中國建筑機械行業(yè)：基礎設施FAI和需求替換是最重要的驅動因素

1、ResearchAnalystsZhaoZhang852 21016915 HYPERLINK mailto:zhao.zhang EdmondHuang852 21016701 HYPERLINK mailto:edmond.huang Michael Wang852 21017763 HYPERLINK mailto:michael.wang 24 January 2019 Asia EquityResearchConstruction & FarmMachineryChina Construction Machinery SectorSECTOR FORECASTSECTOR FOREC

2、ASTInfrastructure FAI and replacement demand are the most important driversWe expect infrastructure FAI to further rebound in 2019. Recently, we have observed more measures to support our view that the infrastructure FAI will further rebound to c.10% YoY in 2019. NDRC has accelerated approvals on in

3、frastructure projects since 2H18. More favourable policies of relaxation on local government financing and loosing liquidity are also expected. We believe that the infrastructure investment acceleration will provide solid support to construction machinerydemand.Infrastructure FAI as a bigger driver

4、than property Our analysis on excavator sales on provincial level shows that excavator sales in 2018 in different provinces are less dependent on their property markets, but more correlated with local infrastructure FAI. Therefore, we are less concerned by the downside pressure in property market. T

5、he infrastructure FAI acceleration in 2019 will overweigh property market decline in determining the excavator sales, in ourview.replacement demand remains structural. The average age of concrete pump truck fleet demonstrates that the replacement cycle is far from finished yet. The average age now i

6、s roughly 6.2 years, still highest in the history. It is also larger than the average excavator fleet age (5.5 year). The profile of equipment on second-hand market clearly shows that the majority is machines having been sold during 2010-12. The truck purchased in 2010 may begin to be replaced in202

7、0.Valuation and stock pick. Sector is trading at 9.3x forward P/E, implying a 10.8% forward earnings yield, above +1SD from average over the past ten years, as a result of investors pessimistic outlook on Chinas property market and macro economy. We believe negatives have been largely priced in and

8、the upside potential has been overlooked. We reiterate our OVERWEIGHT stance on Chinas construction machinery sector. Among makers, our top pick is Sany, not only for its expanding market share in the excavator market, but also its solid leadership in concrete machinery. We maintain our OUTPERFORM r

9、atings on Hengli and Dingli for their secular growth outlook and undemanding valuation. We cut XCMGs 2018/19/20E EPS by 7.2%/4.0%/4.9%, revise TP to Rmb3.64 (from Rmb3.86) and maintain our NEUTRAL rating. After the recent drop, Liugongs valuation has become attractive at 8.6x 2019E P/E. We maintain

10、our earnings forecasts and TP for Liugong but upgrade the stock to OUTPERFORM (fromNeutral).DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Creditto do in its As a be the

11、a of of as a in Focus charts and tableFigure 1: NDRCs approval ofinfrastructureprojectsFigure 2: Local governments bondissuances0500400300200100Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-180Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Ju

12、l-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18Special bondsGeneral bonds12MMA(RHS)Source: NDRC, CreditSuisseestimatesSource: Wind, Credit SuisseestimatesFigure 3: Property new starts growth vs excavator sales growth in 2018 for 20provincesProperty new starts growth80%Property ne

13、w starts growthGuizhou60%Guizhou40%Figure 4: Transportation investment growth vs excavator sales growth in 2018 for 20provinceshanxiS80%hanxiSTransport Transport growth40%20%10%80%60%40%200%10%80%60%40%200%0%0%10%80%60%40%20Excavator sales growth10%80%60%40%20-20% 0%-40%-60%-80%0%XinjiangXinjiangExc

14、avator sales growthSource: NBS, CCMA, CreditSuisseestimatesSource: Ministry of Transport, CCMA, Credit SuisseestimatesFigure 5: Average fleet age of concretepumptruckFigure 6: Age of pump truck on second-handmarket718%616%14%512%410%38%26%4%12%20022003200420022003200420052006200720082009201020112012

15、201320142015201620172018Source: CCMA, CreditSuisseestimatesSource:998, Credit SuisseestimatesFigure 7: Company valuation tableCompanyTickerRatingTP UpsideNetProfit GrowthP/EP/BROEEV/EBITDA2018E2019E2020E2018E2019E2018E2019E2018E2019E2018E2019ESany600031.SS012.8748%197%20%12%2.223%24%7.56.5Zoomlion -

