J.P. Morgan: Recent decline in China's machinery sector does not reflect fundamentals; maintains bullish view and recommends buying on dips.

J.P. Morgan released a research report stating that China's machinery sector has recently suffered a sharp selloff. After reviewing recent management briefings, operational updates, and the latest sales trends, the bank believes the magnitude of the selloff is not supported by fundamentals, maintains a bullish view on the sector, and recommends buying on dips; the bank has an "Overweight" rating on Weichai Power (02338), TECHTRONIC IND (00669), Sany Heavy Industry (06031), and Sinotruk Jinan Truck (03808), with target prices of HK$55, HK$179, HK$31, and HK$55, respectively. The bank noted that the U.S. AD/CVD investigation mainly targets linear hydraulic cylinders and certain parts imported from China, focusing on component suppliers rather than complete-machine OEMs. Management at Sany Heavy Industry, XCMG, and Jiangsu Hengli Hydraulic all emphasized that the investigation is not aimed at their core businesses, and the risk of expansion to complete machines or other key components remains low at present. Sany Heavy Industry and XCMG's direct U.S. revenue share is only in the low single digits, with North America accounting for less than 3% of group sales; even under a scenario of 50% tariffs with no ability to pass on costs, the estimated impact on Sany Heavy Industry's or XCMG's gross margin is about 0.15 percentage points. Overseas growth remains strong, margin discipline is maintained, and new products and automation initiatives are yielding results; domestic demand is relatively soft, but pricing discipline and cost control support resilience. Sany Heavy Industry and XCMG expect third-quarter overseas revenue growth to exceed 20%, while domestic sales may be flat or slightly down year-on-year. The bank continued, noting that Generac announced a long-term agreement with Amazon to supply backup generators for data centers, with initial deliveries of about US$2.4 billion in 2027-2028, highlighting the scale and visibility of AIDC opportunities, which has positive implications for Weichai Power. The bank views the recent correction as an opportunity to accumulate AIDC leaders and global machinery stocks with strong operating cash flow and visible growth, while remaining selective on China cyclical stocks. It continues to recommend Weichai Power and TECHTRONIC IND, as they directly benefit from AIDC, their growth is self-sufficient, and data center and grid-related infrastructure have multi-year order visibility; it is also bullish on Jiangsu Hengli Hydraulic (601100.SH), Sany Heavy Industry, and Sinotruk Jinan Truck.