Soochow: Intensive repurchase continues to recommend opportunities for layout in the construction machinery sector.

Soochow released a research report stating that the domestic construction machinery industry is at the beginning of an uptrend cycle, with 2-3 years of prosperity still ahead of the industry's peak. Valuations and performance have a high degree of upward elasticity, making the sector a high-value investment after a short-term correction. Related companies include Sany Heavy Industry(600031.SH), ZOOMLION(000157.SZ), Guangxi Liugong Machinery(000528.SZ). Key points from Soochow are as follows: Intensive share buybacks in the sector demonstrate long-term confidence Recently, Sany Heavy Industry and XCMG Construction Machinery have both announced share buyback plans. Sany Heavy Industry plans to use 10-20 billion yuan to repurchase company shares; XCMG Construction Machinery plans to use 18-36 billion yuan for share buybacks. This, along with earlier buybacks by Guangxi Liugong Machinery, enhances investor confidence in the sector and showcases companies' confidence in long-term performance growth. Domestic excavator cycle beginning to rise, strong potential for performance and valuation growth In Q1 of 2025, domestic excavator sales increased by 38% year-on-year, exceeding market expectations. With factors such as increased downstream capital, the approaching renewal cycle, and strong demand in rural areas resonating, the domestic cycle is beginning an upturn phase. The market is currently in its early stages, with 2-3 years of prosperity still ahead of the industry's peak. Following the previous cycle, the industry typically sees a valuation increase after 2-3 consecutive quarters of performance growth, demonstrating strong potential for both performance and valuation growth in the sector. Limited exposure to the US and early overseas capacity layout mitigate overall tariff risks On April 2, 2025, Trump announced a 34% "equal tariff" on imported Chinese goods, with the domestic construction machinery sector facing a 79% tariff on exports to the US, posing significant challenges to direct export costs. However, major construction machinery manufacturers have minimal exposure to the US market, with Sany at around 3%, ZOOMLION/Guangxi Liugong Machinery at under 1%, Jiangsu Hengli Hydraulic at around 5%, making the overall risk manageable. Additionally, these companies have established overseas capacities early, so they recommend focusing on two key directions to address the tariff issue: setting up factories in North America, Mexico/Brazil, and Turkey. (1) US domestic production capacity: Sany Heavy Industry's North American factory, once operational, is capable of producing over 2,000 units per year (corresponding to a value of approximately 1 billion+), sufficient to meet North American demand. Jiangsu Hengli Hydraulic's North American factory has an annual output value of 3-4 billion yuan in hydraulic parts. (2) Mexico/Brazil/Turkey production capacity: Jiangsu Hengli Hydraulic's Mexico factory will begin production in 2025, with an expected annual output value of 2 billion yuan, capable of manufacturing various products including hydraulic parts and screws. ZOOMLION's high-tech factory in Mexico has an annual output value of around 1 billion yuan and has achieved over 1 billion+ in actual sales in Q3 of 24. ZOOMLION's Brazil and Turkey factories produce various products including cranes, construction equipment, etc., with a total output value exceeding 3 billion yuan. Guangxi Liugong Machinery's Brazil factory, operational since 2015, covers a range of products including loaders, excavators, rollers, graders, bulldozers, skid steer loaders, forklifts, aerial work platforms, and more. Risk warnings Macroeconomic fluctuations; international political risks; increased industry competition.