Special Research on Construction Machinery Export in 2022【Heavy Industry】

Special Research on Construction Machinery Export in 2022

1. China is the largest market for construction machinery in the world, and its competitiveness is gradually improving

1.1. In the trillion-level global construction machinery market, China's market demand is growing amid cyclical fluctuations

Construction machinery is an important part of the equipment industry, mainly referring to the mechanical equipment necessary for comprehensive mechanized construction projects required for various construction projects such as earthwork construction projects, road surface construction and maintenance, mobile lifting and loading and unloading operations. According to statistics from the Statista database, the global construction machinery market size in 2020 is about 136.3 billion US dollars, and it is expected that the market size will reach 234.6 billion US dollars in 2030, with a CAGR of 5.6%.

Classified by main purpose, construction machinery can be divided into excavation machinery, earth shoveling machinery, lifting machinery, compaction machinery, piling machinery, concrete machinery, road construction machinery, aerial work platforms and industrial vehicles. According to KHL's statistics, in terms of sales volume, excavators have become the main product in the global construction machinery market since 2017, and their proportion has increased year by year. In 2021, excavators will account for about 66% of the global construction machinery product sales. The upstream of the construction machinery industry mainly provides raw materials for the manufacture of construction machinery products, such as steel for construction machinery, internal combustion engines, hydraulic systems, bearings, tires, etc. The midstream includes excavators, cranes, road rollers, bulldozers and other types of construction machinery manufacturing enterprises; the downstream mainly includes industries that demand wires and cables, such as real estate, infrastructure construction, mining excavation, cement and rural construction. Among the downstream industries, infrastructure construction and real estate are the two most important sectors, but demand for infrastructure and real estate has shown a downward trend in recent years.

The operating income of China's construction machinery industry has grown steadily. According to the summary statistics of the China Construction Machinery Industry Association, the operating income of my country's construction machinery industry approached 600 billion yuan (596.4 billion yuan) in 2018, and exceeded 700 billion yuan (775.1 billion yuan) in 2020. In 2021, the operating income of the entire industry exceeded 900 billion yuan for the first time , reaching 906.5 billion yuan, a year-on-year increase of 17%. From 2011 to 2021, the CAGR of the industry's total revenue scale is 5.2%, and the overall growth is steady.

Domestic demand for construction machinery grows amid cyclical fluctuations. Before 2011, due to the strong demand for domestic downstream construction and the small scale of excavator inventory, domestic demand for excavators generally showed an upward trend. From May 2011 to May 2016, due to the excessive overdraft of industry demand and the slowdown of macroeconomic growth in the previous round of up cycle, it entered a five-year down cycle. Since the second half of 2016, the industry has picked up again thanks to the macroeconomic recovery driving new demand and upgrading demand. Starting from May 2021, due to the sluggish downstream investment and the start of work due to the impact of the epidemic, the industry has entered a downward cycle again. Amid cyclical fluctuations, domestic demand is on the rise as a whole.

1.2. China has become the largest market for construction machinery in the world, and the competitiveness of domestic enterprises has gradually improved

The global construction machinery market is mainly concentrated in North America, Western Europe and China; from the perspective of sales, China has become the world's largest market for construction machinery. The distribution of the global construction machinery market is uneven, and the market size of different regions is closely related to factors such as the level of economic development, the stage of urbanization development, and the form of building structure. Global construction machinery sales peaked in 2018, but the Chinese market continues to grow. In 2020, sales will reach US$34.16 billion, accounting for 33.7% of global sales, making it the world's largest construction machinery market. At the same time, the sales of construction machinery in the Chinese market are growing well. In 2020, the sales volume will reach 412,000 units, accounting for 38.3% of the world, and it will maintain the largest market share in global sales. Sales and sales volume ratios in North America and Western Europe showed a downward trend. (Note: The sales and sales volume here include the amount produced and sold by foreign companies' production plants in China.)

Hengqiang is a strong player in the field of global construction machinery, and the competitiveness of domestic leading enterprises is gradually improving. Throughout the global market, Caterpillar and Komatsu are leading international construction machinery companies. The two global industry leaders have been vigorously expanding their globalization since the 1960s and 1970s, ranking among the top two global construction machinery companies all the year round. Compared with Caterpillar and Komatsu, my country's leading companies started late, but in recent years, relying on technology accumulation, marketing network layout, supply chain advantages and high-quality services, the global competitiveness of domestic leading companies has continued to improve.

According to the Yellow Table list released by the authoritative construction machinery magazine of KHL in the United Kingdom, a total of 10 Chinese companies will enter the top 50 global construction machinery companies in 2021, of which XCMG, Sany Heavy Industry, and Zoomlion will rank in the top 10, respectively. 3rd/4th/7th place, all improved compared to 2019. From 2016 to 2021, which is the last upward cycle of China's construction machinery, the global market share of the three domestic construction machinery giants Xugong Group/Sany Heavy Industry/Zoomlion has increased from 3.7%/2.7%/2.3% to 7.8% /6.9%/4.5%, although there is still a gap compared with the two industry leaders, the gap is constantly narrowing. In the past five years, the international rankings of leading domestic construction machinery companies have steadily improved, and their global competitiveness has gradually increased.

