Excavator sales have had a strong start, with domestic brands' market share continuing to rise.

According to statistics from the China Construction Machinery Industry Association, in January 2019, the excavator industry sold a total of 11,756 units, a year-on-year increase of 10%. Among them, domestic sales were 10,142 units, a year-on-year increase of 6%, and exports totaled 1,614 units, a year-on-year increase of 42%.

The sales of excavators in January 2019 started strong, maintaining a growth trend. The sales of excavators in January have exceeded 10,000 units for two consecutive years, and the year-on-year growth in January 2019 confirms that the prosperity is continuing. We also believe that the data for January is affected by certain external factors, including the timing of the New Year holiday, weather conditions during the period, and the willingness to purchase new machines before the New Year. We generally believe that the total sales in the first quarter are more meaningful for guiding the annual sales, especially since March sales are usually the peak of the year (accounting for about 20% of annual sales). Compared to the year-on-year growth rate in January, we believe that the growth rate of export sales and domestic brand sales data is more worthy of attention.

The export sales of excavators have seen high growth, and overseas markets are further expanding. According to previous statistics from the association, the total export sales of excavators in 2018 were 19,100 units, a year-on-year increase of 127.4%, significantly exceeding the growth rate of the domestic market. In 2018, the export share of 25 major domestic manufacturers was 9.4%, and the export share is expected to continue to rise, especially as leading companies have largely completed their overseas layouts and are continuously expanding into overseas markets. We believe that expanding into overseas markets is an essential path for leading domestic manufacturers: 1) it can enhance international image and raise market ceilings; 2) it can effectively suppress cyclical fluctuations in demand in a single regional market; 3) in 2018, domestic market demand was strong, and the supply from major manufacturers abroad was suppressed, which is expected to be effectively released in the future.

The trend of increasing market share for domestic brands is ongoing. Domestic brand excavators are performing strongly in efficiency, with leading companies SANY Heavy Industry and XCMG experiencing year-on-year sales growth rates of 49% and 43%, respectively, far exceeding the industry growth rate of 10%. We analyze the reasons as follows: 1) The acceptance of domestic brands continues to improve, with product quality, marketing networks, and after-sales service becoming core advantages in capturing market share. Meanwhile, foreign leading brands Caterpillar and Komatsu have seen their sales growth rates decline by 15% year-on-year, continuing a downward trend. 2) The base effect during the same period: In the first quarter of 2018, domestic manufacturers were affected by supply constraints of hydraulic components, impacting the current shipment volume. The issue of hydraulic component shortages has now been largely resolved, creating conditions for domestic excavators to gain momentum.

Infrastructure support has become a tool for local governments, and the prosperity of the construction machinery industry continues. According to observations from the Bank of China Macro Group, most provinces in the country have infrastructure growth targets that are synchronized with or higher than economic growth rates, indicating that the goal of infrastructure support in 2019 is evident. Moreover, as the growth rate of fiscal revenue slows down, the main source of funding for local government infrastructure comes from local government bonds. Most provinces have clearly outlined key construction projects in their government work reports, including public facilities such as roads, railways, and airports. In addition, most provinces will focus on the "three major battles" as key work in 2019, particularly rural infrastructure. Author: Yang Shaohui.