Dongwu Securities: Resonance at home and abroad is improving, focusing on the recovery of prosperity in the overseas construction machinery industry
The Zhitong Finance App learned that Dongwu Securities released a research report saying that in the domestic market, domestic excavator demand grew at an average annual rate of more than 30% year-on-year in 2025-2028, according to holdings estimation & cycle renewal and replacement theory. The current cycle should peak in 2028, with top sales reaching 250,000 units. However, the actual sales performance in 2025 was not as good as the theoretical value. Dongwu Securities determined that the capital availability rate mainly affected the transformation from demand to sales. Domestic excavator sales in 2025 are still dominated by small excavations. The main reason is that the central government's special treasury bonds corresponding to small excavations are abundant, but local bonds corresponding to medium and large excavation are in poor condition. Therefore, under the disturbance of funding, this cycle will show the characteristics of a low slope but a long cycle, and the overall recovery trend is moderate.
In terms of export markets, overseas excavator sales are also subject to cyclical disturbances. Overseas demand has been declining continuously for 4 years (2022 - 2025) since peaking in 2021. The main disrupting factor is the Federal Reserve's interest rate cycle. Dongwu Securities judged that under the Federal Reserve's interest rate cut cycle, overseas demand is expected to enter a new upward cycle in 2026, creating a resounding situation at home and abroad. Currently, domestic and foreign countries are at the beginning of an upward cycle. The profit growth rate of the sector in the next 2-3 years is about 20% +. The core target profit for 2026 corresponds to the current valuation of only 10-16X, so it is recommended to focus on allocations.
The main views of Dongwu Securities are as follows:
In 2025, the construction machinery sector will fully recover domestically and exports will recover moderately, and the revenue side will gradually accelerate
From January to October 2025, the cumulative sales volume of domestic excavators was +19.6%. From January to October, the cumulative sales volume of domestic automobiles/crawlers/trucks/tower cranes was -2.8%/+22.9%/+5.9%/-30.6% year-on-year, respectively. Compared with the marked improvement in 2024, domestic construction machinery entered a full recovery stage. Overseas, the cumulative sales volume of excavator exports from January to October 2025 was +14.5% year-on-year, and a moderate recovery began. Under the influence of domestic and foreign resonance, the revenue side of the sector picked up at an accelerated pace. In the first three quarters of 2025, the revenue side of the construction machinery sector increased 12% year on year.
The effect of scale is showing & the growth rate of cost reduction continues to advance, and the profitability of the sector continues to improve
The overall production capacity of the sector expanded in the previous cycle, so the capacity utilization rate of the sector at the bottom of the cycle was low. Taking Sany Heavy Industries as an example, the company's excavator capacity utilization rate was only 42% in 2024. Over the past 25 years, as industry demand has picked up, sector capacity utilization has rebounded, and the positive effects of fixed cost dilution on profits have begun to show. Moreover, cost reduction and efficiency in the sector continued to advance, and the sector's profitability improved markedly. Net sales margins of Sany Heavy Industries/XCMG Machinery/Zoomlion Heavy Industries for the first three quarters of 2025 were +2.4/+0.1/+0.8pct, respectively
Looking ahead to 2026
(1) Domestic market: According to ownership estimation & cycle renewal and replacement theory, domestic excavator demand grew at an average annual rate of more than 30% in 2025-2028. The current cycle should peak in 2028, with top sales reaching 250,000 units. However, the actual sales performance in 2025 is not as good as the theoretical value. We judge that it is mainly due to the funding rate affecting the transformation from demand to sales. Domestic excavator sales in 2025 are still dominated by small excavations. The main reason is that the central government's special treasury bonds corresponding to small excavations are abundant, but local bonds corresponding to medium and large excavation are in poor condition. Therefore, we judge that under the disturbance of funding, this cycle will show the characteristics of a low slope but a long cycle, and the overall recovery trend is moderate. (2) Export market: Overseas excavator sales are also subject to cyclical disturbances. Overseas demand has been declining continuously for 4 years since peaking in 2021 (2022 - 2025). The main disrupting factor is the Federal Reserve interest rate cycle. We judge that under the Fed's interest rate cut cycle, overseas demand is expected to enter a new upward cycle in 2026, creating a resounding situation at home and abroad.
Investment advice
Construction machinery is a typical cycle industry, and judging the cycle position is the core. Currently, domestic and foreign countries are at the beginning of the upward cycle. We judge that the profit growth rate of the sector will be about 20% + in the next 2-3 years. The core target profit for 2026 corresponds to the current valuation of only 10-16X, and we recommend a key allocation.
Risk Alerts
Industry cycle fluctuations; infrastructure and real estate project implementation falls short of expectations; policies fall short of expectations; geopolitics increase risk