2. The export of construction machinery is increasing rapidly, the market distribution tends to be diversified, and the company's revenue is profitable

2.1. Since last year, the export of construction machinery has continued to increase, effectively hedging the decline in the domestic demand market

Since May last year, the growth rate of excavator sales in my country has continued to slump. The construction machinery industry ended the previous down cycle in 2016 and began to pick up; starting from May 2021, due to the sluggish downstream investment and the start of construction due to the impact of the epidemic, the industry entered the down cycle again. Since April 2021, due to the high base and the decline in demand caused by real estate control, the monthly sales growth rate of construction machinery with excavators as the core has continued to decline. In 2021, the cumulative sales volume of the excavator industry will be 343,000 units, a year-on-year increase of 4.6%. However, since May, the monthly sales growth rate of excavators has continued to turn negative. Affected by the epidemic in 2022, the start of construction in various places will be postponed, and the decline in excavators will intensify. From January to September 2022, my country's excavator sales were 200,000 units, a year-on-year decrease of 28.3%. However, since April, the year-on-year decline in monthly excavator sales has continued to narrow. According to statistics from the China Construction Machinery Industry Association, in September 2022, 21,200 excavators of various types were sold nationwide, a year-on-year increase of 5.5%, and the year-on-year growth rate has been positive for three consecutive months.

The domestic downturn is obvious, and the overseas prosperity is underpinned. From the perspective of monthly sales, the year-on-year growth rate of domestic excavator sales in my country has turned negative since May last year, and the decline has gradually increased since then, and the decline did not begin to narrow until Q2 this year. In the same period, as the overseas epidemic gradually eased in 2021, and the performance of excavator products of Chinese companies has increased significantly in recent years, and global competitiveness has rapidly improved, the export volume of excavators has continued to maintain rapid growth. In 2021, my country's excavator exports have reached 68,000 units, a year-on-year increase of nearly 100%. From the perspective of sales volume, since May 2021, the proportion of excavator exports in domestic monthly sales has continued to rise. By September 2022, the proportion of excavator exports in a single month has reached 50.3% of the total monthly sales, the highest in history. .

The export volume of major categories of construction machinery products has increased significantly, effectively hedging the decline in the domestic demand market. According to statistics from the China Construction Machinery Industry Association, the export volume of the 11 major categories (excluding forklifts) in the construction machinery industry in 2021 has all achieved varying degrees of growth. Among them, the overseas sales of elevating work platforms and crawler cranes have doubled; the export volume of excavators, graders, bulldozers, forklifts, road rollers, truck-mounted cranes, and truck cranes has increased by more than 50%, effectively offsetting the decline in the domestic demand market. The latest data shows that in the first three quarters of 2022, 80,306 and 32,555 excavators and loaders of various types were exported respectively, a year-on-year increase of 70.5% and 25.4% respectively, and continued to maintain a high-speed growth trend.

2.2. The distribution of my country's construction machinery export regions tends to be diversified, and the concentration of export countries has increased

From the perspective of export regions, the "Belt and Road" initiative has made my country's construction machinery exports to Asia account for a relatively high proportion. In recent years, the structure of export regions has become more diversified. Since the "Belt and Road" initiative was put forward, my country's construction machinery enterprises have actively deployed in the countries along the route, vigorously developed the construction machinery business, and achieved excellent results. In the equipment manufacturing industry that benefits from the "Belt and Road" initiative, my country's construction machinery companies have established some industrial parks or production bases in countries along the "Belt and Road" such as Belarus, Kazakhstan, India, Pakistan, Indonesia, and Thailand, realizing the " The overseas development strategy of "going in" localized operation has been implemented.

In recent years, the structure of my country's construction machinery export regions has tended to be diversified, and the proportion of sales in Asia and North America has gradually decreased, while the proportion of sales in Europe and South America has gradually increased. In 2018, my country's sales to Asia, Europe, North America and South America accounted for 46.6%, 18.2%, 14.4% and 6.1% respectively; in Q1 2022, my country's sales to Europe and South America accounted for increased to 23.3% and 8.8%, while the proportion of sales exported to Asia and North America dropped to 41.5% and 12.0% respectively. The proportion of sales of my country's construction machinery exported to BRICS countries is also increasing year by year, from 10.9% in 2018 to 15.2% in 2022Q1, of which Brazil and Russia have the most obvious growth, especially exports to Brazil have grown for two consecutive years since the epidemic .

From the perspective of exporting countries, the main exporting countries of my country's construction machinery are relatively stable, and the concentration of TOP10 countries is gradually increasing. In 2019, Vietnam replaced Malaysia and entered the list of TOP10 countries in China's construction machinery export sales. Since then, the TOP10 countries in China's construction machinery export sales have remained relatively stable. From 2019 to 2021, the proportion of sales in TOP10 countries will increase from 44.2% to 46.9%, and the concentration will gradually increase. Among them, the proportion of my country's sales to Russia, Vietnam, South Korea and the Philippines has increased year by year.

