Equipment manufacturing industry: stepping on the rhythm of policies to seize the industry cycle

We are firmly optimistic about the high-end equipment manufacturing industry that has benefited from the structural transformation of the economy. Of course, we do not evade the growth of the construction machinery industry due to the monetary tightening.

We look at the development space of high-end equipment manufacturing from a three-dimensional perspective. The development of the industry and policy control are the debates of space and rhythm. We are firmly optimistic about the high-end equipment manufacturing industry that benefits from the structural transformation of the economy. Of course, we do not evade the growth of the construction machinery industry under the monetary tightening. Will fall back.

Accompanied by the theme of recovery, along the industrial chain upwards, and from the domestic perspective of the world, we are focusing on the introduction of emerging strategies and energy equipment combinations.

Tight monetary policy and loose fiscal policy

To benefit from loose monetary and fiscal policies, the machinery industry performed far better than expected in 2010 and reached the best level in history. After the financial crisis, the Chinese government decisively implemented an expansionary fiscal policy. China became the engine of the global economy, and the machinery and equipment manufacturing industry benefited significantly.

2010 can be regarded as the best year for China's mechanical industry to enter the era of industrialization: high growth, low inflation and high profitability. The sales volume of construction machinery and machine tool industries related to domestic fixed asset investment hit a record high, and the technology of the emerging strategic industry, the rail transportation equipment industry, continued to make breakthroughs. Especially in the construction machinery industry, the profit growth has generally reached over 50%. At the same time, almost all companies have launched refinancing and acquisition expansion plans, further boosting the demand for equipment.

At the same time as the economic recovery, the crowding-out effect of expansionary fiscal policies also began to show. The expansionary fiscal policy will lead to an increase in government deficits, rising interest rates, and increased opportunity costs for investment. Enterprises may postpone the expansion of factories, purchase equipment, and improve capital. The expenditures form a crowding effect. At the same time, the rise in interest rates is expected to attract foreign capital inflows, causing the appreciation of the renminbi and affecting exports.

Loose monetary policy also helped boost asset price bubbles to some extent. Judging from the supply and demand relationship of many global commodities, no reversal has been found, excess production capacity, and the aftermath of the financial crisis between Europe and the United States. Liquidity has pushed up inflation expectations and is not conducive to the recovery of the real economy. From this point of view, next year the country is more likely to adopt “tight monetary-wide fiscal” in its macro-control policy orientation.

The growth rate of fixed asset investment still maintains a growth rate of around 20%. The "Twelfth Five-Year Plan" puts forward that: In the "Twelfth Five-Year Plan" period, it is necessary to ensure that the state's key to the expansion of domestic demand is the successful completion of construction and post-construction projects and bring about benefits. We will give play to the role of industrial policies and guide investment to further tilt toward the people's livelihood and social undertakings, agriculture and rural areas, technological innovation, ecological environmental protection, and resource conservation.

Adhere to different treatment, classification guidance, and guide investment to invest more in the central and western regions. In fixed asset investment, real estate investment is based on the general view of real estate industry researchers, benefiting from the deepening of affordable housing and urbanization, and it should be able to maintain a growth rate of around 20% in 2011; infrastructure construction remains stable, among which, high-speed rail investment is still promising. Maintaining about 700 billion yuan, the compound annual growth rate of urban rail transit in the next five years is about 50%. In addition, the investment in energy extraction industry and metallurgical industry has bottomed out, and regional integration and industry consolidation will also bring new investment.

To sum up, according to the historical characteristics, the fixed asset investment in the “Five Year Plan” is generally relatively high in the beginning of the year, and it is estimated that the fixed asset investment in 2011 will also increase by about 20%.

Tightening the impact of liquidity on the machinery industry Analysis of tightening liquidity can curb the speculation of commodity prices. The difference is that in 2007, demand-driven costs have risen. In 2010, liquidity was promoted. From the point of view of global supply and demand, the impetus for large commodity price increases was insufficient. Therefore, the pressure on the cost of the machinery industry in 2010 was not significant. Shrinking liquidity can curb short-term commodity price increases too quickly.

Increasing interest rates increases corporate financing costs and curbs investment. However, raising interest rates only has a relatively small and lagging effect on the profitability of the machinery industry.

The shrinking liquidity restrained the total demand from growing too fast, but similar to the economic brake in 2004 is unlikely to happen again. Compared with 2004, China’s macroeconomic policies have been more precise in recent years. For example, the impact of macroeconomic regulation and control on the machinery industry in 2007 and 2010 was not significant.

The unpredicted performance of the machinery industry in 2009-2010 was related to the long-term negative interest rate and the high demand growth caused by the expansion fiscal policy. At the same time, it also stimulated the development of credit sales (finance leases, bank mortgages), that is, increased leverage. There is a risk of tight liquidity.

Looking at the development of high-end equipment manufacturing from a three-dimensional perspective, developing a new economy, accelerating the upgrade of equipment manufacturing, and benefiting nuclear power equipment, rail transportation equipment, and environmental protection equipment.

The “Twelfth Five-Year Plan” proposes: nurture and develop strategic emerging industries, actively and orderly develop new generation information technology, energy conservation and environmental protection, new energy, biology, high-end equipment manufacturing, new materials, new energy vehicles and other industries, and accelerate the formation of a pioneering , pillar industries, and effectively improve the industry's core competitiveness and economic benefits.

According to the "Decision of the State Council on Accelerating the Cultivation and Development of Strategic Emerging Industries," the next 10 years will focus on the development of seven strategic emerging industries, including the energy-saving, environmental protection, new-generation information technology, biology, and high-end equipment manufacturing industries as national economies. Pillar industry. By 2015, the strategic emerging industries will form a basic pattern of healthy development and coordinated advancement. The promotion of industrial structure upgrade will be significantly enhanced. The ratio of added value to GDP will reach around 8%; by 2020, it will be strategic. The ratio of value-added of new industries to GDP is about 15%.

