April 02, 2020

Machinery Industry: Equipment Upgrade Drives Continuous High Growth Premium

The policy has driven the overall upgrade of China's equipment manufacturing industry: a series of related policies such as the “Eleventh Five-Year Plan” and “State Council’s Opinions on Revitalizing Equipment Manufacturing Industry” have spawned the development of China’s equipment manufacturing industry in both directions of heavy and precision. Full upgrade. The refinement upgrade is still in its infancy, and efforts are being made to open up the space for import substitution. The upgrading of heavy machinery has entered a deepening stage and the replacement of imported space has rapidly opened up.

Demand has driven the industry into a booming cycle: China's heavy machinery industry has entered the market driven by the rapid growth in the demand for large-scale heavy-duty thermal power, hydropower, nuclear power, wind power, shipbuilding, chemical, military, metallurgical and mining equipment and the sharp increase in the level of localization. In an extremely long period of high boom, we expect to maintain a high growth rate of 15% or more in the next three years.

Relevant listed companies have begun to take shape and will surely enjoy a sustained high growth premium in the industry: With the heavy reloading and the successive listing of China’s heavy weight, listed companies in the heavy machinery industry have begun to take shape and already have strong industry representation. The plate effect begins to appear. The high growth of the industry will surely be reflected in the stock price of the relevant listed company. A heavy machine sector enjoying a sustained high growth premium has already appeared before you.

Our investment advice: Be optimistic about the continued high growth premiums of listed companies in the industry, especially the excess relative returns that are expected to show in the second half of this year.

Focus on the company: China First, Heavy Duty, China Heavy Industry, Taiyuan Heavy Industry, Huarui Steel, Zhenhua Heavy Industry.

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