2.3 On the profit side, the revenue of overseas business of domestic leading enterprises has grown rapidly, and the growth momentum will continue in 2022H1

Since the outbreak, leading domestic companies have seized the opportunity of high demand in overseas markets and achieved substantial growth in overseas revenue. According to the announcements of each company, in 2021, the year-on-year growth rates of overseas revenue of Xugong Machinery, Sany Heavy Industry, Zoomlion and Liugong will be as high as 112%, 76%, 51% and 77%, respectively. Among them, the export of XCMG's key products and key regions has achieved high growth: the export of medium and large equipment increased by 110.4% year-on-year, the export of road machinery increased by 92.1% year-on-year, the export of truck cranes increased by 59.1% year-on-year; the Asia-Pacific region increased by 50.8% year-on-year, and the Central Asia region A year-on-year increase of 129.8%, and a year-on-year increase of 93.1% in the African region.

In 2021, Sany Heavy Industry will achieve rapid growth in sales in major global markets and overseas sales of major products, and its market position in leading products will also steadily increase. The global market share of excavators has increased rapidly, and the overseas market share has exceeded 6%, which is an increase of 2pct compared with 2020. The overseas sales volume ranks in the top five, and the market share ranks first in 15 countries including Indonesia and Thailand. Developed markets such as North America, Europe, and Australia The share and sales of excavators have both increased significantly. In addition, Sany concrete pump trucks rank first in 68 countries; truck cranes rank first in 15 countries; crawler cranes rank first in 12 countries. In 2021, Liugong's overseas sales of excavators will increase by more than 100%, and road rollers and graders will increase by more than 50%. The overall revenue in Europe will increase by more than 100% year-on-year, and the business revenue in North America will increase by more than 40%. Indonesia, Russia, South Africa and other countries will all increase More than 100%.

The overseas market expansion has achieved remarkable results, and the performance in 2022H1 will continue to grow rapidly. In 2022H1, the overseas revenue of leading companies such as Sany Heavy Industry, Xugong Machinery, Zoomlion, Liugong, Sunward Intelligent, and Shantui increased by 33%, 157%, 40%, 56%, 38%, and 54% year-on-year, respectively. Overseas revenue accounted for 41%, 33%, 18%, 30%, 36% and 34% of total revenue respectively. Under the demand boom in overseas markets, Chinese enterprises have achieved remarkable results in developing overseas markets. The high growth of overseas business in the first half of the year provided strong support for the performance of construction machinery enterprises. We believe that as construction machinery companies continue to increase investment in overseas markets and promote the localization strategy of overseas business, there is room for further improvement in the overseas revenue scale and market share of domestic brands.

3. What are the reasons for the rapid growth of overseas markets?

3.1. Demand: Demand in major overseas markets is booming, with short, medium and long-term growth logic

The overseas market will recover in 2021 and continue in 2022. According to the statistics of Off-Highway Research, in addition to the 6% year-on-year decline in the Chinese market, the sales of construction machinery in overseas regions will increase significantly in 2021, of which the North American market will increase by 22% year-on-year, the Western European market will increase by 19% year-on-year, and the Indian market will increase by 10% year-on-year. The market increased by 1% year-on-year, and the market in other countries and regions increased by 24% year-on-year. Looking forward to 2022, overseas markets will continue to grow. The American Equipment Manufacturers Association predicts that the global construction machinery market will grow by 4.5% (sales) year-on-year in 2022. With the decline in the Chinese market dragging down the overall growth rate, the overseas market will have a higher growth rate. Judging from the performance of leading companies, in 2022H1 Caterpillar's construction machinery segment revenue increased by 9% year-on-year, of which North America,

Latin America and EMEA grew by 24%, 54% and 5% respectively year-on-year, while revenue in the Asia-Pacific region fell by 19%, mainly due to the impact of the Chinese market. In 2022H1, the revenue of Komatsu Group's construction machinery, mining and utility equipment increased by 21% year-on-year. Except for China and the Pacific region, the revenue of other regions achieved positive growth. There has been a substantial increase.

Overseas markets are booming at the start-up end, helping domestic construction machinery to go overseas. Since the beginning of this year, the domestic market has been affected by a high base, the macro economy and the epidemic, and the demand for downstream construction is relatively sluggish, but the overseas construction machinery market is relatively prosperous. In September, the operating hours of Komatsu Japan, Europe, North America and Indonesia excavators were 48.4, 76.1, 73.5 and 208.9 respectively, with year-on-year growth rates of -4.5%, -7.8%, +4.9% and +7.2%. According to the start-up hours announced by Komatsu Group, since the second half of last year, the start-up hours of excavators in North America, Southeast Asia, Indonesia and other places have maintained positive growth as a whole, achieving a good growth rate. The start-up hours in the European market have shown a downward trend in the past four months. Japan The start of the market is relatively sluggish. The better prosperity of the Indonesian market will enhance the certainty that my country's construction machinery exports will maintain a relatively high level; while the European and American markets are more prosperous, Chinese construction machinery companies are expected to seize the opportunity to further expand the European and American markets, with a view to improving the European and American markets. market share, helping domestic leaders accelerate overseas expansion.

