Excavators, loaders, and other construction machinery export data have turned positive in growth rate, with the domestic market sales steadily recovering. The construction machinery industry, which has experienced a three-year decline, is gradually welcoming a recovery. Looking back, the last prosperity cycle of the construction machinery industry began in 2016. With the joint support of cyclical equipment renewal, electrification, and internationalization, the construction machinery market is expected to continue to repair.

Recently, the latest data released by the China Construction Machinery Industry Association shows that in August 2024, the main manufacturing enterprises of China's excavators sold a total of 14,700 units of various types of excavators, with sales increasing by 11.8% year-on-year. Among them, the domestic sales of excavators in August were 6,694 units, a year-on-year increase of 18.1%; the export sales were 7,953 units, a year-on-year increase of 6.95%, officially ending the negative year-on-year growth of export sales for 14 consecutive months.

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Since March, under the joint efforts of factors such as the increase in downstream infrastructure growth and the improvement of equipment renewal demand, the sales data of construction machinery represented by excavators has continued to release positive signals. Many securities companies have pointed out that after three years of continuous decline, construction machinery has gradually entered the bottom range, and industry-listed companies are looking forward to the return of the prosperity cycle.

The growth rate of excavator exports has turned positive. According to statistics from the China Construction Machinery Industry Association, in August, the sales volume of domestic excavators increased by 11.8% year-on-year, an increase of 3.2 percentage points compared to the previous month, and achieved a positive year-on-year growth for the fifth consecutive month. Among them, the domestic sales volume of excavators increased by 18.1% year-on-year, exceeding the previously predicted 17% year-on-year growth expectation of the Construction Machinery Magazine (CME), and achieved a positive year-on-year growth for six consecutive months; at the same time, the export sales volume of excavators reached 7,953 units, a year-on-year increase of 6.95%, achieving the first positive year-on-year growth since June 2023. From January to August, the main manufacturing enterprises of excavators sold a total of 131,600 units of excavators, a year-on-year decrease of 2.2%, and the year-on-year decline continued to narrow.

At the same time, in August, the sales growth rate of loaders further expanded. According to the statistical data of the China Construction Machinery Industry Association, in August, the sales of domestic loaders reached 8,329 units, a year-on-year increase of 15.2%. Among them, the domestic market sales volume was 4,036 units, a year-on-year increase of 8.99%; the export sales volume was 4,293 units, a year-on-year increase of 21.8%. From January to August, the cumulative sales of loaders reached 73,700 units, a year-on-year increase of 4.7%. Among them, the domestic market sales volume was 37,400 units, a year-on-year increase of 0.57%, and the sales growth rate officially turned from negative to positive; the export sales volume of loaders was 36,300 units, a year-on-year increase of 9.33%.

Benefiting from the continuous improvement of downstream infrastructure demand and the continuous implementation of equipment renewal support policies, since March, the growth rate of domestic excavator sales has turned positive first, and the increase has continued to expand. By May, the recovery of construction machinery has further expanded to loaders, and the domestic sales data have achieved a year-on-year positive turn.

In the first half of the year, the overall revenue and net profit scale of A-share construction machinery listed companies have increased. According to the data statistics of Dongcai Choice, in the first half of the year, the total operating income of 33 A-share construction machinery listed companies was 185.507 billion yuan, an increase of 1.675 billion yuan compared to the same period last year, a year-on-year increase of 0.91%; the total net profit attributable to the parent company was 16.684 billion yuan, a year-on-year increase of 6.89%; the net cash flow from operating activities was 15.518 billion yuan, a significant increase of 10.328 billion yuan compared to the same period last year, a year-on-year increase of 198.99%.

In terms of revenue scale and profit scale, in the first half of the year, XCMG, Sany Heavy Industry, and Zoomlion respectively achieved operating incomes of 49.632 billion yuan, 39.06 billion yuan, and 24.535 billion yuan, respectively, and achieved net profits attributable to the parent company of 3.706 billion yuan, 3.573 billion yuan, and 2.288 billion yuan, ranking in the top three in terms of revenue scale and net profit scale attributable to the parent company; in terms of revenue growth rate, in the first half of the year, Shantui Shares, Zhejiang Dingli, and Aidi Precision respectively achieved revenue growth rates of 33.81%, 24.56%, and 21.12%, ranking in the top three in terms of revenue growth rate; at the same time, LiuGong, Shantui Shares, and Hangcha Group respectively achieved net profit growth rates of 60.2%, 38.49%, and 29.29%, ranking in the top three in terms of net profit growth rate.

