Domestic macro environment: Declining demand will pull down the machinery industry

After entering November, the economic downturn accelerated again, but it has not exceeded the definition of a soft landing. In terms of inflation, the rapid decline of CPI is a foregone conclusion, policy space is open, and fine-tuning has begun, and the policy turning point has been confirmed. However, it has not yet reached the situation of reversing the downward trend of the machinery industry. The cost side of the machinery industry has maintained the price level in October. Due to the sensitivity of commodity prices to financial policies, it is expected that the reduction of cost pressure has come to an end. There is not much room for the price drop of raw material products represented by steel, and there is little room for demand. In the shrinking environment, the profit rate of the machinery industry will gradually bottom out in the next two to three months. Looking ahead to the next few months, it is expected that the government’s loosening of policies will continue to respond to the decline in economic data, and it is also a process where the accumulation of loosening policies will gradually create an inflection point in the fundamentals of the machinery industry. This inflection point is mainly reflected in the improvement of demand.

In November, investment confidence in Europe and the United States began to enter a bottoming stage after a significant decline, and there has been a certain degree of differentiation. The United States already has a certain degree of economic recovery momentum, and the resolution of the European debt crisis will require a longer process. It is expected that the export growth rate of machinery products will maintain a moderate downward trend for some time in the future, and will not perform very sharply.

November Machinery Industry

The increase in the Bohai Machinery Index in November was basically the same as that of A-shares, in line with our “Neutral” rating.In terms of sub-industry performance, we are relatively optimistic about the energy machinery sub-industry leading the machinery industry

In terms of index, the shipping and port machinery sub-sectors that we are not optimistic about ranked bottom among all sub-sectors, which is consistent with the judgment of last month. The only sub-industry with large deviations is the construction machinery sub-industry, which underperforms Bohai Machinery by a lot. We have already pointed out the relevant risks in the last monthly report. It is expected that the risk that construction machinery will not be able to outperform the industry will continue to exist before the policy is completely changed.

Investment strategy: the expected turning point of the industry boom is approaching

Looking to the future, the current fine-tuning of policies is not enough to reverse the economic downturn. Therefore, concerns about the decline in demand and performance may cause the midstream industry represented by machinery to continue to bottom out, and there is room for stock prices to continue to fall. The industry is at risk of underperforming the overall market, but we still maintain the “neutral” rating of the industry for two reasons: First, the continued relaxation of policies will alleviate the market’s concerns about the significant shrinkage of industry demand, and the accumulation of policies will The industry has seen an inflection point of prosperity, and the optimistic expectation that the inflection point will appear in about a quarter; second, the pessimistic expectations of the machinery industry have been fully reflected in the valuation.

In terms of sub-sectors, we do not make adjustments. Looking forward to 2012, we remind investors to pay attention to the three sub-sectors of coal machinery, coal chemical equipment, and petroleum and natural gas equipment in energy machinery, and the printing machinery sub-industry of light industry machinery. And refrigeration air compressor equipment. The long-term growth prospects of these sub-sectors are determined and possess investment value. In terms of companies, Zhengzhou Coal Mining Machinery and Evergreen have been given a “recommended” rating, and at the same time, the companies in the “holding” rating of Furui Special Equipment, Kaishan Stock, Boshen Tools and other companies are highly certain of growth next year. A sharp drop will present obvious investment opportunities.