16、 H1157.HK04.0331%20%29%10%0.54%5%14.913.4Zoomlion - A000157.SZN3.53-4%20%29%10%17.44%5%14.913.4XCMG000425.SZN3.6411%77%24%10%12.67%8%8.37.6Lonking3339.HK03.4849%17%7%6%1.015%15%4.94.5Liugong000528.SZ08.5238%192%10%9%0.810%10%7.36.5Hengli601100.SS029.1728%126%19%18%23.419%20%16.213.8Dingli603338.SS07

17、8.5925%80%26%27%30.619%20%28.421.8Source: Company data, Credit Suisse estimatesMoremeasures supportc.10%infrastructure growth in2019Infrastructure FAI better excavatordemand difference on levelPositive on replacement demandinNegativesarelargely priced in thevaluationInfrastructure FAI and replacemen

18、t demand are the most important driversInfrastructure FAI to further rebound in 2019Recently, we have observed more measures to support our view that the infrastructure FAI will further rebound to c.10% YoY in 2019. NDRC has accelerated approvals for infrastructure projects since 2H18, focusing on r

19、ailway, metro and airports. Local NDRCs approvals on infrastructure projects have also shown recovery trend since the middle of 2018. More favourable policies on relaxation of local government financing and loosing liquidity are expected. We believe that the infrastructure investment acceleration wi

20、ll provide solid support to construction machinery demand.Infrastructure FAI a bigger driver than propertyOur analysis on excavator sales on provincial level shows that the infrastructure FAI can better explain excavator demand difference than the property market. Excavator sales in 2018 in differen

21、t provinces are less dependent on their property markets, but more correlated with local infrastructure FAI. Therefore, we are less concerned by the downside pressure in property market. The infrastructure FAI acceleration in 2019 will overweigh property market decline in determining the excavator s

22、ales, in our view. replacement demand remains structuralThe demand for construction machinery in December 2018 remained healthy. We reiterate our positive view on concrete machinery sales in 2019, driven by the increasing replacement demand. The average age of pump truck fleet demonstrates that the

23、replacement cycle is far from finished yet. The average age now is roughly 6.2 years, still the highest in history. It is also larger than the average excavator fleet age (5.5 years). The equipment profile of second-hand market clearly shows that the majority are machines sold during 2010-12. As the

24、se machines are approaching their 10-12 year life cycle, the retirement rate will substantially increase and result in demand for newequipment.Valuation and stock picksFive construction machinery manufacturers are trading at 9.3x forward P/E, implying a 10.8% forward earnings yield, above +1SD from

25、the average over the past ten years. Sectors forward P/B ratio is around 1.1x, only 0.1 higher than the -1SD from the average over the past ten years. Such low valuation is based on investors pessimistic outlook for Chinas property market and macro economy. We believe negatives have been largely pri

26、ced in and the upside potential has been overlooked.We reiterate our OVERWEIGHT stance on Chinas construction machinery sector. Among makers, our top pick is Sany, not only for its expanding market share in the excavator market, but also its solid position in concrete machinery. We maintain OUTPERFO

27、RM on Hengli for its leading position in high-end hydraulic components and large potential to penetrate into other machinery. We also like Dingli for its secular growth driven by Chinas increasing penetration rate of AWPs and market share expansion in overseas markets. Due to XCMGs market share loss

28、 in the truck crane market, we cut its 2018E/19E/20E EPS by 8%/5%/10%, revise TP to Rmb3.64, down 6% from the previous TP of Rmb3.86 and maintain our NEUTRAL rating. After the recent drop, Liugongs valuation has become attractive. We maintain our earnings forecasts and TP but upgrade to the stock to

29、 OUTPERFORM.Infrastructure FAI up 3.8% in Infrastructure FAI to further rebound in 2019The infrastructure FAI (Fixed Asset Investment) in 2018 finally registered 3.8% YoY growth, accelerating from the lowest point in 9M18 of 3.3% but still 15.2 pp lower than that in 2017. Transportation, storage and