Domestic sales cycle warms up periodically.During a recent investor research session, XCMG revealed that there have been some positive signs in the domestic sales of the industry, especially with earthmoving machinery turning positive for several consecutive months, indicating that the construction machinery industry is gradually entering a new cyclical upturn.

From the perspective of sales proportion, excavators have the highest sales proportion in construction machinery, hence, their cyclical changes can reflect the development trend of the entire construction machinery industry.

Statistical data shows that since 2006, the excavator industry has gone through two cycles. Among them, from May 2011 to April 2016, affected by the weak global economic recovery and the cooling of domestic infrastructure construction and real estate investment, the construction machinery industry faced a stage of overcapacity, and the industry entered a phase of clearing out. During this period, the overall sales volume of excavators decreased from 167,500 units in 2011 to 70,300 units in 2016, a cumulative decrease of 58.03% over five years.

In 2017, with the vigorous promotion of the "Belt and Road" initiative and the construction of new urbanization, the growth rate of infrastructure investment significantly accelerated; at the same time, the existing equipment also entered the renewal cycle, coupled with the acceleration of the trend of machines replacing humans, the domestic construction machinery industry ushered in a recovery growth of up to five years, and the industry's prosperity continued to improve. In 2020, domestic excavator sales reached a historical high of 327,600 units, an increase of about 3.66 times compared to 2016.

In the second half of 2021, the construction machinery industry once again entered a downward cycle, and domestic sales weakened overall. As of 2023, the construction machinery industry has experienced a downward cycle for nearly three years, with excavator sales decreasing from about 342,800 units in 2021 to 195,000 units in 2023, a decrease of about 43.16% over three years.

Statistical data shows that by the end of 2023, China's 8-year-old excavator stock was about 1.7 million units, and the 10-year-old stock was about 1.9 million units. According to the statistics of the Construction Machinery Association, construction machinery has a significant strong cyclical attribute, and under normal circumstances, the service life of construction machinery equipment is about 8 years. Counting from the last sales low point, construction machinery equipment is gradually entering a new replacement period, and the potential demand for stock renewal is waiting to be released.

Guotai Junan Securities stated that currently, the reduction amplitude of the construction machinery industry has basically approached the decline amplitude of the last cycle, and the domestic sales of construction machinery may have entered the bottom interval and are in the bottom-building stage. Looking forward, equipment renewal and infrastructure investment are expected to start a new round of upward cycles. Among them, infrastructure investment, especially water conservancy investment, is expected to become the main support force.

According to the data from the National Bureau of Statistics, in the first half of 2024, the national real estate development investment was about 5.25 trillion yuan, a year-on-year decrease of about 10.1%. In contrast, the growth rate of domestic infrastructure investment was relatively stable. From January to June, the total cumulative investment in infrastructure was about 8.4 trillion yuan, a year-on-year increase of about 5.4%. Among them, water conservancy infrastructure is a key investment direction. Statistical data released by the Ministry of Water Resources shows that from January to June, the national water conservancy infrastructure investment completed amounted to 569 billion yuan, a year-on-year increase of 9.9%, and the implementation of water conservancy construction investment reached 1.01 trillion yuan, a year-on-year increase of 29.2%, significantly higher than the overall level of infrastructure.

In addition, the introduction of policies such as "trade-in for new" has further promoted the clearance of old excavator equipment. In March 2024, the State Council issued the "Action Plan for Promoting Large-Scale Equipment Renewal and Consumer Goods Trade-in for New," accelerating the clearance of old "National I" and "National II" models, and promoting the transition of the existing "National III" to "National IV."