In the short to medium term, there are two main reasons for the boom in overseas market demand. On the one hand, thanks to the low interest rate environment since the epidemic, the year-on-year growth rate of real estate and infrastructure investment in Europe and the United States has increased significantly in the past two years, and will remain at a relatively high level in 22H1. Under the stimulation of low interest rates after the epidemic, the growth rate of real estate investment in Europe and the United States will increase significantly from 2020 to 2021 after the epidemic, and will remain at a relatively high level in 22H1. According to statistics from United Leasing, the largest construction machinery leasing company in North America, in 2021, the demand for construction machinery leasing in downstream applications such as non-residential construction, infrastructure construction and residential construction will account for about 39%, 13% and 4%. Rental demand accounted for about 13%. Thanks to the low interest rate environment after the epidemic, the growth rate of real estate investment in Europe and the United States has increased significantly year-on-year since 2020H2.

Tight supply and strong demand are driving up used construction machinery prices in North America. Corresponding to the increase in the growth rate of real estate infrastructure investment, the decline in new machine production, tight supply and strong end-user demand continue to drive up the retail and auction prices of used construction machinery and equipment in North America. The August market trend report released by Rich Brothers, a North American second-hand construction machinery trading platform, shows that from May to July this year, the prices of second-hand large and medium-sized earthmoving machinery in the United States increased by 12% and 15% year-on-year, respectively, and the price of aerial work platforms increased by 13% year-on-year. ; The prices of second-hand large and medium-sized earthmoving machinery in Canada increased by 12% and 13% respectively year-on-year, and the price of aerial work platforms increased by 6% year-on-year. The report also pointed out that the market price of second-hand construction machinery and equipment in North America showed a year-on-year increase, but a month-on-month decline.

On the other hand, after the epidemic, the price of global resource products has risen sharply, and the demand for mining has increased sharply, which has boosted the release of construction machinery demand in developing countries such as Indonesia. Since the overseas epidemic (2020Q2), the prices of bulk commodities such as energy, metals, minerals, and fertilizers have risen sharply, and the global mining demand has increased sharply, which has led to a rapid increase in investment in mining-related construction machinery. The results of Komatsu Group from April to June this year show that its sales in the field of coal development in Indonesia, the largest market in Southeast Asia, have increased significantly year-on-year.

In the medium and long term, there are two main reasons for the prosperity of overseas market demand. On the one hand, factors such as electrification, food security, urbanization, and manufacturing development will drive continuous growth in mining demand. In the medium and long term, electrification will drive the growth of mining investment in "green metals" (including copper, nickel, manganese, cobalt, aluminum, lithium, etc.); in the context of global food security, the demand for mining of phosphate and potash will increase ; The surge in global arms spending, the urbanization of developing countries and the development of manufacturing industries have strong demand for oil and gas, iron ore and other mining. On the other hand, in the next 20-30 years, the urbanization rate of some currently rapidly developing countries (such as India, Indonesia, etc.) has a lot of room for development.

According to statistics from the United Nations, the urbanization rates of India, Indonesia, and South Africa will be 35%, 57%, and 68% in 2021, and it is expected that the urbanization rates of these three countries will reach 53%, 73%, and 80% in 2050, respectively. Huge urbanization development space will bring long-term growth demand for construction machinery. From the perspective of engineering construction, with the advancement of urbanization, the demand for new real estate and infrastructure construction will gradually decline, and operation and maintenance will become the main demand. But for construction machinery, due to factors such as machines replacing manpower, technological progress promoting equipment upgrades, and application field expansion, it can show growth across cycles and promote the continuous increase in demand for construction machinery. But at the same time, it cannot be ignored that credit, wars, epidemics, etc. will cause economic cycle fluctuations, which will cause short-term disturbances in the demand for construction machinery. In the long run, construction machinery will continue to grow amidst fluctuations.

3.2. Layout: domestic leading enterprises are actively deploying overseas, and their global competitiveness continues to increase

3.2.1. From "hiking" to "independent" going to sea, the change is at the right time

my country's construction machinery is completing the transformation from "hiking" to "independent" going to sea. In the past, my country's construction machinery realized "hiking" to sea through foreign contracting projects. In 2013, my country initiated the construction of the "Belt and Road" initiative to provide support for infrastructure, development, and industrial cooperation projects in countries along the route. Benefiting from the continuous pull of the "Belt and Road" infrastructure cooperation, my country's construction machinery has also achieved "ride" to the sea. In the past two years, Chinese companies are realizing the transformation from "hiking" to "independent" going overseas.

Beginning in 2021, my country's construction machinery export value has maintained rapid growth, and the year-on-year growth rate of the month was significantly higher than the year-on-year growth rate of newly signed contracted projects along the Belt and Road; in 2022H1, the value of newly signed contracted projects along the Belt and Road decreased by 11.9% year-on-year, while the project The export value of machinery increased by 32.3% year-on-year, showing that the trend of construction machinery going overseas is obvious. The reason is that after the epidemic, the economic stimulus policies of various countries and the increase in the price of resource products have led to a sharp rebound in overseas markets. The overseas supply chain is affected by the epidemic and the international situation. The advantages of China's construction machinery supply chain are reflected, and the overseas penetration rate has increased. The transformation of my country's construction machinery from "hiking" to "independent" sea is the product of the superimposition of the right time and place.

