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2026-09-18 16:44:04 JPM released a research report stating that China's machinery sector has recently experienced heavy selling, including SANY HEAVY IND (06031.HK), XCMG, Hengli and WEICHAI POWER (02338.HK), as risk-off sentiment was triggered yesterday by AD/CVD news, oil price volatility and macro concerns. After reviewing recent management briefings, operational updates and latest sales trends, the broker believes the scale of the sell-off is not supported by fundamentals, and it remains positive on the sector while recommending buying on dips. The broker noted that the US AD/CVD investigation mainly targets linear hydraulic cylinders and certain parts imported from China, focusing on component suppliers rather than complete machine OEMs. Management of SANY HEAVY IND, XCMG and Hengli all emphasized that the investigation does not target their core businesses, while the risk of expansion to complete machines or other key components remains low at present. Direct US revenue contribution for SANY HEAVY IND and XCMG accounts for only a low single-digit percentage, with North America contributing less than 3% of group sales. Even under a scenario of 50% tariffs with no cost pass-through, the estimated impact on gross margin for SANY HEAVY IND or XCMG would only be about 0.15 ppts. Overseas growth remains strong, margin discipline is being maintained, while new products and automation initiatives are showing results. Domestic demand remains soft, but pricing discipline and cost controls are supporting resilience. SANY HEAVY IND and XCMG expect overseas revenue growth in 3Q26 to exceed 20%, while domestic sales may remain flat YoY or decline slightly. The broker added that Generac's announcement of a long-term agreement with Amazon to supply backup generators for data centers, with preliminary deliveries of about USD2.4 billion during 2027 to 2028, highlights the scale and visibility of AIDC opportunities, providing positive implications for WEICHAI POWER (02338.HK). The broker views the recent correction as an opportunity to accumulate leading AIDC names and global machinery stocks with strong operating cash flow and visible growth, while remaining selective on Chinese cyclical stocks. It continues to recommend WEICHAI POWER (02338.HK) and TECHTRONIC IND (00669.HK), as they directly benefit from AIDC, possess self-funded growth capability, and enjoy multi-year order visibility from data center and power grid-related infrastructure. It is also positive on Hengli Hydraulics, SANY HEAVY IND (06031.HK) and SINOTRUK (03808.HK). The broker maintains Overweight ratings on WEICHAI POWER (02338.HK) H shares, TECHTRONIC IND (00669.HK), SANY HEAVY IND (06031.HK) H shares and SINOTRUK (03808.HK), with TP at HKD55, HKD179, HKD31 and HKD55 respectively. (su/ad)~ AASTOCKS Financial News Website: www.aastocks.com This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. | |