Guotai Junan Securities stated that from 2023 to the present, many local governments have promoted the accelerated elimination of National II and below non-road mobile machinery through subsidies, expanding prohibited areas, and raising emission standards; against the background of cyclical replacement and "trade-in for new," renewal and replacement will become one of the core drivers for the next round of upward domestic sales of construction machinery.Export Data Continues to Improve

Starting from 2020, domestic engineering machinery leaders, including Sany Heavy Industry, XCMG, and LiuGong, have successively initiated global layout, investing in the construction of overseas production bases and promoting the localization and globalization of R&D and service networks through mergers and acquisitions. The export of engineering machinery has gradually become a "must-contest" field for domestic manufacturers.

With the continuous improvement of export layout by domestic leading manufacturers, the export growth rate of domestic engineering machinery has continued to increase. Statistical data shows that in 2020, the overseas sales volume of domestic engineering machinery was about 270,000 units; by 2023, the sales volume of domestic engineering machinery increased to 660,000 units, with an annual growth rate close to 35%; among them, the export volume of excavators increased from 34,700 units to 105,000 units in 2023, with an average annual growth of 44.64%; against this backdrop, the proportion of overseas engineering machinery sales also increased from 18% in 2020 to 37% in 2023.

According to the annual report data, in 2023, the overseas revenue of Sany Heavy Industry, XCMG, and Zoomlion reached 43.258 billion yuan, 37.22 billion yuan, and 17.905 billion yuan, respectively, with year-on-year growth of 18.28%, 33.7%, and 79.19%, respectively.

In the first half of 2024, although the export of excavators was in a negative growth state after the high position in 2022 and 2023, the overall scale of engineering machinery exports still maintained positive growth. According to data released by the China Construction Machinery Industry Association, in the first half of the year, among the twelve major categories of products, ten categories achieved positive export growth. The cumulative export volume of the twelve major categories of products was 371,700 units, a year-on-year increase of 12.3%.

The semi-annual report of Zoomlion shows that in the first half of the year, the company's overseas revenue was about 12.048 billion yuan, with a year-on-year growth rate of 43.91%. The proportion of the company's overseas business in revenue rose to 49.1%, an increase of 14.32 percentage points compared to the same period last year. In the same period, XCMG's international revenue reached 21.901 billion yuan, a year-on-year increase of 4.8%, and the proportion of the company's international revenue reached 44%, an increase of 3.37 percentage points compared to the same period last year. At the same time, the company's international gross margin was 24.41%, an increase of 1.22 percentage points compared to the same period last year; Sany Heavy Industry achieved overseas revenue of 23.542 billion yuan, a year-on-year increase of 4.79%, and the proportion of the company's overseas revenue was 60.77%, an increase of 3.89 percentage points compared to the same period last year.

According to statistics, in the first half of the year, the total overseas revenue of the top five engineering machinery manufacturers listed on the A-share market reached 71.737 billion yuan, a year-on-year increase of 13.39%, and the average proportion of overseas revenue of the five manufacturers reached 50.83%.

During the investor research, XCMG stated that during the "14th Five-Year Plan" period, the overseas market sales of domestic brands will become an important growth point for the engineering machinery industry. On the one hand, for domestic brands, the overseas market still has growth characteristics, and the demand in the overseas market continues to be released; at the same time, as the quality of domestic products continues to improve, the layout of domestic enterprises in overseas channels is becoming more and more perfect, and the construction of the service aftermarket is accelerating, the comprehensive competitiveness of domestic brands is increasing, and the penetration rate in the overseas market is increasing; in addition, domestic key enterprises have successively adjusted global capacity planning, implemented localization strategies, and accelerated global layout.

Electrification leads the world

Guosheng Securities believes that although Chinese leaders have continued to accelerate going overseas in recent years, from the perspective of market share, the overseas share of domestic engineering machinery is still low.According to data from the China Research and Intelligence Institute, in 2023, the global construction machinery market size was approximately $137 billion. Among this, the Chinese construction machinery market size was about $45.2 billion, accounting for about one-third of the global share. However, from the perspective of market share, in 2023, American companies accounted for about 29% of global construction machinery sales, Japanese companies accounted for about 20%, and Chinese companies accounted for about 17%. Among them, the American company Caterpillar led the world with a 17% market share, followed by the Japanese company Komatsu with a 10% share, and Xuzhou Construction Machinery and Sany Heavy Industry ranked fourth and sixth with 5.3% and 4.2% respectively.