3.2.2. Leading companies have formed a "four-in-one" international development model

After years of exploration, XCMG, Sany Heavy Industry and Zoomlion, the leading domestic construction machinery companies, have formed a "four-in-one" international development model of overseas construction bases, local high-quality services, cross-border mergers and acquisitions, and global product research and development. Actively build overseas bases and increase overseas production capacity. In recent years, my country's construction machinery enterprises have actively built overseas bases to ensure overseas production capacity. XCMG currently has 15 overseas manufacturing bases and KD factories in the United States, India, Brazil, and Germany, and 40 large spare parts centers, fully guaranteeing product supply in overseas markets. Sany Heavy Industry started its overseas layout in 2002, and has established four industrial cluster bases in the United States, Europe, India, and Brazil so far, with a total investment of more than 420 million US dollars. It is the first construction machinery enterprise in China to invest and build factories overseas.

Zoomlion has previously established industrial parks in Brazil, Italy and other places. In 2021, the company will expand and upgrade the CIFA production base in Italy, adding concrete, construction and construction products. In addition, the company's Russian base has been fully put into production, radiating to Eastern Europe and Central Asia, creating new overseas business growth points; the construction of the Indian Industrial Park has started, radiating to the Middle East, South Asia and other markets. The construction of overseas manufacturing bases can improve the supply and service capabilities of enterprises in the local market. Especially in developed countries, the establishment of local bases is more conducive to the improvement of brand awareness and helps domestic enterprises to obtain higher market share.

Build a sound marketing network and provide local service capabilities. In terms of high-quality service, the three leading companies have established a comprehensive marketing network to provide global customers with a full range of product marketing services, full value chain services and overall solutions through the establishment of distributors, offices, service spare parts centers, etc., and through the employment of local employees Better localization services. According to the announcement of XCMG Machinery Company, by the end of 2021, the company has 40 overseas offices, 230 overseas high-quality distributors, more than 140 service spare parts centers, more than 2,000 service outlets, and its marketing network covers 187 countries and regions around the world. Brazil, India, Indonesia, Kazakhstan, the United States, Germany, Turkey, Kenya, the Democratic Republic of the Congo, Guinea and other key countries have established branch companies; the company has a comprehensive layout in countries along the "Belt and Road", and has established presence in the Asia-Pacific region, Central Asia region, and Africa region , West Asia and North Africa region, Europe region, and Oceania region involve a total of 64 countries and have established a complete marketing network.

In addition to the overseas channels of its subsidiary Putzmeister, Sany Heavy Industry has established an overseas market channel system covering more than 30 overseas subsidiaries and joint ventures, more than 140 self-owned channel outlets, and more than 300 agents. Overseas market resources have been invested, and breakthroughs have been achieved in overseas markets, especially in European and American markets. In the first half of the year, the company's first batch of electric mixer trucks passed the European standard certification and sold to Germany, completing the first overseas export of electric mixer trucks; at the same time, it sold the first 80-ton electric crawler crane to Europe. Zoomlion announced that as of the first half of 2022, the company's products have covered 71 countries and regions. The company continued to promote the internationalization and localization development strategy, formed an end-to-end, digital and localized overseas business system, completed the construction of localized business and operation systems in 19 key countries, and realized the globalization of business layout and comprehensive business expansion.

Through mergers and acquisitions, it absorbs advanced technologies from European and American companies and obtains channel resources. The trend of overseas mergers and acquisitions in China's construction machinery industry stems from the impact of the global financial crisis on the industry. Traditional European and American companies are struggling to survive, while Chinese construction machinery companies seize the opportunity to accelerate the implementation of internationalization strategies. In 2008, Zoomlion acquired CIFA, a famous Italian concrete equipment supplier, at a price of 271 million yuan, rewriting the competitive landscape of the world concrete industry; after that, Sany Heavy Industry acquired a 90% stake in Germany's Putzmeister in 2012. In 2015, Groupe acquired a 75% stake in LADURNER, an environmental protection equipment giant. In 2011, XCMG acquired German FT and Dutch AMCA, and in 2012 acquired German Schwing. Taking the overseas layout of the three major domestic giants as a benchmark, there have been successive mergers and acquisitions of European companies by Liugong, Shandong Heavy Industry and other major companies in the industry, realizing the overall internationalization of China's construction machinery industry. With the help of overseas mergers and acquisitions, Chinese construction machinery companies have successfully realized the localization of staff and local operations. According to Sany Heavy Industry's announcement, the company's current localization rate of overseas business units such as the United States, Europe, and India exceeds 90%.

Significantly strengthen the global research and development capabilities, and carry out product research and development for overseas markets. In order to continuously increase its overseas market share, domestic leaders have enhanced their own competitiveness by establishing international research institutes and carrying out targeted research and development of construction machinery products for different overseas markets. XCMG cooperates with the global collaborative research and development system of domestic cutting-edge technology research centers and overseas research centers in Germany, the United States, Brazil, etc., fully and efficiently utilizes domestic and foreign regional superior research and development resources, and carries out research on cutting-edge technologies, basic technologies, and common technologies for industrial upgrading, and core components , New product development.

