CIMC, Zhenhua Port Machinery, Sany Heavy Industry, Anhui Heli, Hudong Heavy on the market these recent hot topic in the computer analyst, had been assigned to the machinery industry. Merrill Lynch has recently submitted a research report to clients said, China Machinery, equipment, domestic production of import substitution the increasing tendency, which will promote the domestic development of related industries.

Sales Slowdown

Guoxin Securities analyst Guo Yaling, senior machinery industry that, in the second half as the slowing of investment in fixed assets show, machinery industry growth will come down significantly, while the industry sub division will occur. He said the first half of the total industry sales rose 27.91 percent, down 9 percentage points year on year growth rate; the same time because of escalating costs, gross margin down 1 percentage point. Role in two ways, the industry profit significant decline, including general machinery and instrumentation manufacturing decreased greatly.One container, bearing valves, motors, boilers, manufacturing, and other sub sectors in the first half to continue to run high in the economy, the cumulative total profit growth rate were maintained at 40%; and special instruments, electronic measurement, measuring equipment, engineering machinery appeared a decline in sales revenue, profit fall significantly situation; However, rail transportation equipment, machinery industry, ship manufacturing industry is the small bright spot.

Guo Yaling expects the second half of machinery industry will continue a downward path, the annual growth rate of about 25%, down 7 percentage points. Part of the economy at a high level of sub industries such as container, bearings, valves, motors, general instrumentation, would face high fall risk; and early fall the larger sub sectors such as construction machinery is expected to gradually stabilize; shipbuilding, railways transportation equipment manufacturing is expected to continue to maintain recovery momentum. With the steel prices are expected in the second half of the decline, industry gross margin is expected to stabilize or rise slightly.

Machinery industry faces increasing cost pressures, the reason is that steel, oil, electricity, transportation, human resources and other prices rising. As revenue growth slowed, while the costs, machinery industry, significant decline in gross margins.Decline in revenue growth, gross margin declined in the background, the industry also showed a visible decline in profit growth. The first half of the industry profit growth of 124.17 percent from the same period last year dropped to 25.23%. One of ordinary machinery manufacturing, special equipment manufacturing, instrumentation equipment, the total profits of the manufacturing sector growth is also from last year’s 126.77%, 88.39% and 104.1% respectively in May of this year dropped to 32.58%, 10.53% and 17.96%, decline was relatively clear.

Differentiation of Sub Sectors Boom

The declining growth rate in the industry as a whole against the background of machinery industry has divided the sub sectors. According to the first 5 months of statistical data, container, bearings and valves, agricultural machinery, metallurgical and mining equipment, electrical machinery, general instrumentation, boiler manufacturing economy continued high growth rate of cumulative total profits were maintained at 40%; and dedicated instruments, electronic measurement, measuring equipment, engineering machinery, and several other sub sectors have seen a decline in sales revenue, profit fall significantly situation; degree in mechanical industry, the overall decline in the context of the economy, rail transportation equipment, ship manufacturing two sub sectors from past losses into profits, the industry significant signs of recovery.

Within the machinery industry, basic materials, such as bearing shaft, valves, and other common components of most mechanical equipment, the upstream industry, macro economic slowdown in the first or fixed asset investment will lead to a slowdown in demand for large scale machinery and equipment, and then affect their upstream of the basic parts industry, so generally speaking, the basic parts of the economy lags behind the changes in machinery and equipment changes in the economy.Guo Yaling said that in the machinery industry wide context of declining growth rate is expected to drop a significant reduction in the first half of special equipment manufacturing, instrumentation, manufacturing and transportation equipment manufacturing industry will become more stable in the second half; and by the lag effect , general machinery industry (including boilers, metal processing machinery, general equipment, bearings and valves, and other common parts) in the second half drop rate will increase, will exceed the industry average.

Early lag reasons because the economy is still high in some sub sectors such as container, bearings and valves, electrical and general instrumentation industry cautious, these sub sectors may be expected in the near future to reach the high point of the economy, then there degree of decline. The early decline in the larger sub sectors such as construction machinery may be smaller base and a certain degree of recovery. And rail transportation equipment and shipbuilding is expected to continue to rise.

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