Compared with overseas leaders, domestic leading machinery manufacturers still have a significant gap in market share, and there is still ample room for domestic machinery manufacturers to increase their overseas share. Drawing on the experience of forklifts and high machinery overtaking overseas through electrification, electrification may become the key to breaking through overseas construction machinery.

Due to the relatively fixed working environment and relatively simple working conditions of forklifts, they have become the first construction machinery to complete the electrification replacement.

According to data from the World Industrial Vehicle Statistics Association, global electric forklift sales increased from 534,700 units in 2013 to 1.4128 million units in 2022, with a compound annual growth rate of 11.40%, higher than the overall industry level. In 2023, global electric forklift sales reached 1.4837 million units, a year-on-year increase of 5.02%.

In terms of sales proportion, the proportion of electric forklift sales in the total forklift sales during the same period increased from 54.07% in 2013 to 66.98% in 2023, showing a stable upward trend.

At the same time, domestic electric forklifts, with their continuously improving brand effect and cost advantages, have steadily increased their market share globally. According to statistics, in 2023, domestic electric forklift sales were about 796,600 units, and the proportion of global forklift sales increased from 30.2% in 2019 to 35.96%.

According to Hangcha Group, from 2019 to 2023, the company's operating income increased from 8.854 billion yuan to 16.272 billion yuan, with a growth rate of 83.78% during the period; during the same period, Anhui Heli's operating income increased from 10.13 billion yuan to 17.471 billion yuan, with a growth rate of 72.47%; LiuGong's revenue increased from 19.177 billion yuan to 27.519 billion yuan, with a growth rate of about 43.5%.

The latest statistical data show that in the first half of 2024, domestic forklift sales totaled 660,000 units, a year-on-year increase of 13%, of which domestic sales were 430,000 units, a year-on-year increase of 10%, and export sales were 230,000 units, a year-on-year increase of 20%. The industry achieved a total operating income of 21 billion yuan, a year-on-year increase of 4%. Among them, Anhui Heli, Hangcha Group, and LiuGong's operating income increased by 4.6%, 4.04%, and 6.81% year-on-year, respectively.

Dongwu Securities pointed out that under the trend of dual carbon and new energy, construction machinery using oil as energy will inevitably usher in an electrification revolution. Compared with forklifts, excavators and cranes have the most complex working conditions and need to cope with extreme working conditions (high temperature, high cold, high altitude, etc.), posing higher challenges to electrification technology. Therefore, the electrification rate of the two is relatively low at present and is in the initial exploration stage.

Data show that in 2023, global electric excavators and loaders sold about 7,300 units, with an electrification rate of only 0.6%, mainly loaders. Among them, China's electric loader proportion is the highest, with a total annual sales volume of 3,544 units in 2023, accounting for about 50% of the global total sales; during the same period, the sales volume proportion of the European market, the Belt and Road regions, and the North American market was 27%, 21%, and 3%, respectively.Guotai Junan Securities believes that compared to excavators, mixers and loaders have a relatively controllable working range, and their electrification process started later than forklifts and high machinery but earlier than excavators. Especially in the past two years, the electrification rate of mixers and loaders has increased rapidly, and the trend towards electrification of loaders is optimistic.

According to statistics, in 2022, the electrification rates of mixers and loaders were about 10% and 1%, respectively; in 2023, the electrification rates of mixers and loaders have increased to 29% and 3.5%, respectively. The latest data shows that in the first half of 2024, the cumulative sales of electric mixers nationwide were about 4,110 units, a year-on-year increase of 118%; during the same period, the cumulative sales of electric loaders were about 5,110 units, with a year-on-year growth rate as high as 360%. Among them, in June alone, the electrification rate of loaders has increased to 15%.

According to data from Zhuoshi Consulting, the market size of China's loader market in 2023 was about 37 billion yuan, among which the scale of electric loaders was about 3 billion yuan, and the electrification rate was about 8% (market size approach). Zhuoshi Consulting estimates that by 2028, the global loader market size will be about 299 billion yuan, among which the market size of electric loaders will be about 69 billion yuan, and the electrification rate will be about 25%.

Overseas research institution VALUE Market Research estimates that by 2025, the global loader market size is expected to reach $37.4 billion (about 254.3 billion yuan), and by 2032, it will reach $54.6 billion, with an annual growth rate of about 5.56%.