By the end of 2021, Sany Heavy Industry has established an international R&D team of more than 800 people, established overseas R&D centers in the United States, Germany, and India, and established international research institutes in various business divisions; in 2021, the company will launch a total of 68 international products. Focus on the internationalization strategy of mainstream European and American markets, and increase the coverage of the company's main overseas models. Zoomlion is accelerating the integration of tower crane technology with Germany's Wilbert Company, using Wilbert as a window to connect the world's high-end tower crane research and development technology. The construction of overseas R&D centers can help improve the supply and service capabilities in the local market, and provide solid support for the internationalization strategy of my country's construction machinery enterprises to blossom and bear fruit.

3.2.3. The product quality and the proportion of overseas revenue have both increased, and the global competitiveness has continued to increase

my country's construction machinery enterprises attach great importance to product research and development, and the overall manufacturing level has already achieved international competitiveness. In recent years, my country's construction machinery companies have continued to increase product research and development efforts, and the proportion of research and development expenses of leading companies such as Sany Heavy Industry and Zoomlion Heavy Industry has shown an upward trend. In terms of product quality, my country's construction machinery products are close to the international advanced level. According to the statistics of the National Construction Machinery Quality Inspection Center, during the "Twelfth Five-Year Plan" period, the service life and average failure interval of similar products in my country are about 1/2 of foreign products; during the "Thirteenth Five-Year Plan" period, the average failure interval of the excavator industry It has reached more than 800 hours, and the top enterprises have exceeded 1,000 hours, reaching the international advanced level; during the "14th Five-Year Plan" period, the goal is that the service life of the whole machine exceeds 20,000 hours, and the reliability basically reaches the international mainstream level.

We compared the Sany 485H model and the Caterpillar 349D model in the field of large excavation, and the Sany SY225 model and the Caterpillar 320 model in the medium excavation field. In terms of parameters, Sany's product performance has reached the same level as Caterpillar; even on some models, Sany's power performance and fuel economy are more prominent.

Against the background of high prosperity in overseas markets and domestic enterprises actively promoting internationalization strategies, the proportion of overseas revenue of local companies has increased significantly in the past two years, and their global competitiveness has continued to increase. Thanks to China's stable supply chain, overseas market prosperity, and the continuous improvement of global competitiveness of local companies, major domestic construction machinery companies such as Sany Heavy Industry, Xugong Machinery, Zoomlion and Liugong will account for the largest share of overseas revenue in 2021. In 2022H1 and 2022H1, the overseas revenues of Sany Heavy Industry, Xugong Machinery, Zoomlion and Liugong accounted for 41%, 33%, 18% and 30% respectively.

3.3. Space: Comparing with international giants, domestic construction machinery enterprises have great potential for internationalization

There is still a lot of room for improvement in the overseas market share of domestic construction machinery companies. According to the regional distribution of the global construction machinery market mentioned above, compared with countries along the “Belt and Road”, Europe and North America are the main markets for global construction machinery. Therefore, domestic construction machinery products will have a large market share in these two regions. To a certain extent, it determines its overseas market share. At present, the overseas market share of domestic construction machinery enterprises still has a large room for improvement. Taking excavator products as an example, in 2020, the global sales of construction machinery will be about 1.076 million units, of which the sales volume of excavators will be about 658,000 units. According to the data of the China Construction Machinery Industry Association, in 2020, my country's domestic sales of excavators will be about 293,000 units, and exports will be about 35,000 units, accounting for 9.5% of the total overseas excavator sales. Considering that the export volume of the association's statistics also includes foreign investment The amount of enterprises that set up factories in China to produce and then export, and the overseas market share of domestic enterprises may be lower than the estimated value, and there is still a lot of room for improvement.

Benchmarking overseas leaders Caterpillar and Komatsu, the globalization process of domestic companies is expected to continue to deepen. Compared with overseas leading enterprises, the proportion of local income of domestic enterprises is still at a relatively high level, and there is a large room for improvement in overseas markets. The income distribution of the international construction machinery giants Caterpillar and Komatsu is relatively scattered. In 2022H1, more than 50% of Caterpillar's construction machinery business revenue comes from outside North America, and nearly 90% of Komatsu's construction machinery business revenue comes from overseas. Although the overseas income of my country's construction machinery leaders continues to increase, domestic income still accounts for the main part. Compared with Caterpillar and Komatsu, my country's construction machinery leaders' overseas layout still has a lot of room for improvement. Against the backdrop of little fluctuation in the demand for construction machinery in overseas markets, domestic leading enterprises are expected to continue to increase their global market share and extend from Southeast Asia to European and American markets with the continuous improvement of global competitiveness. However, because the European and American markets are relatively insensitive to product prices and brand stickiness, etc., it is relatively difficult for domestic companies to explore the market, and the time period from market layout to the emergence of results will be longer.

