Twelfth Five-Year Plan to Become a New Focus for the Market

The machinery industry continues to be non-integrated, traditional policies support sub-industry opportunities, and emerging policies support industry opportunities.

As the various sub-sectors of machinery are affected differently by downstream demand, the market differences they face will continue to show as non-integrated opportunities. We believe that traditional investment-driven construction machinery, machine tools driven by automobile consumption policies, and metallurgical ore mining and shipping industry equipment will cause investment opportunities to weaken due to the gradual growth of the industry. On the contrary, with the gradual implementation of the "12th Five-Year National Policy for Emerging Industries", emerging industries will welcome guarantees for support and performance growth at the national level. We believe that we should focus on opportunities for companies in the fields of nuclear power-related equipment, aero-engines, and offshore engineering equipment manufacturing.

Construction Machinery: Large Investment Opportunities Await Again

The preliminary policy relaxation expectation led to the rebound of construction machinery. Currently, the overall valuation of construction machinery is still generally low, and the dynamic P/E ratio is about 15 times in 2010. We believe that the current valuation of the broader market is higher than many valuations. The investment variety has a certain margin of safety, so the chances of continuing to rebound still exist. However, in the next three months, with the real estate sales area growth rate is expected to decline significantly, in the next 1-2 quarters of construction machinery sales will still experience a month-on-month decline, the year-on-year growth rate of a substantial decline in the process, we believe that in the first half of next year to see year-on-year increase Low speed. Therefore, it is advisable to wait for the improvement of the driving force for investment. After the determined growth of the sales of engineering machinery is approaching again, it is time to grasp the larger market that may come. In the short-term, companies that can look beyond the expectations of the company are Shantui (000680).

Nuclear Power: Upstream manufacturing is the backbone

Nuclear power equipment manufacturing has high technology and investment thresholds. At the same time, it has extremely high requirements for equipment stability and safety. Therefore, the concentration of nuclear power equipment manufacturing industry is at the highest level in the power equipment industry. Therefore, nuclear power equipment and nuclear power auxiliary equipment manufacturing areas are most worthy of investors' attention, especially in large-scale castings and forgings, main circulating pumps and nuclear-grade pumps, nuclear safety-grade valves, welding and other core technical equipment, and have great development opportunities. The nuclear forging process requires large-scale 10,000-ton free-forging presses. The rapid growth of nuclear power will create a demand of 6 billion-700 billion yuan per year for large-scale castings and forgings. The release of domestic production capacity for castings and forgings will accelerate the pace of import substitution. Currently, only domestic China Yizhong (601106) and Erzhong Heavy Equipment (601268) have manufacturing technologies for large-scale 10,000-ton forging machines. According to the current valuation status and prospects, we propose to focus on China Yizhong and Hailu Heavy Industry.

Marine engineering equipment: "Twelfth Five-Year Plan" development of offshore oil investment will reach 250-300 million, domestic usher in a golden period of development

During the "12th Five-Year Plan" period, China's maritime energy strategy will be more active. In order to achieve the “Twelfth Five-Year Plan” production target, CNOOC will build an additional 50 million tons of production capacity in China’s offshore shelf and continental slope. At the same time, there will be 2-3 deep-water oil and gas fields to be completed and put into production. The total investment will exceed 250-300 million yuan. In 5 years, the global offshore oil and gas industry will invest 189 billion U.S. dollars to build 15,000 oil and gas exploration and production wells on the oceans around the world. The global offshore floating production equipment market will have a size of about 100 billion U.S. dollars. The financial crisis has catalyzed the shift of many Chinese companies to offshore engineering. At present, 15 shipyards in China have invested approximately RMB 40 billion to develop marine engineering business. Competition from domestic companies has also created a new industry. We believe that the first tier includes companies such as Yantai Raffles, Dalian Shipbuilding Heavy Industry, Shanghai Waigaoqiao (600648), and COSCO Shipping, which are mainly engaged in the construction of drilling platforms and floating production systems. Therefore, it is recommended to focus on COSL (601808), CIMC (000039), and China Heavy Industry (601989).

Aero Engines: Investment Opportunities with Growth Value and Asset Integration Aspects

In July 2009, AVIC established the "Rejuvenating Aero Engine Committee" and passed the "AVIC Decision on Accelerating the Development of Aero-engine Industry" based on accelerating the development of the engine industry. In the “Twelfth Five-Year Plan”, it will be listed as the core technology that constitutes the basis of national strength and military strategy and will increase support in the long term. We believe that the replacement of military equipment will lead to steady growth of aero engines, civil aircraft demand will lead to civilian aircraft engines manufactured in China, and related technologies will be widely used in non-aviation fields to achieve substantial import substitution. It is expected that the average annual growth rate will exceed 20% in the next 20 years. Aviation Power (600,893), as the only domestic listing platform for asset consolidation of AVIC, believes that the company will continue to issue additional acquisition assets in the future to maximize industry growth. It is recommended that the company continue to pay attention.

Investment Strategy in the Second Half of the Year: Grasping Policy Opportunities for Strategic Emerging Industries

In summary, before the cyclical factors become clear, we continue to maintain the tone of the medium-term strategy, that is, the overall defense of the industry, and adjust the structure and layout along the new policy orientation. The overall rating of the industry is “neutral”. We believe that we should pay close attention to emerging industries that support the support and growth of performance from the national level, focus on opportunities for companies in the fields of nuclear power-related equipment, aero-engines, and offshore engineering equipment manufacturing, and select individual stocks to take the opportunity to attack.