Excavator Sales in China for October Totalled 4,075 Units

Date: 2015-08-19

Deteriorating sales and utilization trends: Excavator sales in China for October totalled 4,075 units, down 33% y/y after the decline of 33% y/y in September. During our recent meetings with the management teams of Komatsu and Hitachi 
Construction Machinery (HCM), both teams commented that they expect the 30% level of y/y decline to continue into March or April 2015. HDT sales were at 51K units in November, down 19% y/y, which worsened from the fall of 15% in October 2014. Machinery utilization hours depressed: For November, Komatsu and HCM reported 135 and 130 hours, respectively, for monthly utilization hours, down 17% and 16% y/y and 11% and 10% m/m, respectively.

Lack of evidence of improvement in receivables collections: We believe the depressed machinery utilization levels and declining rental rate will cap the upside  for improvement in receivables collections despite the tightening credit control by machinery makers. Our recent conversations with local machinery makers also indicate that they continue to struggle with receivables collections.

Sales impact from the New Silk Road opportunity likely to be small: We estimate that total revenue for construction machinery industry accounts for on average 13% of annual incremental fixed asset investment. Applying this ratio to US$40bn for the New Silk Road fund and US$50bn in initial capital for the Asia InfrastructureInvestment fund, we calculate incremental machinery sales from these investments at about RMB 70Bn, or about 12% of the revenue for China’s construction machinery sector in 2013. Thus, considering the investment will likely be phased in over multiple years, the revenue impact from the New Silk Road will likely be at a single-digit rate. 

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