Machinery industry: Careful recommendation for sub-sectors that focus on continuous growth

From January to March 2010, the industry's sales output value was 2,834.3 billion yuan, a year-on-year increase of 43.48%; of which, it completed 1,122.1 billion yuan in March, an increase of 41.33% from the previous month and an increase of 38.13%. The export growth rate has basically recovered to a positive growth level. In January-March, industry exports increased by 25.56% year-on-year, continuing the cumulative year-on-year positive growth trend in February, and the prospects for export recovery have been basically clear. We believe that the machinery industry will maintain a boom in production and sales in the first half of 2010. It is expected that the industry's revenue will grow by more than 35%, and the profit growth rate will be roughly the same as revenue.

Construction machinery is facing high pressure, and the growth of machine tools will be relatively stable. The growth momentum of the sub-industry is still the construction machinery industry, with a growth rate of 49.15% in January-March; machine tools, basic parts and internal combustion engines, respectively 41.27%, 40.65%, 40.64%; in addition, agricultural machinery, instrumentation, The cumulative growth rate of food packaging, petrochemical GM, and cultural office industry is also above 20%. 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 characterized by high and low, and the industry's annual growth rate is expected to be around 30%. The growth of machine tools and basic parts has strong stability.

The industry investment rating is “Cautiously Recommended”. Among the listed companies in the machinery industry, the dynamic P/E ratio of key construction machinery companies in 2010 is about 15 times, and the 2010 P/E ratio of other industries such as machine tools is 17-20 times. We believe that the current valuation level is at the lower end of a reasonable area, so we maintain “cautious” Recommended" rating. Focus on heavy equipment companies with advantageous valuations, relatively small impacts from macroeconomic regulation, and listed companies with good growth in the military industry.

Key company - Xugong Machinery: The leading product crane is not highly correlated with real estate, and the uncertainty of performance growth is small. The investment rating is “recommended”. Taiyuan Heavy Industry: In the next two years, large excavators and new energy equipment are the company's main growth points, with strong growth capability, valuation advantages, and investment rating of “cautious recommendation”. Aerospace Electronics: The performance will enter a rising cycle in the next two years, and it has the potential for asset injection. The investment rating is “Recommended”. Xinhuaguang: The company's acquisition of Xiguang Group's quality assets is progressing. After the success, the company's strategic position and performance will be significantly improved, and there is still potential for continued integration in the future.

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