4. Overseas market growth momentum forecast

4.1. Overseas business can improve corporate profitability and cash flow quality

We compared the financial status of leading domestic construction machinery companies with those of international construction machinery giants to explore the impact of the increase in the export ratio of domestic companies after overseas business expansion on the report. There is a gap between domestic leading companies and international giants in terms of revenue scale and market value. Caterpillar and Komatsu Group are the two leading international companies in the field of construction machinery, ranking among the top two global construction machinery companies all the year round. my country's three leading construction machinery companies Sany Heavy Industry, Zoomlion Heavy Industry and Xugong Machinery (commonly known as the "Big Three" of construction machinery) started relatively late, but in recent years, relying on technology accumulation, marketing network layout, supply chain advantages and high-quality services, In terms of product quality and sales scale, it is trying to catch up with the two leading players.

From the perspective of revenue scale, in the first half of 2022, there is still a certain gap between the Big Three and Caterpillar and Komatsu. Komatsu Group’s revenue is 45% of Caterpillar’s, to some extent affected by the severe depreciation of the yen this year; Sany Heavy Industry, Zoomlion and Xugong Machinery’s revenue are 22% of Caterpillar’s, 12% and 21%. In terms of market value, there is a big gap between Komatsu Group and the three domestic giants and Caterpillar. As of October 29, 2022, the market value of Komatsu, Sany, Zoomlion and Xugong Machinery was 16%, 15%, 5% and 7% of Caterpillar, respectively.

There is a large gap between the overseas revenue scale of domestic leading companies and international giants, and there is still a lot of room for expansion in overseas markets. Since Caterpillar also includes business in other sectors besides the construction machinery sector, the subsequent content of this section that involves Caterpillar only takes the financial data of its construction machinery sector as the analysis object; while Komatsu Group and the three domestic giants The main business of the company is construction machinery, so the financial data of the entire company is used as the research object in the follow-up analysis. Comparing the revenue scale of Caterpillar and Komatsu Group outside the Asia-Pacific region and the foreign revenue scale of the three domestic giants, it can be found that the revenue scale of the two international leaders outside the Asia-Pacific region is comparable, while the overseas revenue of the three domestic giants There is a big gap between the scale and the international leader. In the first half of 2022, the overseas revenue scale of Sany Heavy Industry, Zoomlion Heavy Industry and Xugong Machinery is only 26%, 5% and 20% of the revenue scale of Caterpillar's construction machinery business outside the Asia-Pacific region. Benchmarking international leaders, domestic construction machinery companies still have a lot of room for expansion in overseas markets.

Overseas business will bring more stable profits and healthier cash flow. Comparing the financial indicators of leading construction machinery companies at home and abroad, it can be found that China's construction machinery market will start to decline cyclically from Q2 2021, and the profitability of the three domestic giants will be greatly impacted. The regional distribution of business is more dispersed, and the profitability is more stable than that of domestic enterprises. In addition, starting from 2021, the ratio of capital expenditure to depreciation and amortization of the three domestic giants is significantly higher than that of overseas leading companies, while the trend of ROE is opposite, indicating that overseas companies have relatively less reinvestment and relatively high operating efficiency. Therefore, with the expansion of the overseas business scale and the increase in the proportion of domestic construction machinery enterprises, it may be possible to effectively smooth the impact of the domestic industry cycle on corporate profits on the basis of improving profitability, and at the same time reduce the cash flow of enterprises by appropriately reducing capital expenditures. more healthy.

4.2. Resonance between supply and demand, providing dual growth momentum for overseas construction machinery markets

Based on the above analysis, we have the following judgments on the construction machinery overseas market in 22H2 and 2023: On the demand side, the North American market will maintain growth in the short term, and the demand in the resource-based market will continue to be hot. 1) Developed/saturated market: This type of market is a traditional market for construction machinery, represented by European countries such as Germany, the United Kingdom, France, and Japan. In the context of the expected decline in global economic growth, Russia-Ukraine conflicts, high inflation, and substantial interest rate hikes, overseas economies are expected to fall into recession, and the growth rate of real estate and infrastructure investment will decline. At the same time, supply chain disturbances will bring construction machinery Demand stagnated. We expect the 22H2 year-on-year growth rate of this type of market to be between -15% and -5%, and the year-on-year growth rate is expected to be weak in 2023, with a growth rate of 0-5%.

2) North American market: Since the beginning of this year, the demand for residential, non-residential and road facilities construction in the North American market has been strong, and the rental demand has continued to recover. According to the statistics of Komatsu Group, the demand in the North American market in 22H1 increased by about 10% year-on-year; according to the orders of major enterprises, the demand for construction machinery and equipment in the housing sector, infrastructure construction and leasing industries in 22H2 is still strong. We expect that the North American market in 22H2 and 2022 A year-on-year growth rate of 5-15% will be achieved. Looking forward to 2023, with the gradual effect of the US macroeconomic regulation and control policy, the global supply chain disturbance is expected to decrease, and it is expected that the North American market will still achieve a growth of 5-10% in 2023.

