Machinery Industry: Preferred Downstream Demand Stable Business

In the macro-monetary environment, which is still tight, the fine-tuning of policy relaxation has begun to materialize, but we believe it is difficult to reverse the downward trend of profitability of the machinery industry in the short term. We believe that the sub-sectors of machinery are relatively stable in downstream demand such as coal chemical equipment, coal machinery, and agricultural machinery, or the sub-sectors supported by policies are less affected.

January sales of construction machinery dropped sharply year-on-year, taking into account the high base in January 2011 and the impact of the Spring Festival factors in January, the decline was expected, but the current industry downturn is not showing signs of improvement in the short term. We expect 1 Quarterly industry sales fell by around 30%. We also believe that with the start of the holiday in February and March, sales volume data will gradually improve.

Coal investment continued to grow. In 2011, the investment in fixed assets for the coal mining and washing industry was 486.864 billion yuan, a year-on-year increase of 25.9%. The continuous increase in demand for downstream coal mining has stimulated the growth of income from the mining equipment manufacturing industry. In 2011, mining equipment manufacturing companies achieved a total operating income of 2736.7 trillion yuan, an increase of 32.5% over the previous year, and the growth rate remained strong. The mine rescue capsules that are receiving much attention are entering the actual sales stage, and gradually products come out. According to the statistics released by the National Mine Product Safety Signing Center, there are currently 223 rescue capsules produced by 10 companies on the market. You can achieve sales. In accordance with the use of safety standards, each of the currently sold life-saving cabin products needs an independent mine safety sign. We expect that in the future, listed companies will successively obtain safety standards for the rescue cabins, which will be beneficial to the entire coal machinery sector.

From a valuation point of view, the current engineering machinery company's 2011 P/E ratio is about 10 times, which is at the bottom of the history of the industry. We believe that the current low valuation level of the construction machinery sector has basically reflected the market's concerns about the future profitability and uncertainty of the industry. We think that if you track the monthly sales data and the unexpected changes in the profitability of the company after the second quarter, the sector There will be a rebound opportunity for valuation fixes.