Machinery Industry Monthly Report for June: 2012 Not 2008

Domestic macro environment: Relaxation expectations are strong, but current efforts are limited

In the context of the fall in inflation, economic downturn, and increasing pressure on GDP for the whole year in May, policy relaxation expectations have been continuously strengthened, and some policies have also been introduced in succession. Judging from the number of projects approved by the National Development and Reform Commission, the number of general projects has increased and the pace of major projects has changed little. Judging from the industry in which the project is adopted, there is a big difference from the previous round of investment in infrastructure investment. Moreover, the projects passed are not new projects, but are still in the framework of the existing “12th Five-Year Plan” investment plan. They only accelerate the pace of approval of projects within the framework. The NDRC has also confirmed recently that no new investment has been discussed yet. plan. The central government hopes to speed up the economic recovery of the chain in a short period of time by accelerating the pace of project advancement, so as to achieve the GDP protection target of 8 this year.

Judging from the relaxation measures that have been implemented so far, we expect the intensity to be weak, and the extent of the rebound in the future may be relatively limited. This kind of judgment is mainly based on the following reasons: 1. The investment in the central government projects is relatively low. 2. The start-up of local financing platforms is limited. 3. The cost of social investment funds is still relatively high. In the near future, we will monitor the new credit conditions.

We believe that there is a significant difference between this year's policy environment and that of 2008. On the eve of the 18th National Congress, the rapid economic decline or strong rebound is the central government does not want to see, and the negative effect of large-scale investment to stimulate economic recovery is also recognized by the government. It is clear that the short-term stability maintenance policy can not hinder the overall situation of the next step after the 18th National Congress, and the smooth economic trend is in line with the central core value.

If the economic decline in the next one or two months continues to exceed expectations, the Central Government's follow-up relaxation measures may also include: 1. Continue to promote the start of some projects, which may include the resumption of railways, the construction of urban rail transit subways, and the restart of nuclear power. 2. Approval of new projects outside the planning. 3, cut interest rates. 4. Increase the scope to relax the local financing platform, and at the same time guide the increase of credit. 5. Consumption stimulus policies. The Central Government will introduce the above policies depending on the degree of economic decline, but its purpose is only to achieve a stable economy.

Machinery Industry Investment Strategy: Optimistic expectations may push valuations up slightly away from fundamentals

Looking back at the performance of the machinery industry in May, according to the tradable equity-weighted average algorithm, it outperformed the Shanghai-Shenzhen 300 index by 3.2 percentage points. The performance was in line with the last month’s report that “optimistic expectations may push the valuation slightly out of the fundamentals”.

Looking forward to June, with strong policy relaxation expectations, the machinery industry may continue this trend, but this expected valuation-driven restoration is out of fundamentals. So far there is no evidence of a fundamental turning point.

With regard to construction machinery, as the volume of projects related to infrastructure construction in the project has not been large, and the recovery in real estate sales has not yet led to an increase in construction, the current fundamentals do not support the continued rise of the industry, but the economy will further decline in the future. The expectations of further relaxation may still support the industry's better performance. Sany Heavy Industry and Zoomlion rely on the rapid growth of concrete machinery and the improvement of the company's net profit rate, and the performance will be significantly better than that of the same industry companies. It is still possible to achieve more-than-expected growth, and there is also the possibility of increasing infrastructure investment. The two companies have both offensive and defensive, and still maintain a "recommended" rating. Other subject trading opportunities may also include the acceleration of urban rail and subway construction. The targets include Tianye Communications; nuclear power planning and nuclear power construction will be restarted in batches. The targets include China First Heavy Duplex Heavy Duty, Southwind, Jiangsu Shentong and others.

This month, the "neutral" investment rating of the machinery industry is still maintained, and the rating of each sub-sector remains unchanged. The company still maintains 6 companies' recommended ratings.