Shenwan Hongyuan Group: High prosperity track superimposed with cyclical recovery, optimistic about the performance recovery of the machine tool sector.

Shenwan Hongyuan Group released a research report stating that China's machine tool orders will steadily increase by 2025, with continued growth in machine tool production in Q1 2026, and several machine tool manufacturers experiencing positive growth in performance in Q1 2026. The overall increase in orders reflects a general recovery in downstream industry capital expenditure, as well as a concentration of demand for expanding production and equipment upgrades. Liquid cooling technology is transitioning from being an "optional configuration" to a "standard necessity" for data centers and AI servers, sparking corresponding demand for machine tools. Additionally, the recovery in consumer electronics and the trend towards high-end upgrades are also driving equipment investment. Key Points from Shenwan Hongyuan Group: - China's machine tool orders are expected to steadily increase by 2025, with continued growth in machine tool production in Q1 2026, and several machine tool manufacturers experiencing positive growth in performance in Q1 2026. - According to data from the China Machine Tool & Tool Builders' Association, in 2025, new orders for metal processing machine tools and outstanding orders in China increased by 7.9% and 2.5% respectively. Metal cutting machine tool new orders and outstanding orders increased by 9.3% and 7.9% respectively. In Q1 2026, China's metal cutting machine tool production reached 213,000 units, an increase of 3.4% year-on-year, while metal forming machine tool production reached 42,000 units, an increase of 2.4% year-on-year. Listed companies such as Jirfine Intelligent Equipment, Nantong Guosheng Intelligence Technology Group Co., Ltd., Ningbo Haitian Precision Machinery, Neway CNC Equipment (Suzhou) Co., Ltd, and Kede Numerical Control all achieved positive year-on-year growth in Q1 2026 performance, with Jirfine Intelligent Equipment achieving a 41.98% year-on-year increase in net profit attributable to shareholders in Q1 2026. - In March, Japan's machine tool orders reached a record high, with strong growth in overseas demand. According to the Japan Machine Tool Builders' Association (JMTBA) data, in March 2026, Japan's machine tool orders amounted to 193.4 billion yen, an increase of 28% year-on-year, setting a new monthly historical high. The main growth came from downstream areas such as semiconductor manufacturing equipment, data centers, aerospace, and Siasun Robot & Automation. Among them, overseas orders reached 142.9 billion yen, an increase of 40% year-on-year, with both North America and Asia setting historical highs in orders. - Rising orders confirm overall positive demand trends, with specific sectors leading in prosperity. As a key indicator of the industry, machine tool orders indicate a general recovery in downstream industry capital expenditure, as well as a concentration of demand for expanding production and equipment upgrades. From a segmented industry structure perspective, there is differentiation, with demand for hot segments such as liquid cooling, consumer electronics, aerospace, and Siasun Robot & Automation driving strong demand and significantly outperforming the industry average. - Liquid cooling technology is gradually becoming a necessity in supercomputing centers, sparking corresponding demand for machine tools. With the explosive growth in global AI computing demand, liquid cooling technology is transitioning from being an "optional configuration" to a "standard necessity" for data centers and AI servers. Core components such as cold plates and connectors require precision in machining, reliable sealing, and high surface roughness. 1) Liquid cooling connectors: requiring micron-level sealing, no burrs, and interchangeability, driving demand for wire-cutting machines, CNC lathes, and milling centers; 2) Liquid cooling plates: requiring uniform flow channels, faultless welding, and high flatness, driving demand for machining centers; 3) Liquid cooling pump bodies: requiring corrosion resistance, leak-proofing, and low vibration and noise, driving demand for milling and milling centers, high-precision grinding machines, and other equipment. - The recovery in consumer electronics and the trend towards high-end upgrades are resonating, driving equipment investment. 3C components have the characteristics of miniaturization and high precision, mainly involving drilling and tapping machines, precision engraving machines, and vertical machining centers. On one hand, with the release of new products such as AI smartphones, foldable screens, AR/VR, and the addition of digital purchase subsidies, the recovery in consumer electronics directly drives upstream equipment investment. On the other hand, material and process iterations: in high-end models, the penetration rate of titanium alloy mid-frames has increased, and foldable screen models have brought about double the processing volume of mid-frames, driving demand for high rigidity and high precision equipment. - Focus areas include: 1) Equipment manufacturers benefiting from downstream liquid cooling, 3C, and other high-prosperity sectors: Jirfine Intelligent Equipment, TSUGAMI CHINA; 2) Equipment manufacturers benefiting from the resurgence of general operations showing performance turning points: Neway CNC Equipment (Suzhou) Co., Ltd, Ningbo Haitian Precision Machinery, Nantong Guosheng Intelligence Technology Group Co., Ltd, Kede Numerical Control; 3) High demand for machine tools will also drive demand for CNC systems; consider domestic replacements for CNC systems: Wuhan Huazhong Numerical Control; 4) Equipment investment will also drive demand for consumables; look for growth in sales volume and profit elasticity in tool companies: Zhuzhou Huarui Precision Cutting Tools Co., Ltd, OKE Precision Cutting Tools, Shareate Tools Ltd, Beijing Worldia Diamond Tools, etc. Risk factors: risks of downstream demand falling short of expectations; risks of intensifying industry competition; risks of fluctuations in raw materials.