30、 post FAI registered 3.9% YoY growth and water conservancy, environment and public facilities achieved 3.3% growth, 10.9 pp and 17.9 pp lower than in 2017, respectively.Figure 8: Chinas infrastructure FAI YoYgrowth40%35%30%25%20%15%10%5%Apr-14 Jul-14 Oct-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15

31、Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18Oct-18TotalinfrastructureFAIWater, environment and public facilities FAI Transport, storage and postFAIInfrastructure shouldfurtherreboundto c.10% YoY in2019NDRC hasacceleratedapprovalsof infrastructure Mostprojects r

32、ailway andmetrowereapproved in4Q18Source: NBS, Credit Suisse estimatesThe weak investment data is a combined result of de-leveraging requirements for the local governments, strict control over off-balance financing of banks and tight liquidity in 2018. After 3Q18 when the central governments focus c

33、hanged to economic stabilisation, the infrastructure FAI growth rate started to pick up, in line with our expectation. We have observed more measures recently to support our view that the infrastructure FAI will further rebound to c.10% YoY in 2019. We believe that the infrastructure investment acce

34、leration will provide solid support to construction machinery demand, although the downside risk of property marketremains.NDRC project approvals acceleratedIn response to the central governments guidelines on improving the weak links in infrastructure, NDRC has accelerated approvals of infrastructu

35、re projects since 2H18, focusing on railway, metro and airports. The total investment size is above Rmb1.2 tn. According to our statistics, the total investment plan of approved railway projects (including inter-city lines) reached Rmb441.7 bn in 2H18, encouragingly up by 217% YoY; the total investm

36、ent plan for five approved urban metro plans is Rmb655.3 bn, encouragingly up 387% YoY.Figure 9: NDRCs approvals of infrastructureprojectsRmb bn2H182H17YoY20182017YoYRailway441.7139.4217%611.2139.4338%Metro655.3134.5387%655.3438.150%Source: NDRC, Credit Suisse estimatesIt is worth mentioning that mo

37、st projects of both railway and metro were approved in 4Q18, a clear sign of acceleration. Especially, approvals of metro plans were resumed afternearly one year. There are no approved projects in 2H17 and 1H18, except Shenzhens approval on 7 July 2018.Figure 10: NDRC-approved metro plans over past

38、twoyearsDate of ApprovalCityLine No.Investment (mn RMB)Length (Km)2018/12/25Wuhan8146,907198.42018/11/30Changchun771,137116.02018/12/11Shanghai9298,348286.12018/11/21Chongqing345,57070.52018/08/12Suzhou493,320137.42017/07/07Shenzhen5134,450148.92017/03/15Guangzhou10219,600258.12017/03/15Changsha784,

39、013121.3LocalNDRC-approvedprojects alsoincreasedin2H18Source: NDRC, Credit Suisse estimatesCentral NDRC has transferred many approval authorities to local NDRCs, such as highway, individual metro line and non-high speed rail, which have been previously approved by the central NDRC in long-term strat

40、egic plans. After local NDRCs approval, these projects only need to be filed for the record. Therefore, we examined these approved projects from local NDRCs fillings. According to our records, the recovery trend of infrastructure projects became evident in the middle of 2018, despite the decline in

41、December which is likely a short-termdistribution.Figure 11: Transportation projects approved by central and localNDRCsFigure 12: Water, environment and public facility projects approved by central and localNDRCs2,0001,8001,6001,4001,2001,000800600400200060%40%20%0%-20%-40%-60%4M175M174M175M176M177M

42、178M179M1710M1711M1712M171M182M183M184M185M186M187M188M189M1810M1811M1812M181,6001,4001,2001,000800600400200020%10%0%-10%-20%-30%-40%-50%4M175M174M175M176M177M178M179M1710M1711M1712M171M182M183M184M185M186M187M188M189M1810M1811M1812M18Transportation investment (RMB bn)YoY (RHS)Water, environment and

43、 public facilities investment (RMB bn) YoY (RHS)Source: NDRC, CreditSuisseestimatesSource: NDRC, Credit SuisseestimatesProject shouldprovidesolid supporttoconstructionmachinery demandinEarlyrelease Rmb1.39 tn ofquota localgovernmentBased on our recent channel checks with construction companies, the

