Sales volume of excavators by major producers in Jun surged 63% YoY, which is in line with expectations. We expect the momentum in Jul & Aug to continue, driven by resilient order intakes for upstream components and a low base effect. Jiangsu Hengli (601100 CH, BUY, TP: RMB62.84)’s production plan in Jul (~50k units of excavator hydraulic cylinders) suggests resilient downstream demand over the coming months. Besides, we expect the allocation of the new round of special bond quota will continue to underpin the demand for construction machinery. Potential improvement in property sales will offer additional upside to our estimate. Reiterate BUY on Jiangsu Hengli and SANY Heavy (600031 CH, TP: RMB24.7).
- Strong momentum of excavator sales in Jun. According to CCMA, sales volume of excavator by 25 major producers in Jun surged 63% YoY to 24.6k units. Sales volume in China surged 75% YoY to 21.7k units, while export volume increased by 8% YoY to 2.9k units. In 1H20, sales volume increased 24% YoY to 170k units, representing 60% of our full year estimates (Run rate in 1H19: 58%).
- Excavator utilization hours +4% YoY in Jun. Utilization hours reached 141 in Jun (+4% YoY), a slight improvement from 1% in May, despite the impact of floods in Southern China. Key provinces such as Shandong and Hebei reported 17% and 52% increase in utilization hours respectively. Overall speaking, the increase in utilization indicates resilient construction activities and implies strong upcoming demand for excavator going forward.
- Wheel loader sales +18% YoY in Jun. Sales volume of wheel loaders by 23 major producers in Jun grew 18% YoY to 13.6k units. Sales volume in China increased by 33% YoY to 11.4k units, while export volume declined 33% YoY to 1.7k units. In 1H20, sales volume slightly increased 0.4% YoY to 66.8k units, representing 54% of our full year estimates, same as the run rate in 6M19.
