Dong Yaguang: Three Ideas for Investment in Engineering Machinery Stocks in 2011

On November 29th, Guo Jin Securities’ 2011 investment strategy will be held in Shanghai. The financial community website will be broadcast live. The China State Securities Research Institute released the 2011 macro and A-shares strategy report at the meeting.

Guo Yaguang’s construction machinery researcher Dong Yaguang made a report on the investment strategy of the construction machinery industry in 2011. The theme of the report was “Industry upgrade, equipment first”. The report proposes that under the macroscopic background of steady growth in demand, enterprises should focus on the following characteristics:

1. Enterprises with strong technical strength and marketing ability and capable of continuously expanding their share;

2. Enterprises benefiting from the “Twelfth Five-Year Plan”, economic restructuring, and industrial upgrading;

For construction machinery, we focus on two, one is the excavator, the former mainly dominated by foreign brands, foreign brands also accounted for a relatively large share of this year, now including Sany Liugong have the excavator as the main battlefield The change of future share will bring great benefits to related domestic brand enterprises.

The second is the car crane, which is also a relatively large market segment. This market is mainly occupied by XCMG and Zoomlion accounted for 80% of the shares. Currently, Sany and Liugong are also investing heavily in this area. We believe that the market share of truck cranes in the future will change. It will have different effects on related companies.

The contribution of overseas market business will increase Finally, we believe that for construction machinery, overseas markets are increasingly important. Prior to 2008, the incremental contribution of overseas markets to construction machinery had reached a very high level in the first half of 2008. The overseas market's growth rate is close to 30%, and it has declined rapidly since 2008. This year we believe that the overseas market contribution award will continue to increase.

We listed Komatsu's growth history in Japan. From the perspective of Komatsu's history, Komatsu accelerated the layout of the overseas market after the exchange rate of the Japanese Yen increased significantly. As the exchange rate rose, his acquisition costs decreased, and local labor costs increased. We, China, have continued his journey, but the appreciation of the renminbi has not been as fast as it was in Japan so we think we have only just begun.

We are optimistic about high-end equipment such as new energy equipment and CNC machine tools. The second industry that we believe is in line with economic restructuring and strategic direction. For example, new energy equipment such as railway equipment, high-speed rail, nuclear power, and high-end equipment based on numerical control machine tools. For the first and second jobs, mainly related to nuclear power equipment, it is currently in a period of pain, originally based on iron and steel. In recent years, steel investment has declined, which has led to the shrinking of their business. However, on the other hand, the new energy demand is relatively good, but the current capability cannot meet the market's demand, resulting in some disconnects in this convergence process, which has a certain profit impact on their operating performance.

We believe that from the long-term development point of view, after all, new energy demand is still relatively certain, and the future prospects are also very good, and their entry barriers are very high. This will ensure that relevant companies will ensure a better momentum for future development. In addition, as a company, it is Taiyuan Heavy Industry. He is a successful multi-manager and he has also made more contributions.

In the case of railway equipment, we believe that the EMU has entered a centralized delivery period. His operating capability is relatively high and he also has relatively good help for him. In the case of marine engineering, our country is currently dominated by land-based oil, and it will gradually shift to the ocean in the future, and the companies involved in offshore drilling equipment will make greater contributions.

The machine tool is a representative product of high-end equipment. At present, the high-end products of domestic machine tools are still highly dependent on imported equipment. At present, we are more optimistic about Kunming machine tools, the technical content of products is relatively good level. We still have a good influence on him once the machine tool industry has achieved certain results in the mid-to-high end.

In addition, we are more optimistic about Hangzhou Oxygen Co., Ltd., mainly because of its blue ocean into the industrial gas. There is also superstar technology, because of its steadily expanding hand tool leader, which is also more optimistic about us.

3. Innovate in the business model and lay the foundation for the company to enjoy a long-term valuation premium.

The following is an extract of Dong Yaguang's speech:

Three kinds of investment ideas Dong Yaguang: Good afternoon, everyone, I will now give you an introduction to the investment strategy of the machinery industry next year. First of all, our main point is this. We believe that according to the direction of the current economic restructuring of the government, we believe that during the 12th Five-Year Period The growth rate of GDP may be lower than that of the Eleventh Five-Year Plan period. In this way, we think that the overall macroeconomic investment environment in the 12th Five-Year Plan period and the 11th-Five-Year Plan period will also show a decrease in his growth rate.

In this way, our overall thinking is now divided into three types. An industry where the investment industry is relatively highly affiliated, we will look for companies with strong market share that will not only increase, and the second is the adjustment of the economy to the planning. The third type of enterprise is to find relatively small changes in investment, itself is the leading enterprise in the industry, and there is a relatively large space for the development of its own business. We will list them separately in the PPT.

Judging from the situation in recent years, the current growth of the entire industry is relatively fast. We believe that the main reason is that investment is actually a combination of a forecast we made at the end of last year, that is, the structure of the entire investment is actually better than in 2009, this year. The investment growth rate is lower than in 2009, and the demand for the entire machinery is much faster than in 2009. I will not give you any specifics.

The growth rate of the industry will decline next year. For 2011, we are now looking at the macro data. One is the planned investment growth rate for new projects. We believe that this indicator has practical precedent significance. From the perspective of this growth rate, So far it has also dropped to around 24%. At this level throughout the year and compared with 67% at the end of last year, the investment growth rate of new projects has actually been relatively large. This also indicates that new projects will start next year. Investment will not be as hot this year.

In addition, the newly-started area of ​​the commodity industry, on the one hand this year, real estate investment has rebounded sharply, as well as the promotion of affordable housing. Now according to our macro and real estate researcher's predictions, the area of ​​new start-ups likely to increase next year will also be significantly lower than in 2010. Next year's electromechanical industry should maintain a relatively good level of scale. In terms of growth rate, it is also an overall decline compared to 2010. We are more concerned with structural changes. Looking at the situation, we have already seen the industrial upgrading in the structure. The evolution of sex.

We believe in the overall macro-level judgment that we focus on the following three types of industries and enterprises. Regarding construction machinery, we believe that the growth rate is going down. We believe that the growth rate of the industry in the next year will also be significantly lower than this year. This year it is 36% and is expected to be around 19% next year. This piece of construction machinery has more and more product lines and is basically involved in the main sub-products. The competition between each other will become increasingly fierce.

For cranes, we are more interested in the construction machinery industry.