3) Resource-based market: This type of market is rich in energy or mineral resources, represented by countries such as Russia and Indonesia. Against the backdrop of global inflation superimposed on geopolitical risks, the prices of upstream resource products have been relatively firm this year. In the short term, inflation in major countries around the world is still at a high level, and the conflict between Russia and Ukraine continues to evolve. As inflation data has not yet turned downward, the probability of upstream resource product prices remaining high in the short term is still not low. In the short term, the global mining demand may continue to be strong, which will drive the demand for corresponding construction machinery. Indonesia is the largest construction machinery market in Southeast Asia, and about 40-50% of its construction machinery demand comes from the mining industry. According to Komatsu Group's statistics, the demand in the Indonesian market in 22H1 almost doubled year-on-year, which is closely related to the country's vigorous mining of mineral resources. We expect the year-on-year growth rate of this type of market to be about 30-50% in 22H2; in 2023, under this year's high base, it will still maintain a year-on-year growth rate of 20-30%.

4) Urban development market: this type of market is represented by non-resource-based developing countries outside Europe and the United States, and has a broad mass base. In the long run, this kind of market has a huge space for urbanization development, which will bring long-term growth demand for construction machinery. We believe that the demand in such countries can overcome short-term disturbances and continue to grow in fluctuations. It is expected to achieve annual growth of 5-10% in the next 5-10 years.

In summary, we predict that the overseas market demand for construction machinery will have a year-on-year growth rate of 15-25% in 2022. On this basis, the year-on-year growth rate in 2023 is expected to be about 10-20%. On the supply side, with quality as the cornerstone and internationalization strategy as the means, the market share of domestic enterprises is expected to continue to increase. 1) The areas along the "Belt and Road" are my country's export advantages. After the "Regional Comprehensive Economic Partnership Agreement" (RCEP) takes effect on January 1, 2022, the exports of the 10 ASEAN countries are expected to continue to achieve good growth; 2) With the domestic With the continuous advancement of the internationalization strategy of construction machinery enterprises, based on high-quality product quality, the market share of domestic construction machinery products in overseas markets is expected to gradually expand, and the market share growth in Southeast Asia and Latin America may be faster than that in Europe and North America.

appendix:

serial number	Company Name	Sales (100 million US dollars)	Year-on-year growth rate of sales (%)	Operating profit (100 million US dollars)
1	Caterpillar	320.69	29.19	49.97
2	Komatsu Factory	222.28	19.94	23.95
3	XCMG Construction Machinery Co., Ltd.	183.79	13.09	14.3
4	Sany Heavy Industry	166.97	9.73	18.41
5	john deere	113.68	27.06	14.89
6	Zoomlion	105.63	5.92	10.58
7	Volvo Construction Equipment	101.83	2.67	12.42
8	Liebherr	91.11	21.89	4.96
9	Hitachi Construction Machinery	89.03	12.97	8.12
10	Doosan Bobcat	50.82	-	5.2
11	JCB	46.54	1.68	4.36
12	Sandvik	45.82	-6.01	9.16
13	Epiroc	43.87	-0.27	9.95
14	Metso Outotec	42.42	-1.3	5.23
15	Liugong Machinery	41.17	16.86	1.6
16	Terex	38.87	26.37	3.28
17	Kubota	33.91	20.72	4.55
18	Shin Steel Construction Machinery Co., Ltd.	32.27	0.91	1.05
19	Hyundai Doosan INFRACORE	31.41	-54.23	1.82
20	CNH Industrial Group	30.81	41.98	0.9
21	JLG	30.67	22.39	2.49
22	modern construction machinery	29.84	24.07	1.53
23	Sumitomo Construction Machinery Co., Ltd.	26.3	16.27	1.18
24	Manitou Group	21.33	10.06	1.36
25	Wacker Neuson	21.23	7.49	2.2
26	Palfinger	20.95	28.37	1.76
27	Faya Group	18.28	5.97	-
28	Tadano	17.86	1.25	0.46
29	Manitowoc	17.2	19.2	0.47
30	China Railway Construction Heavy Industry Group	14.98	28.47	3.03
31	Shantui shares	14.41	32.57	0.27
32	Hiab	14.23	6.35	1.89
33	Longgong	13.48	17.63	0.87
34	Sunward Smart	13.13	14.87	0.38
35	Herrenknecht Group	13	15.45	-
36	Lingong Heavy Machinery	12.95	-	0.92
37	Takeuchi Manufacturing	12.24	12.5	1.54
38	Astec	10.97	7.13	0.22
39	Bauer machinery	7.19	-1.1	0.42
40	Weichai Lovol Construction Machinery	6.61	-8.19	-
41	Skyjack	6.4	33.61	-
42	European Union Group	5.66	5.6	0.14
43	Kato Factory	5.52	-4.99	0.63
44	Furukawa Machinery Metal Co., Ltd.	5.14	4.05	0.29
45	Bell Equipment	5.03	5.89	0.25
46	Aichi Corporation	4.92	-14.43	0.6
47	Nikko Co., Ltd.	3.37	-4.8	0.18
48	Xingbang Smart	3.1	-	0.38
49	North shares	2.59	21.6	0.16
50	Sakai Heavy Industries Co., Ltd.	2.31	13.79	0.12