We believe that in the era of new economy and low-carbon economy, energy-saving and environmental protection technologies are widely used in the machinery industry to promote the upgrade of the equipment manufacturing industry. For example, the construction of a high-speed track network will replace roads and air transport within 1200 kilometers, and the demand for rail transit equipment will maintain a high growth rate; the most effective way to develop low-cost clean energy is nuclear power plant construction, according to estimates from international consulting company Frost & Sullivan. The total investment in the nuclear power market in China in the next 10 years will reach 980 billion yuan, and the average annual investment will be 100 billion yuan. It is estimated that nuclear power investment in 2010-2012 will be 68.7 billion yuan, 125.2 billion yuan, 164.4 billion yuan, and the compound annual growth rate will reach 70%. Combined with the requirements for the localization rate of nuclear power equipment, the demand for nuclear power equipment and components will maintain high growth. There are also marine projects. At present, there is a big gap between China and South Korea, Brazil and Singapore in terms of design and manufacturing. Deep-sea exploration has become a global energy extraction trend. China’s investment in offshore projects will double during the 12th Five-Year Plan period.

With the deepening of urbanization, investment is the forerunner of consumption, and construction machinery and rail transportation equipment will benefit. The “Twelfth Five-Year Plan” puts forward: “Promoting coordinated development of the region and actively and steadily promoting urbanization.” The western development of developing machinery exceeded expectations in 2010, and investment in western provinces such as Inner Mongolia, Xinjiang and Sichuan and demand for equipment The pulling contribution to 2010 is very large. These provinces have become a major province for the sale of loaders and concrete machinery. The construction of high-speed railways is accelerating the urbanization of China. Of course, when it comes to urbanization, people will mention the issue of the end of the demographic dividend or the low statistics of urbanization.

Reviewing the past few years, the sales growth of real estate investment, automobiles, and construction machinery exceeded expectations every year. Even in the year of the financial crisis, these three indicators exceeded the market's general expectations.

We believe that urbanization is inseparable from the upgrading of consumption and infrastructure facilities. More people are entering the cities, consumption is escalating, the sales of automobiles are high, and there is an inevitable link between the increase in infrastructure requirements.

Let's talk about real estate investment with greater disagreement. In the long run, in the trend of urbanization, the supply of real estate should grow steadily. The protection of housing as a form of easing social conflicts is reflected in the fact that the housing needs are substantial.

The strategic layout of internationalization of high-end equipment manufacturing in China has already begun, and the engineering machinery industry has taken the lead in layout. Although some low-end mechanical products have already produced the world’s highest output due to factors such as labor force and environmental protection costs, in fact, the internationalization strategy for China’s equipment manufacturing industry has just begun. The financial crisis has hit China’s exports very hard, but the financial crisis has also reduced. The cost of China's implementation of its internationalization strategy began to increase.

Equipment manufacturing industry is expected to become one of China's competitive industries. Engineering machinery, railway equipment and other industries are expected to dominate the world, which will change the global competition landscape of equipment manufacturing, of course, depends on China's equipment manufacturing companies to promote the internationalization strategy. We are optimistic about the internationalization of leading companies such as Sany Heavy Industry, Liugong, CSR, CNR, and CIMC.

Emerging industries and energy equipment portfolio

The high-end equipment manufacturing industry will benefit from the structural transformation of the economy and will outperform the index. Industry development and policy control are the arguments for space and rhythm. Under the trend of urbanization, new economy and globalization, high-end equipment manufacturing industries such as construction machinery, rail transportation equipment, and energy extraction equipment enjoy a long-term outlook.

However, in the short-term tightening of the liquidity machinery industry, the growth rate will decline. At the same time, the machinery industry is in the peak period of refinancing and capacity expansion, and the policy shift may increase industry competition. In 2011, when the global economy recovers, raw material prices will rise slightly, and the profitability of the machinery industry will fall slightly in 2011. Similar to 2010, the ultra-high growth cannot continue.

For the mechanical industry with obvious cyclical characteristics, the investment strategy is to follow the policy rhythm and grasp the industry cycle.

The change in real estate investment growth in 2011 will have a significant impact on the demand for the construction machinery industry. Look at the changes in liquidity indicators and grasp the wave market conditions. In the short term, the growth rate of the construction machinery industry will fall, and the market will fluctuate. The main catalyst for the launch of large-scale blue-chip financing for railway equipment is the tendering of the Ministry of Railways; energy equipment is a major area, including oil extraction equipment, nuclear power plant construction and coal mining equipment. Global economic recovery and rising energy prices are forward-looking indicators. Ships and heavy machinery industries still maintain a "neutral" investment rating.

We focus on the cooperation of emerging strategic industries and energy equipment: From the perspective of policies, the “Twelfth Five-Year Plan” has been issued one after another, and investment in fixed assets remains at a relatively high level. Emerging strategic industries benefit from economic restructuring and upgrading of industrial structure; from the machinery industry From a cyclical perspective, the energy equipment manufacturing industry will benefit from rising energy prices and industry consolidation. From the perspective of valuation, the high-end equipment manufacturing industry will have a PE of less than 20 times in 2011, and policy and industry recovery will increase. Value level.

Focus on the introduction of three major combinations: energy equipment portfolios, including CIMC, Shandong Molong, Zhengjiji; high-speed rail equipment portfolio, including China South Locomotive, China CNR, Times New Materials; strategic advantage portfolio of construction machinery, including Sany Heavy Industry, Liugong.