Key Standpoints:
1. Industrial growing trend remains robust. In Q1 2010, Rmb2834.3bn sales income is realized within the whole industry, with year-on-year growth at 43.48%; of which, 1122.1bn is achieved in March 2010, with month-on-month growth at 41.33% and year-on-year growth at 38.13% respectively.
2. Construction machinery faces pressure of high position, growth in equipments like machine tools will be relatively stable. We hold that partial products in construction machinery will see unsatisfactory growth in future due to reinforced regulation on real estate industry by central government, thus construction machinery acceleration will slide from former high position in 2010 and annual acceleration is expected to be ~30%. Growth of machine tool and basic parts are quite stable.
3. "Cautious" rating is given to the industry. Of listed companies in machinery industry, 2010 PE ratio of key companies is around 15x and that of industries such as machine tool is 17x-20x; our current estimation is under rational area, thus "Cautious" rating is maintained. Attentions should be given to heavy equipment industry with competitive value and lesser influence by macro regulation, as well as listed companies with fine growth in military industry.