Citi: Gives Sany Heavy Industry (00631) and ZOOMLION (01157) "Buy" ratings, with target prices of HK$29 and HK$8.9 respectively.

Citi released a research report stating that Sany Heavy Industry (00631), ZOOMLION (01157), and Jiangsu Hengli Hydraulic (601100.SH) each adjusted by approximately 3% to 7% on Wednesday (the 16th) this week. The bank believes the main reasons are market concerns that the Chinese government may cancel export tax rebates for construction machinery, the United States' anti-dumping and countervailing duty investigations into imports of linear hydraulic cylinders from China, India, and Mexico, and potential U.S. interest rate hikes that could weaken demand for construction machinery in the U.S. and overseas. The bank gives Sany Heavy Industry H-shares a target price of HK$29, Sany Heavy Industry A-shares (600031.SH) a target price of RMB26, and ZOOMLION a target price of HK$8.9, all with "Buy" ratings. The bank summarized management's views and its own perspectives. ZOOMLION management believes that the Chinese government is unlikely to cancel export tax rebates for construction machinery at present, as Chinese construction machinery remains insufficiently competitive globally, especially in developed countries. Cancellation of export tax rebates should first begin with industries that have global dominance, such as new energy vehicles or batteries. Jiangsu Hengli Hydraulic believes that given its high-end market position in the United States, it may not necessarily become a target of the investigation, and it already has contingency preparations in place, as it can export hydraulic cylinders to the United States through its plants in Mexico and Indonesia. Management estimates that preliminary investigation results may be announced by the end of the first quarter of 2027, by which time the Mexico and Indonesia plants will be able to cover nearly all of its U.S. customers' hydraulic cylinder demand. The Mexico plant is expected to turn profitable when its hydraulic cylinder output value reaches US$120 million in 2027, with gross margins potentially 2 to 3 percentage points lower than the China average. Both Sany Heavy Industry and ZOOMLION stated that since the United States entered an interest rate hike cycle in 2023, their overseas revenue has continued to grow. In recent years, overseas revenue growth has not been mainly driven by strong demand from a single market, but rather by market share gains, especially in emerging countries. Sany Heavy Industry, ZOOMLION, and Jiangsu Hengli Hydraulic all believe that on a year-on-year comparison basis, foreign exchange loss pressure in the third quarter may ease significantly. ZOOMLION stated that its foreign exchange loss in the third quarter to date is less than RMB100 million, lower than approximately RMB200 million in the same period last year. Sany estimates its foreign exchange loss in the third quarter this year at approximately RMB400 million, compared with approximately RMB300 million in the same period last year. Jiangsu Hengli Hydraulic mentioned that its foreign exchange loss in the third quarter last year was RMB118 million, making the year-on-year comparison for the third quarter this year relatively easier. The bank believes that Sany Heavy Industry A-shares (600031.SH) are attractively valued after the pullback, currently trading at approximately 1.7 times expected 2026 price-to-book ratio, only about 13% above the historical low of approximately 1.5 times. ZOOMLION appears the most defensive amid bearish sentiment and the backdrop of U.S. interest rate hikes, due to its cash dividend yield of approximately 8%.