Construction Machinery Industry or Stable Growth in 2014

In 2013, the construction machinery industry entered a relatively stable period after experiencing great ups and downs. For this year's trend, one can see from the industry hot spots in 2013.

The industry is weak

Warming up is a precious word for the construction machinery industry. Since 2011, the adjectives in the industry have been filled with "severe winter" and "downturn." Many construction machinery companies also feel that they are struggling. They lack confidence in the market and cannot see when they can weather the cold.

But even so, the industry's recovery has already been traced, and is increasingly clear. According to the latest statistics, in November 2013, sales of domestic brand excavators were significantly higher than foreign brands. In addition, the 2013 sales volume of major construction machinery products in the Chinese market was gradually narrowing compared with the same period of 2012, and the accumulated sales volume in October 2013 had achieved positive growth. From a sector perspective, in January-October 2013, the loader increased by 1.18%, industrial vehicles increased by 10.96%, and road rollers increased by 17.3%. Excavator, grader, and construction cranes also showed a narrowing trend. Sales of the eight mainframe products from January to October 2013 increased by 3.6%.

Specifically, the sales of the excavator industry in November 2013 increased by 20% year-on-year and continued to increase since May. The year-on-year growth rate of Sany Heavy Industry increased significantly for four consecutive months, but the cumulative growth rate was still negative. Liugong's year-on-year growth rate turned negative, and Xiagong and Zoomlion continued to show negative growth.

In the excavator market in November, although the domestic excavator brand still occupies a protagonist, the market share of foreign brands has increased slightly. Komatsu's performance was particularly prominent, with its YoY growth rate of 58% and continued to maintain high growth.

From an external perspective, the total investment in the construction of major downstream industries in the construction machinery industry, railway infrastructure investment, water conservancy investment, and extractive industry investment increased by 7%, 6%, 28%, and 12% year-on-year from January to October 2013, respectively. According to the analysis of experts in the construction machinery industry, the growth rate of single-quarter revenue of construction machinery companies in the third quarter of 2013 has bottomed out.

Debt building is still worrying

According to statistics, from the 2013 third-quarter financial report of the domestic A-share listed companies listed on the construction machinery category, the receivables did not decrease or decrement compared with the past, but the operating income declined. In the third quarter of 2013, the total operating revenue of the 12 construction machinery companies was 113.9 billion yuan, a decrease of 19% from the same period in 2012, and net profit decreased by 47% compared to the same period in 2012, and the total accounts receivable at the end of the third quarter of these companies. It was 85.2 billion yuan, an increase of 11.6 billion yuan over the same period in 2012. Account receivables remained high and net profits shrank, indicating that the spring of the industry has not really arrived.

At present, the global construction machinery industry is still in the adjustment stage, the market demand has shrunk, and the industry competition has become increasingly fierce. The irrational competition in the industry is undoubtedly worse for the financial status of the entire industry.

In the third quarter of 2013, Xugong Machinery and Sany Heavy Industry had total operating revenues of 18.6 billion yuan and 29.9 billion yuan respectively, down 25% to 26% year-on-year. XGMA's total operating revenue in the third quarter of 2013 was 5.4 billion yuan, a 14% decrease from the same period in 2012, and its performance was in a loss. In addition, both Changlin and Tianye Communications also lost money in the third quarter of 2013.

The high level of accounts receivable caused a decline in the net profit of the industry. As a result, the liquidity of some companies was difficult and interest expenses increased. Among them, Xugong Machinery's financial expenses increased by 157% compared with 2012. On the other hand, Sany Heavy Industry's consolidated gross profit margin for the third quarter of 2013 was 28.56%, which was 4.85 percentage points lower than the same period last year. Relevant industry sources stated that nowadays, unsuccessful marketing methods such as zero down payment and price fighting for construction machinery are also key factors that have contributed to the surge in accounts receivable.

Although the industry's difficulties still exist, with the steady implementation of the resolutions of the Third Plenary Session, the expansion of domestic demand will gradually release market demand. The process of urbanization in China has determined that by 2025, infrastructure such as roads and airports will still have more room to expand. The projects approved and passed in the second half of 2013 are gradually showing their pulling effect, so the inventory currently facing construction machinery industry Pressure is expected to be released in the next few years, which will push the industry out of the bottom.

New Year is expected to stop falling

In 2013, the frequent occurrence of mergers and acquisitions in the construction machinery industry, and the adjustment of its own structure at a time when the industry is operating at a low level, may well be a good way to slow downward pressure.

In many mergers and acquisitions Sany is undoubtedly a eye-catching one. The company’s late-night announcement on July 1 last year stated that Sany International Development Co., Ltd., a wholly-owned subsidiary of the company, invested US$5,487,700 to acquire the remaining 10% of the shares of Putzmeister in Germany, thereby achieving 100% control of the company. The acquisition of Putzmeister is an important step for Sany Heavy Industries to create the leading position of "the world's largest concrete machinery manufacturer".

On December 11, 2013, Sany Heavy Industry announced again that the company and Palmergue and its shareholders and other related parties signed an official cooperation framework agreement: Sany Heavy Industries will subscribe to Palm Fertility through a direct or indirect wholly-owned subsidiary. The company issued 5% of new shares and additionally purchased 5% of its existing shares directly to some of the shareholders of Palfige. After the transaction is completed, Sany will eventually hold a 10% stake in Palfinger, and Palfinger will also indirectly hold three shares of a 10% stake. It is understood that Palfinger was established in 1932 and specializes in the manufacture of truck-mounted cranes. It is a world-renowned supplier of loading and unloading equipment.

Earlier in 2013, Shantui also planned to invest 217 million yuan in the acquisition of Dongyue Heavy Industry to obtain a 51% stake in Manitowoc Dongyue Heavy Industry Co., Ltd. Shantui will enter the crane industry, but later The acquisition was terminated.

In 2013, the construction machinery industry was a stable year. The successive introduction of national policies and regulations has played a positive role in promoting the healthy development of the industry. The promotion of remanufacturing, the rollout of the National IV standard, and the pursuit of unsolicited auctions are also the focus of the industry. Although the operation is sluggish, the industry is not deserted.

Last year, the market conditions of China's engineering construction and excavators and the national policies can be said to be closely related. At the beginning of last year, there was little sales of excavator machines. From March onwards, with the convening of China's two sessions and the commencement of various projects, the sales of excavator machines once rose, and then entered a relatively low season. In November, the sales volume of excavators climbed with the introduction of relevant state-friendly policies. In addition, in 2013, a significant change occurred in the sales of digging machines of various models, that is, the sales volume of small excavators suitable for urban and rural construction has significantly increased. According to industry experts, the construction machinery industry experienced a negative growth of about 3% at the end of 2013, but the monthly data in the second half of 2013 showed that the industry has started to show positive growth. In 2014, the industry is expected to stop falling and rise.