338) being the top choice due to strong demand for mainland AI data centers and heavy-duty trucks (HDT); at the same time, the price target for Sany Heavy Industry (600031.SH) has been raised from 20 yuan to 24 yuan to reflect strong demand for excavators in the mainland. The report pointed out that mainland construction activity is improving, with increased demand for automation. Benefiting from the government's stimulus policies of "replacement of old with new" and debt conversion, capital expenditure so far this year has been better than expected, with most of the capital expenditure not coming from industries with severe overcapacity. In January and February, orders for major automation companies recorded a 10%-20% year-on-year growth, excavator sales rebounded by 50% year-on-year, and heavy trucks sales remained basically stable year-on-year, due to the fact that this year's replacement subsidies policy has not been implemented in most regions, showing resilience in demand. Looking ahead, the implementation of equipment upgrade stimulus policies and the AI-driven cycle may bring surprises to the rise in capital expenditure.