Mechanical industry transformation development trend

In recent years, with the rapid development of the equipment manufacturing industry, the compound growth rate of basic parts in China has reached more than 30% in recent years. However, due to the long-term neglect of basic parts, the overall level of development is low, aviation, high-speed rail, automobiles, nuclear power, construction machinery, CNC machine tools and other industries in the key parts of the high value-added basic parts products need to rely on imports, therefore, with the relevant policy support to increase, the future mechanical basic parts industry industrial upgrading and high-end products import substitution potential is still huge.

Machinery industry machinery processing plant prosperity has risen rapidly, the main sub-industries of machinery, construction machinery, railway equipment, machine tools and other sub-industries from January to October this year, the production and sales growth rate of more than 40%, to maintain a high prosperity. Heavy machinery, petrochemical equipment and other industries have a lower growth rate, but the growth rate is also more than 20%.

Industrial upgrading and transformation is the trend of industry development. Construction machinery and other subdivisions with global competitive advantages, there is still a large room for development. Strategic emerging industries will accelerate the pace of transformation and upgrading of the industry, heavy machinery to new energy and other industries transformation. High-end equipment manufacturing industries such as high-end CNC machine tools and Marine engineering are in their infancy, but their long-term growth is certain. The machinery industry from labor-intensive to capital and technology-intensive, from manufacturing to service transformation, products from low-end to high-end transformation is the trend of industry development.

Steel prices remain generally stable, helping to improve the profitability of the industry. Steel prices this year showed a slight upward trend, while the overall stable state. As the steel industry still has excess capacity, downstream demand remains stable, steel prices are unlikely to rise sharply. According to historical experience, in the context of steel prices remaining stable and rising slightly, it helps to improve the profitability of the machinery industry.

At present, the overall valuation of the machinery industry is in the middle of the A-share market. The rise in industry prosperity and high-end equipment manufacturing as a strategic emerging industry have promoted the valuation of the industry. In the main sub-industries of machinery, the valuation of the construction machinery industry is relatively low, followed by heavy machinery, machine tools, coal machinery and so on. In railway equipment, the valuation of the spare parts industry is higher than that of China South Locomotive (601766), China North Locomotive (601299) and other vehicle enterprises. The P/E ratio of aerospace and nuclear power equipment is high, and the high growth prospects of the industry have been reflected in the valuation. High-end equipment manufacturing industry represents the development direction of industrial upgrading of the industry, but we also note that most of the strategic emerging industries are based on the development of traditional industries.