The construction machinery sector was weaker than the broader market in September. Construction machinery fell -9.51 per cent in September, while the Shanghai Composite Index fell -3.01 per cent and the CSI 300 index fell -3.54 per cent. The performance of the construction machinery sector continued to be weaker than the broader market.
Fixed asset investment has stabilized and growth has yet to pick up. From January to August, the cumulative investment in fixed assets was 18.06 trillion billion yuan, an increase of 25.0 percent over the same period last year, and the cumulative amount of new fixed asset investment was 7.4 trillion billion yuan, a year-on-year growth rate of 35.0 percent, little change from the previous period. Real estate investment in major downstream industries is relatively stable, and the growth rate of railway investment has fallen sharply. As CPI remains high, it is expected that policy relaxation is unlikely in the short term, and railway investment will not be restarted until the investigation of the high-speed rail accident is completed. Overall, the growth rate of fixed asset investment has yet to wait.
Sales in the construction machinery industry rebounded seasonally month-on-month. In August, entering the peak sales season of construction machinery, the year-on-year decline in sales of excavators, cranes and bulldozers narrowed, and the year-on-year growth rate of loaders expanded; each sub-industry showed varying degrees of growth from the previous month; the export market rebounded. September is the traditional peak sales season in the second half of the year. It is expected that the sales volume of construction machinery will rebound in the next 1-2 months. However, due to the high base since September last year, the year-on-year decline may continue.
The margin of safety of industry valuation is gradually emerging. At present, the overall static PE of the construction machinery sector is 12.64X, and the overall PB is 2.56X. The valuation level is close to the level of the 2008 financial crisis. China's urbanization process is still advancing, with the continuous improvement of product quality, import substitution and export still have room to rise. Investors will gradually get used to the industry's rapid growth in previous years to return to stable growth, after a substantial adjustment in the early stage, the industry valuation gradually reflects pessimistic expectations. After the stock price continues to adjust, construction machinery will have a certain margin of safety.
Investment advice: due to the traditional peak sales season in the second half of the year, the sales volume of construction machinery has rebounded month on month. After adjustment, the safety margin of industry valuation is gradually increasing. Maintain the industry's "neutral" investment rating for the time being.