Machinery industry: rapid growth and stability but facing structural differentiation

Core point of view:

Driven by the rapid growth of fixed asset investment and manufacturing, the machinery industry is currently showing sustained and rapid growth. From January to April 2010, the machinery industry completed a total industrial output value of 407.773 billion yuan, an increase of 40.43%; the sales value of completed sales was 3,981.496 billion yuan, an increase of 41.47%. The export growth rate of the industry also basically returned to normal levels. The export of industry in January-April was 398.7 billion yuan, up 30.4% year-on-year, 4 percentage points higher than that in March. The trend of export recovery is basically clear. In the first half of the year, the machinery industry maintained a booming production and sales situation. It is expected to continue to operate at a high level in the second half of the year. The growth rate may fall slightly. We judge that the industry's annual revenue growth is above 35%, and the profit growth rate is roughly the same as the income.

Construction machinery is facing high pressure, and the growth of machine tools will be relatively stable. From January to April, the growth rate of machinery sub-industry in the construction machinery industry, machine tool industry and mechanical basic parts industry, the best momentum is still the construction machinery industry, the cumulative growth rate of 52.3%, than 1- In March, it increased by 3 percentage points; the growth rate of machine tools and basic components in January-April was 41.9% and 40.5% respectively. We believe that due to the country's efforts to strengthen the regulation of the real estate industry, the future growth prospects of some construction machinery products are not optimistic. Therefore, the growth rate of construction machinery in 2010 will be high and low, and the industry's annual growth rate is expected to be 25-30%. The growth of machine tools and basic parts has strong stability.

Asset integration in the military industry is entering a full-scale phase. The capital operation of AVIC Group is at the forefront of the major military industry groups, and the capital operation of the helicopter company may bring investment opportunities. We also focus on the integration of the Aerospace Science and Technology Group in the satellite and electronics sectors, as well as the integration of the Weapons Industry Group in the optoelectronics sector.

Taking into account the international market valuation level and our valuation analysis of key sub-sectors such as construction machinery and machine tools, we maintain the “cautious recommendation” rating of the machinery industry, focusing on Kunming Machine Tool, Zoomlion, Xugong Machinery and other companies. Military listed companies have great potential for asset injection, and the industry's continued growth expectations are clear. We maintain a “recommended” rating for military industry, with a focus on Xinhuaguang, aerospace electronics, and Chinese satellites.

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