44、project approval acceleration has not reflected in their orders in 4Q18 yet, given the time lag between project approvals and auctions, as well as due to the off season before the Chinese New Year. But they did turn more positive on the growth in 2019. We believe that the commencement of these proje

45、cts will provide solid support to construction machinery demand in 2019.Relaxation of local government financing and liquidity additionLocal governments have been the major investment entities in infrastructure projects. Lack of sufficient funds is the largest concern for boosting infrastructure FAI

46、, especially when land sales are softening. But we believe that there is sufficient room for governments to raise capital and achieve our 10% infrastructure FAI estimate for 2019.On 23 December 2018, the NPC Standing Committee authorised the State Council to approve Rmb1.39 tn of newly added quota f

47、or local government bonds. The quotaanMacinr 5consists of Rmb580 bn of general bonds and Rmb810 bn of special bonds. Usually, the newly added debt quota of local governments is approved by the NPC in its meeting in March and the issuance starts from May, resulting in unbalanced financing activities

48、between the first half and the second half of the year. The early quota release will largely improve local governments financing cash flows and therefore the ability to fund infrastructure FAI.Figure 13: Local governments special bonds and general bondsissuance045040035030025020015010050Jan-15 Mar-1

49、5 May-15 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18SpecialbondsGeneralbonds12MMA(RHS)Other favourable policies and marginal relaxation expectedSource: Wind, Credit Suisse esti

50、matesThis Rmb1.39 tn quota is only for 1H19. We believe that more quota will be released in the March NPC meeting and the total quota will be higher than Rmb4.57 tn, the actual total issuance amount in 2018.Other favourable policies and marginal relaxation on local governments financing are also exp

51、ected. We admit that de-leveraging and controlling local governments credit risk are still important goals. However, amid the substantial downside pressure in manufacturing, export and property segments, the short-term economic stabilisation becomes more crucial than mid- and long-term deleveraging

52、goals. Some soft limitations on financing tools, such as LGFVs and PPPs, might be temporarilyreleased.In 2019, the liquidity is also expected to be relatively loose compared to 2018. On 4 January, the PBoC announced to cut the RRR by 1 pp in two separate steps of 50 bp each. A 50bp RRR cut was imple

53、mented on 4 January and the other one will be implemented on 25 January. Our Economist, HYPERLINK /r/V7evZU2AF-ZL0e Yi David Wang, estimates net liquidity injection to be Rmb800 bn, approximately 2.6% of the monetary base. We view this move as supportive and anticipate more targeted measures to be i

54、ntroduced in the nearterm.Infrastructure accelerationin2019will overweigh marketdeclinein determiningexcavatorExcavatorsalesdifference in2018in different provinces nothighlydependent on theirpropertyInfrastructure FAI a bigger driver than propertyAccording to NBS, property new-starts and sales value

55、 increased by 17.2%/12.2% YoY in 2018, indicating another encouraging year for the property market. While our property team remained cautious in its outlook and expected structural decrease in annual new house sales in 2019, it projected property new-starts and sales value in 2019E/20E to be-8.6%/-5

56、.6% YoY and -11.6%/-4.3% YoY, respectively.We acknowledge that the property market will be slowing, but we believe infrastructure FAI will be a more important driver. Our analysis on excavator sales at the provincial level shows that the infrastructure FAI can explain the difference in excavator dem

57、and better than the property market. Therefore, we are less concerned by the downside pressure in the property market. The infrastructure FAI acceleration in 2019 will overweigh property market decline in determining excavator sales, in our view.Chinas provinces, autonomous regions and municipalitie

58、s have very different economic features. As cross-province purchase of new construction machinery is not common, we believe the sales are determined by local demand. By decomposing domestic construction sales into different regions, we could better qualitatively evaluate the significance between inf

59、rastructure FAI and property construction.We have only considered 20 provinces in order to make results easier to present. Excavator sales in these regions in total accounted for c.90% of the domestic market in 2017 and 2018. Proper new starts and transportation FAI have been adopted as indicators o

60、f property demand and infrastructure demand of excavators, respectively.We plot excavator sales growth rates versus the property new starts growth in 11M18 for these 20 provinces in Figure 7. The bubble size indicates the local excavator market share. The trend line, counter intuitively, suggests a