2020 ANNUAL INVESTMENT STRATEGY FOR MECHANICS:FOLLOW EMERGING INDUSTRIES INVEST IN LEADING PLAYERS

类别:行业 机构:兴业证券股份有限公司 研究员:SHI Kang/ZHANG Xinhe/HUANG Yan/LI Boyan 日期:2019-12-03

  China is stepping into post-industrial era, good to leading players and emerging industries. 1) Chinais at the transition stage from the late industrial time to post-industrial era, and the contradictionbetween slowing demand and excess capacity has intensified. The demand-side structuraladjustments brought about by industrial and consumption upgrades have also accelerated thesurvival of the fittest among industries and within industries, and the market and resources havebeen further concentrated in leading enterprises. 2) China’s economy is shifting frominvestment-driven to innovation-driven, with a slower growth in fixed assets investment. Theeconomic restructuring facilitates the development of high-tech and strategic emergingindustries.

      Follow emerging industries, and secure investment opportunities in sub-industries. Consideringthree aspects, we screen the investment opportunities in sub-industries: whether the industry orits downstream belongs to the strategic emerging industries; whether the downstream demandsmaintain high prosperity and sustainability; whether the industry is set to develop products asimport substitutes on a large scale.

      1)Semiconductor devices: with intensive fab construction in Chinese mainland and the approvalof “Big Fund” (Phase Two), China’s semiconductor device manufacturers have the opportunitiesto share the investment dividends. We recommend SEVENSTAR(002371.SZ),JINGSHENG(300316.SZ) and PNC(603690.SH)

      2)Photovoltaic devices: the overseas demand beat expectations, and the outlook of domesticdemand is promising. As the whole industry chain is in demand, shoring up high-efficiencycapacity in downstream sectors can provide short-term demand for PV equipment. The mid-longterm demand relies on the industry expansion after the subsidy removal. We recommendJINGSHENG(300316.SZ), S.C(300724.SZ), MAXWELL(300751.SZ) and JINCHEN(603396.SH)3)Lithium devices: China’s total demand for lithium devices in 2019 and 2020 may exceed CNY53bn. The industry landscape becomes brighter. We strongly recommend LEADINTELLIGENT(300450.SZ) and YINGHE TECHNOLOGY (300457.SZ) who have the capability to earna place in the global mainstream supply chain.

      4)Laser devices: the domestic manufacturers who are accelerating to develop import substitutesfrom mid-small power devices to high power ones, have the potential to grow bigger in thecompetition. Recommend RAYCUS(300747.SZ).

      5)Industrial robot and automation: with the increasing labor cost and decreasing robot’s price,China’s demand for robots is expected to keep fast growth. Keep eyes on KELAI MECHATRONICS(603960.SH), ESTUN AUTOMATION (002747.SZ) and TOPSTAR (300607.SZ)Demand improvement created by improving infrastructure weaknesses, from which engineeringmachinery and railway devices may benefit.

      1) Engineering machinery steps into a new era of stable profitability, with cyclical fluctuationsnarrowing. In 2020, the industry is expected to maintain stable growth, and leading players’

      revenue and profit are expected to grow faster than the industry. Major engine manufacturersand enterprises along the industry chain become more rational and prudent after experiencingdecade of large growth fluctuations. Along with the increase in inventory and the risingproportion of update demand, the fluctuation of engineering machinery industry will be reducedsignificantly. The localization rate of core components has been further improved, which isconducive to reducing costs of main engine manufacturers and enhancing the safety of the supplychain. Keep a close eye on SANY (600031.SH), JSHL (601100.SH),and XCMG (000425.SZ).

      2)Railway devices: benefiting from the national-level investment in infrastructure construction, the sector may present some investment opportunities. In 2019, China’s fixed asset investment inrailway maintains on a large scale; as a result, there are huge space for substitutes for traditionalpassenger train. The fast development of “highway to railway” will facilitate freight’sdevelopment. Pay special attention to CRRC (601766.SH), the leading company in global railwaydevices, CRHIC (600528.SH), the leading player in shield tunneling machine and large bridge steelstructure, and CRSC (3969. HK), the leading firm in railway signaling system.

      3)Oil and gas equipment: energy safety and requirement for improvement in weak links makeshale gas mining devices enjoy a higher prosperity. Due to domestic energy safety and demand toshore up shortcomings in the development, the capital expenditures in exploration anddevelopment led by PetroChina have exceeded expectations, and shale gas mining devices willmaintain an uptrend. After the adjustment and shuffle in low-oil price period, oil and gasequipment enterprises have gained stronger capabilities in operation and expense control. Thedownstream demand rebound will also pushes volume and price up, and the enterprises’ cashflow will be enhanced as well. Strongly recommend JEREH GROUP (002353.SZ), COSL (601808.SH)and SOFE (000852.SZ).

      Potential risks

      Macro-economy fluctuations, policies changes, less-than-expected procurement from thedownstream, huge fluctuations in oil prices, intensifying market competition,slower-than-expected progress of localization