Machinery Industry: Offensive Backdoor Defense

Domestic macro environment: Trends in demand for investment products and profitability under inflationary pressures may be minimal

In view of the fact that the degree of economic prosperity is still relatively high and the absolute level of prices is relatively high, there is basically no room for relaxation in the coming months. Looking ahead to August, despite a slight easing of funding constraints in the short term, there is a risk that inflation expectations will increase again, and the slowdown in tightening efforts since mid-June will face the possibility of renewed efforts. In this environment, there will be no trend improvement in the demand for mechanical products as investment products.

Overseas macro environment: The twists and turns in recovery, the outlook is not optimistic

As the debt problem in Europe and the United States has intensified and the economic downturn is expected to become stronger, expectations for the launch of QE3 and weakening of the US dollar cause inflation expectations to remain strong. The core US CPI is close to the critical level, and the United States and European countries will face increasingly serious stagflation. It is expected that China's mechanical product exports will continue to maintain its slow downward trend.

July Machinery Industry Performance Review

According to the equity-weighted average algorithm or the simple arithmetic average algorithm, the Bohai Machinery Industry Index underperformed the A-share market by 1.17 and 2.23 percentage points, respectively, and its annual performance was in line with the industry's “look-ahead” rating. In terms of sub-industry performance, our relatively optimistic view of energy machinery, light industrial machinery, and refrigeration and air-pressure equipment outperformed the machinery index and was in line with the forecast. The performance of the three sub-sectors of construction machinery, railway equipment, and other special-purpose machinery was inconsistent with the previous forecast. The performance difference between construction machinery and other special-purpose machinery mainly comes from differences in the investment styles of the market and small and medium-sized markets. It is expected that after the rise of risk aversion in the market in mid-August, the performance of the two sub-sectors will be in line with our previous expectations. The performance of railway equipment in the machinery sub-sector was attributable to the rear-end collision incident in late July.

Railway equipment: EMU accidents will reduce the pace and quantity of new orders for future railway equipment companies

The rear-end collision incident was a centralized settlement of the problems caused by the extensive development of railway construction in the past two years. Due to China’s eagerness to invest in infrastructure investment in the past two years to stimulate economic growth, the railway construction has been pursuing speed and relaxed the requirements on quality and management. This accident was caused by the accident. It is expected that the pace of China’s railway construction and the tendering of railway equipment will slow down in the future. Equipment company's new orders may continue to decline, although the performance of railway equipment companies will still increase in the next two years, but the expected decline in orders will cause the valuation of railway equipment stocks to decline. We believe that after this accident, railway equipment The valuation of the stock has been adjusted once. Therefore, at the current price level, we still maintain a “neutral” rating for the railway equipment sub-sector.

Machinery Industry Investment Strategy: Return Defense

We believe that the analysis framework for the machinery industry in the medium-term strategy is still valid. The risk aversion may begin to rise again in mid-August. The style of investment in small and medium-sized investments may change again. It is recommended to return to the mid-term strategy for defensive investment allocation. Therefore, we maintain our medium-term strategy. Industry and sub-industry investment rating. There was no change in the fundamentals of the recommended company, and the recommended company did not make adjustments. It still maintained the “recommended” rating of Sany Heavy Industry (Zhenyi), Zhengjiji (Quotes, Information), Superstar Technology (Quotes, Information). At the same time, it indicates that CAAC Heavy Machinery (Marketing, Information), Boshen Tools (quotations, information), Daxu Water-saving (Markets, Information), Dagang Road Machinery (quotations, information) in the "holding" rating will be determinative next year. Strong, there will be significant investment opportunities if there is a significant decline in the short term.